ITAT Deletes On-Money Addition Due to Lack of Corroborative Evidence

Estates Vs DCIT (ITAT Hyderabad)

Summary: The Hyderabad Bench of the Income Tax Appellate Tribunal (ITAT) deleted additions made under Sections 69 and 69B towards alleged on-money payments for purchase of commercial property, holding that additions based solely on third-party seized documents without corroborative evidence are unsustainable. The Assessing Officer relied on diaries, pen drives, and loose sheets seized from the premises of a third party, namely the Vamsiram Group, along with statements of employees claiming that entries were recorded after truncating two zeros. The Tribunal observed that no incriminating material was found from the assessee’s premises and the seized documents neither bore the assessee’s signature nor handwriting. It further held that presumptions under Sections 132(4A) and 292C cannot be applied against a person from whose premises documents were not seized. Since the Revenue failed to produce independent corroborative evidence such as receipts, cash trail, or direct proof of payment, and the statements relied upon were later retracted, the Tribunal deleted the additions and allowed the assessee’s appeals.

Core Issue: Whether addition for alleged “on-money payment” can be sustained solely on the basis of third-party seized material without corroborative evidence.

Facts: The assessee, a partnership firm engaged in real estate, purchased commercial space in Jyothi Tech Park through recorded and registered transactions. During a search in the case of M/s Vamsiram Group (third party), certain loose sheets, diary and digital data (pen drive) were found indicating alleged cash transactions, including entries in the name of the assessee. The Assessing Officer inferred suppression of two digits and, based on statements of third-party employees, computed alleged cash payments of ₹3 crore. The assessee categorically denied any on-money payment, contending that the documents were neither found from its premises nor bore its signature/handwriting, and that all payments were duly recorded in books of account.

AO Finding: The Assessing Officer relied on seized diary/pen drive and statements of employees of Vamsiram Group to conclude that the assessee made unaccounted cash payments (on-money). By adding two zeros to figures, the AO treated ₹3 crore as unexplained money u/s 69, holding that the seized material + statements clearly established transactions outside books.

CIT(A) Finding: The CIT(A) confirmed the addition, observing that the seized material contained specific details (date, amount, transaction) and that employees admitted truncation of digits. It was held that third-party origin of documents does not dilute evidentiary value, especially when entries refer to the assessee, and since the assessee failed to rebut, the addition was justified.

ITAT Finding: The ITAT deleted the addition, holding that documents found from third-party premises do not attract presumption u/s 132(4A) / 292C against the assessee and therefore require strong independent corroboration. It emphasized that the documents were not in assessee’s handwriting nor signed, and no corroborative evidence (cash receipts, confirmations, trail of cash flow) was brought on record. The Tribunal further noted that statements relied upon were general and later retracted, and no direct inquiry or confrontation with the assessee was conducted. In absence of proof of actual cash movement, the addition was held to be based on “mere suspicion, surmise and conjecture” and hence unsustainable, leading to deletion of additions u/s 69 and 69B.

Cases Relied Upon:

The Tribunal relied on key precedents including PCIT vs Gaurangbhai Pramodchandra Upadhyay (Guj HC) (no presumption on third-party documents), CIT vs Sant Lal (Del HC) (no addition without linkage to assessee), PCIT vs Umesh Ishrani (Bom HC) and CIT vs Lavanya Land Pvt. Ltd. (Bom HC) (loose sheets without corroboration have no evidentiary value), and PCIT vs Krutika Land Pvt. Ltd. (SC), reiterating that addition based solely on third-party material without corroborative evidence is invalid in law.

FULL TEXT OF THE ORDER OF ITAT HYDERABAD

The appeals filed by the assessee are directed against separate, but identical orders of the learned Commissioner of Income Tax (Appeals) – 11, Hyderabad, dated 08.12.2025, pertaining to the assessment years 2021-22 and 2022–23, respectively. Since the facts are identical and common issues are involved in both the appeals, the same were heard together and are being disposed of by this single consolidated order for the sake of convenience and brevity.

2. The assessee has more or less raised common grounds of appeal in both the appeals. Therefore, for the sake of brevity, the grounds of appeal filed by the assessee in ITA No.283/Hyd/2025 for the assessment year 2021-22 and the grounds of appeal are reproduced as under:

“1. The order of the Ld. CIT(Appeals) is erroneous on the facts of the case and contrary to the provisions of law.

