Third-Party Ledger Entry Insufficient Basis for Tax Addition: ITAT Deletes ₹5.5 Lakh Addition under section 69A [Read Order]

The New Delhi Bench of Income Tax Appellate Tribunal ( ITAT ) held that third-party seized ledger entries alone cannot justify additions under Section 69A without proof of the assessee’s possession or ownership of cash, wherein no cash was found, and the ₹5.5 lakh addition was based only on CFM Group’s ledgers. Thus, the addition was deleted.

The Assessee, Bipin Agarwal, filed the appeal against the order of Commissioner of Income Tax (Appeals), Noida, dated 08.04.2025 for Assessment Year 2019-20.

The Section 69A of the Income Tax Act, 1961, explained that: Unexplained money, etc.

“Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the ] [ Substituted by Act 18 of 1992, Section 35, for Explanation 3 (w.e.f. 1.4.1993).][Assessing Officer] [ Substituted by Act 4 of 1988, Section 2, for " Income-tax Officer" (w.e.f. 1.4.1988).][, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.] [Inserted by Act 5 of 1964, Section 16 (w.e.f. 1.4.1964).]”

A search and seizure operation was conducted on CFM Group of Companies on 08.12.2021 under section 132, which was found engaged in providing accommodation entries and bogus transactions. Seized ledgers named "BCM" and "Porwal" revealed commission payments of ₹5,50,000/- to the assessee for FY 2018-19. Devdas Prabhakar Nair, in his statement under Section 132(4), confirmed these ledgers contained details of non-genuine transactions.

The Assessing Officer (AO) issued notice under Section 148 on 29.03.2023 after approval and reopened the case. The assessee denied the transaction, stating that the ledger was not prepared by him and he cannot be held responsible for third-party records. The invoices submitted by the assessee for amounts of ₹1,18,00,000/- and ₹59,00,000/- did not corroborate the alleged ₹5,50,000/- entry.

Despite verification from DCIT Mumbai confirming the assessee's name in the seized ledger, no cash was found in the assessee's possession during the search. The AO added ₹5,50,000/- as unexplained money under Section 69A, which was upheld by CIT(A) vide order dated 08.04.2025. The assessee appealed to the Tribunal, not pressing grounds 1 and 2.

The Counsel for the Assessee, Rajiv Khandelwal and Jaind Jaiswal, submitted that CIT(A) erred in upholding the addition of ₹5,50,000/- under Section 69A, as no cash was found with the assessee during the search and seizure operation. The Counsel also leaned on the Delhi Tribunal's decision in DCIT vs. Yograj Arora in ITA No.2440/Del/2022 dated 07.11.2023, where the appellant sought allowance of the appeal.

On the other hand, the Senior Departmental Representative for the Respondent, Rajesh Kumar Dhanesta, relied on the findings of lower authorities and sought dismissal of the appeal.

The Tribunal consisted of Judicial Member, Yogesh Kumar U.S and Accountant Member, Manish Agarwal, heard and reviewed the matter.

The Tribunal, after considering the submissions made, pointed out that no cash was found in the assessee's possession. The addition was made solely based on documents seized from CFM Group showing alleged receipt of ₹5,50,000/-, which the assessee consistently denied. The addition was made without further inquiry.

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The Tribunal, after following the precedent stated in DCIT vs. Yograj Arora, held that Section 69A requires proof of ownership of unexplained money, which cannot be presumed without material evidence. The provision cannot be invoked based on conjecture and surmises from third-party documents without satisfying the conditions precedent.

Accordingly, the Tribunal deleted the addition of ₹5,50,000/- and allowed the appeal filed by the assessee. The Order was pronounced in open Court on 17th December, 2025.

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