WRITTEN SUBMISSIONS-61

(alleged unexplained investment in a plot of land on the basis of an unsigned and unregistered draft agreement)

WRITTEN SUBMISSIONS

BEFORE THE HON’BLE INCOME-TAX APPELLATE TRIBUNAL, AHMEDABAD BENCH ‘B’

IN THE MATTER OF:
Shri Karan Dev Mehta, Appellant–Assessee
v.
Deputy Commissioner of Income-tax, Central Circle-4, Surat, Respondent–Revenue

Subject

Written Submissions on behalf of the Appellant–Assessee: Challenging the legality and validity of the addition of ₹ 24,50,000/- made under Section 69 of the Income-tax Act, 1961, on account of alleged unexplained investment in a plot of land on the basis of an unsigned and unregistered draft agreement to sell unearthed during a search, for Assessment Year 2018-19.

i Name of the assesses ------------ and address---------------.

ii PAN----------------.

iii Ayr-----------------.

iv DIN of the order appealed------------------.

v Appeal No. --------------.

Reference

Show Cause notice dated ………. DIN--------------------.

These written submissions are filed pursuant to the appeal preferred by the Appellant against the order dated 18 April 2024 passed by the Commissioner of Income-tax (Appeals)-5, Surat, arising from the assessment order dated 29 December 2022 made by the Deputy Commissioner of Income-tax, Central Circle-4, Surat, under Section 153A r.w.s. 143(3) of the Income-tax Act, 1961 (“the Act”) for Assessment Year 2018-19.

1. Issue Raised in this Appeal:

Whether the assessment order and consequent addition of ₹ 24,50,000/- under Section 69 of the Act, based solely upon an unsigned, unregistered, and unexecuted draft agreement to sell, can be sustained in law when (a) no corroborative evidence of actual payment or transfer exists, (b) the alleged property continues to remain in the name of the original seller, and (c) the Assessing Officer conducted no independent inquiry or cross-examination.

2. Facts of the Case:

i. A search and seizure operation under Section 132 was conducted on 12 January 2021 on the premises of the Mehta Developers Group, a consortium engaged in real-estate and infrastructure activities in Gujarat. During this search, several loose papers and documents were seized from the business office at Ring Road, Surat.

ii. Among these papers, the Department claims to have found an unsigned draft agreement to sell concerning a plot of land located at Plot No. 17, Emerald Residency, Anand Nagar, Surat. The said document, typed on a non-judicial stamp paper of ₹ 100/- dated 15 September 2017, mentioned Mr. Karan Dev Mehta (the Appellant) as a prospective purchaser from Mr. Vinod Patel (the alleged seller) for a consideration of ₹ 24,50,000/-.

3. The document bore neither the signature of the Appellant nor that of the seller, nor any witness signatures, seals, or registration markings. It was a draft format evidently prepared by a local deed-writer.

4. No sale deed or conveyance was ever executed, no payment record was found, and no corroborating bank transaction, receipt, or ledger entry linking the Appellant with the said consideration existed.

5. Pursuant to the search, the case was centralized with the jurisdiction of the Deputy Commissioner of Income-tax, Central Circle-4, Surat, by order under Section 127 dated 12 April 2021 of the Principal CIT (Central), Ahmedabad.

6. Notice under Section 153A dated 10 July 2021 was issued for six assessment years. The Appellant filed returns declaring the same income as previously declared under Section 139(1).

7. The Assessing Officer, solely on the basis of the seized draft agreement, concluded that the Appellant had made an unexplained investment in the property to the extent of ₹ 24,50,000/- and added the same under Section 69 of the Act as “Income from Other Sources.”

8. The Appellant categorically denied the transaction, submitting that:

   1. The agreement was unsigned and unexecuted;

   2. The property was never purchased or possessed;

   3. The ownership continued with Mr. Vinod Patel, as evidenced by the latest electricity and property-tax bills (January 2024);

   4. No inquiry or statement was recorded from the alleged seller; and

   5. No cross-examination was permitted despite written requests.

9. The Assessing Officer disregarded these explanations and completed the assessment on 29 December 2022, making the impugned addition of ₹ 24,50,000/-.

10. On appeal, the Commissioner (Appeals) upheld the addition, prompting the present appeal before this Hon’ble Tribunal.

3. Reasons of Decision by the Assessing Officer:

The Assessing Officer’s reasoning may be summarised as follows:

1. Reliance on Seized Material: The AO observed that the unsigned agreement to sell was seized during a valid search and therefore constituted incriminating material.