2. On the facts and circumstances of the case and in law, the assessment order u/s 143(3) r.w.s 147 of the Income Tax Act (“Act”) is void ab initio, as the re-assessment proceedings initiated by the issue of notice u/s 148 without due compliance with the requirements of sections 148 and 148A is without jurisdiction and unsustainable in law.

3. On the facts and circumstances of the case and in law, the assessment order u/s 143(3) r.w.s 147 of the Act is void ab initio, as the prior approval for the issue of notice u/s 148 was accorded by the specified authority u/s 151 in a mechanical manner without proper application of mind.

4. On the facts and circumstances of the case and in law, the assessment order u/s 143(3) r.w.s 147 is unsustainable in law, since the approval u/s has been accorded by the Range Head in a mechanical manner without proper application of mind.

5. On the facts and circumstances of the case and in law, the Ld. CIT(A) is not justified in sustaining the substantive addition of unexplained investment of Rs.3 crores u/s 69 of the Act towards on-money payment Page 2 of 3 for purchase of commercial space in Jyothi Tech Park from M/s Vamsiram Builders.

6. The Ld. CIT(A) ought to have held that the addition made by relying solely on the notings in the material found during the search carried out in the case of a third party (Vamsiram Group) which are neither in the handwriting nor bear the signature of any partner/employee of the appellant firm and which is not corroborated by any independent evidence is not sustainable in law.

7. The Ld. CIT(A) ought to have appreciated thatno evidence to corroborate the notings in the material found during the search carried out in the case of a third party was found during the simultaneous survey carried out at the office premises of the appellant firm or the simultaneous search carried out at the residential premises of Shri. Bharat Kumar Kondreddy, spouse of one of the partners, whose name appears as the payer in the seized material.

8. The Ld. CIT(A) erred in failing to appreciate that there is no material or evidence on record to show that the notings in the seized material have materialised into transactions giving rise to income of the appellant which is remains undisclosed.

9. The Ld. CIT(A) erred in failing to appreciate that the Assessing Officer did not advert to any statement u/s 132(4) recorded during the search in the case of the third party regarding the nature and authenticity of the relevant notings in the seized material which are purportedly in the name of Shri. Bharat Kumar Kondreddy, spouse of one of the partners of the appellant firm.

10. The Ld. CIT(A) ought to have seen that the addition made by the Assessing Officer is based on presumption, surmise and conjecture as he did not conduct any enquiries to substantiate his findings that the relevant notings in the seized material pertain to Shri. Bharat Kumar Kondreddy, Page 3 of 3 spouse of one of the partners of the appellant firm, and they represent on-money payments made for purchase of property by the appellant firm.

11. The Ld. CIT(A) erred in sustaining the addition made u/s 69 despite the absence of reliable and incontrovertible evidence to conclusively establish that Shri. Bharat Kumar Kondreddy, spouse of one of the partners of the appellant firm, had made on-money payments in cash for acquisition of immovable property by the appellant firm.

12). Any other legal or factual grounds that may be urged at the time of hearing of the appeal.”

3. The brief facts of the case are that, the assessee is a partnership firm engaged in the business of real estate and filed its return of income for the assessment year 2020–21 declaring total income of Rs.6,91,660/-. Subsequently, a search and seizure operation under section 132 of the Income Tax Act, 1961 (for short “the Act”) was conducted in the case of M/s. Vamsiram Group and other related parties on 06.12.2022 and as a part of the said search proceedings, survey action under section 133A of the Act was also carried out in the case of the assessee. During the course of search and post-search investigation in the case of M/s. Vamsiram Group, incriminating material in the form of loose sheets, diary and digital data in pen drives was found and seized, which contained details of various cash transactions relating to different persons, including certain entries in the name of the assessee firm.

