Loose Papers, Scribbled Notes, and Unregistered Agreements cannot be sole basis for Taxing Income: ITAT [Read Order]

The Nagpur Bench of the Income Tax Appellate Tribunal (ITAT) ruled that additions to income based solely on loose sheets, handwritten notations, or unregistered agreements are not sustainable under the Income Tax Act, 1961. The tribunal reaffirmed that such documents, without independent evidence, hold no legal evidentiary value.

M/s Metrocity Homes (assessee), a real estate firm, was subjected to a search and seizure operation under Section 132 of the Income Tax Act. During the investigation, the Income Tax Department relied on unsigned documents and rough notings to make an addition of ₹2.32 crore to the assessee’s declared income for the assessment year 2017-18.

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The Assessing Officer (AO) treated this income as undisclosed income under Section 69A. The assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] against the order of the AO. The assessee argued that the seized documents were mere informal records and lacked any supporting evidence.

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The CIT(A) deleted the additions on the ground that the unregistered agreements and loose documents had no conclusive proof of real transactions. Aggrieved by the order of the CIT(A), the Revenue filed an appeal before the ITAT.

The Counsel for the Revenue argued that the additions were based on the documentary evidence found during the search. The counsel also submitted that the documents clearly indicated undisclosed income.

The counsel for the assessee relied on several Judgments of High courts which established that loose papers and scribbled notes were deemed "dumb documents" unless backed by corroborative proof.

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The two-member bench comprising Shri V. Durga Rao (Judicial Member) and Shri K.M. Roy (Accountant Member) observed that unregistered agreements do not establish income unless corroborated.

The tribunal observed that loose papers, scribbled notes, and unregistered agreements cannot be considered conclusive evidence for making income tax additions unless supported by corroborative material.

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The tribunal observed that the burden of proof lies with the Revenue to establish that such documents represent actual transactions. The tribunal observed that in the absence of direct evidence, no additions can be made under Section 69A.

Therefore, the tribunal upheld the order of CIT(A). Thereby the appeal of the Revenue was dismissed.

To Read the full text of the Order CLICK HERE

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