third-party loose sheet Cannot Alone Sustain Section 69C Addition: ITAT Chennai

DCIT Vs Appaswamy Real Estates Limited (ITAT Chennai)

A ₹1 Crore Entry in Someone Else’s Loose Sheet: Who Actually Paid the Cash?

A third-party loose sheet and statement may justify investigation, but they do not by themselves establish unexplained expenditure in the hands of another assessee. The Chennai Bench of the ITAT applied this principle in DCIT v. Appaswamy Real Estates Limited, ITA No. 2803/Chny/2026, AY 2024-25, pronounced on 28 September 2026. The Tribunal dismissed the Revenue’s appeal and upheld deletion of a ₹1 crore addition under Section 69C, while also holding that the amount could not alternatively be taxed under Section 69A.

The dispute arose from a search in the case of Jeeva Educational Trust and group concerns. During a search at the residence of Shri M. Gopal, a transport operator and real-estate broker, a loose sheet was found containing a narration concerning receipt of ₹1 crore. Shri Gopal stated under section 132(4) that the money had been handed over to him by a person at the Appaswamy Group office at T. Nagar, Chennai. When the statement was confronted to Shri Ravi Appasamy, Managing Director of the assessee group, he denied knowledge of the alleged transaction. No corresponding incriminating material, unaccounted cash, parallel books, withdrawal, money trail or other evidence of the alleged payment was found from the assessee.

The AO nevertheless treated ₹1 crore as unexplained expenditure under Section 69C. The CIT(A) deleted the addition, noting that the document had been recovered from a third party, the assessee’s books had not been rejected, the alleged cash movement had not been established, and no independent evidence connected the assessee with the transaction. The CIT(A) also considered the limited operation of the presumptions under Sections 132(4A) and 292C and the absence of an opportunity to cross-examine Shri Gopal.

Before the Tribunal, the Revenue argued that the loose sheet and Shri Gopal’s sworn statement were mutually corroborative; that statutory presumptions attached to seized material; and that decisions including Smt. N. Saroja v. ACIT and B. Kishore Kumar v. DCIT supported the evidentiary value of search material and sworn statements. The assessee maintained that those propositions did not eliminate the need to establish a nexus where the material and statement originated from a third party and the alleged transaction had been contemporaneously denied.

The Tribunal agreed with the CIT(A). It distinguished an admission by an assessee concerning his own undisclosed transaction from an allegation by a third party against another assessee. It held that the presumptions under Sections 132(4A) and 292C could not automatically be transposed so as to establish every factual link necessary for an addition against the assessee. The loose sheet could furnish a lead for investigation, but the Revenue still had to prove that the assessee actually incurred the expenditure.

On Section 69C, the Tribunal emphasised that actual incurrence of expenditure is a foundational fact. The AO could not presume expenditure from a disputed third-party allegation and then require the assessee to prove that it had not incurred it. No ₹1 crore outflow from the assessee, cash withdrawal, undisclosed source, identified carrier, acknowledgement, or utilisation of funds was established. The Tribunal also found substance in the cross-examination objection and referred to Andaman Timber Industries Ltd. v. CCE, while clarifying that deletion did not rest exclusively on that procedural issue.

The alternative Section 69A basis also failed. The assessee was never found to be the owner of ₹1 crore or any corresponding unaccounted money. The Tribunal held that a loose sheet found from another person containing a reference to an alleged payment could not satisfy the foundational requirement that the assessee be “found to be the owner” of unexplained money. It therefore upheld deletion of the ₹1 crore addition and dismissed the Revenue’s appeal.

Cases Discussed

• Smt. N. Saroja Vs. Assistant Commissioner of Income Tax, Central Circle-II, Tiruchirapalli, T.C.A. Nos. 1395 to 1401 of 2009, order dated 18.03.2026 (Madras High Court) — Revenue relied on the statutory presumption concerning material seized during search; the Tribunal distinguished its application because the impugned document was recovered from a third party and the nexus with the assessee still had to be established.
• M/s. Bannari Amman Educational Trust v. ACIT, Central Circle-3(2), Chennai, ITA Nos. 3310 to 3314/Chny/2024, order dated 14.08.2025 (ITAT Chennai) — Relied upon by the assessee/CIT(A) on the consequence of denial of cross-examination where a third-party statement is used adversely.
• B. Kishore Kumar v. DCIT, [2015] 62 taxmann.com 215 (SC) / 234 Taxman 771 (SC), order dated 02.07.2015 — Revenue relied upon it regarding evidentiary significance of a sworn statement; the Tribunal distinguished the case because the present assessee made no admission and the allegation emanated from a third party.
• Andaman Timber Industries Ltd. v. CCE, [2015] 62 taxmann.com 3 / 52 GST 355 (Supreme Court) — Relied upon regarding denial of cross-examination where witness statements form the basis of adverse action.
• Shri Ganesh Trading Company v. CIT, [2013] 30 taxmann.com 170 / 214 Taxman 262 (Jharkhand High Court) — Cited for the proposition that a statement under Section 132(4) is evidence but is not necessarily conclusive.
• ACIT v. Saveetha Institute of Medical and Technical Sciences, [2012] 25 taxmann.com 138 (ITAT Chennai) — Cited regarding additions founded on sworn statements without adequate corroboration.
• CIT v. Ravi Kumar, [2007] 294 ITR 78 (Punjab & Haryana High Court) — Applied while examining Section 69A; loose slips referring to valuable articles did not satisfy the statutory requirement where possession and ownership were not established.
• CBI v. V.C. Shukla, AIR 1998 SC 410 (Supreme Court) — Relied upon by the assessee regarding the evidentiary limitations of loose sheets and stray entries unsupported by independent evidence.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

The present appeal of the Revenue is directed against the order dated 18.02.2026 of the Learned Commissioner of Income Tax (Appeals) – 19, Chennai (hereinafter referred to as the “Ld.CIT(A)”), arising out of the assessment order dated 03.11.2025 passed u/s.143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) by the Deputy Commissioner of Income Tax, Central Circle – 2(1), Chennai (hereinafter referred to as “the AO”) pertaining to the Assessment Year (A.Y.) 2024-25.

2. At the outset, we find that the appeal preferred by the Revenue is barred by limitation by 13 days. In this regard, the Revenue has filed a petition

seeking condonation of the said delay, setting out the reasons and circumstances which resulted in the appeal not being presented within the prescribed period of limitation.

3. We have carefully perused the petition filed by the Revenue and considered the reasons stated therein for the delay in filing the present appeal. Having regard to the explanation furnished and the facts and circumstances, we are satisfied that the delay was neither deliberate nor attributable to any want of bona fides on the part of the Revenue. In our considered view, the reasons assigned constitute sufficient cause for not preferring the appeal within the period prescribed under the Act.

4. It is well settled that while considering a petition for condonation of delay, the expression “sufficient cause” is required to receive a liberal and pragmatic construction so as to advance substantial justice, particularly where the delay is not shown to be deliberate, mala fide or occasioned by gross negligence. The issue of limitation should not ordinarily operate so as to shut out adjudication on merits where the party has satisfactorily explained the circumstances resulting in the delay. In the present case, considering the relatively short delay of 13 days and being satisfied with the explanation furnished by the Revenue, we are of the considered opinion that sufficient cause has been demonstrated for condonation thereof. No prejudice would also be caused to the respondent-assessee merely by permitting the appeal to be adjudicated on merits. Accordingly, in the interest of substantial justice, we condone the delay of 13 days in filing the appeal by the Revenue. The appeal is, therefore, admitted and we proceed to adjudicate the same on merits.

5. The Revenue has raised the following grounds of appeal:

1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law.

2. The Ld.CIT(A) erred in deleting the addition of Rs.1,00,00,000/- on account of addition under section 69C of the Act, 1961.

3. The Ld. CIT(A) erred in allowing relief to the assessee without giving adequate opportunity to the AO while examining the seized documents and arriving at a methodology which was being considered for the first time at the appellate stage, of giving credence to the undisclosed purchases.

4. The Ld. CIT(A) erred in granting relief to the assessee by holding that seized material obtained during the course of search does not have evidentiary value by not taking cognisance of the legal presumptions bestowed u/s 132(4A) and sec. 292C of the Act.

5. The Ld. CIT(A) erred in granting relief to the assessee by holding that seized material obtained during the course of search does not have evidentiary value in variance with the law enunciated by the Hon’ble Division Bench of the High Court of Madras in T.C.A. Nos. 1395 to 1401 of 2009, Smt. N. Saroja Vs. The Assistant Commissioner of Income Tax, Central Circle-II, Tiruchirapalli, vide its order dated 18.03.2026, has held that the legal presumption u/s 132(4A) is in favour of Revenue and the onus lies on assessee to rebut it with supporting corroborative evidences.

6. The Ld. CIT(A) failed to take cognizance of the fact that the additions and disallowances were based on the sworn statements recorded during the course of search, and failed to take into consideration the decision of the Hon’ble Supreme Court in the case of B. Kishore Kumar v. Deputy Commissioner of Income-tax, Central Circle-IV (1), Chennai [2015] 62 taxmann.com 215 (SC)/[2015] 234 Taxman 771 (SC) [02-07-2015], wherein it was held that the Assessing Officer is justified in making additions as undisclosed income on basis of sworn statements of assessee during search and seizure.

7. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the Order of Ld. CIT(Appeals) may be set aside and that of Assessing Officer may be restored.

6. The brief facts of the case as emanating from the records are that the assessee is a company forming part of the Appaswamy Group of Concerns and is engaged in the business of real estate development, including construction and sale of residential flats.

7. The genesis of the present proceedings lies in a search conducted u/s.132 of the Act in the case of M/s.Jeeva Educational Trust and its group concerns. In connection with the said search, a search was also carried out at the residential premises of one Shri M.Gopal at 3/85, PKS Garden, Periyar Salai, Palavakkam, Chennai. Shri M.Gopal is stated to be engaged in the transport business and also acting as a real estate broker.

8. During the course of search at the premises of Shri M.Gopal, a loose sheet was found and seized. The said loose sheet contained, inter alia, a narration referring to receipt of cash of Rs.1,00,00,000/- purportedly from the assessee company. In connection with the said seized material, a statement on oath u/s.132(4) of the Act was recorded from Shri M.Gopal. In the said statement, Shri M.Gopal is stated to have deposed that a sum of Rs.1,00,00,000/- was handed over to him by a person at the office of the Appaswamy Group at T.Nagar, Chennai.

9. Based on the aforesaid deposition, the relevant portion of the statement of Shri M.Gopal was confronted to Shri Ravi Appasamy, Managing Director of the assessee group, during the course of search proceedings. In response to Question No.32 of his statement recorded u/s.132(4) of the Act, Shri Ravi Appasamy denied having any knowledge of the alleged transaction.

10. For the assessment year under consideration, the assessee had filed its return of income u/s.139(1) of the Act on 31.10.2023 declaring a total income of Rs.35,37,00,980/-. The case was thereafter selected for compulsory scrutiny and notice u/s.143(2) of the Act was issued on 21.06.2025. Subsequently, notice u/s.142(1) of the Act dated 29.07.2025 was issued calling upon the assessee to furnish various details. The assessee furnished its response thereto on 01.08.2025.

