PCIT Vs Global Tech Park Pvt. Ltd. (Karnataka High Court)
Scribbled Figures Are Not ₹10 Crore Income: Karnataka HC Rejects Addition Based on Loose Sheet
Loose Sheet Without Corroborative Evidence Cannot Establish Undisclosed Cash Payment
The Karnataka High Court has upheld the deletion of an addition of ₹10 crore made solely on the basis of figures scribbled on loose sheets found during a search.
The Court found that the figures appearing on the loose sheets were not supported by any material showing that the assessee had actually paid cash over and above the consideration disclosed in the registered sale deed. No evidence of withdrawal, movement or receipt of unaccounted money was discovered during the search.
The Court held that the legal position concerning uncorroborated loose sheets was already settled by the Supreme Court in Central Bureau of Investigation v. V.C. Shukla and by the Karnataka High Court in Deputy Commissioner of Income Tax v. Sunil Kumar Sharma.
Consequently, no substantial question of law arose under Section 260A, and the Revenue’s appeal was dismissed.
Search Conducted at Assessee’s Premises
Global Tech Park Pvt. Ltd. filed its original return of income for Assessment Year 2016-17 on October 17, 2016, declaring nil income.
A search was conducted at the assessee’s premises on February 1, 2018. Thereafter, the Assessing Officer issued a notice dated January 10, 2019, under Section 153A. In response, the assessee filed its return on February 27, 2019, once again declaring nil income.
During the assessment proceedings, the Assessing Officer made an addition of ₹1,09,97,172 towards alleged undisclosed interest accrued on loans and advances. Though the assessee initially challenged this addition before the Tribunal, it subsequently conceded the issue.
The principal controversy before the High Court concerned a separate addition of ₹10 crore based upon loose sheets found during the search.
Scribblings Related to Property Transaction
The loose sheets contained certain handwritten figures made by the assessee’s Chief Financial Officer, B.V. Vijendra.
When confronted with the documents, the CFO explained that the figures represented a loan-related calculation prepared in connection with the purchase of a property by the assessee.
The property was acquired on December 28, 2015, for a recorded consideration of ₹92 crore. The acquisition was partly funded through a loan of ₹65 crore obtained from Aditya Birla Finance Limited.
The CFO stated that the figures had been scribbled for a calculation intended to show an inflated value of the property for obtaining a larger loan. According to him, the figures did not represent any additional consideration actually paid for acquiring the property.
AO Treats Figures as Undisclosed Consideration
The Assessing Officer nevertheless treated the figures appearing on the loose sheets as evidence of an additional cash payment and made an addition of ₹10 crore.
The Department relied upon the fact that the ownership of the seized papers had not been denied. It also argued that the cheque component mentioned in the papers broadly corresponded with the consideration reflected in the registered sale deed.
According to the Revenue, the statement recorded from the assessee’s representative regarding the contents of the document further supported the inference that the loose sheet related to the property transaction.
However, no independent evidence was discovered to show that the assessee had paid ₹10 crore in cash or incurred consideration exceeding the amount recorded in the registered sale deed.
There was no material showing a cash withdrawal, payment to the seller, acknowledgment by the recipient or movement of unaccounted funds.
The Commissioner (Appeals) nevertheless confirmed the addition by an order dated September 30, 2024.
Tribunal Deletes ₹10 Crore Addition
The Tribunal allowed the assessee’s appeal on this issue.
It held that loose sheets could not be regarded as books of account. Figures or notings appearing on such sheets could not automatically be treated as sums recorded in the assessee’s books or as conclusive evidence of undisclosed income.
The Tribunal found that the loose sheets were not corroborated by any incriminating evidence establishing that the figures represented the actual consideration paid by the assessee.
The mere connection of the loose sheet with the property transaction did not prove that every figure mentioned in it represented a completed financial transaction.
Karnataka High Court Upholds Tribunal’s Findings
The High Court agreed that the Assessing Officer had made the addition solely on the basis of the figures written on the loose sheet.
The Court observed that no evidence or material was found indicating that the assessee had paid any amount over and above the consideration reflected in the registered sale deed.
It held that the issue was no longer open to controversy. In CBI v. V.C. Shukla, the Supreme Court had explained the limited evidentiary value of entries in loose sheets and the need for independent corroboration.
The Karnataka High Court had applied the same principle in DCIT v. Sunil Kumar Sharma, 159 taxmann.com 179, holding that uncorroborated loose sheets could not independently sustain a tax addition.
Since the Tribunal had applied the settled legal position to the evidence available on record, the Court found no substantial question of law. The Revenue’s appeal was accordingly dismissed.
Author’s Comments
The decision does not lay down that every loose sheet found during a search must be ignored. A loose sheet may constitute relevant incriminating material if its entries are supported by other evidence such as statements of the recipient, cash withdrawals, parallel accounts, electronic records, confirmations or proof of actual payment.
However, ownership of a document and proof of the transaction recorded in it are two different matters. Admission that a loose sheet belongs to the assessee does not necessarily amount to an admission that every figure written on it represents undisclosed income or expenditure.