4. Based on the information contained in the seized material, the A.O. observed that the entries recorded therein pertain to purchase of commercial space admeasuring 76,032 sq. ft. in a project known as Jyothi Tech Park developed by M/s. Vamsiram Builders. It was further noticed by the A.O. that the entries in the seized material were recorded by suppressing the last two digits and therefore, the actual amounts of transactions were required to be arrived at by adding two zeros to the figures mentioned in the seized documents. The A.O. further noted that, during the course of search proceedings, key employees of M/s. Vamsiram Group had stated in their sworn statements that the group was indulged in unaccounted cash transactions and that the entries in the seized material were recorded by truncating the last two digits. On the basis of such incriminating material and statements, the A.O. worked out the total cash payments alleged to have been made towards purchase of the said commercial property. From the entries recorded in the seized material, the A.O. observed that cash payments aggregating to Rs.26,98,00,000/- were made towards purchase of commercial space in Jyothi Tech Park. However, for the year under consideration, the A.O. considered the transactions relatable to financial year 2019–20 and concluded that the assessee had made cash payments of Rs.3,00,00,000/-during the relevant previous year. The A.O. further issued notices under section 142(1) of the Act, from time to time calling upon the assessee to explain the source for such cash payments.

5. In response to the notices issued by the A.O., the assessee  submitted that it has not made any cash payments to M/s. Vamsiram Builders and denied having any transactions outside the books of account. The assessee further submitted that it had purchased commercial space in Jyothi Tech Park through a registered sale deed and all payments towards such purchase were duly recorded in the books of account. The assessee also contended that the documents relied upon by the A.O. were found from the premises of a third party and the same do not belong to the assessee, nor do they bear the signature or handwriting of the partners of the assessee firm. It was further submitted that the entries in the loose sheets are dumb documents and in the absence of any corroborative evidence, no adverse inference can be drawn. The A.O., however, was not convinced with the explanation furnished by the assessee and according to the A.O., the incriminating material found during the course of search clearly established that the assessee had made cash payments towards purchase of commercial property, which were not recorded in the regular books of account. The A.O. further observed that the entries found in the seized material, coupled with the statements recorded from the employees of M/s. Vamsiram Group, clearly indicate that the transactions were recorded by suppressing the last two digits and therefore, the actual amount of cash payments has to be computed by adding two zeros to the figures recorded in the seized documents. Accordingly, the A.O. treated the amount of Rs.3,00,00,000/- as unexplained money under section 69 of the Act, and added the same to the total income of the assessee.

6. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee filed detailed written submissions and challenged both the validity of reassessment proceedings as well as the addition made towards unexplained money. The assessee submitted that the reassessment proceedings initiated under section 147 of the Act are bad in law, since the notice issued under section 148 was without proper compliance of the provisions of sections 148 and 148A of the Act, and further contended that the approval granted by the specified authority under section 151 of the Act was mechanical in nature without proper application of mind. The assessee further submitted that even on merits, the addition made by the A.O. is not sustainable, since the same is solely based on entries found in the loose sheets and other documents seized from the premises of a third party, namely, M/s. Vamsiram Group, which neither belong to the assessee nor bear the signature or handwriting of the assessee. The assessee further submitted that there is no corroborative evidence brought on record by the A.O. to establish that the entries in the seized material represent actual cash payments made by the assessee towards purchase of property. It was contended that during the course of survey conducted in the case of the assessee, no incriminating material was found to support the allegation of cash payments and therefore, the addition made purely on the basis of third-party documents is not sustainable in law. The assessee also relied upon various judicial precedents to contend that loose sheets and dumb documents without any corroborative evidence cannot be the basis for making addition.

7. The Ld. CIT(A), after considering the submissions of the assessee and also taking note of the findings recorded by the A.O. in the assessment order, observed that during the course of search in the case of M/s. Vamsiram Group, incriminating material in the form of loose sheets, diary and digital evidence was found, which contains details of cash transactions relating to various persons, including the assessee firm. The Ld. CIT(A) further observed that the entries recorded in the seized material clearly indicate cash payments made towards purchase of commercial space in Jyothi Tech Park and the same were recorded by suppressing the last two digits. The Ld. CIT(A) also took note of the fact that the key employees of M/s. Vamsiram Group, in their statements recorded during the course of search, have admitted that the group was indulged in unaccounted cash transactions and the entries were recorded by truncating the last two digits. The Ld. CIT(A) further observed that the entries found in the seized material contain specific details such as date, particulars and amounts of transactions and therefore, the same cannot be considered as dumb documents without evidentiary value. The Ld. CIT(A) was of the view that the seized material clearly establishes that the assessee had made cash payments towards purchase of commercial property and merely because the documents were found from the premises of a third party, the evidentiary value of such documents cannot be ignored, especially when the entries contained therein specifically refer to the assessee. The Ld. CIT(A) further observed that the assessee has failed to satisfactorily explain the entries recorded in the seized material and also failed to discharge the onus cast upon it to rebut the findings of the A.O. The Ld. CIT(A), after considering the facts and circumstances of the case, upheld the action of the A.O. in treating the amount of Rs.3,00,00,000/- as unexplained money under section 69 of the Act and sustained the addition made in the assessment order. Thus, the Ld. CIT(A) rejected the contentions of the assessee both on the issue of validity of reassessment proceedings as well as on merits of the addition.

8. Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before us.

9. Ground No. 1 of the assessee’s appeal is general in nature and hence, does not require any specific adjudication and accordingly, Ground No. 1 of the assessee’s appeal is dismissed.

10. Ground Nos. 2 to 4 of the assessee’s appeal relate to the validity of the assessment order passed by the A.O. under section 143(3) r.w.s. 147 of the Act, in light of the approval for issuance of notice under section 148 of the Act by the specified authority under section 151 of the Act.

11. The learned counsel for the assessee submitted that the assessee does not wish to press Grounds Nos. 2 to 4 and thus, Grounds Nos. 2 to 4 of the assessee’s appeal are dismissed as not pressed.

12. The next argument of the learned counsel for the assessee, in light of ground Nos. 5 to 11 of assessee’s appeal is additions made by the A.O. towards alleged on-money payment made for purchase of commercial space by M/s. M.R. Estates.

13. The learned counsel for the assessee firm, Shri M.V. Prasad, C.A. and Mr. K.S. Rajendra Kumar (I.R.S. Retd.), submitted that, the Ld. CIT(A) erred in rejecting the explanation of the assessee firm with regard to evidentiary value of the documents found in the premises of M/s. Vamsiram Group, even though it is a settled principle of law as held by various Courts that the provisions of section 132(4A) and section 292C of the Act, is not applicable in respect of documents found from the premises of a third party. In the present case, the A.O. made addition on the basis of diary and pen drive found from the premises of M/s. Vamsiram Group and alleged that there are certain cash payments made by the assessee firm for purchase of commercial space and the same has been recorded after truncating last two zeros, but fact remains that the above documents are not in the handwriting of the assessee firm and were not found from the premises of the assessee firm. Therefore, once a document is not found in the premises of the assessee firm, the contents recorded therein are not required to be explained by the assessee firm and the rebuttable presumption contained under section 132(4A) r.w.s. section 292C of the Act, is not applicable. In this regard, they relied on the decision of the Hon’ble Gujarat High Court in the case of PCIT Vs. Gaurang Bhai Pramod Chandra Upadhyay (R/Tax Appeal No.98 of 2020 and others dated 25.02.2020). The Ld. counsel for the assessee also relied on the following decisions :

