ITAT Deletes Addition Made u/s 69A Based on Promissory Note Found in Possession of Third Party

The Income Tax Appellate Tribunal (ITAT), Mumbai, has recently deleted an addition made by an assessing officer (AO), based on the promissory note found during a search operation in the possession of a third party.

The assessee, Bharti Mukesh Chandarana, an NRI, allegedly did not file her Income Tax Return (ITR) for 2017-18. A research and seizure operation was conducted in the case of Jesus Lal and the Universal Education group, Mumbai, where a promissory note was found written by Jesus S. Lal. On the note, it was written that Jesus S Lal promised to pay the assessee a sum of Rs 2.50 Crore. The AO, based on this information, concluded that the assessee had given a cash loan of Rs 2.50 Crore, and the income of the assessee had escaped assessment.

The assessee submitted that she gave a loan of Rs 50 lakh to Jesus Lal through a regular banking channel, and it was outstanding as of 31st March 2017. However, the reply was rejected, and the AO added Rs 2.50 crore under section 69A to the income of the assessee. The assessee approached the DRP challenging the validity of reopening, issuing notice, and the said addition. However, the DRP upheld the AO’s decision. Therefore, the assessee filed an appeal before the Income Tax Appellate Tribunal (ITAT), Mumbai, where the assessee challenged the addition along with the jurisdiction of the reopening notice under section 148, saying it was issued without proper approval and beyond the prescribed time limits.

The ITAT observed that the addition was only based on a promissory note without any corroborative evidence. It noted that the promissory note was found in the possession of a third party and was not directly related to the assessee. Additionally, Jesus Lal was not called during the assessment to question about the loan. It held that a figure mentioned on a paper cannot be considered as evidence for treating the figure as unexplained money. Therefore, the Tribunal deleted the addition of Rs 2.50 crore.