11. During the course of assessment proceedings, the AO issued a show- cause notice dated 30.09.2025 proposing to treat the sum of Rs.1,00,00,000/-, allegedly paid to Shri M.Gopal, as unexplained money u/s.69A of the Act. In response to the show-cause notice, the assessee denied having entered into any such transaction and submitted that it had no connection with Shri M.Gopal insofar as the alleged payment was concerned. It was contended that the statement of Shri M.Gopal was vague and did not specifically establish that the alleged amount had been paid by the assessee company. The assessee further submitted that there was no corroborative material to establish the alleged cash payment and that an addition could not be made merely on the basis of a statement recorded from a third party. It was also pointed out that Shri Ravi Appasamy had, during the course of search itself, denied any knowledge of the alleged transaction when the statement of Shri M.Gopal was confronted to him. The AO, however, was not satisfied with the explanation furnished by the assessee. According to the AO, the statement recorded from Shri M.Gopal u/s.132(4) of the Act constituted substantive evidence and the contents thereof indicated an unaccounted cash transaction emanating from the office of the assessee group. The AO was of the view that the assessee had failed to discharge the onus cast upon it in respect of the alleged transaction. The AO, accordingly, treated the sum of Rs.1,00,00,000/- as unexplained expenditure u/s.69C of the Act and made an addition of the said amount to the returned income of the assessee. The assessment was consequently completed u/s.143(3) of the Act vide order dated 03.11.2025 determining the total income of the assessee at Rs.36,37,00,980/- as against the returned income of Rs.35,37,00,980/-.

12. It is pertinent to notice that, while the show-cause notice issued during the assessment proceedings proposed to treat the impugned amount of Rs.1,00,00,000/- as unexplained money u/s. 69A of the Act, the AO ultimately made the addition in the assessment order by invoking section 69C of the Act as unexplained expenditure and alternatively as unexplained money u/s.69A of the Act.

13. Aggrieved by the aforesaid addition, the assessee carried the matter in appeal before the Ld.CIT(A).

14. Aggrieved by the addition made by the AO, the assessee carried the matter in appeal before the Ld.CIT(A). The Ld.CIT(A), vide the impugned appellate order dated 18.02.2026, after considering the facts and circumstances of the case and the submissions advanced by the assessee, deleted the addition made by the AO and, accordingly, granted relief to the assessee.

15. Before the Ld.CIT(A), the assessee assailed the addition both on facts and in law. It was submitted that the addition had been made merely on the basis of WhatsApp chats, screenshots, loose Excel files and other unverified material, without there being any independent corroboration by way of primary evidence. Placing reliance on various judicial precedents, including decisions of the Coordinate Benches of this Tribunal, the assessee contended that such unverified electronic records and loose documents, by themselves, could not constitute a legally sustainable basis for making an addition.

16. Insofar as the addition of Rs.1 crore made u/s.69C of the Act was concerned, the assessee submitted that the same was made without conducting any independent enquiry or bringing on record any corroborative material emanating from the premises of the assessee. It was contended that the AO had failed to appreciate the sworn statement in its entirety, the documentary evidence furnished during the assessment proceedings and the detailed explanation offered by the assessee.

17. The assessee specifically pointed out that simultaneous search proceedings were carried out on 03.11.2023 at the various business and residential premises connected with the assessee group. However, no incriminating material whatsoever evidencing any unaccounted transaction or receipt of Rs.1.00 crore from Shri M.Gopal was found from the premises of the assessee.

18. It was further submitted that, despite simultaneous search proceedings having been conducted at the premises of the assessee as well as Shri M.Gopal, no enquiry or investigation was carried out by the authorised officers with reference to the alleged transaction represented by the loose sheet. According to the assessee, had the loose sheet genuinely represented an unaccounted transaction involving a substantial sum of Rs.1 crore, the investigating authorities would ordinarily have confronted the assessee with the same and undertaken consequential enquiry during the search or post- search investigation. The absence of any such enquiry, according to the assessee, demonstrated the lack of probative value attributable to the loose sheet, which came to be relied upon only at the stage of issuance of the show- cause notice. The assessee further contended that vague, uncorroborated and ambiguous notings contained in loose sheets could not, by themselves, establish the existence of an undisclosed transaction. Unless such notings were supported by independent evidence or corresponding entries in the regular books or other contemporaneous records of the parties allegedly involved in the transaction, no adverse inference could validly be drawn therefrom.

19. In support of the above proposition, the assessee placed reliance, inter alia, upon the decision of the Hon’ble Supreme Court in CBI v. V.C. Shukla [AIR 1998 SC 410] and submitted that loose sheets and stray entries, unsupported by independent evidence, could not by themselves fasten liability upon a person. It was contended that, even assuming the entries appearing in the impugned loose sheet to be authentic, the same could not establish that the assessee had actually received the amount mentioned therein unless the alleged transaction was independently proved by the Revenue.

20. The assessee also contended that the impugned document was admittedly recovered from a third party and not from the possession or premises of the assessee. Therefore, the contents thereof could not automatically be attributed to the assessee. According to the assessee, an addition founded upon documents seized from a third party or upon a statement recorded from such third party could be sustained only when the Revenue established a clear nexus between the material and the assessee through independent and corroborative evidence.

21. It was thus submitted that the inference drawn by the AO regarding the alleged cash transaction was based solely upon a third-party loose sheet and an incorrect appreciation of the sworn statement, without any corroborative evidence demonstrating either the payment or receipt of the alleged sum of Rs.1 crore. The assessee, therefore, contended that the addition made u/s.69C of the Act was unsustainable both on facts and in law and prayed that the same be deleted in its entirety.

22. The Ld.CIT(A), upon considering the submissions of the assessee, deleted the addition of Rs.1,00,00,000/- made by the AO u/s.69C of the Act by observing as under:

“6.2.3 The undersigned on careful consideration of the facts on record, finds that it is an admitted and undisputed position that the loose sheet was not found from the premises of the appellant company or from any of the Appaswamy Group entities. The document was seized from the residence of Shri M. Gopal, who is stated to be engaged in transport business and real estate brokerage. During the course of the search conducted in the appellant group, no unaccounted cash, bullion, jewellery, undisclosed investment, parallel books of account or incriminating material indicating payment of Rs.1 crore to Shri Gopal were found. The books of account of the appellant have been accepted and not rejected by the AO. No discrepancy has been pointed out therein to suggest any unrecorded outflow of funds.

6.2.4 It is further seen from the record that when the relevant extract of Shri Gopal’s statement was confronted to Shri Ravi Appaswamy, Managing Director of the appellant group, during the course of search proceedings, he categorically denied knowledge of the alleged transaction. This denial was recorded contemporaneously during search and forms part of the statement u/s 132(4) of the Act. The AO has not brought on record any material to discredit this denial or to establish that the explanation so offered was false. The entire edifice of the addition rests upon a narration in a loose sheet recovered from a third party and the statement of that third party. No independent enquiry has been conducted by the AO to ascertain the identity of the alleged person who handed over the cash, the capacity in which such person acted, the source of such alleged cash from the appellant’s accounts, or the trail of movement of such funds. There is no evidence of withdrawal of Rs.1 crore from the appellant’s books, no evidence of utilisation of such amount by Shri Gopal on behalf of the appellant, and no corroborative material linking the appellant to the alleged transaction. In the absence of such foundational facts, the addition rests purely on assumption.

6.2.5 It is a settled legal proposition that a statement recorded u/s 132(4) of the Act, though a relevant piece of evidence, is not conclusive and cannot, by itself, justify an addition unless supported by corroborative material. The Hon’ble Chennai Tribunal in the case of ACIT v. Saveeta Institute of Medical and Technical Sciences [2012] 25 taxmann.com 138 (Chennai -Trib) has held that addition made on the basis of the sworn statement recorded u/s 132(4) of the Act cannot be sustainable and further held that the admission made u/s 132(4) by the Special Officer of the College could not even be treated as a valid piece of evidence. In the case of Shri. Ganesh Trading Company v. CIT [2013] 30taxmann.com170/214 Taxmann 262 (Jharkhand), the Hon’ble High Court has held that a statement made u/s 132(4) of the Act is a piece of evidence but the same is not conclusive particularly because it is self-incriminating. Accordingly, it was concluded that no liability could be fastened solely on the basis of sworn statement. The ratio laid down therein squarely applies to the facts of the present case where no independent material has been brought on record to substantiate the alleged payment. In the present case, the loose sheet in question was neither found from the appellant’s possession nor shown to be maintained in the regular course of business. No corroboration has been brought on record. Therefore, such a document, by itself, cannot constitute substantive evidence against the appellant.

6.2.6 In the present case, it is an admitted position that the loose sheets were seized from a third party and not from the possession or control of the appellant. Therefore, the very foundation for invoking the presumption u/s 132(4A) of the Act against the appellant is absent. In such circumstances, the AO was duty-bound to independently establish, through cogent and corroborative evidence, that the contents of the seized documents had a direct bearing on the appellant and represented undisclosed income in his hands. There is no corroborative evidence to suggest that there is a transaction of this kind. Reliance is placed on the judgement of Hon’ble Gujarat High court in the case of Principal CIT v. Gurangbhai Pramodchandra Upadhyay vide Tax Appeal Nos. 98, 100, 103 and 104 of 2020, the Hon’ble High Court held that “since the documents were not found or recovered from the possession of the assessee, no presumption u/s 132(4A) as well as section 292C could be drawn against the assessee in such circumstances”.

6.2.7 The undersigned is of the view that presumption available u/s 132(4A) or section 292C of the Act operates only against the person from whose possession or control the document is seized. Such presumption cannot automatically be extended to a third party. In the present case, even assuming that the loose sheet may give rise to a presumption against Shri Gopal, the same cannot be invoked against the appellant in the absence of independent evidence establishing nexus. The AO has not demonstrated any such nexus.

6.2.8 It is also significant that no opportunity of cross-examination of Shri Gopal was afforded to the appellant, despite the addition being founded entirely upon his statement. The denial of cross-examination, particularly when the statement is used adversely, strikes at the root of the principles of natural justice and considerably weakens the evidentiary value of such statement. When an addition is based solely on a third-party statement, the minimum requirement is to provide the assessee an opportunity to test its veracity. At this juncture, it is more significant to rely upon the decision of the Hon’ble Apex Court in the case of Andaman Timber Industries Ltd v. CCE [2015] 62 taxmann.com 3/52 GST 355, where in it has been held as under:

“According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected.” 8.40 In view of the above judicial precedents (supra) and the reasons elaborately set out above, we are of the considered view that, the AO’s failure to allow the assessee opportunity to cross examine this Departmental witness, Shri XXXXXX, on whose statement he was relying upon, was a serious and fundamental error which rendered the impugned addition(s) to be untenable.”

6.2.9 Further, the Hon’ble jurisdictional tribunal in the case of M/s. Bannari Amman Educational Trust v. ACIT, Central Circle-3(2) Chennai in 3310 to 3314/Chny/2024 dated 14.08.2025 has relied on above decision of the Hon’ble Apex Court.

6.2.10 Further, the invocation of section 69C of the Act itself is prima facie legally unsustainable on the facts of the case. The provisions of Section 69C of the Act contemplates a situation where the assessee has incurred expenditure which is not recorded in the books of account and for which no satisfactory explanation is offered. In the present case, the very factum of expenditure has not been established. There is no evidence of incurrence of expenditure by the appellant. There is no material demonstrating that Rs.1 crore moved out of the appellant’s coffers. In the absence of proof of expenditure, the provision of section 69C of the Act cannot be pressed into service. The addition is thus founded not on evidence, but on suspicion and presumption.