1. SMC Share Brokers Ltd. Vs. DCIT reported in (2008) 22 SOT 7 (ITAT Delhi)

2. Prarthana Constructions (P) Ltd. Vs. DCIT reported in (2001) 118 Taxman 112 (ITAT Ahmedabad).

3. Straptex (India) (P) Ltd. Vs. DCIT reported in [2003] 84 ITD 320 (ITAT Mumbai)

4. Vinit Ranawat Vs. ACIT reported in [2017] 88 com 428 (ITAT Pune)

5. Harmohinder Kaur Vs. DCIT reported in [2021] 124 com 68 (ITAT Amritsar)

6. ACIT Vs. Kishore Lal Balwani Rai reported in [2007] 17 SOT 380 (ITAT Chandigarh)

7. Rama Traders Vs. First ITO reported in [1998] 25 ITO 599 (ITAT Patna) (TM)

8. Sheth Akshay Pushpavadan Vs. Dy. CIT reported in [2010] 130 TTJ 42 (ITAT Ahmedabad UO)

9. Jai Kumar Jain Vs. ACIT reported in (2007) 11 SOT 61 (ITAT Jaipur) (URO)

14. The Ld. counsel for the assessee firm further submitted that, the A.O. has relied upon the pen drive and the diary found from the premises of M/s. Vamsiram Group. The assessee firm denied the transactions recorded by the third party in the statement recorded during the course of search. Therefore, unless there is corroborative evidence to support the transactions recorded by the third party, there is no evidentiary value for a document seized from the third party which is neither in the handwriting of the assessee firm nor bears signature. The Ld. counsel for the assessee firm further submitted that the A.O. has not brought on record any corroborative documentary evidence, such as signed receipts to strengthen the finding that there are cash transactions between the assessee firm and M/s. Vamsiram Group Builders. Though the A.O. sought to employ the statements of the employees of M/s. Vamsiram Group as corroborative oral evidence, the said statements lack evidentiary value, because these statements were subsequently retracted. Further, there is no specific question asked about the payments made by the assessee firm to the Managing Director of M/s. Vamsiram Group or to the employees, and the statements recorded were general in nature and therefore, cannot be considered as conclusive evidence for payment of cash. In this regard, they relied upon the decision of the Hon’ble Delhi High Court in the case of CIT Vs. Sant Lal reported in (2020) 118 taxmann.com 432 (Delhi) and also the decision of the Hon’ble Bombay High Court in the case of PCIT Vs. Umesh Ishrani (2019) 108 taxmann.com 437 (Bom). He also relied on the following case laws :

• Gavireddygari Aparna Kalyani and Others Vs. ACIT reported in ITA Nos. 3-26/Hyd/2023 and others dated 28.02.2023.
• ACIT Vs. Katrina Rosemary Turcotte reported in (2017) 190 TTJ 681 (ITAT Mumbai Bench).
• ACIT Vs. Anand Jaikumar Jain reported in (2023) 147 com 125 (ITAT Mumbai)
• Naren Premchand Nagda Vs. ITO reported in IT Appeal No. 3265 (Mum.) of 2015, dated 8-7-2016 (ITAT Mumbai)
• MM Financiers (P) Ltd. Vs. DCIT reported in (2007) 107 TTJ 200 (ITAT Chennai)
• Pradeep Amrutlal Runwal Vs. TRO reported in [2014] 47 com 293 (ITAT Pune)
• Prarthana Construction (P) Ltd. Vs. DCIT reported in (2001) 118 Taxman 112 (ITAT Ahmedabad) (Mag).
• ACIT Vs. Prabhat Oil Mills reported in [1995] 52 TTJ 533 (ITAT Ahmedabad).
• Koteshwara Rao Vs. DCIT in ITA Nos.251 and 252/Viz/2012 dated 12.08.2016.

14. The Ld. counsel for the assessee firm further submitted that, the additions made by the A.O. towards unexplained cash payments are purely on the basis of documents found in the premises of M/s. Vamsiram Group. The assessee firm has already disowned the documents found in the premises of M/s. Vamsiram Group, because the above documents are not in the handwriting of the assessee firm. Further, there is no corroborative evidence available with the A.O. for actual cash payments between the assessee firm and M/s. Vamsiram Group. In the absence of any corroborative evidence for actual cash transactions between the assessee firm and M/s. Vamsiram Group, the allegation of the A.O. on the basis of oral statements of two individuals (though subsequently retracted) is merely on the basis of suspicion and surmises without there being any conclusive evidence of payment of cash. Since the additions made by the A.O. are without any corroborative evidence, the same cannot be sustained. The Ld. CIT(A), without appreciating the relevant facts, simply on the basis of evidence found from the premises of third party and statements of accounting personnel of M/s. Vamsiram Group Builders, has concluded that there is clear evidence of cash payments for purchase of commercial space, even though the documents relied upon by the A.O. are dumb documents without any explanation as to the nature of the transactions. In this regard, they relied upon the decision of the Hon’ble Bombay High Court in the case of CIT Vs. Lavanya Land (P.) Ltd., reported in (2017) 83 taxmann.com 161 (Bom) and also the decision of ITAT, Visakhapatnam in the case of P. Koteswara Rao Vs. DCIT, Central Circle (supra). Therefore, they submitted that the addition made by the A.O. should be deleted.

15. The learned CIT-DR for the Revenue, Dr. Narendra Kumar Naik and the learned Sr. A.R. for the Revenue, Dr. Sachin Kumar, on the other hand, supporting the order of the A.O., submitted that during the course of search in the premises of M/s. Vamsiram Group, incriminating evidence in the form of diary and pen drive was found, which contain various transactions between M/s. Vamsiram Group and the assessee firm in cash and the same was not recorded in the regular books of account maintained by the assessee firm. Further, the maker of the document explained that the entries in the diary had been recorded by truncating last two zeros. The A.O., on the basis of evidence found during the course of search coupled with the statements recorded from the employees, has arrived at total cash payments made by the assessee firm to M/s. Vamsiram Group for purchase of commercial space and treated the same as unexplained cash payments. The learned Sr. A.R. submitted that the A.O. has rightly relied upon the documents found during the course of search and statements recorded from the employees to arrive at the conclusion that there are cash payments which are not recorded in the books of account. Therefore, they submitted that the additions made by the A.O. should be upheld.

