An addition cannot be based solely on a third-party document denied by the assessee.

Issue

Can a tax addition be made against a person based solely on a loose document found at the premises of a third party, especially when that person completely denies the transaction, alleges forgery, and provides evidence to support their claim?

Facts

During a survey conducted at the premises of a third party, the tax department found a document, an ‘Iqrarnama’ (a form of agreement or declaration).
This document alleged that the assessee had advanced a loan of ₹53 lakhs to a person named VK and had earned ₹9.54 lakhs in interest on it.
Based solely on this piece of paper, the Assessing Officer (AO) made an addition of ₹62.54 lakhs to the assessee’s income, treating it as unexplained money and interest.
The assessee strongly contested this. Their defense included:
- A complete denial of the transaction.
- An assertion that their alleged signatures on the document were forged.
- Pointing out that the document contained incorrect details, such as the wrong name for their father.
- Submission of a fingerprint expert’s report which opined that the signatures on the document did not match their own.
The AO ignored all of the assessee’s submissions and evidence and confirmed the addition.

Decision

The court ruled decisively in favour of the assessee and deleted the entire addition.

It held that the only piece of evidence the AO possessed was the ‘Iqrarnama’, which was not found in the assessee’s possession, was not in their handwriting, and did not bear their genuine signatures.
The court laid down the principle that a taxpayer cannot be held liable based on a document written by and found with a third person, particularly when the taxpayer has completely disowned the document and provided strong evidence challenging its authenticity.
Since there was no other corroborative evidence, the addition was held to be unsustainable.

Key Takeways

Third-Party Documents are Weak Evidence: A document found in the possession of a third party is not, by itself, conclusive proof against a taxpayer. It is considered a weak piece of evidence that requires strong corroboration.
The Onus is on the Revenue: When the tax department relies on a third-party document that the assessee denies, the onus shifts heavily to the department to corroborate it with independent, credible evidence that definitively links the assessee to the transaction. The AO in this case failed to do so.
A Strong Rebuttal Matters: The assessee’s detailed and evidence-backed rebuttal (denial, pointing out factual errors, providing an expert report) made their case very strong. The AO’s failure to consider or counter this evidence made the resulting addition arbitrary.
No Addition Without Corroboration: A fundamental legal principle is that no adverse inference can be drawn against a person based on a statement or document of a third party without providing an opportunity to cross-examine that party or without bringing independent corroborative material on record.

IN THE ITAT AMRITSAR BENCH

Rana Iqbal Singh

Income-tax Officer

Udayan Das Gupta, Judicial Member
and KRINWANT SAHAY, Accountant Member

IT Appeal No. 496 (Asr) of 2024
[Assessment year 2013-14]

JUNE 9, 2025

Sudhir Sehgal and Anil Miglani, Advs. for the Appellant. Manpreet Singh Duggal, Sr.DR for the Respondent.

ORDER

Krinwant Sahay, Accountant Member.-Appeal in this case has been filed by the Assessee against the order dated 05.07.2024 passed by Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (NFAC) for A.Y. 2013-14.

2. Grounds of appeal are as under:-

That the order of the Ld. CIT(A) is against law and facts of the case on the file.

That the Ld. CIT(A) gravely erred, in sustaining the reassessment proceedings under Section 147 and issue of notice under section 148 as the AO wrongly assumed jurisdiction to frame the reassessment.

That the Ld. CIT(A) erred in sustaining the reassessment proceedings in view of the judgment of Hon’ble Punjab & Haryana High Court in the case of Jasjit Singh v. UOI 437 (Punjab & Haryana)/CWP-21509-2023 (P&H) decided on 29.07.2024 as the proceedings were initiated without conducting the faceless assessment as envisaged under Section 144B of the Income Tax Act, 1961.

That the Ld. CIT(A) gravely erred in sustaining the addition of Rs.53,00,000/- under Section 60 of Income Tax Act, 1961 on the basis of a document which does not bear the signatures of the assessee as certified by a hand writing expert which is not rebutted.

That the Ld. CIT(A) gravely erred in sustaining the addition of Rs.9,54,000/-as alleged interest charged @ 2% by the assessee ignoring that no interest can be charged as no amount was ever given to the said Sh. Vijay Kumar.

That the appellant begs to add or amend any ground of appeal before the appeal is heard and disposed off.

3. Ground No.1 is general in nature.

4. Appeal on ground Nos. 2 and 2.1 are against the re-assessment proceedings u/s 147 of the Income Tax Act, 1961 (in short ‘the Act’). The ld. Counsel for the Assessee did not press this issue involved in these grounds during the proceedings before us and, as such, ground Nos. 2 and 2.1 are dismissed as not pressed.

5. Appeal on ground No.3 is against the sustenance of addition of Rs. 53,00,0000/- u/s 60 of the Act. Brief facts, as per the written submissions filed by the Counsel of the Assessee, are as under:

That the assessee is an individual and had filed the return of the above said year at an income of Rs.4,90,460/- on account of interest income and also declared an amount of Rs. 3,50,000/- as agricultural income. The notice u/s 148 was issued by the Assessing Officer on 27.07.2022 and the case was selected for reassessment on the basis of ‘Iqrarnama’ found from the premises of Sh. Chuni Lai Gaba on 18.03.2014 and it was claimed by the assessee that he does not know the said Sh. Chuni Lai Guba. The basic reason for issuance of notice u/s 148 were as under:

i).