6.2.11 The undersigned is of the view that taxation cannot proceed on conjectures. Suspicion, however strong, cannot substitute proof. The burden squarely rests on the AO to establish that the assessee has incurred unexplained expenditure. In the instant case, that burden has not been discharged. The addition is based solely on a third-party loose sheet and statement, unsupported by corroborative material, untested by cross- examination, and unconnected to the appellant’s books of account.

6.2.12 In view of the above factual and legal position, the undersigned holds that the AO has failed to establish the nexus between the appellant and the alleged cash transaction and has not discharged the burden of proof required under law. The addition of Rs.1,00,00,000/- made u/s 69C of the Act is therefore unsustainable both in law and on facts. Accordingly, these grounds are treated as allowed and the AO is directed to delete the addition of Rs. 1,00,00,000/- made u/s 69C of the Act for the AY 2024-25.”

23. Aggrieved by the aforesaid order of the Ld.CIT(A), the Revenue is in appeal before this Tribunal, assailing the action of the Ld.CIT(A) in deleting the addition of Rs.1,00,00,000/- made by the AO u/s.69C of the Act.

24. The Ld.DR, supporting the assessment order, submitted that the Ld.CIT(A) was not justified in deleting the addition of Rs.1,00,00,000/- made by the AO u/s.69C of the Act. According to the Ld.DR, the Ld.CIT(A) had failed to appreciate the seized material and the statement recorded during the course of search in their proper perspective and had erroneously proceeded on the premise that the addition was founded merely upon an uncorroborated loose sheet recovered from a third party.

25. The Ld.DR drew our attention to the loose sheet seized from the residential premises of Shri M.Gopal and submitted that the said document contained a specific narration regarding receipt of cash of Rs.1,00,00,000/-. It was submitted that the seized document could not be brushed aside as a mere loose sheet or a dumb document, particularly when its contents stood explained by Shri M.Gopal in the course of his statement recorded on oath u/s.132(4) of the Act.

26. The Ld.DR further submitted that Shri M.Gopal had categorically stated during the course of search that the sum of Rs.1,00,00,000/- was handed over to him by a person at the office of the Appaswamy Group at T.Nagar, Chennai. Thus, according to the Ld.DR, the seized document and the sworn statement of the person from whose possession the document was recovered were mutually corroborative and could not be considered in isolation from each other. Once the author/person in possession of the document had explained the nature of the entry appearing therein, the Ld.CIT(A) was not justified in treating the document as an uncorroborated loose sheet having no evidentiary value.

27. The Ld.DR submitted that the Ld.CIT(A) had erred in proceeding on the footing that a statement recorded u/s.132(4) of the Act could not constitute substantive evidence unless independently corroborated in every case. It was contended that a statement recorded on oath during the course of search is an important piece of evidence and its evidentiary value has to be appreciated along with the documents and surrounding circumstances unearthed during the course of search.

28. In this regard, the Ld.DR placed reliance upon the decision of the Hon’ble Supreme Court in B.Kishore Kumar v. DCIT [2015] 62 taxmann.com 215 (SC)/234 Taxman 771 (SC) and submitted that the Hon’ble Supreme Court had declined to interfere with the addition sustained on the basis of the material found during search read with the statement recorded from the assessee. According to the Ld.DR, the Ld.CIT(A), therefore, ought not to have discarded the evidentiary value of the sworn statement of Shri M.Gopal merely on the ground that no further corroborative material was recovered from the premises of the assessee.

29. The Ld.DR further contended that the Ld.CIT(A) had failed to give due effect to the statutory presumptions contemplated u/s.132(4A) r.w.s 292C of the Act. It was submitted that where any books of account, documents, money, bullion, jewellery or other valuable article or thing are found in the possession or control of a person in the course of search, the statutory provisions permit a presumption regarding the ownership and truthfulness of the contents of such books and documents. The loose sheet seized from the premises of Shri M.Gopal, therefore, could not be discarded without examining the statutory presumption attaching to the seized material and the explanation furnished by Shri M.Gopal with reference thereto.

30. The Ld.DR, in this connection, strongly relied upon the judgment of the Hon’ble jurisdictional High Court in Smt.N.Saroja v. ACIT, Central Circle-II, Tiruchirapalli, in T.C.A. Nos.1395 to 1401 of 2009, order dated 18.03.2026, and submitted that the Hon’ble Madras High Court had reiterated the legal position concerning the presumption arising in respect of material seized during search and the corresponding burden upon the person seeking to rebut such presumption. According to the Ld.DR, the Ld.CIT(A) had failed to examine the impugned addition in the light of the aforesaid binding jurisdictional precedent.

31. The Ld.DR further submitted that the circumstance that the loose sheet was recovered from the premises of Shri M.Gopal and not from the premises of the assessee was not, by itself, sufficient to render the document irrelevant. According to the Ld.DR, what was material was whether the contents of the seized document, when read with the statement of Shri M.Gopal and the surrounding circumstances, established a nexus with the assessee. Shri M.Gopal had specifically referred to the Appaswamy Group office at T.Nagar as the place from where the cash was handed over to him. Therefore, there existed a direct link between the seized material and the assessee group which, according to the Ld.DR, had not been properly appreciated by the first appellate authority.

32. The Ld.DR also submitted that the denial made by Shri Ravi Appasamy in response to Question No.32 of the statement recorded during search could not, by itself, efface the evidentiary value of the material found from Shri M.Gopal. A bare denial on the part of the assessee or its Managing Director, according to the Ld. DR, could not be treated as sufficient rebuttal of the seized material and the sworn deposition of Shri M.Gopal. The Ld.CIT(A), however, had placed undue emphasis upon such denial without examining whether the assessee had produced any positive material to rebut the transaction reflected in the seized document.

33. According to the Ld.DR, the absence of corresponding entries in the regular books of account also could not be regarded as a circumstance in favour of the assessee. The very allegation of the Revenue was that the payment represented an unaccounted cash transaction and, therefore, such payment would ordinarily not find place in the regular books of account. Consequently, the fact that the books did not contain an entry for payment of Rs.1,00,00,000/- could not, by itself, disprove the transaction evidenced by the seized material.

34. The Ld.DR further contended that the Ld.CIT(A) had attached undue importance to the fact that no cash, bullion, jewellery, parallel books or other incriminating material evidencing the impugned payment was recovered from the assessee’s premises. According to the Ld.DR, each item of seized material has to be appreciated on its own evidentiary worth and there is no requirement in law that an unaccounted cash transaction recorded in a document recovered from one of the persons connected with the transaction must necessarily be supported by a corresponding document recovered from the other party.

35. The Ld.DR also assailed the finding of the Ld.CIT(A) that the addition could not be sustained for want of cross-examination of Shri M.Gopal. It was submitted that the statement of Shri M. Gopal formed part of the search material and its relevant contents had been confronted to the assessee group during the search itself. Shri Ravi Appasamy was specifically questioned with reference to the transaction and had furnished his response thereto. Therefore, according to the Ld.DR, the assessee was fully aware of the material proposed to be used against it and had an opportunity to furnish its explanation.

36. The Ld.DR further submitted that the decision in Andaman Timber Industries Ltd. v. CCE [2015] 62 taxmann.com 3 (SC) could not be mechanically applied without examining the factual matrix of the present case. According to the Ld.DR, the evidentiary material herein was not confined merely to an oral statement of a third party, but consisted of a contemporaneous document seized during search coupled with the statement of the person from whose premises the document was recovered explaining the transaction recorded therein.

37. Adverting to the applicability of section 69C of the Act, the Ld.DR submitted that the seized document read with the statement of Shri M.Gopal constituted sufficient material for the AO to infer that unaccounted expenditure of Rs.1,00,00,000/- had been incurred outside the regular books of account. Once the Revenue had brought material on record indicating such cash payment, the burden shifted upon the assessee to satisfactorily explain the nature and source thereof. The assessee, however, had merely denied the transaction without bringing any cogent material on record to rebut the evidence gathered during the search.

38. The Ld.DR further pointed out that the mere fact that the show-cause notice referred to section 69A of the Act whereas the assessment order ultimately invoked section 69C of the Act would not, by itself, invalidate the addition when the assessee was fully aware of the underlying transaction and had been afforded an opportunity to explain the same. According to the Ld.DR, the substance of the allegation throughout the proceedings was the unexplained cash transaction of Rs.1,00,00,000/- and the assessee had furnished its explanation in relation to that very transaction.

39. The Ld.DR also assailed the observations of the Ld.CIT(A) that the addition was based merely upon suspicion and conjecture. It was submitted that the case of the Revenue did not rest upon suspicion simpliciter but upon tangible material discovered in the course of a statutory search, namely, the seized loose sheet containing the relevant cash entry, followed by a sworn statement from the person from whose possession the document was seized explaining the circumstances surrounding the receipt of the amount. These materials, according to the Ld.DR, constituted a sufficient evidentiary foundation for the AO to draw an adverse inference.

40. The Ld.DR further contended that the Ld.CIT(A), while granting relief, had effectively substituted his own appreciation of the search material for that of the AO without properly dealing with the statutory presumptions u/s.132(4A) and 292C of the Act and without appreciating the cumulative evidentiary effect of the seized document and the sworn statement. The seized document and the statement ought to have been read together and considered in the light of the surrounding circumstances instead of being dissected and discarded separately.

41. The Ld.DR also supported Ground No.3 of the Revenue’s appeal and submitted that, to the extent the Ld.CIT(A) had undertaken any fresh examination of the seized material, accepted any fresh factual explanation or adopted any methodology or factual premise which had not been examined by the AO, an adequate opportunity ought to have been afforded to the AO in accordance with law before granting relief to the assessee.

42. Thus, according to the Ld.DR, the Ld.CIT(A) had erred both on facts and in law in deleting the addition merely on the ground that the document was recovered from a third-party premises and that no corresponding incriminating material was recovered from the premises of the assessee. The totality of the evidence, namely, the seized loose sheet, the statement recorded u/s.132(4) from Shri M.Gopal, the specific reference therein to the Appaswamy Group office at T.Nagar and the failure of the assessee to furnish any satisfactory rebuttal, ought to have been considered cumulatively.

43. The Ld.DR, therefore, submitted that the order of the Ld.CIT(A) deleting the addition of Rs.1,00,00,000/- was unsustainable and prayed that the impugned order of the Ld.CIT(A) on this issue be reversed and the addition made by the AO u/s.69C of the Act be restored.

44. On the other hand, the Ld.AR, appearing for the assessee, strongly supported the order passed by the Ld.CIT(A) and submitted that the Ld.CIT(A), after examining the entire material available on record and appreciating the factual as well as legal position in the proper perspective, had rightly deleted the addition of Rs.1,00,00,000/- made by the AO u/s.69C of the Act. The Ld.AR submitted that the impugned addition was founded entirely upon a loose sheet seized from the residence of a third party, namely Shri M.Gopal, read with the statement recorded from the said person u/s.132(4) of the Act. According to the Ld.AR, except for the aforesaid third-party material and statement, there was absolutely no independent evidence whatsoever brought on record by the AO to establish that the assessee had actually incurred any expenditure of Rs.1 crore outside its regular books of account.