16. We have heard both parties, perused the material available on record and had gone through the orders passed by the authorities below. We have also carefully considered the relevant evidences considered by the A.O. for making additions towards unexplained cash payments. Admittedly, during the course of search proceedings under section 132 of the Act, in the case of M/s. Vamsiram Group, incriminating evidence in the form of diary and pen drive was found and seized which contains various cash transactions. It is also an admitted fact that during the course of survey under section 133A of the Act, nothing was found or impounded from the premises of the assessee firm, which relates to the additions made by the A.O. towards unexplained cash payments. The A.O. made additions towards cash payments by adding two zeros to the amounts recorded in the diary on the basis of statements recorded from Shri A. Chandrasekhar and Shri Regu Venkata Vara Prasad, wherein they have deposed that the entries in the diary were recorded by truncating last two zeros. According to the A.O., M/s. Vamsiram Group indulged in cash transactions and the same has been recorded by truncating last two zeros and therefore, the amounts recorded in the incriminating evidence have been arrived at by adding two zeros. The A.O. inferred that the assessee firm has paid on-money for purchase of commercial space from M/s. Vamsiram Group. Therefore, the entire amount of cash payments culled out from the seized diary has been treated as unexplained cash payments of the assessee firm and added back to the total income. On appeal, the Ld. CIT(A) accepted the reasons given by the A.O. to treat the unexplained cash payments.

17. We have gone through the relevant arguments of the learned counsel for the assessee firm and we found that, the additions made by the A.O. are on the basis of documents found from the premises of a third party. It is a well-established principle of law by the decisions of various Courts that the documents found from the premises of a third party, the rebuttable presumption as per section 132(4A) and section 292C of the Act, is not applicable. Therefore, it is necessary for the A.O. to support the addition with further corroborative evidence in cases, where any addition is made on the basis of third party information. In case there is no corroborative evidence, then there is no scope for making addition on the basis of third party evidence, because the presumption under section 132(4A) is not applicable and the assessee firm is not required to explain the said documents. This principle is supported by the decision of the Hon’ble Gujarat High Court in the case of PCIT Vs. Gaurang Bhai Pramod Chandra Upadhyay (supra), wherein the Hon’ble High Court clearly held that since the documents were not found or recovered from the premises of the assessee firm, no presumption under section 132(4A) r.w.s. section 292C of the Act, could be drawn against the assessee firm in such circumstances. A similar view has been taken by the Hon’ble High Court of Patna in the case of Dharmaraj Prasad Bibhuti Vs. ITAT, Patna reported in (2019) 109 taxmann.com 388 (Patna), wherein it was held that the presumption under section 292C of the Act, can only be drawn against such person from whose possession or control any books of accounts or other documents, money, etc. are found during the course of search. The sum and substance of the ratio laid down by various Courts is that the rebuttable presumption under section 132(4A) r.w.s. section 292C of the Act, cannot be pressed into service against the assessee firm with regard to material seized during the course of search from the premises of a third party, unless there is corroborative evidence. Therefore, in our considered view, the addition made by the A.O. on the basis of third party evidence without any corroborative evidence cannot be sustained.