Similarly, where part of the notation tallies with the registered transaction, that circumstance may establish a connection with the transaction but does not automatically prove payment of the remaining amount in cash.
The Department must establish a clear link between the scribbled figure and an actual financial transaction. Suspicion, however strong, cannot substitute evidence of payment.
The practical takeaway is that the assessee’s explanation for seized loose sheets should be supported by the registered document, banking trail, loan papers, ledger accounts and statements of persons involved. Conversely, an addition cannot be sustained merely by selecting an unexplained figure from a rough working and treating it as completed cash consideration without independent corroboration.
Cases Discussed
- Central Bureau of Investigation v. V.C. Shukla (Supreme Court) — [1998] 3 SCC 410 / AIR 1998 SC 1406.
- DCIT v. Sunil Kumar Sharma (Karnataka High Court) — [2024] 159 taxmann.com 179.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
1. The Revenue has filed the present appeal under Section 260A of the Income Tax Act, 1961 [Act] impugning the order dated 31.07.2025 passed by the learned Income Tax Appellate Tribunal, Bangalore [ITAT] in ITA No.2319/Bang/2024.
2. The Tribunal had passed the consolidated order in respect of ITA Nos.2315 to 2320/Bang/2024, which were preferred by the Assessee (Global Tech Park Private Limited) in respect of Assessment Years [AYs] 2012-13 to 2017-18 as well as the ITA No.2363/Bang/2024, which was preferred by the Revenue in respect to the AY 2013-14. As noted above, the present appeal arises out of ITA No.2319/Bang/2024 in respect of AY 2016-17.
3. The Revenue has projected the following substantial question of law for consideration of this Court:
“1. Whether, in the facts and circumstances of the case, the Tribunal has not erred in holding that the seized loose paper is completely uncorroborated, despite the fact that the ownership of the said seized documents are not denied, cheque part of the consideration is tallied with the registered sale deed and the Director of the assessee company admitting the contents of the loose sheet and as such, the order of the Tribunal is perverse?”
4. The Assessee had filed its original return of income on 17.10.2016 declaring Nil income. A search was conducted in the premises of the Assessee on 01.02.2018. Thereafter, Assessing Officer [AO] issued a notice dated 10.01.2019 under Section 153A of the Act to the Assessee. In response to the said notice, the Assessee filed a return of income on 27.02.2019, declaring Nil income for the relevant AY.
5. During the course of the assessment proceedings, the AO made an addition of `1,09,97,172/-, inter alia, on account of undisclosed income relating to interest accrued on loans and advances. Although, the said addition was subject matter of challenge by the Assessee before the learned ITAT, the Assessee subsequently conceded the same.
6. The principal issue in the present case relates to an addition of `10 crores made on the basis of certain loose sheets found during the course of the search proceedings, which reflected certain figures. The said loose sheet contained scribblings by the Chief Financial Officer [CFO] of the Assessee, Sri B.V. Vijendra. He was confronted with the said loose sheets and in his statement, stated that the figures mentioned therein were intended to represent the loan calculation for the purpose of purchase of a property acquired by the Assessee. It is stated that subject property was acquired for a consideration of `92 crores on 28.12.2015.
7. It is stated that the acquisition was funded by a loan of `65 crores obtained from M/s. Aditya Birla Finance Limited Bank. The CFO had explained that the figures were scribbled to show a calculation intended to inflate the value of the subject property in order to get a larger loan.
8. The figures mentioned in the said loose sheets were not corroborated by any other evidence or material to establish that the figures scribbled on the said sheets represented the actual consideration for acquisition of the subject property or in any manner relates to the transaction of its purchase by the Assessee.
9. Notwithstanding the same, the AO proceeded to make the addition solely on the basis of the figures scribbled on the loose sheet, which were not corroborated by any other material or evidence to suggest that any cash had been paid. No evidence or material was found to indicate that any funds other than amount as reflected in the sale deed had paid.
10. The Assessee had preferred an appeal under Section 250 of the Act before the learned Commissioner of Income Tax (Appeals)-11, Bengaluru [CIT(A)]. In this regard, the learned CIT(A) dismissed the appeal by an order dated 30.09.2024.
11. The learned ITAT held in favour of the Assessee finding that the loose sheets could not be considered as books of account and any figures scribbled therein could not be considered as representing any sum recorded in the books of the Assessee.
12. The issue as to whether such loose sheets, without any other incriminating material, could form the basis for making an addition and whether such scribbled figures on the loose sheet form the basis for assessment in the absence of any corroborative material, is no longer res integra.
13. The ITAT rightly found that the issue was covered by the decision of the Supreme Court in Central Bureau of Investigation Vs. V.C. Shukla & Ors1. The ITAT had also rightly referred to the decision of this Court in Deputy Commissioner of Income-Tax Vs. Sunil Kumar Sharma2.
14. In view of the settled law, no substantial question of law arises for consideration by this Court. The appeal is accordingly dismissed.
Notes:
1 AIR 1998 SC 1406
2 [2024] 159 taxmann.com 179 (Karnataka)
