Gujarat HC deletes Rs. 6.31 Crore Income Tax Addition solely based on unverified document

The assessee, engaged in the scrap business, filed his return declaring an income of Rs. 37.33 lakh for AY 2017-18. During a survey under Section 133A, the department found a notarized agreement dated 21.12.2019 in the backup of the assessee’s mobile phone, allegedly showing an investment of Rs. 6.31 crore. The Assessing Officer treated this amount as an unexplained investment under Section 69. The assessee denied the allegation, admitting only an investment of Rs. 26.5 lakh and claiming the agreement was signed under coercion.

CIT(A) and ITAT Held: The CIT(A) deleted the addition, noting that the AO had not verified the agreement’s contents, summoned the other parties, or corroborated the transactions through bank records. The ITAT affirmed the deletion, observing that the agreement, being a “dumb document” without proof of fund flow, could not justify an addition.

Issue Raised: Whether an addition under Section 69 of the Income Tax Act can be sustained solely based on a notarized agreement found during a survey, without corroborating evidence of fund transfer or independent verification.

HC Held: The Gujarat High Court dismissed the revenue’s appeal, holding that no substantial question of law arose. It agreed with the concurrent findings of the CIT(A) and ITAT that the AO failed to verify the veracity of the notarised agreement or trace any banking transactions evidencing investment. The Court noted that the assessee had even filed complaints alleging coercion in signing the document. As no corroborative evidence was produced by the department, the addition based solely on the unverified document was unsustainable.

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