The High Court · 2025

Heard Mr. Duvva Pavan Kuma6 learned cour: el representing Mr. Y.Ratnakar, lea rned counsel for the appellant / assessee; and Mr. Srinarayan Toshnival, learned counsel repr(l enting Mr. N. Praveen Reddy, learned Standing Counsel for tl- 3 Income Tax Department / Revenue.

2. The instant appeal under Section 2604 of . Act, 1961 (for short 'the Act') has been filed by e Income Tax the appella nt challenging the order passed by the Income Tax App slla te Tribu na l, Page 2 of 2l Hyderabad Bench 'A', Hyderabad (for short the 'ITAT') in ITA No.t377 /HVd/2010, decided on 04.05.2012.

3. Vide the impugned order; the ITAT affirmed the order passed by the Commissioner of Income Tax (Appeals), dated 28.01.2010. who in turn held the disallowance of Rs.20 lakhs and deleted the balance addition of Rs. 48,85,000/-.

4. The facts of the case in brief are that the inception of the case is from a search and seizure conducted under Section 132 of the Act at the residential premises of the appellant on 19.02.2008. Following this, a notice under Section 153A of the Act, dated

19.02.2008, was issued for assessment year 2OO2-2OO3 lo 2OOl -

2008. The appellant filed her return of income for the assessment year 2005-2006 on 29.10.2008 declaring a total income of Rs.7,88,796/-. The assessment proceedings, which were completed on 31.12.2009, the Assessing Officer made several additions to the declared income, viz., a) Rs.9,42,050/- as unexplained cash credits under Section 68 of the Act consisting of cash loans of Rs.4,07,050/- and cheque loans of Rs.5,35,000/- from Lahiri Green Park, for which the appellant failed to esta blish the identity. capacity, tra nsaction; p ro vt! l confirmations or and tenuineness of the b) Rs.1,12,500/- as disallowance under St ction aOA(3) of the Act representing 2Oo/o oF land cost of Rs.5,62,500/_ debited to p&L accou nt for cash payn), nts made for land pu rcha ses; c) Rs.68,85,000/- as unexplained investrr ent under Section 69 for purchase of agricultural land in Il lanur measuring 4 acres 2 guntas (with Rs.20 lakhs p;r I in cash as per seized material); and d) Rs.6,49,024/- as unexplained investmt: rt for purchase of gold and diamonds. 5 resulting in a The total assessed income was computed ; t Rs.g5,75,170l_, tax liability of Rs. 28,51 ,620/ _ with interest of leading to a final tax demand r f Rs.43,24,90O/_ Rs.17,OO,28O/-, after adjusting prepaid taxes of Rs.2,27,OOO/_.

6. Aggrieved by the said assessment orde[ :l e appellant filed an appeal before the Commissioner of Income T: < (Appeals), who passed an order on 28.10.2010. During the appelate proceedings, the appellant did not press the ground relating to disallowance under Section 40A(3) of the Act which was consequently dismissed. The Commissioner of Income Tax (Appeals) directed deletion of the entire addition of Rs.9,42,050/- relating to loans from Lahiri Green Park, following the identical issue decided in favor of the appellant in assessment year 2003-04. Regarding the agricultural land addition of Rs.68,85,000/-, the Commissioner of Income Tax (Appeals) examined the seized material which was an agreement for sale dated 01.01.2005. The Commissioner held that while the vendors had acknowledged receipt of Rs.20 lakhs in cash, the balance amount of Rs.48,85,000/- could not be added as there was no evidence that the sale was actually completed or that the balance payment was made after registration. Therefore, only Rs.20,00,000/- addition was confirmed and Rs.48,85,000/- was deleted. For the gold jewelry addition, the Commissioner found that Rs.4,73,890/- was properly accounted for through a bill from Keerthilal Kalidas & Co. with payment by cheque No.935330, reflected in the capital account of Shri G. Hari Babu, and the buyer was identified as Smt. G.V. Lakshmi (the appellant's mother)' This portion was deleted, while the balance of Rs.1,75,134l- remained Paqe 5 oF 21 unexplained and was confirmed. The appeal r ras thus pa rtly allowed with substantial relief granted to the app 3lla nt. However, both the appellant and the Revenue filed cross a: rea ls before the ITAT against the order dated 06.08.2010 ,assed by the Commissioner of Income Tax (Appeals).

