Facts of the Case

A search and seizure operation under Section 132 of the Income-tax Act, 1961 was conducted on 05.12.2013 in the case of a group connected with real estate transactions. During the search at the residence of a third party, certain incriminating documents including ledger accounts relating to land purchase transactions were seized.

The property involved was No. 17 (earlier Nos. 11 and 13), Stanley Road, Allahabad, originally owned by Sindhu Sahkari Awas Samiti and subsequently purchased by M/s H.K. Infraventures Pvt. Ltd.

The assessees — Smt. Neeta Nath (legal heir of Late Dr. Jitendra Nath) and Mr. Madhurendra Nath — were tenants of the said property. They entered into a Memorandum of Understanding dated 30.05.2012 with the purchaser company for vacating the premises and admitted receiving ₹60 lakh each through cheques.

However, the seized ledger allegedly forming part of the books of M/s H.K. Infraventures Pvt. Ltd. recorded journal entries crediting ₹1.05 crore each to the assessees, suggesting additional payments beyond the agreed amount. Proceedings under Section 153C were initiated, and the Assessing Officer treated the alleged excess of ₹45 lakh each as unexplained income under Section 69 and taxed it under Section 115BBE.

Issues Involved

  1. Whether addition can be sustained on the basis of documents seized from a third party.
  2. Whether entries in such ledger constitute reliable evidence of undisclosed income.
  3. Applicability of presumption under Sections 132(4A) and 292C.
  4. Whether denial of opportunity to examine and cross-examine relevant persons violates principles of natural justice.
  5. Validity of addition under Section 69 in proceedings under Section 153C.

Petitioner’s Arguments (Assessee)

  • Only ₹60 lakh each was received through banking channels pursuant to the MOU.
  • No additional amount was received beyond the agreed compensation.
  • The seized document was not recovered from their possession.
  • They had no dealings with the person from whose premises the document was seized.
  • Entries recorded by third parties cannot be relied upon without verification.
  • Request to summon and cross-examine the concerned person was not accepted.

 

Respondent’s Arguments (Revenue)

  • The seized ledger formed part of records relating to the land purchase transaction.
  • It showed payments exceeding those declared by the assessees.
  • Certain entries in the document had been admitted by the concerned company.
  • Presumption under Sections 132(4A) and 292C applies to seized documents.
  • Therefore, the unexplained portion constituted undisclosed income taxable under Section 69.

 

Court Order / Findings (ITAT)

The Tribunal made the following significant observations:

  • The impugned document was seized from a third party and not from the assessees.
  • The assessees admitted receipt only of cheque payments supported by the MOU.
  • The seized ledger allegedly belonged to the purchaser company’s books of accounts.
  • The department did not produce the person from whose possession the document was seized for examination.
  • Statements of relevant persons were not supplied to the assessees.
  • Requests for cross-examination were not granted.

The Tribunal held that:

Relevant statements recorded during search or inquiry must be provided to the assessees for rebuttal.
 Opportunity to examine and cross-examine relevant persons must be granted.
 If necessary, fresh examination of such persons should be undertaken.
 Proper adjudication requires consideration of the entire factual matrix in accordance with principles of natural justice.

Accordingly, the Tribunal set aside the orders of the lower authorities and restored the matter to the Assessing Officer for de novo assessment after due verification and opportunity to the assessees.

The Tribunal also directed release of attached bank accounts and properties related to the disputed demand pending fresh adjudication.

 

Important Clarification

The Tribunal emphasized that:

  • Presumption regarding seized documents is rebuttable.
  • Documents seized from third parties require careful scrutiny before use against another person.
  • Additions alleging undisclosed “on-money” must be supported by cogent evidence.
  • Compliance with principles of natural justice, including cross-examination, is mandatory.

Link to download the order

-https://itat.gov.in/public/files/upload/1676546900-NEW%20ITA%20No.%2015%20and%2016%20Smt%20Neeta%20Nath%20and%20Madhurendra%20Nath.pdf

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