18. Further, the documents found during the course of search are claimed to have been recorded by M/s. Vamsiram Group by truncating last two zeros. The A.O. has arrived at the above conclusion from the statements recorded from Shri Chandrasekhar Atla and Shri Regu Venkata Vara Prasad, who during the course of search recorded statements under section 132(4) of the Act, wherein they deposed that the entries contained in the diary have been recorded by truncating last two zeros. The A.O., on the basis of statements recorded from two individuals, has reached a conclusion that the entries in the diary have been recorded by truncating last two zeros and accordingly added two zeros to the amounts recorded therein and arrived at total cash payments alleged to have been made by the assessee firm to M/s. Vamsiram Group Builders. Once again, we do not subscribe to the reasons given by the A.O. for the simple reason that, the loose sheets found during the course of search from third party premises were neither in the handwriting of the assessee firm nor containing any signature of the assessee firm. Once the documents are neither in the handwriting of the assessee firm nor bearing any signature of the assessee firm, then on the basis of third party statements without any confrontation to the assessee firm for its rebuttal, the additions cannot be made. In the present case, no such corroborative documentary evidence by way of signed receipts or otherwise was unearthed during the course of search and there is no reference to any corroborative evidence in the assessment order. Although, the A.O. tried to establish that the entries contained in the Excel sheet found in the pen drive are recorded by truncating two zeros by conducting enquiries in the case of certain payments made by the assessee group for rendering certain services and claimed that in many cases, the bills submitted by the service providers and payments made by the assessee firm for rendering such services are in lakhs, whereas the payments recorded in the seized Excel sheets are in thousands, and from the above, it is very clear that the assessee firm has recorded all entries in the Excel sheets by truncating two zeros. We, once again, do not agree with the reasons given by the A.O. for the simple reason that the A.O. has examined various third parties with reference to payments made to them and linked the said payments to the entries recorded in the Excel sheets found from the pen drive and claimed that these entries are recorded after truncating two zeros. However, the A.O. has not made any attempt to examine the assessee firm with reference to the entries recorded in its name so as to ascertain whether the payments made by the assessee firm are exactly what is recorded in the Excel sheet after truncating two zeros. Since the A.O. has not examined the assessee firm with reference to the said entries and solely relied upon the enquiry conducted in the case of the third party, in our considered view, the conclusion drawn by the A.O. on the basis of third party enquiries that the assessee firm has made the payments to M/s. Vamsiram Group and the same has been recorded after truncating two zeros is only a suspicion and is not backed by any evidence and cannot be accepted. Further, the A.O. sought to rely upon the statements of the employees of M/s. Vamsiram Group as corroborative oral evidence, but said statements lack any evidentiary value, because these statements were retracted subsequently. Further, there is no specific question about the payment made by the assessee firm was put to the Managing Director of M/s. Vamsiram Group or to the employees of M/s. Vamsiram Group Builders, therefore, the generalized statements recorded from the employees cannot be considered as conclusive evidence to allege cash payments made by the assessee firm. Therefore, in our considered view, in the absence of any corroborative evidence and merely on the basis of statements of two individuals, additions cannot be made.

19. We further note that, the maker of the statement is answerable to the contents, however, unless the said documents are found in the premises of the assessee firm, the assessee firm need not to explain the said documents and is also not answerable to the statements of third parties. In the present case, neither the A.O. has brought on record any corroborative evidence to support the statements of the third parties nor confronted the said statements of the third party to the assessee firm for its rebuttal. Since the assessee firm denied any cash payments to M/s. Vamsiram Group and further, the A.O. does not have any evidence to support the finding that the entries contained in the diary represent unaccounted cash payments of the assessee firm, in our considered view, merely on the basis of statements of third parties, no addition can be made. This legal position has been laid down by the Hon’ble Delhi High Court in the case of CIT Vs. Sant Lal (supra) wherein it has been held that where the diary was found from the premises of a third party allegedly containing entries including the assessee, no addition can be made based on the said entries, since the diary was neither found from the premises of the assessee nor was in the handwriting of the assessee and the Revenue failed to produce cogent evidence to link the assessee to the diary. A similar view has been taken by the Hon’ble Allahabad High Court in the case of CIT Vs. Shadiram Ganga Prasad Charitable Trust, Smt. Prema Lata Kanodia and Shri S.P. Kanodia reported in (2011) 9 taxmann.com 119, wherein it was clearly held that in the absence of corroborative evidence, no adverse inference can be drawn from the entries against the assessee. Therefore, in our considered view, the additions made by the A.O. and sustained by the Ld. CIT(A) cannot be sustained.