45. The Ld.AR took us through the relevant portions of the assessment order, the seized material, the statements recorded during the course of search and the findings recorded by the Ld.CIT(A). The Ld.AR submitted that the most important and undisputed fact in the present case was that the loose sheet forming the very foundation of the addition was neither found nor seized from the premises of the assessee-company nor from the premises of any of the entities belonging to the Appaswamy Group. On the contrary, the said document was admittedly found and seized during the course of search conducted at the residence of Shri M. Gopal, who was a third party insofar as the assessee was concerned.

46. According to the Ld.AR, this factual distinction assumes considerable significance because the AO had sought to use a document found in the possession of one person for fastening an addition u/s.69C of the Act upon an altogether different assessee. In such circumstances, according to him, there must necessarily be cogent and independent material establishing a clear nexus between the contents of the third-party document and the assessee against whom the addition is proposed. A mere reference to a person or group in a loose sheet found from another person, without anything further, could not automatically establish that the transaction recorded therein represented unexplained expenditure incurred by the assessee.

47. The Ld.AR further submitted that the statement recorded from Shri M.Gopal and the allegation emerging therefrom were not left unanswered by the assessee. The relevant portion of the statement of Shri M.Gopal was confronted during the course of search itself to Shri Ravi Appaswamy, Managing Director of the Appaswamy Group. When so confronted, Shri Ravi Appaswamy had categorically denied any knowledge of the alleged transaction.

48. The Ld.AR emphasised that the aforesaid denial was not made after the completion of search or after issuance of notice during assessment proceedings. It was a contemporaneous denial made during the course of search itself and at the first available opportunity when the allegation was put to Shri Ravi Appaswamy. Therefore, according to the Ld.AR, this was not a case where the assessee remained silent when confronted with incriminating material and subsequently attempted to explain away the same.

49. The Ld.AR submitted that once there were two versions before the AO, namely, the statement of Shri M.Gopal on the one hand and the categorical denial of Shri Ravi Appaswamy on the other, it was incumbent upon the AO to undertake further enquiry and bring independent material on record to ascertain which of the two versions was supported by objective evidence. Instead of carrying out such enquiry, the AO merely preferred the version of Shri M.Gopal and rejected the denial of Shri Ravi Appaswamy without demonstrating any factual basis for doing so.

50. According to the Ld.AR, no material was brought on record by the AO to establish that the denial made by Shri Ravi Appaswamy was false or contrary to the books of account, bank statements or any other material found during the search. The AO could not, therefore, merely accept the statement of the third party as correct and simultaneously reject the denial of the assessee without undertaking any further investigation.

51. The Ld. AR next invited our attention to the categorical findings recorded by the Ld.CIT(A) that no corresponding incriminating material whatsoever had been found from the assessee or from the Appaswamy Group during the course of search. Elaborating the same, the Ld.AR submitted that no unaccounted cash corresponding to the alleged payment of Rs.1 crore was found; no parallel or unaccounted books of account were discovered; no document recording or acknowledging payment of Rs.1 crore to Shri M.Gopal was recovered; no undisclosed investment relatable to such alleged payment was detected; and no material indicating an unrecorded cash outflow of Rs.1 crore from the assessee was found.

52. The Ld. AR submitted that these were not mere assertions made by the assessee but categorical findings recorded by the Ld.CIT(A) after examination of the assessment record. The Revenue, despite challenging the deletion before the Tribunal, had not pointed out any material seized from the assessee which contradicted these findings.

53. According to the Ld.AR, if the assessee had actually incurred expenditure of Rs.1 crore outside its books, as alleged by the AO, there ought to have been some evidence demonstrating the source, availability, movement or utilisation of such funds. However, no such evidence was found either during the extensive search proceedings or subsequently during the assessment proceedings.

54. The Ld.AR further submitted that the regular books of account maintained by the assessee had not been rejected by the AO. No defect or discrepancy was identified therein which could indicate withdrawal, diversion or utilisation of unaccounted funds to the extent of Rs.1 crore. It was submitted that this aspect had also been specifically noticed by the Ld.CIT(A). The AO did not identify any cash withdrawal corresponding to the alleged payment, nor did he establish that any recorded funds had been diverted for making the alleged payment. There was equally no finding that the assessee had generated any undisclosed cash which could have constituted the source of the alleged expenditure. According to the Ld. AR, when the books of account stood accepted and no corresponding discrepancy or unaccounted outflow was demonstrated therein, a heavy burden rested upon the Revenue to establish through independent evidence that the assessee had nevertheless incurred expenditure outside the books. That burden, according to him, had not been discharged.

55. The Ld. AR thereafter submitted that the most fundamental infirmity in the assessment was the complete absence of any independent enquiry by the AO to corroborate the allegation contained in the third-party loose sheet and statement. The Ld. AR submitted that, if the AO genuinely believed that Rs.1 crore had been delivered on behalf of the assessee to Shri M. Gopal, several obvious lines of investigation were available to him. The AO could have first identified the person who allegedly delivered the cash. He could thereafter have ascertained whether such person was an employee, director, agent, representative or any other person connected with the assessee or the Appaswamy Group. No such exercise was undertaken.

56. The AO could further have examined the books of account, cash book and bank accounts of the assessee to identify the source from which Rs.1 crore was allegedly generated or withdrawn. He could have traced the movement of funds and examined whether any corresponding withdrawal, diversion or unexplained cash generation existed. Again, no such material was brought on record. The AO could also have examined Shri M. Gopal regarding the precise date, place, circumstances and purpose for which the alleged amount was received; the identity and description of the person who allegedly delivered the cash; the underlying transaction for which the amount was allegedly paid; and the manner in which the amount was thereafter utilised. According to the Ld.AR, the assessment order did not contain any such investigation.

57. The Ld.AR submitted that the AO had thus failed to establish every material link in the chain. The identity of the alleged carrier of cash remained unknown; his relationship with the assessee remained unproved; the source of cash remained unidentified; the movement of funds remained untraced; the purpose of the alleged payment remained unsupported by independent evidence; and the utilisation of the amount on behalf of the assessee was never established. The Ld.AR, therefore, contended that the Ld.CIT(A) was justified in holding that the addition had been made without establishing the necessary nexus between the assessee and the alleged transaction.

58. The Ld.AR submitted that the assessee was not canvassing an absolute proposition that a document found from a third party was incapable of being used against another assessee under any circumstances. His submission was that before such material could be used for fastening a substantive tax liability upon another person, its contents must be corroborated by independent evidence establishing a nexus with such person. According to the Ld.AR, a loose sheet found from a third-party premises could, at the highest, furnish a lead or starting point for investigation. It could prompt the Department to examine the alleged transaction, identify the persons involved, trace the source and destination of funds and collect corroborative evidence. However, the investigation could not stop with the loose sheet itself and the allegation contained therein thereafter be treated as a proved fact. The Ld. AR submitted that in the present case the AO had effectively treated the starting point of investigation as the conclusion of investigation. The AO had not travelled from suspicion to proof. According to him, this fundamental evidentiary deficiency went to the root of the addition.

59. Dealing with the specific ground raised by the Revenue regarding the presumptions contemplated under sections 132(4A) and 292C of the Act, the Ld. AR submitted that the Revenue’s contention proceeded on a misconception regarding the scope and operation of the statutory presumption. The Ld. AR submitted that the presumptions regarding ownership and truthfulness of the contents of books of account, documents, money, bullion, jewellery or other valuable articles found during search operate with reference to the person from whose possession or control such material is found. In the present case, the loose sheet was found from the residence and possession of Shri M. Gopal and not from the possession or control of the assessee. Therefore, even assuming that a statutory presumption was available in respect of the document, according to the Ld.AR, such presumption could operate, at the highest, in relation to Shri M.Gopal. The presumption could not automatically be transposed and invoked against the assessee merely because the contents of the document allegedly made some reference to a person from the Appaswamy Group.

60. The Ld. AR submitted that the distinction between the person from whose custody the document was found and another person sought to be implicated on the basis of its contents was crucial. In the latter situation, the Revenue was required to establish the nexus by independent evidence. In this regard, the Ld.AR relied upon the judgment of the Hon’ble Gujarat High Court in Principal CIT v. Gurangbhai Pramodchandra Upadhyay, which had also been considered by the Ld.CIT(A), for the proposition that where documents were not found or recovered from the possession of the assessee, the presumptions u/s.132(4A) and 292C could not be drawn against such assessee. Accordingly, the Ld.AR submitted that the Revenue’s reliance upon sections 132(4A) and 292C did not cure the fundamental absence of evidence connecting the assessee with the alleged expenditure.

61. The Ld.AR then dealt with the Revenue’s contention that the statement of Shri M.Gopal recorded u/s.132(4) of the Act constituted substantive evidence and was sufficient to sustain the addition. The Ld.AR submitted that a statement recorded u/s.132(4) of the Act cannot hold any evidentiary value without any corroborative material. The Ld.AR submitted that the real issue was not whether such statement had evidentiary value in the abstract, but whether the statement of an unrelated third party, concerning a document found from his own premises, was sufficient by itself to establish unexplained expenditure in the hands of another assessee.

62. The Ld.AR submitted that the present case was not one involving an admission by the assessee or its Managing Director that unaccounted expenditure had been incurred. On the contrary, the allegation was specifically denied when confronted during the search itself. Therefore, the AO was faced with a disputed factual allegation requiring independent verification.

63. The Ld.AR submitted that the statement of Shri M.Gopal did not establish the source of the alleged cash in the hands of the assessee. It did not establish any corresponding withdrawal from the assessee’s books or bank accounts. It did not establish that the unidentified person allegedly delivering the cash was acting under the instructions of the assessee. Nor did it establish that the alleged amount represented expenditure incurred by the assessee.

64. The Ld.AR, therefore, contended that the mere circumstance that the statement was recorded u/s.132(4) of the Act could not elevate every allegation contained therein into an incontrovertible fact against a third party. Reliance in this regard was placed upon ACIT v. Saveetha Institute of Medical and Technical Sciences [2012] 25 taxmann.com 138 (Chennai-Trib.) and Shri Ganesh Trading Company v. CIT [2013] 30 taxmann.com 170 / 214 Taxman 262 (Jharkhand), which, according to the Ld. AR, supported the proposition that the evidentiary value of a statement has to be appreciated in the context of the surrounding material and that, in appropriate cases, an uncorroborated statement by itself cannot conclusively establish the addition sought to be made.

65. The Ld.AR further submitted that there was another serious infirmity in the addition, namely, the failure of the AO to afford the assessee an opportunity to cross-examine Shri M. Gopal. It was submitted that the statement of Shri M. Gopal was not merely referred to incidentally by the AO but constituted one of the principal foundations of the addition. Once the Revenue sought to use such third-party statement against the assessee and the assessee had disputed the correctness of the allegation, fairness required that the assessee be afforded an effective opportunity to test the veracity of the statement by way of cross-examination.

66. The Ld.AR submitted that cross-examination assumed even greater significance in the present case because the alleged person who delivered the cash had not been identified and there was no independent documentary evidence showing movement of Rs.1 crore from the assessee to Shri M. Gopal. Consequently, the truthfulness and reliability of Shri M. Gopal’s version assumed central importance to the assessment. However, despite relying upon his statement to make an addition of Rs.1 crore, the AO did not make Shri M. Gopal available for cross-examination.