7. The appellant challenged the confirm€ C addition of Rs.20,00,000/- for the agricultural land purchase, rrguing that the agreement was not signed by the appellant and .l e purchase was not completed. The Revenue challenged tt e deletion of Rs.48,85,000/-. The ITAI, after considering rir, rl submissions, upheld the Commissioner of Income Tax (Appealsl iecision on both counts. The ITAT confirmed the addition of R; observing that although the appellant had I 2O,00,000/- by ot signed the agreement, the vendors had acknowledged receilr in the presence of witnesses and had madt: of this amount a handwritten statement about forfeiture if registration was not c l month from 01.01.2006, thereby establishing tt rm pleted within at the payment was made and remained unexplained. Regarding the Revenue's appeal for Rs.48,85,000/-, the ITAT agreed with t- : Commissioner of Income Tax (Appeals) that since the agreemer c stipu lated th e balance amount would be paid only after registration of the sale deed, and there was no concrete evidence that the actual sale was completed or that the balance amount was paid, therefore, this portion of the addition could not be sustained. Consequently, both appeals were dismissed, with the ITAT confirming that only Rs.20,00,000/- out of the original Rs.68,85,000/- addition was justified as unexplained investment under Section 69 of the Act' B. The present appeal challenges the legal sustainability of the ITAT's finding which upheld the addition solely on the basis of an unsigned photocopy of an agreement for sale that was admittedly never acted upon, without any independent corroborative evidence establishing actual payment of the alleged advance amount of Rs.20 lakhs, and without examination of the vendors who purported ly received such payment

9. The learned counsel for the appellant contended that the entire addition of Rs.20 lakhs sustained by the ITAT is based on a photocopied, unsigned agreement which has no evidentlary value in law. The agreement was never executed by the appellant, nor acted upon and was rejected at the initial stage itself. Moreover, the appellant never signed the agreement as she decided not to I proceed with the purchase of the agricultural land t Bhanur after learning about disputes concerning the propert/ The vendors themselves took back the original unsigned agr lement as no payment was made and no transaction materializel Therefore, an unsigned photocopy of an agreement without ; ny supporting evidence of actual payment or transfer of funds r; nnot form the basis for making an addition under Section 69 of th: Act,

10. Furthermore, the learned counsel for the et that there is a complete absence of any I pella nt argued dependent or corroborating evidence to establish that Rs.20 lal..l s was actua lly paid by the appellant to the vendors. Neither the lt sessing Officer nor the appellate authority conducted any indeper lent inquiry or verification with the vendors to ascertain whethe t they received any such payment. Moreover, he submitted that tlr, a ppellant had specifically requested the Assessing Officer during he assessment proceedings to summon the vendors and examine hem rega rd ing the alleged payment, but this request was ignor: I and no such inquiry was conducted. No bank statements, cash I :w analysis, or any other documentary evidence has been brougl - on record by the revenue authorities to prove that the appel rnt made any payment of Rs.20 lakhs, Therefore, he contended that mere existence of an unsigned agreement mentioning an advance amount cannot, by itself, lead to a presumption that such payment was actually made especially when the appellant has consistently denied making any payment and the property was admittedly never pu rchased .