20. Coming back to another argument of the Ld. counsel for the assessee firm. The Ld. counsel for the assessee firm submitted that, the evidence relied upon by the A.O. for making addition does not have any evidentiary value unless it is supported by corroborative evidence. It is an admitted fact that the sole basis for the A.O. to make addition is the documents found from the premises of M/s. Vamsiram Group. The A.O. has not referred to any independent corroborative documentary evidence in support of his conclusions in the assessment order. The Hon’ble Bombay High Court in the case of PCIT Vs. Umesh Ishrani (supra) considered an identical issue and held that the additions made by the A.O. on the basis of entries found in loose sheets without any corroborative evidence are not sustainable. In the present case, it is an admitted fact that the A.O. during the course of assessment proceedings neither carried out any further enquiries to ascertain the nature of entries contained in the diary nor brought on record any independent corroborative evidence like cash receipts or bills submitted by the assessee firm so as to conclude that M/s. Vamsiram Builders has made cash payments for purchase of commercial space. The A.O. has not brought on record any evidence to prove that there is exchange of cash between the parties. It is very important for the A.O. to bring further evidence, including cash receipts, to support the entries contained in the seized documents, as held by the Hon’ble Bombay High Court in the case of CIT Vs. Lavanya Land Pvt. Ltd. (supra), wherein it was held that the addition made under section 69C of the Act, towards cash payments based on the contents of seized documents is not sustainable where there is no material to conclusively show that huge amounts revealed from seized documents were actually transferred from one side to another. This decision was further fortified by the decision of the Hon’ble Supreme Court in the case of Pr. Commissioner of Income-tax Vs. Krutika Land (P.) Ltd. reported in [2019] 103 taxmann.com 9 (SC). The ITAT, Visakhapatnam in the case of P. Koteswara Rao Vs. DCIT (supra) has also considered an identical issue and held that the maker of a statement can bind himself with the said statement, but it cannot bind others without there being any further evidence on record. The Tribunal further noted that, the A.O. failed to note that admission of other parties cannot be considered as conclusive evidence against the assessee unless there is corroborative evidence on record. In the present case, the addition made by the A.O. is only on the basis of loose sheets found during the course of search from the premises of a third party without any corroborative evidence. The assessee firm denied the documents found during the course of search and also denied having made any cash payments to M/s. Vamsiram Group Builders. Since the assessee firm has denied such payments and there is no conclusive proof brought on record by the A.O. to establish that there were cash transactions between the assessee firm and M/s. Vamsiram Group Builders, in our considered view, the additions made by the A.O. on the basis of evidence found from the third party cannot be sustained.

21. Coming back to the findings of the Ld. CIT(A). The Ld. CIT(A) approved the findings recorded by the A.O. to treat the cash payments as unexplained money of the assessee firm under section 69 of the Act on the basis of evidence found during the course of search and statements recorded from the employees of M/s. Vamsiram Group and observed that the evidence clearly shows the date of transactions, particulars of payments and the same has been admitted by the employees. We once again do not agree with the findings recorded by the Ld. CIT(A) for the simple reason that, the Ld. CIT(A) has not brought on record any supporting evidence to reach to the above conclusion that the documents found during the course of search show clear transactions between the assessee firm and M/s. Vamsiram Group. Further, the Ld. CIT(A) has relied upon the statements of Shri Chandrasekhar Atla and Shri Regu Venkata Vara Prasad, but fact remains that the above two persons have retracted their statements and filed retraction statements before the Investigating Officer. Once the initial statements recorded have been subsequently retracted by filing affidavits, then there is no evidentiary value for the initial statements unless the statements recorded at the time of search are further corroborated by any independent evidence. Since there is no corroborative evidence before the A.O. and the Ld. CIT(A) to support the finding of cash payments made by the assessee firm, in our considered view, the conclusion drawn by the Ld. CIT(A) that there is clear evidence of cash payments is contrary to the material available on record and cannot be accepted. Therefore, for the above reasons, the addition made by the A.O. towards alleged on-money payments for purchase of property under section 69 of the Act, is deleted.

22. In the result, the appeal of assessee for A.Y. 2020-21 is allowed.

23. The facts and issues involved in the present appeal are identical to the facts and issues which we had considered in ITA No. 283/Hyd/2026 for A.Y. 2021-22. The only difference in the present appeal is that the addition has been made under section 69B of the Act, towards alleged on-money payment for purchase of property. Except for the above, there is no change in facts. The grounds raised by the assessee are also similar to the grounds raised for A.Y. 2021-22. Therefore, the reasons given by us, in the preceding paragraph nos.16 to 22 in ITA No. 283/Hyd/2026 for A.Y. 2021-22 shall mutatis mutandis apply to the present appeal as well. Accordingly, for similar reasons, we delete the addition made by the A.O. under section 69B of the Act.

24. In the result, the appeal of assessee in ITA 284/Hyd/2026 is allowed.

25. To sum up, both the appeals of the assessee are allowed.

Order pronounced in the Open Court on 30th April, 2026.