ITAT Chennai on Section 69C and Section 69A: Loose Sheet Found With Third Party Not Enough to Tax Assessee

1. Background of the Dispute

The Chennai Bench of the Income Tax Appellate Tribunal, in DCIT Vs Appaswamy Real Estates Limited (ITAT Chennai), considered whether a single loose sheet and the statement of a third party, found during search in someone else’s premises, can by themselves justify an addition of Rs. 1,00,00,000 as unexplained expenditure under Section 69C or as unexplained money under Section 69A in the hands of a different assessee.

The Tribunal ultimately affirmed the order of the Ld.CIT(A) deleting the addition of Rs. 1,00,00,000 and dismissed the Revenue’s appeal.

The proceedings trace back to a search under Section 132 in the case of Jeeva Educational Trust and connected entities. During that operation, a further search was carried out at the residence of Shri M. Gopal, who was engaged in transport business and also operated as a real-estate broker.

At Shri Gopal’s premises, the search team seized a loose sheet on which there was a narration referencing receipt of cash of Rs. 1,00,00,000, allegedly connected with the Appaswamy Group.

A sworn statement of Shri Gopal under Section 132(4) recorded that this sum of Rs. 1,00,00,000 had been given to him by a person at the Appaswamy Group office at T. Nagar, Chennai.

During parallel search proceedings in the Appaswamy Group, this assertion was put to Shri Ravi Appasamy, Managing Director of the group. In his statement under Section 132(4), in response to Question No. 32, he flatly denied any knowledge of such a transaction.

No unaccounted cash, no parallel books, no unexplained withdrawals and no supporting documents indicating a Rs. 1,00,00,000 payment were unearthed from the assessee’s business or residential premises. Despite this, the Assessing Officer (AO) proceeded to make an addition in the hands of Appaswamy Real Estates Limited.

2. Assessment and Addition by the AO

2.1 Return and Scrutiny

The assessee, part of the Appaswamy Group and engaged in real estate development (construction and sale of residential units), filed its return of income under Section 139(1) on 31.10.2023 declaring total income of Rs. 35,37,00,980.

The case was selected for compulsory scrutiny. Notice under Section 143(2) was issued on 21.06.2025, followed by a detailed notice under Section 142(1) dated 29.07.2025. The assessee responded on 01.08.2025.

During assessment, the AO issued a show cause notice dated 30.09.2025 proposing to treat the Rs. 1,00,00,000 as unexplained money under Section 69A, alleging that the amount had been paid in cash to Shri M. Gopal.

The assessee replied that:

  • It had no connection with the alleged cash transaction.
  • The statement of Shri M. Gopal was vague and did not clearly fix the assessee as the payer.
  • No corroborative evidence (cash trail, books, acknowledgements, or any document) supported the alleged payment.
  • During the search itself, when confronted with the allegation, Shri Ravi Appasamy had already denied any such payment.

2.3 Final Addition in Assessment Order

Despite the denial and absence of corroborative material from the assessee’s side, the AO:

  • Treated the amount of Rs. 1,00,00,000 as unexplained expenditure under Section 69C.
  • Additionally, referred to it in the alternative as unexplained money under Section 69A.

The AO viewed the statement of Shri M. Gopal recorded under Section 132(4) and the loose sheet as sufficient evidence of an unaccounted cash movement from the assessee’s office.

The assessment was completed under Section 143(3) via order dated 03.11.2025, assessing total income at Rs. 36,37,00,980 (returned income Rs. 35,37,00,980 plus addition of Rs. 1,00,00,000).

3. Appeal Before Ld.CIT(A) and Findings

The assessee challenged the addition before the Ld.CIT(A).

3.1 Key Contentions of the Assessee

Among several arguments, the assessee highlighted:

  • The loose sheet was seized from a third party (Shri M. Gopal), not from the assessee or any Appaswamy Group entity.
  • A full-scale search at various premises of the group on 03.11.2023 resulted in no incriminating material suggesting payment or receipt of Rs. 1,00,00,000.
  • No unaccounted cash, no parallel accounts, no unrecorded expenditure or investment traceable to Rs. 1,00,00,000 was found.
  • The investigation team did not, at the time of search or during post-search enquiries, undertake any detailed verification of this alleged Rs. 1,00,00,000 transaction with the assessee.
  • A vague narrative on a loose sheet and a third-party statement, without independent corroboration, could not form the sole basis for an addition.
  • The statement of Shri M. Gopal stood squarely contradicted by the contemporaneous denial by Shri Ravi Appasamy under Section 132(4).
  • No opportunity to cross-examine Shri M. Gopal was granted, despite his statement being the main evidence used against the assessee.

The assessee relied upon decisions including: