Facts of the Case

A search under Section 132 of the Income-tax Act, 1961 was conducted on 05.12.2013 in the case of a third-party group. During the search at the residence of another person, a document described as a ledger account relating to land purchase was seized.

The document allegedly indicated payments made to the assessees — Smt. Neeta Nath (legal heir of Late Dr. Jitendra Nath) and Mr. Madhurendra Nath — in connection with vacating tenancy rights in property No. 17, Stanley Road, Allahabad.

Proceedings under Section 153C were initiated against the assessees. They stated that they had received ₹60 lakh each through cheques from M/s H.K. Infraventures Pvt. Ltd. pursuant to a Memorandum of Understanding dated 30.05.2012 for vacating the premises.

Issues Involved

  1. Whether addition can be made on the basis of a document seized from a third party.
  2. Whether entries in such a document constitute conclusive evidence of undisclosed income.
  3. Applicability of presumption under Sections 132(4A) and 292C.
  4. Whether denial of examination and cross-examination of relevant persons violates natural justice.
  5. Validity of addition under Section 69 in assessment under Section 153C.

Petitioner’s Arguments (Assessee)

  • Only ₹60 lakh each was received through banking channels under a valid written MOU.
  • No amount beyond the agreed compensation was received.
  • The seized document was not recovered from their possession.
  • They had no dealings with the person from whose premises the document was seized.
  • The entries allegedly recorded by third parties could not bind them.
  • The concerned persons were not produced for examination despite request.

Respondent’s Arguments (Revenue)

  • The seized ledger clearly recorded payments exceeding the amount declared by the assessees.
  • The document formed part of the books of accounts relating to land purchase.
  • Certain transactions recorded 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 represented undisclosed income taxable under Section 69.

Court Order / Findings (ITAT)

  • The document was seized from the premises of a third party, not from the assessees.
  • It allegedly formed part of another entity’s books of accounts.
  • The assessees admitted only cheque payments as per the MOU.
  • The Revenue relied heavily on the ledger entries to infer additional payment.
  • Crucially, the persons connected with the document were not examined in the presence of the assessees.
  • Despite request, cross-examination was not allowed.

Important Clarification

  • Presumption regarding seized documents is rebuttable.
  • Documents recovered from third parties require careful scrutiny before being used against another person.
  • Additions based on alleged “on-money” must be supported by comprehensive evidence.
  • Denial of cross-examination undermines fairness of assessment proceedings.
  • Fresh examination of relevant persons may be necessary before final determination.

 

Link to download the order -https://itat.gov.in/public/files/upload/1676546775-NEW%20ITA%20No.%2015%20and%2016%20Smt%20Neeta%20Nath%20and%20Madhurendra%20Nath.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.