2. Presumption under Section 132(4A)/292C: The AO held that since the document was found in the premises of the assessee-group, it could be presumed to belong to the assessee and to reflect a real transaction.

3. Inference of Investment: The AO inferred that since the document mentioned a consideration of ₹ 24,50,000/-, the Appellant must have paid such amount to the seller and thus made an unexplained investment within the meaning of Section 69.

4. Absence of Counter-Evidence: The AO reasoned that the assessee failed to produce any written confirmation from the seller or any alternative explanation regarding the document’s origin.

5. Conclusion: On these premises, without any inquiry or corroboration, the AO made an addition of ₹ 24,50,000/- as “unexplained investment” and charged consequential interest and penalty.

4. Reasons of Decision by the CIT(A): The learned CIT(A), while dismissing the appeal, reasoned as under:

1. That the document, though unsigned, was recovered from the group’s premises, and hence the presumption under Section 292C applied.

2. That the absence of registration or signature “does not automatically make the document non-genuine” if found during a search.

3. That the assessee failed to produce evidence disproving ownership or payment, and therefore the burden under Section 69 remained unsatisfied.

4. That the Assessing Officer was justified in estimating the investment value as per the consideration stated in the seized paper.

5. Accordingly, the addition was confirmed.

With due respect, the above reasoning disregards fundamental principles of evidence, burden of proof, and natural justice, and directly contradicts binding precedents.

5. Grounds of Appeal

1. That the learned CIT(A) erred in upholding the addition of ₹ 24,50,000/- under Section 69 solely on the basis of an unsigned and unregistered draft agreement to sell, which lacks legal enforceability and evidentiary value.

2. That the learned authorities below erred in failing to appreciate that no sale deed was executed, no consideration passed, and the property continues to be owned and possessed by the original seller.

3. That the learned authorities below erred in not granting opportunity for cross-examination of the alleged seller despite specific written request.

4. That the learned CIT(A) erred in invoking presumptions under Sections 132(4A) and 292C without any corroboration or verification.

5. That the assessment is perverse, mechanical, and contrary to settled law, and the addition requires to be deleted in full.

6. Submissions on Facts:

1. Unsigned and Unregistered Document: The alleged agreement is a draft prepared on ₹ 100/- stamp paper, devoid of any signature, registration, or witness attestation. In law, such a document is void and inadmissible as evidence of transfer or ownership under Sections 17 and 49 of the Indian Registration Act, 1908.

2. No Execution of Sale or Payment: There is no sale deed, receipt, bank entry, or cash flow reflecting any consideration. The AO has not identified any source of funds or movement of money corresponding to the alleged ₹ 24,50,000/-.

3. Property Ownership and Possession: The property stands and continues in the name of Mr. Vinod Patel, as per electricity bills, property-tax receipts, and municipal records up to February 2024.

4. Absence of Inquiry or Verification: The AO neither summoned nor examined the seller. No independent verification was undertaken with the Sub-Registrar’s office. The failure to investigate destroys the factual foundation of the addition.

5. Violation of Natural Justice: The assessee specifically sought cross-examination of the seller if any statement or inference was relied upon. No such opportunity was afforded, violating the rule in Andaman Timber Industries v. CCE (2015 324 ELT 641 SC).

6. Presumption under Section 292C Not Applicable: Section 292C presumes ownership of found documents, not authenticity of their contents. The document’s unsigned nature and absence of corroboration rebut any such presumption.

7. Absence of Nexus Between Document and Investment: The AO has not demonstrated that the alleged property relates to the assessee, that any funds moved from him, or that possession changed hands.

8. No Seized Incriminating Material Pertaining to Payment: The entire addition rests on a single loose sheet. Courts have consistently held that loose papers or unsigned drafts are dumb documents incapable of proving income or investment.

These uncontroverted facts clearly show that the addition lacks evidentiary or factual basis and must be deleted.

