Case Law Details
DCIT Vs R L Jalappa (ITAT Bangalore)
Loose Sheets, Scribblings & Excel Jottings Can’t Create Tax Liability- Bangalore ITAT Deletes Protective Additions in Alleged Capitation Fee Case
The Bangalore ITAT dismissed Revenue’s appeals and upheld deletion of massive protective additions made in the hands of trustee Late Shri R.L. Jalappa in relation to alleged unaccounted capitation fees collected by an educational trust. The Tribunal reiterated that mere loose sheets, scribblings, unsigned notebooks and Excel jottings without corroborative evidence have no evidentiary value and cannot form the sole basis for additions.
The case arose from a search conducted in the premises of an educational trust where the department alleged generation of unaccounted cash through capitation fees. The AO relied mainly on statements of an accountant and certain parents of students and made substantive additions in the hands of the trust while simultaneously making protective additions in the hands of trustees. However, in earlier proceedings, the Tribunal had already deleted substantive additions in the trust’s hands after holding that the seized materials were merely loose sheets without signatures, dates or supporting evidence.
The Tribunal reproduced detailed findings from the earlier order and emphasized that the department failed to provide cross-examination of the accountant whose statement was heavily relied upon. It observed that the right to cross-examine does not disappear merely because the witness is an employee of the assessee. The ITAT further noted that the search did not yield any undisclosed cash, jewellery, investments or assets to corroborate allegations of capitation fee collections.
The Bench categorically held that “non-speaking documents”, rough notings and anonymous scribblings cannot automatically be treated as incriminating evidence merely by invoking deeming provisions under sections 132(4A) and 292C. In absence of corroborative evidence, such papers cannot establish undisclosed income.
Since the very basis of substantive additions in the trust’s case had already been demolished by the coordinate bench, the Tribunal held that the corresponding protective additions against the trustee also could not survive. Merely because Revenue had challenged the earlier Tribunal order before the High Court was not enough to ignore binding coordinate bench findings unless those findings were stayed or reversed. Accordingly, all Revenue appeals were dismissed.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
These are the appeals filed by the revenue challenging the combined order of the Ld.CIT(A)-11, Bengaluru dated 11/09/2025 in respect of the A.Ys. 2013-14 to 2016-17.
2. The brief facts of the case are that the assessee is the Chairman of the trust M/s. Devaraj Urs Educational Trust for Backward Classes and the assessment year 2013-14 is taken as the lead year for considering the appeals as the issues are common for all the assessment years. There was a search in the premises of the trust and based on that search, some materials were seized by the revenue and the revenue based on the submissions made by the assessee, had made additions. The additions are about the unaccounted cash generated from capitation fee receipts received in cash and certain cash payments booked in the name of the assessee. The AO based on the statement given by the accountant, made the additions. The AO had also discussed about the statements recorded from certain parents whose children sought for admission in the medical college run by the trust. The assessee sought for the cross examination of the accountant. The revenue had made the substantial addition in the hands of the trust and made similar additions on protective basis in the hands of the trustees. The AO had also made similar protective additions for the rest of the assessment years.
3. The trust had challenged the said substantive additions before the Ld.CIT(A) which were confirmed by the said authority. Thereafter, the trust files second appeals before this Tribunal and the Tribunal vide an order dated 16/08/2021 in ITA Nos. 503, 504, 505/Bang/2020 had held that the materials seized are having no evidentiary value and cannot be taken as a sole basis for determination of the undisclosed income of the trust. The Tribunal also held that there is no corroborative evidence to accept the additions made by the revenue. The Tribunal also held that no circumstantial evidence in the form of any unaccounted cash, jewellery or investments outside the books of account was found in the course of search. On the above said finding, this Tribunal had set aside the additions made by the revenue which is a substantial addition in the hands of the trust.
4. The assessee challenged the protective additions made in his hands by filing appeals before the Ld.CIT(A). When the appellate proceedings are going on, the appeal filed by the trust against the substantial additions were decided by the Tribunal and the said fact was placed before the Ld.CIT(A).
The Ld.CIT(A) after extracting the findings given by this Tribunal, had deleted the protective additions made in the hands of the assessee.
