By IndiaHub 
This judgement was announced in a case filed by Mr. Patel from Ahmedabad. During the Assessment Year 2019-20, Patel did not file any income tax return (ITR). Subsequently his case was flagged by the income tax department’s risk management system on the basis of information indicating that he had entered into significant financial transactions exceeding taxable limits during the year.
The flagged information pointed to an alleged unaccounted cash investment in real estate totalling Rs 48.898 lakh. The income tax Assessing Officer noted that the evidence supporting this information was discovered during a search under Section 132 conducted on February 10, 2022, at certain real estate companies, and that the seized material included details about several individuals including Mr. Patel.
On March 31, 2023, the Income Tax Assessing Officer issued a notice under Section 148 , in response to which Mr. Patel filed an income tax return (ITR) on April 5, 2023 declaring total income at Rs 3.84 lakh.
A draft assessment order was passed under Section 144C(1) on March 27, 2024, against which Mr. Patel filed objections before the Dispute Resolution Panel. The DRP, by its directions dated December 24, 2024, rejected the objections raised by Mr. Patel. Unhappy with the order, Mr. Patel filed an appeal before ITAT Ahmedabad. On November 25, 2025, he won the case in ITAT Ahmedabad.
Summary of the judgement
Chartered Accountant (Dr.) Suresh Surana said to ET Wealth Online: “In the given case (I.T.A. No.388/Ahd/2025, the proceedings arose from reassessment initiated under Section 147 of the Income-tax Act, 1961, based on the information obtained from a search carried out in a third-party real estate group. The Income Tax Assessing Officer (AO) made two additions:
- Alleged unexplained investment of Rs 48.89 lakh under Section 69 on the basis of an unsigned Excel sheet recovered from a real estate broker’s device, and
- Treating Rs 1.56 crore received from the sale of immovable property as unexplained income under Section 56 while denying deductions under Sections 54 and 54EC.
The assessee (Mr. Patel) contested the additions, submitting that the alleged seized document was third-party material with factual inconsistencies, no corroborative evidence, and was relied upon without granting cross-examination.
Further, in relation to the sale consideration, the assessee (Mr. Patel) produced the registered sale deed, evidence of joint ownership, society resolutions, bank statements, and proof of investment in another residential house and specified bonds.
According to Surana, the Income Tax Appellate Tribunal, Ahmedabad Bench, allowed the appeal primarily on the following legal findings:
Unexplained Investment Addition Not Supported by Evidence
The Tribunal observed that the addition of Rs 48,89,877 was based solely on an unsigned Excel sheet recovered from a third party, containing inconsistencies including an incorrect seller’s name. No corroboration existed in the form of statements, money trail, cash withdrawal, confirmation from the seller, or any independent evidence linking the assessee to alleged on-money payment.
Further, the assessee (Mr. Patel) was not granted cross-examination despite request, rendering reliance on such material untenable. Applying the principle laid down in Pr. CIT v. Kaushik Nanubhai Majithia, the Tribunal held that loose third-party documents without corroboration have no evidentiary value.
Sale Consideration Was Explained and Exemption Rightfully Claimed
With respect to the addition of Rs 1.56 crore under Section 56, the ITAT held that the assessee (Mr. Patel) demonstrated valid joint ownership through contemporaneous evidence including share certificate entries, society resolutions, registered sale deed, and bank trail.
Surana says that the receipt was clearly linked to a taxable capital gains transaction, and the AO failed to invoke any specific clause under Section 56 to justify taxing it as “unexplained income”. Since the assessee (Mr. Patel) had already invested the gains in a new residential house and NHAI bonds, the claim under Sections 54 and 54EC could not be denied once the nature of receipt as capital gains was established.
Surana says: “The Tribunal clarified that when a receipt is assessable under a specific head (i.e. Capital Gains), it cannot be re-characterised as unexplained income under Section 56 merely due to procedural assumptions. Accordingly, both additions were deleted.”
According to Surana, the ITAT ruled in favour of the taxpayer (Mr. Patel), holding that unsupported third-party digital records cannot form the sole basis for additions without corroboration; and documented and legally recognised transfer of a capital asset cannot be taxed as unexplained income, nor can exemptions be denied where statutory conditions are fulfilled. Accordingly, the appeal was allowed in full.
ITAT Ahmedabad analysis of the facts of the case regarding Rs 48 lakh cash for new house
ITAT Ahmedabad in its judgement ( I.T.A. No.388/Ahd/2025) dated November 25, 2025 said that The addition of Rs 48,89,877 has been made exclusively on the basis of an excel sheet recovered from the electronic device of Mr. Brahmbhatt, who is alleged to be a broker of the seller.