11. The learned counsel for the appellant contended that the Commissioner of Income Tax (Appeals) while accepting that the property was never purchased and the agreement was not acted upon, still proceeded to uphold the addition of Rs.20 lakhs on the presumption that the advance must have been paid as per the agreement. This conclusion is contradictory and illogical if the property was never purchased and the agreement was never executed and on what basis can it be presumed that an advance payment was made. Thus, the learned counsel for the appellant submitted that the ITAT compounded this error by mechanically confirming the order without appreciating the factual matrix and the absence of evidence. Therefore, according to the learned counsel, both the authorities i.e. the Commissioner of Income Tax (Appeals) and the ITAT failed to apply the wellsettled principle of ') law that additions under Section 69 of the A.ct vr rich can only be made when there is positive evidence oF unexplair) ld investment or expenditure, and mere suspicion or assumption c rnnot su bstitute concrete evidence. 1,2. The learned counsel for the Department cc r tended that the addition of Rs.20 lakhs sustained by the ITAT is r rlly justif ied and based on cogent material found during the set 'ch and seizu re operation conducted under Section 132 of the Act on 19.02.2008. The seized document is an agreement of sale (, ted 01.01.2005 concerning purchase of agricultural land admea; ring 4 acres 2 guants at Bhanur for total consideration of f Rs. j 1,85,000/-which clearly stipulates that Rs.20,00,000/- was paid in ash as advance and the agreement has been duly signed by all tlr I vendors in the presence of witnesses acknowledging receipt of R:. Z0 la khs in cash from the appellant. However, the fact that the apl llla nt chose not to sign the agreement does not vitiate the eviden, rry value of the document, particularly when the vendors her e categorica lly acknowledged receipt of the advance amoun.. Moreover, he submitted that the appellant failed to provide an.z expla nation for the source of this cash payment during assessn] rnt proceed ings x and did not dispute that the document was found from her premises during the search operation. 13: Further. the learned counsel for the Department contended that the acknowledgment by the vendors is corroborated by the handwritten statement appearing on the last page of the agreement wherein the vendors have categorica lly stated that "if the registration is not made within one month from this date i.e.

01.01.2006, the total amount will be forfeited". Therefore, this handwritten clause is of crucial evidentiary slgnificance as it unequivocally demonstrates that the vendors had in fact received the advance payment mentioned in the agreement. The forfeiture clause would be meaningless and unnecessary if no money had actually changed hands and the vendors would not have agreed to forfelt an amount that was never received by them. Therefore, the very existence of this stipulation written in the vendors' own hand conclusively establishes that Rs.20 lakhs was paid to them by the appellant. Thus, he submitted that the appellant's contention that no payment was made and that the vendors took back the unsigned agreement is a self-serving afterthought unsupported by any evidence and contradicted the seized document itself' 1 1,4. Furthermore, the learned counsel for $r, Department contended that the appellant's request for examinzt on of vendors is misconceived and is an attempt to shift the burrl :n of proof, as once the seized document establishing payment of I{ ;.20 la khs was found from the appellant's possession and the apgr rllant failed to explain the source of this investment, the onus vas upon the appellant to prove that no such payment was made. MoreoveI the appellant could have easily produced the vendo authorities or obtained affidavits from them sl; s before the ting that no payment was received, but chose not to do so. herefore, the appellant cannot now take the advantage of her ( wn failure to discharge the burden of proof by alleging that the Ar; essing Officer shouid have examined the vendors. Moreover, the ap 1 ella nt has not been able to explain why such an agreement with J ltailed terms, signed by all vendors and witnesses, would be creater and fou nd in her possession if no transaction was ever contemplalr d or initiated. He further submitted that the document found durin: the search is not a mere draft or proposal, but a detailed agreem(l rt reflecting a completed transaction of advance payment, and th€ sppella nt has Page 12 of 2l not provided any credible explanation to rebut the presumption arising from such document found in her exclusive possession'