5. As against the said orders, the revenue is in appeals before this Tribunal.
6. At the time of hearing, the Ld.DR submitted that the substantial additions deleted by the Tribunal is under challenge before the Hon’ble Jurisdictional High Court and therefore submitted that the deletion of the additions by relying on the order of the Tribunal is not correct. The Ld.DR also relied on the other grounds raised in form 36.
7. None appeared for the assessee. We have considered the findings given by the Ld.CIT(A) and on that basis, we are deciding these appeals.
8. We have heard the arguments of Ld.DR and perused the materials available on record.
9. We have considered the order of this Tribunal made in ITA Nos. 503 to 505/Bang/2020 dated 16/08/2021 and in the said order, the Tribunal had given a very elaborative findings about the seized materials and why the said materials could not be taken as an evidence for making the additions in the hands of the trust. The Ld.CIT(A) had gone through the said order of the Tribunal and extracted the relevant paragraphs in which the findings are given by this Tribunal. The relevant paragraphs relied on by the Ld.CIT(A) is extracted as below:
“181. With regard to seized material A/DDU/1 to 4 (Page no 508 to 864 of paper book), the details of the content of these seized materials are mentioned in above table. The AO verified these seized documents according to him it shows certain receipts of unaccounted fees and payments to trustees and others mentioned therein. These seized material does not bare any signatures of any person. Our observations are that these seized material consisting of loose sheets and note books and the statement recorded from Mr. Goli Srinivas. The assessee vide letter dated 22.02.2017 and 09.12.2017 asked for cross-examination of Shri Goli Srinivas which was not provided by the authority. The contention of the ld. DR is that Mr. Goli Srinivas being employee of the assessee, it is not necessary to provide such an opportunity to the assessee. The AO has referred to these seized materials in paras 4, 6, 8, 15, 16, 18, 19, 36-40 of his order. According to the AO, A/DUU/01 shows the details of students, amounts collected for admission and duration of payments. However, it does not contain the name of assessee or signature of any person authorised by the assessee. They are mere non-speaking loose sheets containing unsubstantiated jottings having no evidentiary value. First of all to come to the conclusion that these are full proof documents, the department should have given cross-examination of the author of these loose sheets which was not provided. As held by the Hon’ble Delhi High Court in Principal Commissioner of Income-tax v. Best Infrastructure (India) (P.) Ltd., 397 ITR 82 (Del), statement recorded u/s. 132(4) did not by themselves substitute incriminating material and on that basis assumption of jurisdiction u/s. 153A and consequent addition made by AO were not justified. Further it was observed that statement u/s. 132(4) during the course of search action not only has to be offered to the assessee, but an opportunity to cross-examine has to be given. If it was not provided, it is sufficient to discard such statement which is evident from para 37 of that judgment. Similar view was taken by Lucknow Bench of the Tribunal in the case of M/s Fateh Chand Charitable Trust v. CIT (Exemptions) Lucknow 2016 (4) TMI 1119 – ITAT Lucknow / [2016] 49 ITR (Trib) 276 wherein it was held that even when the assessee disputed the correctness of the statement recorded u/s. 132(4) and wanted to cross-examine, the adjudicating authority did not grant this opportunity to the assessee and held that testimony of witnesses has to be discharged as there was no material with the department on the basis of which it could justify its action. Further in the case of M/s Obulapuram Mining Company Pvt. Ltd. v. DCIT 2016 (7) TMI 1435, the ITAT Bangalore held that in the absence of third party being made available for cross-examination despite repeated requests by the assessee, his statement could not be relied upon detriment to the assessee. This decision was based on the judgment of the Hon’ble Delhi High Court in the case of CIT v. Pradeep Kumar Gupta, 303 ITR 95 (Del).