ITAT Ahmedabad said that Mr. Patel repeatedly stated that Mr. Brahmbhatt was never appointed as a broker by him, and no brokerage was paid. The Tax Department asserts that the assessee’s (Mr. Patel) name appears in the excel sheet.
ITAT Ahmedabad said that however, it is equally an admitted fact that the seller’s name appearing in the excel sheet is “Desai Kaka”, whereas the actual seller under the registered sale deed is a LLP company.
ITAT Ahmedabad said: “This fundamental mismatch between the seized sheet and the registered deed demonstrates that the excel sheet is not an authentic record of the assessee’s transaction.”
ITAT Ahmedabad said that the assessee (Mr. Patel) repeatedly sought a copy of the statement of Mr.Brahmbhatt and an opportunity of cross-examination. Neither was granted. No corroborative evidence in the form of cash withdrawals, seller’s confirmation, movement of funds, forensic linkage, or any other primary material was brought by the tax department.
ITAT Ahmedabad said: “Thus, even though the assessee’s (Mr. Patel’s) name appears in the excel sheet, the presence of a wrong seller’s name, lack of signature, lack of authenticity, incorrect facts, and total absence of corroboration render the document unreliable.”
ITAT Ahmedabad said that the Gujarat High Court in case of Pr. CIT v. Kaushik Nanubhai Majithia (Tax Appeal No. 20 of 2024) held that an unsigned excel sheet recovered from a third party, without any independent corroboration, has no evidentiary value.
When statements referred to in assessment are not furnished to the assessee and no cross-examination is granted, the addition cannot survive. In the said case the Department also argued that the assessee’s name appeared in the third-party excel sheet.
The High Court still held that mere appearance of a name in a third-party excel sheet cannot lead to addition unless backed by cogent evidence.
ITAT Ahmedabad said that the present facts are on a stronger footing because the seller’s name in the sheet is itself wrong, which destroys its reliability. The Co-ordinate Bench in case of Kiritkumar Champaklal Shah v. DCIT (ITA No. 1014/Ahd/2023) relied on the decision of the Hon’ble High Court in case of Kaushik Nanubhai Majithia (supra) to give relief to the assessee.
ITAT Ahmedabad said that the factual observations made by the DRP are found to be incorrect. The objections raised regarding the absence of corroboration and the denial of cross-examination were also not dealt with in the manner required.
ITAT Ahmedabad said: “The DRP accepted the document at face value, despite the absence of primary evidence supporting the allegation of on-money.”
ITAT Ahmedabad said that in view of the foregoing discussion and applying the binding ratio of the Gujarat High Court in Kaushik Nanubhai Majithia as well as the co-ordinate bench decision in Kiritkumar Champaklal Shah, along with other judicial principles governing the evidentiary value of third-party loose sheets, they hold that the excel sheet found from the premises of Mr. Brahmbhatt is a third-party uncorroborated material.
ITAT Ahmedabad said: “The mere appearance of the assessee’s name in such a document does not establish payment of any on-money. The presence of an incorrect seller’s name further destroys the reliability of the document.”
The ITAT Ahmedabad said that the Tax Department has failed to produce any corroborative evidence to substantiate the alleged cash payment, and the denial of cross-examination of the alleged broker vitiates the entire assessment proceedings. Accordingly, Ground Nos. 1 and 2 were allowed by ITAT Ahmedabad.
ITAT Ahmedabad said this about the sale of the old house
Ground Nos. 3, 4 and 5 relate to the addition of Rs 1.56 crore treated as alleged unverified and unexplained receipts arising from the sale of an immovable property jointly held by the assessee (Mr. Patel) and his wife, and the consequential denial of the assessee’s claim for exemption under sections 54 and 54EC.
The DRP, while affirming the addition, recorded observations to the effect that the assessee’s claim under sections 54 and 54EC remained unverified.
Mr. Patel has categorically contended that he had produced the registered sale deed, share certificate, society resolutions, bank statements, details of investment in new residential house, and copies of specified bonds, and therefore the denial of exemption was wholly unjustified.
ITAT Ahmedabad said that on careful examination of the assessment order and the directions of the DRP, it emerges that the addition of Rs 1.56 crore has been made by the Assessing Officer on the footing that Mr. Patel had allegedly failed to substantiate his ownership in the immovable property sold and had not furnished the original purchase deed for determining the cost of acquisition.
