Background
During a search conducted on a third party, a diary was seized which contained notings allegedly indicating that the assessee had received amounts in connection with the sale of certain property — specifically, transactions in plots of land.
Based solely on these diary notings, the Assessing Officer treated the said amounts as undisclosed income and made an addition to the assessee's income under Section 69A of the Income Tax Act. The CIT(A) confirmed the addition. The assessee appealed to the ITAT.
Key Facts on Record
No material or document relating to the alleged transactions was found during the search conducted on the assessee himself.
The assessee's statement was recorded under Section 131(1A). When confronted with the seized diary, the assessee repeatedly denied having anything to do with the transactions noted therein.
The assessee's denial is expressly recorded in both the assessment order and the CIT(A)'s order — neither authority disputed this fact.
The third party from whose premises the diary was seized did not submit any statement on oath confirming that the diary notings related to the assessee.
One RVS — who was also searched — was alleged to be the other party to the transactions. His statement was recorded during the search on him. The department could not point to any admission or comment by RVS linking the transactions to the assessee.
The department produced no evidence whatsoever linking the assessee to the plots of land in any manner.
Findings of the ITAT
The Tribunal held the addition to be not sustainable and directed the AO to delete it. The reasoning was comprehensive:
Diary notings alone are insufficient
Other than the notings in the diary seized during the search on the third party, there was no other material with the department to corroborate the inference that the assessee had received amounts from the alleged transactions.
No material found during search on assessee
Admittedly, no material or document relating to the said transactions was found during the search conducted on the assessee himself. The entire case rested on a document found at a third party's premises.
Assessee consistently denied involvement
The assessee was confronted with the seized material under Section 131(1A) and repeatedly denied any connection to the transactions. This denial was not rebutted by the department.
Third party gave no corroborating statement
The department did not establish that the third party — from whose premises the diary was seized — had submitted any statement on oath confirming that the notings related to the assessee.
RVS gave no corroborating statement
RVS, the alleged counterparty who was also searched, made no admission or comment linking the transactions to the assessee. The department could not draw attention to any such statement.
Addition based on mere presumption
In the absence of any corroborative evidence, the addition was based purely on presumptions drawn from a third party's diary. Such an addition is not sustainable in law.
Ratio
An addition under Section 69A cannot be sustained on the basis of diary notings found during a search on a third party, where no corroborative evidence links the assessee to the alleged transactions, the assessee has denied involvement, and neither the third party nor any other searched person has confirmed the notings in a statement on oath. An addition based merely on presumptions drawn from seized material is not sustainable in law.
Outcome
The ITAT held the addition to be not sustainable and directed the Assessing Officer to delete the addition. The appeal was decided in favour of the assessee.
Mahendra Harjivan Morabia v. DCIT (2026) 182 taxmann.com 474 (ITAT Ahmedabad) — AY 2010-11
Practical Takeaway
- ▸Diary notings found during a search on a third party are not, by themselves, sufficient to sustain an addition under Section 69A in the hands of another person.
- ▸The department must produce corroborative evidence — such as documents found during the assessee's own search, admissions by the third party or counterparty on oath, or independent material linking the assessee to the transactions.
- ▸If confronted with seized material under Section 131(1A), clearly and consistently deny any involvement if the facts so warrant. This denial on record is a critical piece of evidence at the appellate stage.
- ▸The burden is on the Revenue to establish a nexus between the seized material and the assessee. Mere inference or presumption from a third party's diary is insufficient.
- ▸If an addition is made solely on the basis of third party seized material without any corroboration, it is challengeable before the CIT(A) and ITAT on this ground.