15. Lastly, the learned counsel for the Department contended that the appellant's contentions regarding absence of independent evidence, non-examination of vendors, and unsigned nature of the agreement have been duly considered and rightly rejected by the ITAT. The substantial questions of laur proposed by the appellant in the instant case therefore do not arise from the order of the ITAT as the findings are purely factual, based on adequate material on record, and do not give rise to any question of law' Accordingly' the appeal may be dismissed and the order of the ITAT confirming the addition of Rs.20,00,000/- may be upheld'

16. Having, heard the contentions put forth on either side and on perusal of re.cords, the substantial question that arise for consideration in this appeal is "whether the findings of the ITAT in upholding the addition based on an unsigned' unacted upon agreement, that too, of which photocopies alone were available and without any proof of having received the payment is justified or not or whether it is a perverse finding contrary to the established principles of evidence in a tax related proceedings?" * - -7 1 1,7. It would be relevant at this juncture to refer o a few judicial precedents on the subject matter. Firstly, in the c lse of CIT vs, P.K. Noorjahan', the Hon,ble Supreme Court hr: C at paragraph Nos.3 and 4, as under: "3. Shri Ranbir Chandra, the tearned counsel aS.y the Revenue, has urged that the Tribunal as well . Court were in error in their interpretation of Sec the Act. The submission is that once the explana:l by the assessee for the sources of the investments to be unacceptable the onty course open to the tr Officer was to treat the value of the investment.; income of the assessee. The submission is tha "may" in Section 69 should be read as ,,shal , unable to agree. As pointed out by the Tributt corresponding clause in the Bilt which was int\ Parliament, the word ',shall,, had been used but r course of consideration of the Bitt and recommendation of the Select Committee, the said substituted by the word "may,,. This'ctearty ind,( the intention of parliament in enacting Section C. confer a discretion on the Income Tax Officer in 1 of treating the source of investment which has satisfactorily explained by the assessee as the inco assessee and the Income Tax Officer is not obtigo such source of investment as income in every c) the explanation offered by the assessee is found earing for ; the High 'ion 69 of >n offered are found aome Tax to be the the word We are rl, in the duced in uring the on the .ttord was ites that ) was to e matter 'tot been qe of the tto treat ;e where c be not ' 1t9st1 tt scc 198 Page 14 of 2l satisfactory. The question whether the source of the should be treated as income or not under investment Section 69 has to be considered in the light of the facts of each case. In other words, a discretion has been conferred on the Income Tax Officer under Section 69 of the Act to treat the source of investment as the income of the assessee if the explanation offered by the assessee is not found satisfactory and the said discretion has to be exercised keeping in view the facts and circumstances of the particular case. 4. In the instant case, the Tribunal has held that the discretion had not been property exercised by the Income Tax officer and the Appeltate Assistant Commissioner in taking into account the circumstances in which the assessee was placed and the Tribunat has found that the sources of investments could not be treated as income of the assessee' The High Court has agreed with the said view of the Tribunal. We also do not find any error in the said finding recorded by the Tribunal' There is thus no merit in these appeals and the same are accordingly dismissed No order as to costs.

18. Secondly, in the case of The Commissioner of Income Tax - IV vs. Smt. R. Nalini Devi2, the unified High Court of Andhra Pradesh at Hyderabad, held as under: 2 lncome Tax Tribunal Appeal No 232 of 2013 decided on 10.07.2013. 1 ' Page 15 oF 21 It appears, the Assessing Officer had relied on a photocopy of an unsigned sale agreement in order t find that consideration amount has been paid at Rs., ,,g,00,000/_. Therefore, this amount was not disctosed. rhe barned Tribunal has correctly concluded that unsigned ,,hotocopy of the agreement for purchase of the property .annot be a material to rely on, when the registered sale ae =d has been produced and the same shows that the p operty was purchased at a price of Rs.23,50,000/_. This re,,istered sale deed was disclosed at the time of original ,ssessment, According to us, the agreement of sale loses i s force, the moment registered sale deed is executed. If the , troperty has been purchased at a higher price than that of r tentioned in the purchase deed, then the onus is on the Ass::sing Officer to establish that, as has been rightly conct t ted by the Tribunal on this issue. Moreover, photocopy of t rc unsigned agreement has got no evidentiary value. Tlt, Assessing Officer has done a guess work while coming to tt1 | conclusion that the price of the property is more than ment cned in the sale deed. There must be some material ar 7 basis to conclude that the purchase has been made a. an under valuation.

