Income Tax Addition Based on Rough Paper Not Valid: ITAT

The Income Tax Appellate Tribunal (ITAT) in New Delhi recently ruled in favour of an assessee by deleting additions which was based on a handwritten note found during the search operation.

The income tax authority had conducted a search and seizure operation on the assessee company, M/s Adrem India, under section 132 of the Income Tax Act, on 09.02.2022, where the authority found and seized a handwritten note. The Income Tax Authority concluded that this note had unaccounted cash receipts of the company over the years, as the cash receipts were allegedly written under the heading, “receipts in cash“.

Based on this note, the AO made additions under section 28 of the Income Tax Act, 1961. The assessee challenged these additions before the CIT(A), but did not succeed. Therefore, the assessee company filed an appeal before the ITAT, Delhi.

The assessee argued that these notes were just rough estimations related to a venture that was never established.

The Tribunal carefully examined the handwritten note and observed that it had terms like “approximate” and “projection”, and “estimation” mentioned on it, and it did not provide any solid proof showing actual income or sales. Also, during the search, no evidence was found that could result in any event leading to income generation.

The tribunal further noted that the AO had relied on statements made by the director, Shri Hardesh Chawla, about unaccounted cash sales. However, the director later retracted his statement with an affidavit, claiming it was not true.

Therefore, the ITAT allowed the appeal, deleted the additions made by the AO, and set aside the CIT(A)’s order, as the evidence provided was not enough to support the claims.