ITAT: Taxpayer’s Statement Validates Cash Document Seized

In a recent judgment, the Hyderabad Bench of the Income Tax Appellate Tribunal (ITAT) upheld the addition of ₹25 lakhs each to the incomes of an assessee and his wife, treating it as unexplained investment under Section 69 of the Income Tax Act, 1961. The tribunal ruled that a seized document showing cash payments—once corroborated by the taxpayer’s sworn admission—could not be dismissed as a mere "dumb document."

This case provides critical insight into how search and seizure proceedings, along with confessional statements, can strongly influence tax outcomes.

Case Background: Who Was Involved?

The case pertains to Devaram Srinivasa Reddy, proprietor of M/s. Srinivasa Infrastructures, and his wife Smt. Krishna Veni Kandala. The couple was subjected to an Income Tax search operation on 6th February 2020 at their business premises in connection with suspected unaccounted transactions.

During the search, loose sheets were seized, indicating cash transactions related to a real estate deal. These documents were marked and preserved as evidence.

Statement and Admission Under Oath

During the course of the search, a sworn statement was recorded from Mr. Srinivasa Reddy. In this statement, he admitted to making a payment of ₹1 crore in cash to M/s. Vandana Infra Developers Pvt. Ltd. as an advance for purchasing plots.

Despite being given opportunities, the assessee and his wife failed to provide any documentation or explanation justifying the source of such a large cash transaction.

Assessment Proceedings and Additions

The Assessing Officer (AO) took note of the seized material and the taxpayer’s confession. After issuing notices and finding no satisfactory response, the AO:

• Added ₹25 lakhs to the income of each assessee under Section 69 (unexplained investment).

• Revised the total income of Mr. Reddy from ₹12,56,070 (declared) to ₹37,56,070 (assessed).

Appeal to CIT(A) and ITAT

The assessee appealed before the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that the seized papers were merely “dumb documents” and lacked evidentiary value.

However, the CIT(A) dismissed this claim, stating that:

• The seized papers clearly reflected cash dealings.

• The assessee failed to explain the source of the cash.

• The sworn admission matched the contents of the document, strengthening its credibility.

Unhappy with the CIT(A)’s decision, the assessees escalated the matter to the Income Tax Appellate Tribunal (ITAT).

ITAT’s Observations and Final Verdict

A two-member bench comprising Vice President Vijay Pal Rao and Accountant Member Manjunatha G delivered the judgment.

Key points of observation:

• The seized document was not a dumb document as alleged.

• It contained specific references to a cash transaction made to Vandana Infra Developers Pvt. Ltd.

• The confession given during the search corroborated the details in the document.

• There existed a sale agreement, which further validated the transaction.

🧑‍⚖️ Final Decision:
The ITAT upheld the AO’s decision, confirming the addition of ₹25 lakhs each to the income of both the assessee and his wife.

Legal Takeaways

• A “dumb document” is one that lacks clear evidentiary linkages. But once backed by a confession, such a document gains legal weight.

• Under Section 69, unexplained investments or cash transactions can lead to heavy additions unless the assessee provides clear proof of source.

• Statements recorded during search proceedings under oath carry strong evidentiary value.

Frequently Asked Questions (FAQs)

Q1: What is a “dumb document” in income tax search cases?
A dumb document is a paper that appears to record financial data but lacks context, authentication, or corroborative evidence to establish its connection to the assessee.

Q2: Can a statement under oath be used as primary evidence?
Yes, confessional statements under oath during search can be used as evidence—especially when corroborated by other documents.

Q3: What is Section 69 of the Income Tax Act?
Section 69 allows the department to treat undisclosed or unexplained investments as income if the assessee fails to explain their source.

Q4: Can ITAT overrule the Assessing Officer’s decision?
Yes, but only if the assessee provides sufficient documentary evidence or shows that the AO’s findings are incorrect or unsubstantiated.

Q5: How can taxpayers protect themselves in such cases?
By maintaining proper records, avoiding large cash transactions, and providing prompt and truthful responses during proceedings.

Conclusion

This ruling underscores the fact that in income tax proceedings, a seized document combined with a taxpayer’s own admission can be enough to confirm unexplained income. It serves as a clear warning: “If you admit it, you own it.” For business owners and individuals alike, maintaining financial transparency and documented sources is the best defense.