182. The contention of the ld. DR is that the department relied upon the statement of assessee’s own employee, who need not cross-examine its own employee and there is no mistake in not providing opportunity of cross-examination to the assessee. However, we are not in agreement with the contention of the ld. DR. The right to cross-examine is not dependent upon the assessee’s relationship with the witnesses. The right to cross-examine depends upon the fact that statement of the party is used against the assessee. Therefore the mere fact that the statement sought to be relied upon by the AO is that of the employee would not disentitle the assessee to cross-examine. Therefore, the ratio relied upon by the assessee squarely applies and it is the prerogative of assessee whether it wants to cross-examine or not. It was held in the case of Smt. Madhu Gupta v. DCIT 2006 (2) TMI 496 – ITAT MUMBAI / [2006] 8 SOT 691 (MUM.) that even if the assessee was provided a copy of the statement recorded by the revenue on the spur of the moment, that should not be treated as an effective opportunity given to the assessee. In that case the Tribunal relied upon the judgment of the Hon’ble Allahabad High Court in the case of Gargi Din Jwala Prasad v. CIT [1974] 96 ITR 97 (All) wherein it was held that permission to cross-examine witness given, but names of the witnesses and substance of the statement made by them not given is not a proper opportunity and on that ground assessment was vitiated by the principles of natural justice as permission to cross-examine all the witnesses are illusory. Further in the present case, these seized material A/DUU/1 to 4 though did not contain the name of assessee or signature of any person, they are merely unsubstantiated loose sheets. As held by the Tribunal in the case of ACIT v. Layers Exports P. Ltd [2017] 53 ITR (Trib) 416 (Mumbai), addition cannot be sustained merely on the basis of rough noting made on few loose sheets, unless AO brings on record some independent and corroborative material to prove irrefutably that the said noting revealed unaccounted income or unaccounted investment or unaccounted expenditure of the assessee. The very purpose of search concluded u/s. 132 is to unearth hidden income or property or get hold of books of account or documents which has not been or will not be otherwise produced by the assessee in regular course on issue of summons or notice. In the assessee’s case, as stated above, the purported search action did not lead to discovery of any unaccounted money, bullion, jewellery or other valuable article or thing. Further, no books of account revealing any undisclosed transactions of the assessee were found during the course of search. The entire assessment order revolves around scribbling in loose sheets of papers seized from premises of another person in course of search action on such other person. It is a fact that the said rough loose sheets of papers scribbled by some anonymous person and seized in course of search of another person cannot be termed as ‘documents’ having any evidentiary value within the meaning of section 132 or section 132A of the Act. Thus, the entire assessment u/s 153A of the Act in case of the assessee rests on shaky and incorrect foundation and thus deserves to be quashed.
183. In view of the aforesaid judgments, since the impugned seized papers are undated, have no acceptable narration and do not bear the signature of the assessee or any other party, they are not in the nature of self-speaking documents having no evidentiary value and cannot be taken as a sole basis for determination of undisclosed income of the assessee. When documents like the present loose sheets of papers are recovered and the Revenue wants to make use of it, the onus rests on the Revenue to collect cogent evidence to corroborate the noting therein. The Revenue has failed to corroborate the noting by bringing some cogent material on record to prove conclusively that the noting in the seized papers reveal the unaccounted capitation fees/receipts of the assessee. Further, no circumstantial evidence in the form of any unaccounted cash, jewellery or investments outside the books of account was found in course of search in the case of assessee. Thus, the impugned addition was made by the AO on grossly inadequate material or rather no sufficient material at all and as such, deserves to be deleted. Hence, we are of the view that an assessment carried out in pursuance of search, no addition can be made simply on the basis of uncorroborated noting in loose papers found during search because the addition on account of alleged receipts made simply on the basis of uncorroborated noting and scribbling on loose sheets of papers made by some unidentified person and having no evidentiary value, is unsustainable and bad-in-law.”
10. The Tribunal had considered the seized papers and gave a finding that they don’t have any evidentiary value and cannot be taken as a sole basis for determination of undisclosed income. The Tribunal further held that when the loose sheets were seized, the onus rests on the revenue to collect cogent evidence to corroborate the noting therein whereas in the present case there is no corroborative evidences to prove conclusively that the noting in the seized papers reveal the unaccounted capitation fees / receipts of the assessee. The Tribunal also gave a finding that no circumstantial evidence like the unaccounted cash, jewellery or investments outside the books of accounts was found in the course of search.