‘Iqrarnama’ was found from the premises of Shri Chuni Lai Gaba during the course of survey action on 18.02.2014 wherein, it has been stated that the assessee has given an advance of Rs. 53,00,000/- to Sh. Vijay Kumar s/o Shri Gian Chand on an interest of 2% per month. On the basis of such’ Iqrarnama’, it was alleged that the assessee has advanced a loan of Rs. 53,00,000/-for nine months i.e. July, 2012 to 31.03.2013 from the unexplained/ undeclared sources and hence, the amount of Rs. 53,00,000/- and the corresponding interest amount of Rs. 9,54,000/-@ 2% per month is unexplained as per the provisions of section 68 of the Act

ii).

It was argued by the Ld. Counsel that notice u/s 142(1) alongwith detailed questionnaire was issued and it was alleged that the said assessee had advanced an amount of Rs. 9,54,000/- which was denied by the assessee that he has not entered into any ‘Iqrarnama’ with Sh. Vijay Kumar. He has not advanced any amount. Further, it was argued that the said ‘Iqrarnama’ is false and someone has forged his signatures. It was further argued that even the reply to the show cause notice was filed by the assessee, in which, he reiterated that no addition was called for on the basis of ‘Iqrarnama’, but the Assessing Officer made an addition of Rs. 62,54,000/- to the returned income of Rs. 1,90,460/-.

iii).

It was further argued by the Ld. Counsel that the detailed submissions were filed before the CIT(A) and in the said submissions issue of the ‘forged signatures’ and others were reiterated which have been reproduced in the order of CIT(A) at pages 5 to 6 of his order. It was vehemently argued that even there is no identification of the assessee in the said ‘Iqrarnama’ as no ‘Aadhar Number’ or PAN Number have been mentioned.

iv).

The assessee filed a report from the finger print expert before the AO that the signatures on the so called ‘Iqrarnama’ does not match with the signatures of the assessee and, further, the assessee also enquired that the Sh. Vijay Kumar S/o Sh. Gian Chand had expired long back and even the father’s name mentioned in the ‘Iqrarnama’ of the assessee is also not correct. No cross examination’ of the person have been allowed to the assessee by the Assessing Officer. Lastly, it was a third-party document and there is no link or connection of the said document with the assessee at all.

v).

It was further argued that the Assessing Officer/CIT(A) have failed to link the assessee with Sh. Chuni Lai Gaba ‘Group’, from where, the said document was impounded. Even the blank cheques duly singed by Sh. Vijay Kumar had no name of the assessee and further to that, no corroborative evidence have been found from the premises of assessee. No document was brought on record linking the assessee with Sh. Chuni Lai Ghaba and the whole addition was made on presumptions and surmises and the onus was upon the Assessing Officer to discharge the burden.

vi).

It was vehemently argued that even agreement is not a registered document and the assessee is not even in possession of the cheques, which were also found from the premises of Sh. Chuni Lai Gaba. None of the cheques as found has been deposited by the assessee in his bank account and the findings of the CIT(A) that Sh. Vijay Kumar has stated that he had given six blank cheques of the Axis Bank as collateral security, is incorrect finding in para 9, page 10 of the order of CIT(A. The CIT(A) has, thus, grossly erred in confirming the addition without any basis and in nutshell, it was argued that the confirmation of addition by the CIT(A) deserves to be deleted.

6. The Ld. Sr. DR, relied upon the finding of the Assessing Officer that since the document bearing the name of the assessee was found in the shape of ‘Iqrarnama’ from the premises of Sh. Chuni Lai Gaba, during survey, therefore, the Assessing officer has rightly made the addition and further argued that the assessee should have led more evidence to disbelieve the finding of the CIT(A). The CIT(A) has rightly confirmed the addition on the basis of documents seized during survey on Sh. Chuni Lai Gaba.

7. We have gone through the order of the Assessing Officer, order of the CIT(A), arguments of the Ld. Counsel and the Ld. Sr. DR, who relied upon the recovery of the ‘Iqrarnama’ from the premises of Sh. Chuni Lai during survey, where the name of assessee have been mentioned. The assessee right from the beginning has denied it. The signatures on the ‘Iqrarnama’ are forged and there is no identification nor his ‘Aadhar Card Number’ or ‘PAN on it. He furnished a report of the handwriting expert. We have gone through the report of the handwriting expert and find that the said report is detailed one and the Assessing Officer has not been able to rebut such documentary evidence. Report of the handwriting expert is that the signatures on the ‘Iqrarnama’ are not of the assessee at all.

8. Further, the document is in the handwriting of the some third person and cannot be said to be incriminating document qua, the assessee, because the assessee has no control over the third person. No opportunity of cross examination was allowed to the assessee concerned and under such circumstances, no authenticity could be attached to the said ‘Iqrarnama’ as found from the premises of third party. No examination had been allowed as per the judgment of Jurisdictional Punjab & Haryana High Court in the case of Pr. CIT (Central) v. DSG Papers (P) Ltd 586 (Punj. & Har.) and judgment in the case of Andaman Timber Industries v. CCE 3 (SC)/[2015] 281 CTR 241 (SC) on the case of cross examination.

9. We also find that only evidence possessed by the Assessing Officer is ‘Iqrarnama’ as stated above and that is neither in the handwriting of the assessee nor there are signatures of the assessee. The same was not found from the premises of assessee. This document was found from the premises of a third person and the assessee could not be held to liable on the basis of writing made by a third person. This aspect was considered by the Hon’ble Supreme Court in the case of CBI v. V. C. Shukla 2155 (SC)/(1998) 3 SCC 410 wherein CBI sought to prosecute certain politicians on the basis of one Diary written by one ‘Jain’ which was known as ‘Jain Hawala Diary’. All the charges were quashed by the Hon’ble Supreme Court by holding that a person shall not be made accountable for the writings made by a third person in his notings.

10. Thus, we held that the Assessing Officer was not in possession of any material on record and, thus, the addition made by the Assessing Officer and confirmed by the CIT(A) is deleted.

11. In the result, appeal of the Assessee stands partly allowed.