67. The Ld. AR relied upon the decision of the Hon’ble Supreme Court in Andaman Timber Industries Ltd. v. CCE [2015] 62 taxmann.com 3 / 52 GST 355 and also referred to the decision of the Chennai Bench of the Tribunal in M/s Bannari Amman Educational Trust v. ACIT, ITA Nos.3310 to 3314/Chny/2024 dated 14.08.2025. The Ld.AR submitted that the Ld.CIT(A) had specifically noticed the denial of cross-examination while appreciating the evidentiary value of the material relied upon by the AO. The Ld. AR further pointed out that the Revenue had not disputed the factual finding recorded by the Ld. CIT(A) that no opportunity of cross-examination had been afforded to the assessee.

68. Adverting specifically to the applicability of section 69C, the Ld. AR submitted that the addition suffered from an even more fundamental legal infirmity. The Ld. AR submitted that section 69C comes into operation where, in any financial year, an assessee has incurred expenditure and offers no explanation about the source of such expenditure or where the explanation offered is not found satisfactory. Therefore, according to him, the first and foundational requirement for invoking section 69C was that the Revenue must establish the factum of expenditure having been incurred by the assessee.

69. The Ld.AR emphasised that the question regarding the source of expenditure arises only after the incurrence of expenditure itself is established. The AO could not begin by presuming that expenditure had been incurred and thereafter require the assessee to establish that it had not incurred such expenditure. According to the Ld. AR, such an approach would impermissibly reverse the statutory sequence as well as the initial burden resting upon the Revenue.

70. In the present case, the Ld. AR submitted that the AO had not established that Rs.1 crore had moved out of the coffers of the assessee. No corresponding withdrawal was found in the books or bank accounts. No unaccounted source generating Rs.1 crore was detected. No cash was found during search which could be linked to the alleged transaction. No person connected with the assessee was identified as the person who delivered the amount. No evidence regarding the date and mode of payment or movement of cash from the assessee to Shri M. Gopal was brought on record. Thus, according to the Ld. AR, the very first jurisdictional or foundational fact necessary for application of section 69C, namely, actual incurrence of expenditure by the assessee, remained unproved.

71. The Ld.AR submitted that section 69C could not be invoked merely because a third person stated that he had received an amount from someone allegedly belonging to a particular group. Before invoking the deeming provision against a particular assessee, the Revenue was required to establish that the expenditure in question was incurred by that assessee. According to him, the Ld. CIT(A) had correctly appreciated this distinction and had rightly held that the addition was based upon presumption rather than proof of actual expenditure by the assessee.

72. The Ld.AR further submitted that the approach adopted by the AO effectively required the assessee to prove a negative, namely, that it had not paid Rs.1 crore to Shri M. Gopal. According to the Ld.AR, when no document was found from the assessee, no corresponding withdrawal was detected, no employee or representative of the assessee was identified as having delivered the cash and no money trail was established, the assessee could not reasonably be expected to produce affirmative evidence proving that an alleged transaction, which it had categorically denied, never took place. The initial burden was upon the Revenue to establish the existence of the transaction through some reliable material. Only after such foundational evidence was brought on record could any question arise as to the assessee explaining the source or nature of the transaction. The Ld.AR submitted that the AO had reversed this principle by treating an uncorroborated third-party allegation as a proved transaction and thereafter faulting the assessee for not disproving the same.

73. The Ld. AR next dealt with the reliance placed by the Revenue upon the decision of the Hon’ble Supreme Court in B. Kishore Kumar v. DCIT [2015] 62 taxmann.com 215 (SC) / 234 Taxman 771 (SC). The Ld. AR submitted that there could be no dispute regarding the evidentiary significance of a clear admission made by an assessee concerning his own undisclosed transaction in the factual circumstances of a particular case. However, the facts of the present case stood on an entirely different footing.

74. In the present case, there was no admission by the assessee. There was also no admission by Shri Ravi Appaswamy. On the contrary, when confronted with the allegation during search, Shri Ravi Appaswamy categorically denied knowledge of the alleged transaction. Further, the material itself was not found from the assessee. Both the loose sheet and the statement relied upon by the AO emanated from a third party. Therefore, according to the Ld.AR, the principle applicable to an admission made by an assessee regarding his own undisclosed transaction could not mechanically be applied to an allegation made by a third party against another assessee. The distinguishing feature, according to the Ld.AR, was the complete absence of corroborative evidence connecting the assessee with the alleged payment.

75. The Ld.AR further submitted that some of the grounds raised by the Revenue appeared to proceed on the assumption that the Ld.CIT(A) had held that documents seized during a search had no evidentiary value. According to him, no such proposition had been laid down by the Ld. CIT(A). The issue was not whether a seized document possessed evidentiary value. The issue was against whom such document could be relied upon and what further evidence was necessary when the Department sought to use a document seized from one person for making an addition in the hands of another. According to the Ld. AR, there was a fundamental distinction between relying upon a document against the person from whose possession it was found and using the same document to fasten tax liability upon an altogether different person. In the latter situation, the nexus with the other person had necessarily to be demonstrated. Thus, according to the Ld.AR, the general proposition that seized documents constitute relevant evidence did not answer the specific deficiency identified by the Ld.CIT(A), namely, the absence of corroborative material establishing nexus between the assessee and the alleged payment.

76. The Ld.AR thereafter addressed the Revenue’s ground alleging that the Ld.CIT(A) had granted relief without affording adequate opportunity to the AO and had allegedly adopted a methodology for the first time during the appellate proceedings. The Ld.AR submitted that the said ground was factually misconceived. No fresh evidence was admitted by the Ld.CIT(A) for deleting the addition. The Ld.CIT(A) had merely examined the very same material which formed the basis of the assessment, namely, the loose sheet seized from Shri M. Gopal, his statement, the denial of Shri Ravi Appaswamy, the assessment order and other material forming part of the assessment record.

77. The Ld.CIT(A), being the first appellate authority, was entitled and indeed required to examine whether the material relied upon by the AO was sufficient, both factually and legally, to sustain the addition. The Ld.AR submitted that appreciation of existing evidence by an appellate authority could not be characterised as introduction of a “new methodology”. Similarly, a finding that the AO had failed to bring corroborative material on record was a finding arising from the assessment record itself and did not amount to admission of additional evidence. The Ld. AR further submitted that the Revenue had failed to identify either before the Ld. CIT(A) or before the Tribunal any specific fresh evidence allegedly admitted at the appellate stage. Nor had the Revenue identified any particular document or factual assertion which required verification through a remand proceeding. Accordingly, the Ld. AR submitted that the Revenue’s ground alleging denial of opportunity to the AO was vague and unsupported by any specific factual foundation.

78. The Ld. AR repeatedly emphasised that the Ld.CIT(A) had not deleted the addition on any technical or abstract proposition. The deletion was based upon a series of specific findings emerging from the assessment record. The Ld.AR summarised those findings by submitting that: the loose sheet was not found from the assessee but from Shri M. Gopal; no corresponding incriminating document was found from the assessee; no unaccounted cash or parallel books were detected; the regular books were accepted; no corresponding withdrawal or unrecorded outflow of Rs.1 crore was identified; Shri Ravi Appaswamy denied the transaction during the search itself; no material was brought on record to disprove such denial; the person allegedly delivering the cash remained unidentified; no relationship between such unidentified person and the assessee was established; the source and movement of the alleged cash were not traced; no utilisation of the amount on behalf of the assessee was established; no independent corroborative enquiry was conducted; and no opportunity to cross-examine Shri M. Gopal was afforded.

79. The Ld. AR submitted that, most importantly, the Ld.CIT(A) had found that the very factum of expenditure by the assessee had not been established and, therefore, the essential condition for invoking section 69C was absent. According to the Ld. AR, the Revenue, while challenging the order of the Ld. CIT(A), was required to demonstrate which of these findings was factually incorrect and what material on record contradicted the same. However, the Revenue had not pointed to any corresponding document, cash withdrawal, bank entry, books of account, statement of an employee or any other evidence establishing that Rs.1 crore had actually moved from the assessee to Shri M. Gopal. The Revenue was, in substance, seeking restoration of the assessment merely by reiterating the same third-party loose sheet and statement which had already been examined by the Ld.CIT(A). According to the Ld.AR, mere repetition of the reasoning contained in the assessment order could not dislodge the specific findings recorded by the first appellate authority.

80. The Ld. AR further submitted that the Revenue had not demonstrated any perversity in the findings of the Ld.CIT(A). It had not been shown that the Ld.CIT(A) had ignored any material evidence, misread any document, relied upon material which was not on record, or recorded a finding contrary to the assessment record.

81. On the contrary, according to the Ld.AR, the Ld.CIT(A) had examined the precise evidentiary foundation adopted by the AO and thereafter recorded reasons as to why the same was insufficient to establish unexplained expenditure in the hands of the assessee. The Ld.AR submitted that the Revenue could not seek reversal of a reasoned appellate order merely by inviting the Tribunal to draw a different inference from the same third-party material, without first demonstrating any error in the findings recorded by the Ld.CIT(A).

82. The Ld.AR submitted that the matter had to be appreciated not merely by looking at each deficiency in isolation but by considering their cumulative effect. The document was found from a third party. The allegation contained therein was denied by the assessee during the search itself. Nothing corresponding to the alleged transaction was found from the assessee. No source of Rs.1 crore was identified. No cash trail was established. The person allegedly carrying the money was not identified. His connection with the assessee was not proved. The books of account did not disclose any corresponding outflow. No parallel books or unaccounted cash were discovered. No independent enquiry was conducted. The third-party statement was not tested through cross-examination. Above all, the actual incurrence of expenditure by the assessee was itself not established.

83. According to the Ld. AR, when all these circumstances were considered together, the addition could not be regarded as one based upon legally sustainable evidence. The case of the Revenue remained at the level of an allegation arising from third-party material and had never matured into proof of expenditure incurred by the assessee. The Ld. AR submitted that suspicion, howsoever strong, could not substitute proof and that an addition under a deeming provision such as section 69C must necessarily rest upon establishment of the foundational facts contemplated by the provision.

84. In the light of the above submissions, the Ld.AR contended that the Ld.CIT(A) had correctly appreciated both the factual and legal aspects of the matter and had passed a detailed, reasoned and speaking order deleting the addition. The Ld.AR thus submitted that the Ld.CIT(A) had rightly deleted the addition of Rs.1,00,00,000/- made by the AO u/s.69C of the Act and that the Revenue had failed to bring any material before the Tribunal to dislodge the categorical findings recorded by the first appellate authority. The Ld.AR, accordingly, prayed that the order of the Ld.CIT(A) on this issue be upheld and the grounds raised by the Revenue challenging the deletion of the addition of Rs.1,00,00,000/- u/s.69C of the Act be dismissed.

85. We have heard the rival submissions, perused the orders of the authorities below and carefully considered the entire material placed before us along with the written submissions of the ld.AR. We have also gone through the seized document forming the foundation of the impugned addition, the relevant statements recorded during the course of search, the explanation furnished by the assessee, the reasoning adopted by the AO in the assessment order, the elaborate findings recorded by the Ld.CIT(A), the grounds raised by the Revenue and the respective submissions advanced by the Ld.DR and the Ld.AR before us. Upon an overall consideration of the matter, we find ourselves in agreement with the conclusions reached by the Ld.CIT(A).