7. Submissions on Law:

i. Legal Character of an Unsigned Agreement: An unsigned agreement is void ab initio and unenforceable. Under the Indian Contract Act, consensus ad idem and signatures evidencing acceptance are essential to contract formation. Without signatures, there is no valid offer-acceptance relationship, hence no enforceable transaction giving rise to investment.

ii. Section 69 – Condition Precedent of “Investment”: Section 69 contemplates an “investment made” for which the assessee offers no explanation. Existence of a real investment is a condition precedent. In absence of any transfer, possession, or consideration, there is no “investment” capable of being treated as unexplained.

iii. Evidentiary Value of Unsigned Documents: The Supreme Court in CIT v. P.K. Noorjahan (1999 237 ITR 570 SC) held that addition under Section 69 is discretionary and cannot be made unless positive evidence of investment exists. Numerous Tribunals have held that unsigned or draft agreements, without corroboration, have no probative value.

iv. Presumption under Section 292C / 132(4A) Limited: These presumptions extend only to ownership of documents, not to correctness of contents. Once the assessee denies authorship or authenticity, the burden shifts back to the Department to prove it by independent inquiry (CIT v. Sunita Dhadda [2018] 404 ITR 312 Raj.).

v. Requirement of Independent Inquiry: Judicial consensus mandates that the AO must conduct at least minimal verification from the counter-party or through the Sub-Registrar’s office before relying upon a seized paper. Failure to do so renders the addition conjectural.

vi. Violation of Natural Justice: By denying cross-examination of the seller and not confronting the assessee with any corroborative material, the AO violated Article 14 and 19(1)(g) rights and the principles of audi alteram partem.

vii. Burden of Proof: Under Section 101 of the Indian Evidence Act, the burden to prove the existence of an investment lies squarely upon the Revenue. Mere possession of a draft paper is insufficient.

viii. Judicial Discretion under Section 69: Even if the AO’s inference were hypothetically correct, the addition remains discretionary. In the absence of corroborative evidence, discretion must be exercised in favour of the assessee.

ix. CBDT Circular and Departmental Instructions: CBDT has, in its Manual and Circulars, repeatedly instructed that additions should not be made on the basis of unverified or incomplete documents found during search, unless supported by independent inquiry. The AO’s action violates these internal safeguards.

x. Equity and Fairness in Search Assessments

Search assessments under Section 153A are exceptional; they override regular assessment principles and hence must be exercised with scrupulous care. The statutory safeguards cannot be reduced to formality.

8. Case Laws in Support:

1. Krishan Kumar Jhamb v. ITO [2009] 179 Taxman 141 (P&H): Unsigned agreement to sell cannot form basis of addition; absence of corroborative evidence fatal to Revenue’s case.

In this case, the Punjab and Haryana High Court upheld the Tribunal’s finding that additions based on unsigned or unproved agreements lacked evidentiary foundation. The assessee claimed to have received cash advances from six purported purchasers under agreements to sell certain shops. However, the agreements were incomplete and unsigned, the alleged purchasers were neither produced nor examined, and their affidavits remained unverified. Further, no possession of shops was given, nor were the alleged advances refunded. The Court observed that such circumstances made the assessee’s explanation implausible and showed that the money actually belonged to him. Since the alleged sale transactions were never consummated and lacked corroborative evidence, the purported agreements could not substantiate the source of funds. The Tribunal’s treatment of these cash receipts as unexplained cash credits under section 68 was therefore justified, and the High Court found no perversity in this conclusion.

2. CIT (Central) v. Akme Projects Ltd. [2014] 42 taxmann.com 379 (Delhi): Loose draft agreement not signed by parties has no evidentiary value; addition deleted.

In this case, the Delhi High Court upheld the Tribunal’s finding that an unsigned and unexecuted draft agreement to sell discovered during a survey lacked evidentiary value and could not justify any addition. The Assessing Officer had relied solely on this loose, unsigned draft to make an addition of ₹1.15 crore without examining its author, witnesses, or verifying its authenticity. The Tribunal and CIT(A) noted that the alleged transaction mentioned in the draft (75 acres) was never executed; instead, the assessee’s actual dealings concerned only 5.431 acres with a different party. The Court held that while such a draft could serve as a starting point for investigation, the absence of follow-up inquiry, corroboration, or implementation rendered the addition unsustainable. Upholding the factual findings below, the High Court ruled that the unsigned document had no evidentiary value and dismissed the Revenue’s appeal.

3. Dy. CIT (Central-2) v. Sanjay Agrawal [2025] 174 taxmann.com 108 (Raipur – Trib.): Unsigned and unexecuted MOU cannot establish unexplained investment.