The Assessing Officer proceeded on the premise that since the original purchase deed of 1994 was in the name of Mr. Patel’s wife and his name did not appear in that deed. The AO said that the assessee (Mr. Patel) could not demonstrate how he became joint owner of the property.
The Assessing Officer therefore treated the assessee’s (Mr. Patel’s) share of Rs 1.56 crore received through banking channels as “unverified and unexplained receipts,” and on that basis denied the assessee’s claim of exemption under sections 54 and 54EC, holding that the claim remained unverified.
ITAT Ahmedabad said that when the material placed by the assessee (Mr. Patel) is examined in entirety, this conclusion of the Assessing Officer cannot be sustained.
Mr. Patel produced
(i) the English translation of the registered sale deed dated 22.11.2018,
(ii) extracts of Clause 12 and Clause 13 of the share certificate and society resolutions,
(iii) certified copy of Index-2 issued by the Sub-Registrar Office,
(iv) the society’s Resolution No. 4 dated 07.12.1995 adding the assessee as joint holder, and
(v) documentary evidence showing that the assessee and his wife were jointly treated as independent joint members, shareholders and coowners of the said property.
ITAT Ahmedabad said: “These documents conclusively establish that the assessee’s wife had transferred 50 percent share in the immovable property to the assessee in 1995 by entering his name as joint holder in the share certificate and by referring to the society approved resolution.”
ITAT Ahmedabad said that the Sub-Registrar also recognised both individuals as joint sellers in Index-2 at the time of sale.
The registered sale deed itself records both the husband and wife as “Second Part” sellers who transferred the property and received Rs 1.56 crore each. The buyer deducted TDS under section 194IA on the entire sale consideration and issued separate cheques as recorded in Clause 22 of the sale deed.
ITAT Ahmedabad said: “These evidence directly contradicts the Assessing Officer’s finding that ownership and receipt were unverified.”
ITAT Ahmedabad said that Mr. Patel also placed on record the purchase deed of the new residential property and proof of investment in specified bonds of NHAI within the statutory time limit for the purposes of sections 54 and 54EC.
The DRP’s observation that the claim remained unverified is contrary to record, as the assessee had furnished all requisite primary documents which were neither rejected nor disproved.
ITAT Ahmedabad said: “Once the ownership, receipt of consideration, and investment of capital gains stand duly proved by registered documents and statutory certificates, the inference of “unverified and unexplained receipts” cannot survive.”
ITAT Ahmedabad said that they also note that the Assessing Officer (AO) has not invoked any particular sub-clause or charging limb of section 56, nor has he demonstrated how a receipt arising from a registered transfer of a capital asset, already subjected to capital gains computation, could fall within the ambit of section 56.
ITAT Ahmedabad said: “In absence of a statutory charging provision being clearly invoked, such an addition cannot be sustained. The taxability of a receipt cannot rest on assumption or ambiguity. When the nature of receipt is established as arising from transfer of a capital asset, it falls to be examined only under the head “Capital gains” and not under section 56.”
ITAT Ahmedabad said that there is also no finding by the Assessing Officer (AO) that the assessee (Mr. Patel) lacked funds to make the investment in the new residential property or specified bonds claimed under sections 54 and 54EC.
ITAT Ahmedabad said: “When the source of funds is traceable to disclosed and documented sale consideration, the allegation of “unverified and unexplained receipt” becomes self-contradictory. The denial of exemption under sections 54 and 54EC is also founded purely on the erroneous assumption that the receipt itself was unexplained.”
ITAT Ahmedabad said that Mr. Patel has furnished the purchase deed of the new residential house and copies of specified bonds issued by NHAI.
ITAT Ahmedabad said: “The Revenue (tax department) has not disputed the genuineness, eligibility or timing of such investments. Therefore, once the receipt is held to be explained and eligible for capital gains computation, the corresponding exemption cannot be denied.”
ITAT Ahmedabad judgement
ITAT Ahmedabad said that in the light of these circumstances (explained above), they hold that the addition of Rs 1.56 crore made under section 56 is not supported by the facts on record or by law.
ITAT Ahmedabad judgement: “The consideration received by the assessee is duly explained, duly recorded, duly taxed under the correct head, and duly supported by primary documents. No adverse material has been brought to justify taxing it as unexplained income. Consequently, the basis for denial of exemption under sections 54 and 54EC also ceases to exist. Ground Nos. 3, 4 and 5 are accordingly allowed. In the result, the appeal of the assessee (Mr. Patel) is allowed. This Order was pronounced in Open Court on 25/11/2025.”