19. Lastly, the Chandigarh Bench of the Incont ) Tax Appellate Tribunal in the case oF The Income Tax Officer, ,y',ard_6 (4) and Ors. vs. Bimal Suri and Ors.3, in paragraph Nos.2 I it was held as under: t ITA Nos. 664 and 6BO/Chd/2011 I "2g. We have considered the rival submissions' It is not in dispute that surveY was conducted at the premises of Chandigarh Overseas Private Limited and its sister concerns andduringthecourseofsurvey,certainloosepapers including copies of agreement to sell in question were impounded. Thus, no agreement to sell or any incriminating documents were found from the possession of the assessee' Thereisnorecoveryofanyincriminatingdocumentfromthe power and possession of the assessee' The Assessing Officer has not brought any material on record to prove anY connection of the assessee with these documents/ agreement to selt' The Assessing Officer wanted to rety upon the photocopies of the agreement to sell in question' Therefore' theonuswouldbeupontheAssessingofficertoprovethat the documents found during the course of survey from third party, betonged to the assessee' Thi original of the photocopies were never recovered in survey proceedings or in post surveY proceedings' The documents found are onlY photocopies and no original documents were found' Therefore, photocopies of the documents would have little evidentiary value' It is also admitted fact that the surveY partY as well as Assessing Officer has not made any enquiry from any seller or buyer' M/s' Parsav Colonisers and Consultants Private Limited and M/s' Gee City Builders Private Limited with respect to sale/purchase of any land from the assessee or from any original sellers directly or indirectly. No material have been brought on record if the assessee was connected with any deal as alleged in the decided on 20.09'2016 -.. Page 17 of 2l photocopies of the agreement to sell. No detait consideration or actual amount received or assessee have been brought on record. No Lt been brought on record if agreements to sel were acted upon by the parties. The agreemer,t 29.1.2005 is not on any stamp paper. The Hon I Court in the case of CIT Vs. Murti Devi ( dismissing departmental appeal referred to t1 the Tribunal in which it was held that the photc documents have very little evidentiary valu= absence of original documents, photocoa documents are not admissible and cannot be making addition. It is, therefore, a fact tha agreements to sell were found from any persar documents were never confronted to t1 Therefore, there is no question of preparing col original agreement to sell. Therefore, photoa agreement to sell cannot be compared I documents. Reliance of the learned D.R. thus ar 64 and 65 of the Evidence Act is clearly misf was thus no basis to make any addition agains' on account of investment or earning any prolit sale transaction alleged to have been recc agreement to sell. Since the documents we;t from third party and no enquiry have been mac or from any party related to the agreement to :;t there was no justification to make any additic r assessee on the basis of such agreement to setl case of M/s. Gee City Builders Private Limited, t ; of any sale laid by the 'idence have in question to sell dated te Delhi High ;upra) while : findings of :opies of the and in the es of the he basis for no original and original r assessee. ies from the )pies of the ,ith original sections 63, taced. There :he assessee ; out of any 'ded in the impounded ? from them ll, therefore, against the Even in the te Assessing Officer passed regular assessment order under section 153A r.w.s. 143(3) of the Act but no addition have been made in this case. The learned CIT (Appeats) on proper appreciation of facts and material on record correctly deleted the additions. "