In this case, the Tribunal held that an unsigned and unexecuted Memorandum of Understanding (MOU) cannot constitute valid evidence to support the allegation of unexplained investment under the Income-tax Act. The Assessing Officer had relied solely on a draft MOU found during a search to conclude that the assessee made undisclosed investments. However, the Tribunal observed that the document lacked signatures, was never acted upon, and no corroborative material or independent evidence—such as financial transactions, property ownership records, or third-party confirmation—was produced. Citing settled judicial principles that mere loose papers or unsigned drafts have no evidentiary value unless substantiated by inquiry or corroboration, the Tribunal ruled that such an MOU could not justify an addition. The addition was therefore deleted, affirming that unexecuted or unsigned documents cannot form the sole basis for taxation.

4. Rajvee Tractors (P) Ltd. v. ACIT [2022] 143 taxmann.com 330 (Ahmedabad – Trib.): Unsigned papers are dumb documents; no addition sustainable without corroboration.

In this case, the Tribunal held that unsigned and unverified papers, such as draft sale deeds, are “dumb documents” lacking evidentiary value and cannot justify additions without corroborative proof. The Assessing Officer had made additions under Section 69A based solely on an unsigned draft sale deed and an application filed by a third party (developer) before the Settlement Commission admitting to undisclosed investment. The Tribunal observed that the draft sale deed was never signed by the assessee and that the Settlement Commission’s order was not provided to the assessee for confrontation, violating principles of natural justice. Citing CIT v. Vineeta Gupta (Delhi HC), Common Cause v. Union of India (SC), and CBI v. V.C. Shukla (SC), it ruled that loose or unsigned documents cannot constitute evidence of undisclosed income unless corroborated by independent material. Hence, the addition was deleted.

5. CIT v. Gian Gupta [2014] 46 taxmann.com 372 (Delhi): In absence of evidence of actual payment, unsigned agreement cannot justify addition.

In this case, the Delhi High Court held that in the absence of proof of actual payment, an unsigned agreement or receipt cannot justify an addition for unexplained investment under Section 69. During a survey, an unsigned MOU and an unsigned receipt allegedly showing a payment of ₹2 crore were found. The assessee admitted issuing a cheque of ₹1 crore, which was later cancelled as the transaction did not materialize, and denied any cash payment. The alleged seller also denied receiving cash. The Assessing Officer presumed that if one part of the document was true, the other must also be true, and added ₹1 crore as unexplained investment. Both the CIT(A) and ITAT found that the transaction never occurred and no corroborative evidence of cash transfer existed. The High Court upheld their findings, ruling that unsigned and unexecuted documents have no evidentiary value.

6. CIT v. Ajje Gowda, 2014 (8) TMI 1261 - KARNATAKA HIGH COURT. Unsigned deed not enforceable; deletion upheld.

In this case, the Revenue sought to tax alleged “on-money” for a house purchase based on an unsigned agreement showing ₹21 lakh as consideration, whereas the registered deed reflected ₹4.82 lakh. The seller (through her statement) did not admit receiving the higher amount, and the assessee explained the deal had been renegotiated owing to a fall in real-estate prices. Corroborative market evidence supported this: an adjacent site sold for ~₹4.8 lakh and, three years later, the very property was sold (with the Department’s permission) for ₹10 lakh. Affirming the CIT(A) and ITAT, the High Court held that an unsigned, unexecuted agreement has no enforceability or evidentiary value to prove extra consideration in a block assessment under ss. 158B/158BC. With no proof of actual higher payment, the addition was unsustainable; deletion was upheld.

7. ACIT v. Mayfair Resorts India Ltd. (ITAT Delhi 2023 (8) TMI 917): Unsigned MOU has no evidentiary value in search assessment.

In this case, the Tribunal held that an unsigned Memorandum of Understanding (MOU) discovered during a search cannot, by itself, be the basis for addition in the absence of corroborative evidence or confirmation of actual payment. The Assessing Officer had treated the unsigned MOU as conclusive proof of undisclosed investment; however, neither the counterparties admitted executing it, nor was any trail of payment, receipt, or accounting entry discovered. The Tribunal emphasized that such loose or unsigned documents are merely “dumb papers” unless their contents are independently verified through inquiry or evidence showing implementation. Since the Revenue failed to establish the authenticity or execution of the MOU or any real transaction arising from it, the addition was held unsustainable. Thus, the unsigned MOU was deemed to have no evidentiary value in search assessment proceedings.

