ITAT Overturns 'On-Money' Additions, Rules Third-Party Documents Inadmissible Without Verification [Read Order]

The Income Tax Appellate Tribunal (ITAT), Nagpur bench, has quashed tax additions totaling Rs. 2.66 crore made against three assessees Taradevi Babulal Patni, Patni Housing Private Limited, and Babulal Roshanlal Patni—under Section 69A of the Income Tax Act, 1961 for alleged "on-money" receipts. The tribunal ruled that the additions, based solely on unverified third-party documents seized during a search operation, were unsustainable without corroborative evidence or cross-examination.

The case stemmed from a search conducted on Soni Maloo, Talda, and Panapliya groups, during which loose papers were recovered suggesting cash payments of Rs. 1.58 crore against a property transaction. The Assessing Officer (AO) alleged that the appellants—sellers of the property—received "on-money" (unaccounted cash) and added Rs. 39.62 lakh each to the incomes of Taradevi and Babulal Patni, and Rs. 1.87 crore to Patni Housing Pvt. Ltd. under Section 69A for unexplained money. The CIT(A) upheld the additions, prompting the appeals before ITAT.

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During hearings, the appellants' counsel argued that the reassessment proceedings were invalid as the AO failed to provide copies of approval under Section 151 or dispose of objections filed against the reopening. More critically, he contended that the additions relied entirely on "dumb documents"—loose sheets seized from a third party (Praveen Maloo's premises)—which bore no names, dates, or corroborative evidence linking them to the appellants. Citing Supreme Court precedents like Andaman Timber Industries V. CIT and CIT V. PV Kalyanasundaram (2007), he emphasized that such documents lacked evidentiary value unless tested through cross-examination, which was denied to the appellants.

The Departmental Representative defended the additions, asserting that the appellants failed to explain the source of the alleged on-money. However, V. Durga Rao (Judicial Member) noted glaring procedural lapses: the AO had neither independently verified the loose papers nor allowed cross-examination.

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Relying on SC rulings (CIT vs. Smt. P.K.Noorjahan and DN Singh vs. CIT) the tribunal held that unsubstantiated third-party documents could not justify additions without proof of ownership or corroboration.

The Revenue failed to discharge its onus to prove the appellants received on-money, the order stated, adding that reassessment based solely on such "dumb documents" violated principles of natural justice.

Consequently, ITAT deleted all additions and set aside the CIT(A)'s orders. The ruling reinforces that tax authorities cannot rely on unverified third-party materials to allege undisclosed income without due verification or allowing assessees to contest the evidence.

To Read the full text of the Order CLICK HERE

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