20. We are of the considered opinion that the addition of Rs.20,00,000/- as unexplained investment under Section 69 of the Act cannot be sustained on the facts and circumstance oF the case' The foundational flaw in the Revenue's case lies in treating a photocopy of an unsigned, unexecuted agreement as conclusive proof of an actual cash payment' While it is true that the vendors have signed the document and acknowledge receipts of Rs 20 lakhs. The appellant herself has not signed this agreement' which basically undermines any inference that she entered into a binding commitment or made any payment pursuant to it' An Aqreement that lacks the signature of the alleged purc.haser cannot ordinarily be treated as a completed transaction, particularly when the transaction itself was admittedly never carried through to fruition' The entire edifice of the Revenue's case rests upon vendor signaturesonadocumentthatwasfoundintheappellant,s possession but never acted upon by either party and no registration d: ,.r' --- was completed, no balance payment was made a I i the land was never transferred. To add such a large amount basC, on such weak evidence would mean treating suspicion as if it werc actual proof.

27. Further, there is no independent proof that actually happened. The vendors who are supposed lr this payment have received Rs.20 lakhs in cash were never called in or questio officer. No one checked whether they truly receive,j tried to find out from where such a large cash ai.r went. The handwritten note about forfeiting the am I tax authorities relied on heavily does not actually pr I changed hands and it seems more like a condition that might happen in the future, which ultimately r red by the tax the money or ount came or rnt, which the /e that money =or something ever did. The produced the reflects a Revenue's argument that the appellant should havt: vendors or obtained affidavits from therr misunderstanding of how the burden of proof olr proceedings. However, when suspicious documer 1 during a search, the taxpayer has to explain thern. not mean the taxpayer must disprove every guess c r assumption made from incomplete, unsigned documents. U,ten the key document is unsigned and the deal clearly never wer t through, the ; are found )rates in tax )ut that does I Page 20 oF 21 \ tax authorities cannot avoid their responsibility to prove the investment actually occurred using solid and verified evidence. The failure to question the vendors leaves a critical missing piece in the evidence. Therefore, we are satisfied that the Commissioner of Income Tax (Appeals) and the ITAT evaluated the evidence and applied the burden of proof which raises serious concerns.

22. Now what needs to be appreciated is how can an agreement that was never signed by the buyer and relates to a deal that never actually happened be used as the sole basis to tax someone for Rs.20 lakhs as unexplained money. Without getting independent confirmation, without even speaking to the people who supposedly received this money, one cannot simply assume that such a large cash payment was made. That would be building a tax demand on assumptions rather than facts. Therefore, we are inclined to set aside the ITAT's order dated 04.05.2012 and hold that the addition of Rs.20 lakhs made by the Assessing Officer which has been affirmed by the Commissioner of Income Tax (Appeals) as also by the ITAT itself is bad in law and is accordingly ordered to be decided in favour of the assessee. The question of law framed :::. i Page 2l of 27 stands decided in favour of the assessee and agains. the Revenue. Accordingly, the instant appeal stands allowed.

23. As a sequel, miscellaneous petitions pendir r if any, shall stand closed. Howevel there shall be no order as to ( osts.. / Sd,- I. NAGA LAKSHMI , OINT REGISTRA "/ //TRUE COPY// iECTION OFFICER To, 1 . The lncome Tax Appellate Tribunal' Hyderabad 'A' Benc r Hyderabad 2. The Commissioner of lncome Tax (Appeals)-1, Hyderabac 5- fhe Oeputy Commissioner of lncome Tax, Central Circle 6' Hyderabad 4. One CC to Mr. Y. Ratnakar, Advocate [OPUC] 5. One CC to Mr. N. Praveen Reddy Standing coun; rl for lncome Tax \ DepartmenURevenue [oPUC]

6. Two CD CoPies DL Ny HIGH COURT PSK, J & SCR, J DATED:0511212025 JUDGMENT lTTA.No.397 of 2012 : I )i J) - \!.\: a i./: t ! '5utcffi \ .- ., - -:a- ALLOWING THE APPEAL WITHOUT COSTS 4 \v L(