ITAT Deletes ₹52.91 Lakh Unexplained Investment Addition on Land Purchase Due to Unreliable Draft MOU Evidence [Read Order]

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) deleted an addition of Rs. 52,91,053 made by the Assessing Officer ( AO ) as unexplained investment under Section 69 and ruled that the evidence based on a draft Memorandum of Understanding ( MOU ) found during survey was unreliable and could not form the basis for such addition.

Kanubhai Dhulabhai Patel (assessee) was alleged to have made unexplained investments in the purchase of land at Hathijan village, sharing 50% ownership with co-purchaser Shri Rameshbhai N. Savaliya.

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The AO made the addition based on loose papers seized during a survey at the office of Advocate Shri Paresh Hiralal Modi, which purportedly indicated cash payments over and above the registered sale consideration of Rs. 1,01,48,900. The documents were described as rough drafts with corrections and lacking signatures of the parties.

Aggrieved by the AO’s order, the assessee appealed to the Commissioner of Income Tax (Appeals) [ CIT(A) ], who upheld the addition. Aggrieved by the CIT(A)’s order, the assessee filed an appeal before the ITAT.

The counsel for the assessee argued that the assessee had no connection with the advocate from whose office the papers were seized. The counsel relied on a coordinate bench decision in the co-purchaser’s case where a similar addition was deleted, noting that the MOU was in a drafting stage, incomplete, and not acted upon by the parties.

The two-member bench comprising Dr. B.R.R. Kumar (Vice-President) and Siddhartha Nautiyal (Judicial Member) observed that the documents were not finalized, contained blanks in clauses, and lacked evidence of actual payments from the buyer’s or seller’s accounts.

The Tribunal held that such unreliable evidence could not justify the addition, following the precedent in the co-purchaser’s case. It also addressed a second ground related to Rs. 5,52,428/- invested in land at Ropda.

The Tribunal partly allowed it by treating Rs. 2,46,730/- as past savings. It deleted the addition of Rs. 52,91,053/-. The appeal filed by the assessee was partly allowed.

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