86. The controversy before us essentially revolves around the question whether a sum of Rs.1,00,00,000/- could be assessed in the hands of the assessee as unexplained expenditure u/s.69C of the Act, or alternatively as unexplained money u/s.69A of the Act, merely on the basis of a loose sheet recovered from the residential premises of Shri M. Gopal, a third party, coupled with the statement recorded from him u/s.132(4) of the Act, when no corresponding incriminating material was recovered from the assessee and the alleged transaction was specifically denied by the Managing Director of the assessee group when confronted during the search itself.

87. The answer to the aforesaid question, in our considered view, must necessarily be in the negative on the peculiar facts of the present case. The starting point of the entire controversy is the loose sheet recovered from the residence of Shri M.Gopal. It is an admitted and undisputed factual position that the said loose sheet was neither found nor seized from the premises of the assessee-company. It was also not recovered from any of the premises of the entities forming part of the Appaswamy Group. It was recovered exclusively from the residence and possession of Shri M.Gopal. Therefore, the evidentiary consequence flowing from such document has necessarily to be appreciated keeping in view the person from whose possession it was recovered and the nature of evidence available for connecting its contents with the present assessee.

88. We may clarify at the outset that we are not laying down any general proposition that a document recovered from the premises of a third party is devoid of evidentiary value or can never be utilised in the assessment of another person. A document recovered during a lawful search is certainly a relevant piece of evidence and, depending upon its contents and the surrounding material, may furnish valuable information or even form part of the evidence against another person. However, where the Revenue seeks to travel beyond the person from whose possession the document is recovered and seeks to fasten a substantive tax liability upon another assessee, the necessary nexus between such other assessee and the transaction recorded in the document must be established through reliable evidence and surrounding circumstances.

89. A third-party document may constitute the starting point of an investigation. It may furnish a lead. It may justify further enquiry. It may provide a basis for confronting the person named therein. What it cannot do, in the absence of further supporting circumstances, is automatically convert every recital contained therein into a conclusively proved transaction against another assessee. It is in the above perspective that the evidentiary foundation adopted by the AO has to be examined.

90. The Revenue relies heavily upon the statement of Shri M. Gopal wherein he is stated to have explained that an amount of Rs.1,00,00,000/- was handed over to him by a person at the office of the Appaswamy Group at T.Nagar, Chennai. However, even if the statement is taken at its face value for the limited purpose of examining the Revenue’s case, several vital and indispensable links remain wholly unestablished. The identity of the person who allegedly handed over such substantial cash has never been ascertained. The assessment order does not disclose the name of such person. There is no finding that he was a director of the assessee-company. There is no finding that he was an employee of the assessee. There is no finding that he was an authorised representative, agent or person acting under the instructions of the assessee. Indeed, the very identity of the alleged carrier remains unknown. Once the person who allegedly handed over the money has not even been identified, the further conclusion that he acted for and on behalf of the assessee-company becomes purely inferential. The Revenue has not established the authority under which such unidentified person allegedly acted; the person from whom he allegedly obtained the cash; the source from which the alleged cash originated; or the circumstances under which such substantial cash was allegedly delivered to Shri M. Gopal.

91. We equally find that there is no evidence tracing the movement of Rs.1,00,00,000/- from the assessee to Shri M.Gopal. No corresponding cash withdrawal from the books or bank accounts of the assessee has been identified. No unaccounted source generating Rs.1,00,00,000/- has been detected. No parallel books recording such payment have been recovered. No cash ledger, diary, voucher, acknowledgement or receipt maintained by the assessee evidencing such payment has been found. No employee or director of the assessee has admitted making such payment. No evidence regarding the subsequent utilisation of the alleged amount by Shri M.Gopal for or on behalf of the assessee has been brought on record. These deficiencies, in our view, are not merely procedural or technical. They go to the very root of the matter because they concern the identity of the payer, the source of the alleged payment, the movement of funds and, ultimately, the question whether the assessee before us had incurred the alleged expenditure at all.

92. We also attach significance to the fact that the allegation emerging from Shri M. Gopal’s statement was confronted during the search itself to Shri Ravi Appaswamy, Managing Director of the assessee group. Shri Ravi Appaswamy categorically denied knowledge of the alleged transaction. This is therefore not a case where the allegation contained in the seized document remained uncontroverted during search and was sought to be disputed for the first time during assessment proceedings. The denial was contemporaneous. It was made at the first available opportunity when the allegation was confronted. Once such denial came on record, the Department was faced with two competing versions. Shri M. Gopal attributed the receipt to an unidentified person allegedly connected with the Appaswamy Group, whereas Shri Ravi Appaswamy denied knowledge of the transaction. The existence of such competing versions made further investigation all the more necessary.

93. The AO could have identified the alleged carrier. Shri M. Gopal could have been specifically questioned as to his name, designation, physical description, relationship with the assessee, the exact date and time of payment, the circumstances under which the cash was handed over, the purpose of the payment and what was subsequently done with the amount. The person so identified could thereafter have been examined. The assessee’s cash book and banking records could have been examined with reference to the precise date. The source and destination of the cash could have been traced. The underlying transaction for which such payment was allegedly made could have been independently investigated. No such exercise has been demonstrated before us.

94. The AO instead appears to have accepted one version as correct and rejected the other merely because the former was contained in a statement recorded u/s.132(4). In our considered opinion, the statutory character of the statement does not dispense with the requirement of appreciating its contents in the context of the surrounding evidence, particularly when the statement emanates from a third party and is sought to be used against another assessee who has categorically denied the allegation. We are conscious that a statement recorded u/s.132(4) is an important piece of evidence. We are equally conscious that an admission voluntarily made by an assessee concerning his own undisclosed transaction may carry considerable evidentiary weight. However, the present case does not involve any admission whatsoever by the assessee.

95. We find that neither the assessee-company nor its Managing Director has admitted the alleged expenditure. On the contrary, the transaction was specifically denied. The statement relied upon by the Revenue is that of Shri M.Gopal, a third party. Therefore, the Revenue’s reliance upon decisions concerning admissions made by an assessee in relation to his own undisclosed transactions requires careful factual distinction. In this context, the reliance placed by the Ld.DR upon the decision in B. Kishore Kumar v. DCIT does not carry the Revenue’s case any further. The evidentiary consequence of a voluntary admission made by an assessee regarding his own undisclosed transaction, particularly when considered with incriminating material, stands on an altogether different footing from an allegation made by a third party against another assessee. Here, far from there being an admission, there is a contemporaneous denial by the assessee group. The proposition flowing from B.Kishore Kumar cannot therefore be enlarged to mean that every statement recorded u/s.132(4), irrespective of the identity of the maker and irrespective of whether the person against whom it is used has admitted or denied the transaction, constitutes conclusive proof against such other person. Such an interpretation would confer upon a third-party statement an evidentiary conclusiveness which the statute does not provide.

96. We further find considerable merit in the reasoning of the Ld.CIT(A) concerning sections 132(4A) and 292C of the Act. The statutory presumption arising in respect of a document found in the possession or control of a person is intrinsically connected with the person from whose possession or control such document is found. In the present case, the loose sheet was found from Shri M.Gopal. It was not found from the assessee. Even assuming that the statutory presumption regarding ownership of the document and truthfulness of its contents is attracted in relation to Shri M.Gopal, such presumption cannot automatically be transposed against the assessee so as to establish every factual link necessary for making an addition u/s.69C in its hands. There is an important distinction between presuming the truthfulness of the contents of a document in the hands of the person from whom it is recovered and determining the tax consequences in the hands of another person referred to therein. The former does not necessarily establish the latter. For making an addition in the hands of the present assessee, it was still incumbent upon the Revenue to establish that the amount referred to in the document represented expenditure actually incurred by this assessee. The statutory presumption cannot identify an otherwise unidentified payer; it cannot establish his relationship with the assessee; it cannot prove an otherwise unproved source of funds; and it cannot establish an otherwise untraced movement of cash from the assessee to Shri M.Gopal.

97. We therefore agree with the Ld.CIT(A) that the presumptions contemplated u/s.132(4A) and 292C cannot be employed as a substitute for the missing nexus between the third-party material and the assessee. We have also carefully considered the reliance placed by the Ld.DR upon the judgment of the Hon’ble jurisdictional High Court in Smt. N.Saroja v. ACIT. The principle that statutory presumptions attaching to material recovered during search must be given their legitimate operation cannot be disputed. However, the said principle cannot be divorced from the factual foundation upon which the presumption operates. The decision cannot, in our view, be read as laying down an absolute proposition that an entry appearing in every loose sheet recovered from any person constitutes conclusive evidence against every other person referred to therein. Nor can the statutory presumption be understood as dispensing altogether with the necessity of establishing the nexus between the seized material and the assessee against whom an addition is ultimately sought to be made. The distinguishing feature before us is fundamental: the document was not recovered from the assessee. Therefore, the Revenue was required to establish through surrounding evidence that the transaction recorded in the third-party material was in fact a transaction of this assessee. In the absence of such evidence, reliance upon the statutory presumption does not bridge the evidentiary gap.

98. We further find that the Revenue’s Ground Nos.4 and 5 proceed on a misconception that the Ld.CIT(A) held that seized material has no evidentiary value. No such finding has been recorded. The Ld.CIT(A) has appreciated the seized material and thereafter held that it is insufficient to establish unexplained expenditure in the hands of the assessee in the absence of corroboration. There is a fundamental distinction between holding evidence to be inadmissible and holding admissible evidence to be insufficient to prove a particular fact. The Ld.CIT(A)’s conclusion falls in the latter category. The Revenue’s grounds therefore do not correctly address the actual reasoning contained in the appellate order.

99. Coming specifically to section 69C of the Act, we find that the statutory provision itself demonstrates the fundamental infirmity in the assessment. Section 69C of the Act commences with the existence of expenditure incurred by an assessee. The enquiry concerning the explanation about the source of such expenditure arises thereafter. Thus, before calling upon an assessee to explain the source of expenditure, the Revenue must first establish that expenditure was actually incurred by that assessee. The factum of incurrence of expenditure is therefore a foundational fact for the application of section 69C of the Act. The statutory sequence cannot be reversed. The AO cannot first presume expenditure on the basis of a disputed third-party allegation, call upon the assessee to explain its source and thereafter treat the inability of the assessee to disprove the allegation as confirmation that expenditure was incurred.

100. The initial question is not whether the assessee has explained the source of Rs.1,00,00,000/-. The anterior and more fundamental question is whether the Revenue has established that this assessee incurred expenditure of Rs.1,00,00,000/- at all. On the material placed before us, the answer is plainly in the negative. No Rs.1,00,00,000/- is shown to have moved out of the assessee’s coffers. No cash withdrawal has been identified. No undisclosed source generating such cash has been found. No person acting for the assessee has been identified as having delivered the amount. No documentary acknowledgement of payment has been recovered from the assessee. No utilisation of the amount for the assessee has been demonstrated. The regular books have not been rejected and no corresponding discrepancy has been pointed out therein. In these circumstances, the Revenue has failed at the first stage itself, namely, establishing that expenditure was incurred by the assessee. The reasoning of the AO that the absence of an entry in the regular books is consistent with an unaccounted payment does not remedy this defect. It is undoubtedly possible that an unaccounted expenditure would not be recorded in regular books. But that proposition becomes relevant only after there is some credible evidence establishing that such expenditure was actually incurred. The absence of an entry in the books cannot itself prove the existence of an unrecorded expenditure. Otherwise, the absence of evidence would paradoxically become evidence of the alleged transaction.