11. The Tribunal finally gave a finding as follows:
“247. Being so, in our opinion the seized material relied by the assessing officer for sustaining addition is not speaking one in itself and also not speaking in conjunction with some other evidence with authorities found during the course of search or post search investigation. Thus, the well settled legal position is that a non-speaking document without any corroborative material, evidence on record and finding that such document has not materialised into transactions giving rise to income of the assessee which had not been disclosed in the regular books of accounts of the assessee has to be disregarded for the purpose of assessment to be framed pursuant to search and seizure action. In these cases, moreover these documents are relied upon by the AO without confronting them for cross examination. In our opinion, these documents cannot bring assessee into tax net by merely pressing to service the provision of Sec 132(4A) r.w.s Sec 292C of the IT act, which creates deeming fiction on the assessee subject to search wherein it may be presumed that any such document found during the course of search from the possession and control of such document are true. What has to be noted here is that deemed presumption cannot bring such a document in the tax net and the presumption is rebuttable one and the deemed provisions have no help to the department. In our opinion, in these cases addition is made by AO on arbitrary basis relying on the loose papers, containing scribbling, rough and vague noting’s in the absence of any corroborative material and these material cannot be considered as transacted into collection of capitation fees by assessee giving rise to income which are not disclosed in the regular books of accounts by assessee. We place reliance on the following judgements in support of our above findings:
(i) CIT vs D.K.Gupta 174 Taxman 476 (Delhi)
(ii) Ashwini Kumar vs ITO 39 ITD 183 (Delhi)
(iii) S.P.Goyal vs DCIT (Mum) (TM) 82 ITD 85 (MUM)
(iv) D.A.Patel vs DCIT 72 ITD 340 (Mum)
(v) Amarjeet Singh Bakshi (HUF) vs ACIT 86 ITD 13 (Delhi) (TM)
(vi) Nagarjuna Construction Co Ltd vs DCIT 23 Taxman.com 239
(vii) CIT vs C.L.Khatri 174 Taxman 652
(viii) T.S.Venkatesan vs ACIT 74 ITD 298
(ix) CIT vs Atam Valves Pvt Ltd 184 Taxman 6 (P&H
248. Thus, we are agreeing with the contention of ld. AR that placing reliance on the seized material is not proper and all the additions on the basis of the above are deleted in all the assessment years since,:
i) no opportunity to cross-examine the persons whose statements have been relied upon is afforded;
ii) some of the statements have been recorded under section 131 by the authorized officer subsequent to completion of search;
iii) there is no documentary evidence either to support the statements of Sri. Goli V. Srinivas or of the parents of the students; and
iv) the seized material are in the form of various loose sheets, scribblings, jottings and Excel sheets taken from the computer having no signature or authorization from the assessee’s side. These are unsubstantiated documents and there is nothing to suggest any undisclosed assets of assessee found during the course of search. More so, search action not resulted in recovery of any undisclosed assets in the form of landed property, building, investments, money, bullion, jewellery or any kind of movable or immovable assets.”
13. The Ld.CIT(A) had considered the said findings and satisfied himself that the additions in the hands of the assessee as protective additions could not be made. The main reason for deleting the protective addition is that the recovery of incriminating materials does not prove that the trust had indulged in any activities contrary to the provisions of the Act and the revenue also does not have any corroborative evidences in support of the said additions. When the evidence seized at the time of search was declared as no evidence, the protective addition based on the said materials, which was not accepted by the Tribunal in the case of the trust, could not be made. The revenue had not placed any new materials which was not considered by the Tribunal in support of their grounds now raised before us. The mere filing of the appeals against the additions deleted in the hands of the trust could not be a reason for taking a different view. Unless and until the earlier findings of the Tribunal are set aside or overruled by the Hon’ble Jurisdictional High Court, we are bound by the decision taken by the Coordinate Bench of this Tribunal. Further, the revenue had relied on the same materials which were seized by the revenue at the time of search which was later on declared by this Tribunal as not a valid evidence for making the additions and therefore the earlier findings of the Tribunal would apply to the facts of the present case and therefore we are also in agreement with the finding of the Ld.CIT(A). We therefore, dismiss the appeals filed by the revenue.
13. In the result, all the appeals filed by the revenue are dismissed.
Order pronounced in the open court on 21st May, 2026.
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