The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) upheld the deletion of an addition of Rs 3.16 crore, holding that unrecorded income cannot be assessed merely on the basis of rough electronic spreadsheets seized during a search when official land records establish that the proposed transaction never materialised. A Bench comprising Vice President Dr. B.R.R. Kumar and Judicial Member T.R. Senthil Kumar dismissed the Revenue’s appeal on this issue and affirmed the relief granted to the assessee.

The dispute arose from a search conducted at the premises of Dhaval Patel, during which the Revenue seized digital backup sheets containing details of a proposed real estate transaction. Based on the entries reflected in these electronic records, the Assessing Officer concluded that the assessee had received unaccounted consideration of Rs 3.16 crore and brought the amount to tax.

In appeal, the assessee produced official 7/12 land revenue records showing that the proposed land transaction had never been completed and that ownership of the property continued to remain with the original landholder. Accepting this evidence, the Commissioner of Income Tax (Appeals) deleted the addition, prompting the Revenue to challenge the relief before the Tribunal.

Before the ITAT, the Revenue relied upon the seized electronic spreadsheets to contend that the assessee had earned undisclosed income from the proposed transaction. The assessee, on the other hand, argued that the documents were merely rough notings relating to a contemplated deal that ultimately did not fructify.

“Additions cannot be sustained merely on presumptions arising from rough electronic sheets without supporting evidence of an actual transaction.”

The Tribunal noted that the Assessing Officer had failed to conduct any independent verification with the alleged buyers, intermediaries, or other persons connected with the proposed transaction. It further observed that no evidence was brought on record to demonstrate the movement of cash, utilisation of funds, or acquisition of any asset corresponding to the amount reflected in the seized documents.

The Bench attached significant importance to the official land revenue records, which continued to show the property in the name of the original owner and corroborated the assessee’s explanation that the transaction never materialised.

“When official land ownership records remain unchanged and no evidence of fund movement is found, rough notings by themselves cannot justify an addition.”

Holding that the Revenue had failed to produce any material contradicting the land records or proving actual receipt of unaccounted money, the Tribunal concluded that the addition was based purely on assumptions. Accordingly, it upheld the order of the CIT(A) deleting the addition of Rs 3.16 crore.

The cross-appeals were partly allowed; however, the Revenue’s challenge to the deletion of the Rs 3.16 crore addition was dismissed.