101. We therefore agree with the Ld.AR that the AO has effectively treated the starting point of investigation as the conclusion of investigation. The loose sheet furnished a lead. The statement of Shri M.Gopal furnished further information. Those circumstances may have justified an investigation. But the Revenue was required to proceed further and establish the chain connecting the alleged payment with the assessee. That chain was never established.

102. We also find considerable substance in the objection of the assessee regarding denial of cross-examination. The statement of Shri M.Gopal is not peripheral to the assessment. It constitutes an essential component of the Revenue’s attempt to connect the loose sheet with the Appaswamy Group. The loose sheet by itself merely contains the relevant narration. It is Shri M.Gopal’s oral explanation which the Revenue relies upon to attribute the alleged receipt to a person from the Appaswamy Group office. Once that statement was disputed by the assessee, and once the Revenue proposed to use the statement as substantive evidence against the assessee, an effective opportunity to test the statement assumed considerable significance. We are unable to accept the argument of the Ld.DR that confrontation of the statement to Shri Ravi Appaswamy is equivalent to cross-examination. The two operate in entirely different fields. Confrontation gives the person affected an opportunity to offer his explanation. Cross-examination gives him an opportunity to test the reliability, basis, accuracy and truthfulness of the statement being used against him. The significance of cross-examination becomes even greater here because elementary factual questions remain unanswered. Who handed over the cash? On what date? At whose instructions? In what capacity? For what purpose? How did Shri M. Gopal identify the person as connected with the Appaswamy Group? What happened to the cash thereafter? Was there any receipt or acknowledgement? Was anybody else present? These matters go directly to the reliability of the allegation and could have been tested in cross- examination. We nevertheless clarify that our conclusion does not rest exclusively upon the denial of cross-examination. Even dehors that procedural infirmity, the addition fails on merits because the Revenue has not established the actual incurrence of expenditure by the assessee.

103. There is yet another aspect of considerable importance. The show- cause notice initially proposed to invoke section 69A of the Act, whereas the ultimate assessment invoked section 69C and alternatively referred to section 69A. Although the ultimate sustainability of the addition has to be examined on its own merits, we find that even section 69A is wholly inapplicable to the factual matrix before us. Section 69A of the Act operates where an assessee is “found to be the owner” of money, bullion, jewellery or other valuable article which is not recorded in the books of account, if any, maintained by him and the assessee either offers no explanation regarding the nature and source of acquisition thereof or the explanation offered is found unsatisfactory. Thus, the statutory provision predicates, as its foundational condition, that the assessee must first be found to be the owner of the money, bullion, jewellery or other valuable article in question. In the present case, the assessee was never found to be the owner of Rs.1,00,00,000/- in cash. Indeed, no such cash was found from the assessee at all. No cash of Rs.1,00,00,000/- was discovered or seized from the business premises of the assessee, from its directors, from its employees or from any premises shown to be under its possession or control. The only thing found was a loose sheet at the residence of Shri M. Gopal. A loose sheet containing a reference to money is conceptually and legally distinct from the money itself. The statutory expression “found to be the owner of any money” cannot be equated with being referred to, directly or indirectly, in a document found from somebody else.

104. We also find that the Hon’ble Punjab & Haryana High Court in CIT v. Ravi Kumar, [2007] 294 ITR 78 (P&H), while considering section 69A, recognised the requirement that the assessee should be found to be the owner of money, bullion, jewellery or other valuable article and that the same should not be recorded in the books. In that case, loose slips were found, but the possession and ownership of the valuable articles referred to therein were not established, and section 69A of the Act was consequently held inapplicable. The principle assumes even greater force in the present case because even the loose sheet itself was not found from the assessee. It was found from Shri M.Gopal. Therefore, if section 69A of the Act could not be invoked merely because a person possessed loose slips mentioning valuable articles without proof of possession or ownership of the articles themselves, a fortiori it cannot be invoked against the present assessee merely because a loose sheet found from an altogether different person contains a narration which the Revenue seeks to connect with the assessee. The requirement of ownership u/s.69A of the Act is not an empty formality. It is the jurisdictional or foundational fact upon which the deeming fiction operates. Unless ownership of the money or valuable article is first established, the question of calling upon the assessee to explain the nature and source of acquisition thereof does not arise. In the present case, there is no evidence whatsoever that the assessee was found to be the owner of the alleged Rs.1,00,00,000/-. Indeed, the Revenue’s own case is not that Rs.1,00,00,000/- was found in the possession of the assessee. The case sought to be made is that the amount had allegedly been paid out by somebody from an office of the Appaswamy Group to Shri M.Gopal. Such an allegation, even if assumed for argument’s sake, describes an alleged expenditure or outflow and not money found in the ownership of the assessee within the contemplation of section 69A of the Act. This internal inconsistency in the Revenue’s approach is significant. If the allegation is that Rs.1,00,00,000/- was paid by the assessee to Shri M. Gopal, the Revenue must first establish the incurrence of expenditure before section 69C can be considered. If, on the other hand, the Revenue invokes section 69A, it must establish that the assessee was found to be the owner of unexplained money. On the facts before us, neither foundational requirement is satisfied. The same unproved allegation cannot simultaneously substitute for the statutory foundational facts under two distinct deeming provisions. Under section 69C, the missing foundational fact is proof that expenditure was actually incurred by the assessee. Section 69A of the Act, the missing foundational fact is proof that the assessee was found to be the owner of the money in question. The loose sheet recovered from Shri M.Gopal establishes neither.

105. We therefore hold that the alternative reference to section 69A in the assessment proceedings cannot salvage the impugned addition. Section 69A is independently inapplicable because the assessee has never been found to be the owner of the alleged money and no money corresponding to the disputed sum has been found from its possession or control. We may further observe that deeming provisions such as sections 69A and 69C of the Act operate upon satisfaction of the specific statutory conditions prescribed therein. The existence of suspicion concerning an unaccounted transaction cannot permit interchangeability of these provisions without first identifying and proving the foundational facts peculiar to each provision. The Revenue must establish the fact which attracts the particular deeming provision. It cannot begin with the desired conclusion that Rs.1,00,00,000/- represents undisclosed income and thereafter search among sections 69A and 69C for a provision under which the amount may somehow be brought to tax.

106. We also do not find merit in Ground No.3 of the Revenue alleging that the Ld.CIT(A) adopted some fresh methodology without affording adequate opportunity to the AO. No specific additional evidence admitted by the Ld.CIT(A) has been identified before us. No fresh document, statement, confirmation or factual material has been pointed out which was received behind the back of the AO.

107. The Ld.CIT(A) has merely evaluated the evidentiary sufficiency of the material relied upon in the assessment order. The first appellate authority is not confined merely to reproducing the inference of the AO. It is duty-bound to independently examine whether the material on record satisfies the statutory requirements for the addition made. A conclusion by the appellate authority that the AO has failed to establish a particular fact does not constitute additional evidence. It constitutes appellate appreciation of the existing record.

108. The Revenue’s reference in Ground No.3 to a methodology concerning “undisclosed purchases” is also unexplained in the context of the present controversy. The impugned addition concerns an alleged payment of Rs.1,00,00,000/- and not any methodology concerning quantification or acceptance of undisclosed purchases. No factual basis has been shown to us for the said averment. We therefore find the ground factually misconceived.

109. We also reject the contention of the Ld.DR that the absence of incriminating material from the assessee’s premises has been given disproportionate importance by the Ld.CIT(A). The absence of corresponding material from the assessee has not been considered in isolation. It forms one component of the cumulative evidentiary assessment. When a third-party document is sought to be used against an assessee and the transaction is denied, the fact that an extensive search of the assessee’s premises yields no corresponding document, no unaccounted cash, no parallel books, no payment voucher, no cash withdrawal and no other material corroborating the allegation is plainly a relevant circumstance. It does not conclusively prove the negative by itself, but it substantially enhances the necessity for the Revenue to bring some independent material connecting the third-party allegation with the assessee. No such material has been brought before us.

110. We are equally unable to accept the contention advanced on behalf of the Revenue that the denial of the assessee was merely self-serving in nature and, therefore, incapable of displacing the evidentiary value of the material relied upon by the AO. In our considered opinion, such an argument proceeds on an erroneous appreciation of the burden of proof. The issue is not whether a bare denial by an assessee would, by itself, override or nullify incriminating material found during the course of search. The real and fundamental issue is whether the material relied upon by the Revenue, considered on its own evidentiary worth and in conjunction with the surrounding circumstances, establishes that the alleged expenditure of Rs.1,00,00,000/- was, in fact, incurred by the assessee. Unless this foundational fact is first established by cogent material, the burden cannot be shifted upon the assessee merely by describing its denial as self-serving.

111. The Revenue cannot derive strength from the alleged weakness of the assessee’s denial unless it first discharges the initial burden resting upon it of establishing a live and credible nexus between the assessee and the alleged transaction. A denial may undoubtedly require examination when confronted with reliable incriminating evidence; however, the denial cannot itself be converted into evidence of the transaction alleged by the Revenue. The addition must stand on the strength of the material brought on record by the Assessing Officer and not upon the supposed inadequacy of the explanation or denial offered by the assessee.

112. When the evidentiary material available on record is examined in this perspective, we find several fundamental links in the Revenue’s case to be conspicuously absent. The loose sheet forming the very foundation of the impugned addition was admittedly not found from the premises of the assessee or from the premises of any entity belonging to the Appaswamy Group. It was recovered from the premises of a third party. Therefore, before the contents thereof could be translated into an addition in the hands of the assessee, it was incumbent upon the AO to establish, through independent and credible material, that the transaction recorded therein represented an expenditure actually incurred by the assessee.

113. Significantly, the person who is alleged to have physically delivered the sum of Rs.1,00,00,000/- has never been identified. The record does not disclose his name, designation, employment particulars or any other material capable of establishing his relationship with the assessee. There is no material to demonstrate that such person was an employee, agent, representative or any other person authorised to act for or on behalf of the assessee. In the absence of identification of the alleged carrier of the cash itself, the further inference that such unidentified person acted for the assessee necessarily rests upon assumption rather than established fact.

114. Equally significant is the absence of any evidence regarding the source from which the alleged sum of Rs.1,00,00,000/- emanated. No corresponding cash withdrawal from any disclosed bank account of the assessee has been identified. No unaccounted cash book, parallel ledger, secret account, cash trail or other document has been recovered from the assessee demonstrating generation or availability of such unaccounted funds. There is also no material indicating withdrawal, diversion or utilisation of any amount from the books of account of the assessee corresponding to the alleged payment. Thus, neither the origin of the alleged cash nor its movement from the assessee has been demonstrated.

115. It is further relevant that no document corresponding to the third-party loose sheet was recovered from the assessee. No parallel books of account or other contemporaneous record was found at the premises of the assessee recording or even remotely referring to the alleged payment. There is similarly no evidence of any subsequent accounting adjustment, settlement or utilisation of the alleged amount for the benefit of the assessee. In other words, the third-party notation stands in isolation without any corresponding evidentiary footprint in the records, books, premises or financial affairs of the assessee.