8. Shri Bhavnoor Singh Bedi v. ACIT (ITAT Amritsar 2023 (4) TMI 528): Unsigned document cannot constitute incriminating evidence; addition quashed.

In this case, the Tribunal held that additions made solely on the basis of unsigned or draft agreements seized during a search are unsustainable. The Assessing Officer had relied upon an unsigned “agreement to sell” containing altered figures to allege unexplained investment. However, the assessee demonstrated that the property was only taken on lease under a duly executed lease deed, with rent payments subjected to TDS, and no sale deed was ever executed. The Tribunal observed that no corroborative evidence, such as proof of payment or statements from the counter-party, supported the Revenue’s claim. An unsigned, undated, or draft document carries no evidentiary value under law and cannot form the basis of an addition under section 69B or 153A. Consequently, the additions based on such unverified documents were quashed.

9. DCIT v. Brindesh Goverdhandas Agarwal, 2025 (2) TMI 1248 - ITAT NAGPUR: Unsigned agreement uncorroborated by payment evidence – addition deleted.

In this case, the Tribunal upheld the CIT(A)’s deletion of an addition under Section 69 based solely on an unsigned photocopy of an agreement to sell allegedly found at a third party’s premises. The ITAT observed that the document neither bore the assessee’s signature nor was corroborated by any proof of payment or acknowledgment from the supposed sellers. Since the Assessing Officer failed to produce the original document, prove its authenticity, or allow cross-examination of the third party, the evidentiary value of such an unsigned photocopy was negligible. Relying on Moosa S. Madha & Azam S. Madha v. CIT (SC) and Andaman Timber Industries v. CCE (SC), the Tribunal held that suspicion cannot substitute proof, and additions based on unverified, unsigned, or third-party documents without corroboration are invalid. The addition was accordingly deleted.

10. Andaman Timber Industries v. CCE (2015) 324 ELT 641 (SC): Denial of cross-examination renders order violative of natural justice.

In this case, the Supreme Court held that failure to allow cross-examination of witnesses whose statements formed the sole basis of the adjudicating authority’s order amounts to a serious violation of natural justice. The assessee had specifically sought to cross-examine two dealers whose statements were relied upon to determine excise duty valuation. The adjudicating authority refused, and the Tribunal wrongly held that such cross-examination was unnecessary. The Court ruled that such reasoning was untenable — it was not for the Tribunal to presume what the assessee intended to establish through cross-examination. Since the statements of these witnesses were the only evidence used against the assessee, denial of cross-examination vitiated the entire proceedings. The impugned orders were therefore quashed, and the appeal of the assessee was allowed, reaffirming due process as essential to fairness.

11. CIT v. P.K. Noorjahan (1999) 237 ITR 570 (SC): Section 69 discretionary; addition not mandatory without positive evidence.

In this case, the Supreme Court held that Section 69 of the Income-tax Act, 1961 confers discretion on the Assessing Officer to treat unexplained investments as income, and it is not mandatory to make such an addition merely because the assessee’s explanation is unsatisfactory. The Court noted that the legislature deliberately substituted the word “shall” in the original Bill with “may,” thereby signifying an intention to vest discretion rather than impose compulsion. The Tribunal had found that the assessee, a 20-year-old woman with no independent source of income, could not possibly have earned the funds used for purchasing land, and the source of investment could not reasonably be treated as her income. Upholding this view, the Supreme Court held that in absence of any positive evidence showing real ownership or earning capacity, addition under Section 69 cannot be automatic but must be guided by surrounding circumstances and reasoned discretion.

These authorities decisively support the Appellant’s case.

9. Prayer: In light of the foregoing facts, legal submissions, and judicial precedents, the Appellant most respectfully prays that this Hon’ble Tribunal may be pleased to:

1. Hold and declare that the alleged unsigned and unregistered agreement to sell relied upon by the Assessing Officer has no evidentiary value and cannot constitute “incriminating material” under Section 153A;

2. Quash and set aside the addition of ₹ 24,50,000/- made under Section 69 of the Act for Assessment Year 2018-19, as being devoid of legal basis and contrary to the settled position of law;

3. Delete all consequential interest and penalty proceedings initiated on the basis of the impugned addition; and

4. Pass such other orders or directions as may be deemed just and proper in the facts and circumstances of the case.

Place: [City]

Date: [•]

For the Appellant-Assessee

[Name], Advocate

Enrolment No.: [•]

Chambers: [Address]

Email: [•] | Phone: [•]

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