ITAT Hyderabad on Section 69: No Addition Possible Solely on Unverified Loose Sheets Found with Third Party

1. Background and Case Snapshot

In Venkata Satyanarayana Vs ACIT (ITAT Hyderabad), the assessee challenged an addition of ₹1,20,06,000 made as unexplained investment under Section 69 of the Income Tax Act 1961.

The assessment was framed under Section 153C for AY 2019-20, based entirely on a single loose sheet seized during a Section 132 search on a third party, M/s MSR India Limited.

Key factual matrix:

  • The assessee had purchased plots bearing Nos. 6, 7, 40 and 41, admeasuring 1074 square yards.
  • The purchase was through a registered sale deed No. 7932/2018 dated 22.06.2018.
  • Consideration disclosed: ₹1,00,11,000 (inclusive of:
    • ₹25,00,000 paid to M/s Mirchi Developers Private Limited as development charges through banking channels, and
    • ₹74,35,890 paid to land owner Mr. Anil Kumar Verma after TDS deduction of ₹75,110).
  • All payments were routed through bank, supported by sale deed and TDS records.

During the search on M/s MSR India Limited and Shri M. Srinivasa Reddy (Director of M/s Mirchi Developers Private Limited), the Revenue seized a loose sheet (Annexure A/MSR/OFF/1, page 125). This sheet allegedly contained notings relating to the same plots and showed a total figure of ₹2,20,17,000.

How the Addition Arose

  1. The Assessing Officer (AO) treated the figure of ₹2,20,17,000 on the loose sheet as actual purchase consideration.
  2. He accepted that ₹1,00,11,000 was already disclosed and traceable through bank records and sale deed.
  3. The difference of ₹1,20,06,000 (₹2,20,17,000 – ₹1,00,11,000) was treated as unexplained investment under Section 69.
  4. The CIT(A) affirmed the addition, primarily on the ground that the seized document carried the assessee’s name and plot details.

The assessee carried the matter to the ITAT Hyderabad, contesting both the jurisdictional aspect under Section 153C and, more importantly, the merits of the addition based solely on an unsigned loose sheet found with a third party.

2. Assessee’s Core Contentions

The assessee, through the Learned Authorised Representative, raised the following substantive arguments on merits:

2.1 Nature of the Seized Loose Sheet

  • The impugned page (Annexure A/MSR/OFF/1, page 125) was:
    • Unsigned, undated, and unauthenticated.
    • Did not disclose who prepared it or when.
    • Not part of any regularly maintained books of account.
  • It was a rough noting containing figures and notings without context, effectively a “dumb document”.
  • Such a document, without supporting material, cannot be given evidentiary weight for making additions.

2.2 Third-Party Origin of the Document

  • The loose sheet was not found:
    • With the assessee, or
    • With either of the vendors (Shri Anil Kumar Verma or M/s Mirchi Developers Private Limited).
  • Instead, it was seized from the premises of M/s MSR India Limited, who was neither purchaser nor seller in the impugned transaction.
  • Hence, treating such a third-party document as conclusive against the assessee, without any further verification, was wholly unjustified.

2.3 Mismatch with Actual Transaction Records

The assessee drew attention to multiple discrepancies between the seized sheet and the actual transaction documents:

  • Cheque numbers on the loose sheet did not match those appearing in:
    • The registered sale deed, or
    • The assessee’s bank statement.
  • The registered sale consideration of ₹75,11,000 did not figure anywhere in the seized document.
  • Several figures mentioned on the loose sheet could not be reconciled with the actual flow of funds or the terms of the registered transaction.

2.4 Fully Documented Banking Trail