116. We also find that no director, employee, officer or authorised representative of the assessee has admitted that the alleged sum of Rs.1,00,00,000/- was paid to Shri M.Gopal or to any other person. On the contrary, when the relevant material was confronted during the course of search itself, the Managing Director of the Appaswamy Group categorically denied any knowledge of the alleged transaction. Such denial was not an explanation conceived subsequently after completion of the investigation but was made contemporaneously when the matter was confronted during the search proceedings. The Revenue has not brought any material on record demonstrating that the said denial was false or factually untenable.

117. It is also of considerable importance that no investigation appears to have been carried out to establish the identity of the person allegedly deputed from the office of the Appaswamy Group, the circumstances in which he allegedly carried the cash, the place from which the cash originated, the person who authorised the alleged payment or the purpose for which the amount was allegedly paid. These are not peripheral matters. They constitute essential links in the chain which the Revenue was required to establish before fastening an unexplained expenditure of Rs.1,00,00,000/- upon the assessee.

118. We further notice that no evidence has been brought on record demonstrating the utilisation of the alleged amount either by the assessee or for the purposes of the assessee. The assessment order does not identify any asset acquired, liability discharged, investment made, service obtained or expenditure incurred corresponding to the alleged sum. Thus, even the ultimate destination or purpose of the alleged payment remains unsubstantiated. The conclusion that the amount represented expenditure incurred by the assessee is, therefore, not supported by evidence establishing the actual incurrence of such expenditure. Another important feature which cannot be ignored is that the statement of the third-party witness constitutes a material component of the case sought to be built by the Revenue, whereas no effective opportunity of cross-examination was afforded to the assessee. Where a statement recorded from a third party is sought to be relied upon materially for drawing an adverse inference against an assessee, the evidentiary value of such statement necessarily has to be examined in the light of the surrounding corroborative evidence and the opportunity afforded to the affected party to test its veracity. In the present case, the absence of independent corroboration assumes still greater significance when the statement itself was not subjected to the test of cross-examination at the instance of the assessee.

119. Above all, the essential jurisdictional fact underlying the addition, namely, the actual incurrence of the alleged expenditure by the assessee, has not been established. A notation in a document belonging to a third party may constitute a relevant lead warranting investigation. It may justify further enquiry into the transaction referred to therein. However, there is a material distinction between information furnishing a basis for investigation and evidence sufficient to sustain an addition. The former cannot automatically be elevated into the latter without the intervening factual links being established through credible evidence.

120. Viewed cumulatively, therefore, the circumstances noticed hereinabove clearly demonstrate that the case of the Revenue does not travel beyond the realm of suspicion and inference. The document was recovered from a third party; the alleged carrier of the cash remains unidentified; his relationship with the assessee has not been established; the source of the alleged sum has not been traced; no corresponding cash withdrawal or movement of funds has been demonstrated; no generation of unaccounted cash in the hands of the assessee has been established; no parallel books or corresponding documents were recovered from the assessee; no director, employee or authorised representative admitted the payment; the Managing Director denied knowledge of the transaction when confronted during the search itself; the falsity of such denial has not been demonstrated; the purpose or utilisation of the alleged amount has not been established; and the third-party statement relied upon by the Revenue was not tested by cross-examination. These are not isolated deficiencies capable of being brushed aside individually. Taken together, they go to the very root of the addition.

121. We, therefore, find ourselves in complete agreement with the conclusion reached by the Ld.CIT(A) that the AO proceeded directly from a notation appearing in a third-party document to the conclusion that the assessee had incurred unexplained expenditure of Rs.1,00,00,000/-, without establishing the indispensable intervening links connecting the assessee with the alleged payment. Such an inferential leap, in our considered opinion, cannot sustain an addition under the Act.

122. It is well settled in the realm of assessment proceedings that suspicion, howsoever strong, may furnish a legitimate starting point for investigation, but it cannot by itself constitute the concluding evidence necessary for sustaining an addition. The Assessing Officer was undoubtedly entitled to investigate the loose sheet and the statement recorded from the third party. However, once such investigation failed to yield independent evidence establishing the actual payment by or on behalf of the assessee, the mere existence of the third-party notation could not substitute proof of the transaction in the hands of the assessee.

123. The evidentiary distinction assumes greater importance where the document relied upon is recovered not from the possession or control of the assessee but from the premises of an altogether different person. The contents of such a document cannot, merely by reason of its seizure, be treated as conclusively establishing a transaction against the assessee named or allegedly referred to therein. What is required is credible corroborative material establishing the nexus between the assessee and the transaction recorded in the third-party document. The statutory consequences attaching to possession of a seized document cannot mechanically be extended so as to presume, against another person, the truth of every factual assertion or inference sought to be drawn from that document.

124. In the present case, the Revenue has failed to bridge this evidentiary gap. There is no independent material which travels from the third-party document to the books, bank accounts, cash resources, employees, directors or financial affairs of the assessee. There is likewise no evidence travelling in the reverse direction from the assessee to Shri M.Gopal demonstrating that the sum of Rs.1,00,00,000/- originated from the assessee. In the absence of such connecting material, the third-party document and statement remain uncorroborated insofar as the alleged payment by the assessee is concerned. We have also carefully considered the challenge of the Revenue to the findings recorded by the Ld.CIT(A). Nothing has been brought before us to demonstrate that the Ld.CIT(A) omitted to consider any material evidence forming part of the assessment record. Nor has the Revenue been able to point out any irrelevant consideration which influenced the decision of the Ld.CIT(A). No portion of the seized document or the statement relied upon by the AO has been shown to have been incorrectly reproduced, misunderstood or ignored by the first appellate authority.

125. More importantly, no additional or overlooked material has been placed before us which establishes the actual movement of Rs.1,00,00,000/- from the assessee to Shri M. Gopal or to any person acting on his behalf. The Revenue has not identified any evidence which, though available on the assessment record, was omitted from consideration by the Ld.CIT(A) and which would establish the actual incurrence of the alleged expenditure by the assessee.

126. The challenge of the Revenue, when examined in its proper perspective, therefore, substantially amounts to an invitation to substitute the inference drawn by the AO for the inference drawn by the Ld.CIT(A) on the basis of the same third-party loose sheet and statement. However, a mere possibility of drawing another inference from the material cannot render the conclusion of the first appellate authority perverse, particularly when the conclusion reached by him is founded upon the absence of the essential evidentiary links necessary to connect the assessee with the alleged transaction.

127. A factual finding may be regarded as perverse where it is based on no evidence, is manifestly contrary to the material available on record, takes into consideration matters wholly irrelevant to the issue, or ignores material evidence which has a direct and necessary bearing upon the conclusion. Perversity cannot be established merely by asserting that another view of the material was possible. The party alleging perversity must demonstrate that the conclusion reached is one which could not reasonably have been arrived at upon a proper consideration of the evidence on record.

128. Tested on the aforesaid parameters, we find no perversity whatsoever in the order of the Ld.CIT(A). On the contrary, the Ld.CIT(A) has examined the material relied upon by the AO, considered the circumstances surrounding the alleged transaction and identified the fundamental evidentiary deficiencies in the case made out by the Revenue. We find that the conclusions of the Ld.CIT(A) are firmly rooted in the assessment record and are supported by cogent reasons. The deficiencies noticed by the Ld.CIT(A) have not been cured before us. The Revenue has neither produced corroborative material establishing the alleged payment nor demonstrated any factual or legal error in the reasoning adopted by the Ld.CIT(A). The mere reiteration of the contents of the third-party loose sheet and the statement recorded from the third party cannot supply the missing nexus between the assessee and the alleged expenditure.

129. We accordingly hold that the material relied upon by the AO was insufficient to establish that the assessee had actually incurred expenditure of Rs.1,00,00,000/-. The fundamental factual premise necessary for sustaining the impugned addition thus remains unproved. The Ld.CIT(A), in our considered view, was fully justified in deleting the addition after appreciating the evidence in its proper perspective. We, therefore, concur with the findings and conclusion of the Ld.CIT(A). We find no factual infirmity, legal error or perversity in the order of the first appellate authority warranting interference by us. The contentions advanced by the Revenue to the contrary are devoid of merit and are accordingly rejected.

130. Before parting, we find that Ground No.1 raised by the Revenue is general in nature. In view of our findings hereinabove, no factual or legal error in the impugned order has been demonstrated. The same is accordingly dismissed.

131. Ground No.2 specifically challenges deletion of the addition of Rs.1,00,00,000/- u/s.69C. For the reasons already recorded, the foundational requirement of actual incurrence of expenditure by the assessee has not been established. The addition cannot therefore be sustained u/s.69C and Ground No.2 is dismissed.

132. Ground No.3 concerning alleged absence of opportunity to the AO is unsupported by any identification of additional evidence admitted by the Ld.CIT(A). The appellate authority has merely appreciated the material already on record. The ground is accordingly dismissed.

133. Ground Nos.4 and 5 relating to sections 132(4A) and 292C are also without merit. The document was recovered from Shri M. Gopal and not from the assessee. The statutory presumption attaching to a document found from one person cannot, without establishment of the necessary nexus, be expanded into conclusive proof of unexplained expenditure incurred by another person. The decision relied upon by the Revenue does not dispense with proof of the foundational facts necessary for making the addition in the hands of the present assessee. These grounds are accordingly dismissed.

134. Ground No.6 concerning the sworn statement and reliance upon B.Kishore Kumar is also rejected. The present case involves no admission by the assessee. It involves a third-party allegation categorically denied by the assessee group during the search itself. The allegation has not been independently corroborated. The factual foundation is therefore materially distinguishable. Ground No.6 is dismissed.

135. Ground No.7 is general and consequential and requires no separate adjudication.

136. We further hold that the alternative invocation of section 69A cannot sustain the addition. The assessee was never found to be the owner of Rs.1,00,00,000/- or any corresponding unaccounted money. No such money was found or seized from the assessee. A loose sheet found from a third party containing a reference to an alleged payment cannot be equated with the assessee being “found to be the owner” of money within the meaning of section 69A. The essential statutory condition for application of section 69A is therefore also absent. Thus, examined from either statutory standpoint, the addition fails. If the case is tested under section 69C, the Revenue has failed to prove that the assessee incurred the alleged expenditure. If the case is tested under section 69A, the Revenue has failed to prove that the assessee was found to be the owner of the alleged money. The deficiencies are foundational and not merely procedural.

137. Having regard to the totality of the facts and circumstances, we are of the considered view that the Ld.CIT(A) has correctly appreciated the evidentiary value of the third-party material, the limited operation of the statutory presumptions, the effect of the contemporaneous denial by the assessee, the absence of corroborative evidence and, most importantly, the failure of the AO to establish the foundational requirements of section 69C of the Act. We accordingly concur with the findings and reasoning of the Ld.CIT(A). The Revenue has failed to bring before us any material warranting interference with the well-reasoned order of the first appellate authority. The observations made by the AO and the contentions advanced by the Ld.DR do not overcome the fundamental evidentiary deficiencies noticed hereinabove. We therefore uphold the order of the Ld.CIT(A) deleting the addition of Rs.1,00,00,000/- made u/s.69C of the Act. We further hold that the said amount cannot alternatively be brought to tax u/s.69A of the Act on the facts and material available on record. Accordingly, the grounds raised by the Revenue are dismissed.

138. In the result, the appeal filed by the Revenue stands dismissed.

Order pronounced on 28th September, 2026 at Chennai.