Sangeetha Prathap

The Income Tax Appellate Tribunal (ITAT), Kolkata has held that where seized documents reveal that the assessee functioned merely as a finance broker between lenders and borrowers, only the brokerage attributable to such broking activity can be assessed as undisclosed income. The Tribunal further ruled that an addition cannot be made solely on the basis of a disclosure petition—particularly one that has been retracted—unless it is supported by corroborative seized material.

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A Division Bench comprising Judicial Member Pradip Kumar Chobey and Accountant Member Rajesh Kumar was considering an appeal filed by the Revenue against the order of the Commissioner of Income Tax (Appeals). The Assessing Officer had made a substantial addition under Sections 153A/143(3) of the Income Tax Act based primarily on a disclosure of ₹20 crore allegedly made before the Investigation Wing. The assessee later denied making such a disclosure, sought a copy of the recorded statement, and retracted it upon receiving the same.

The Tribunal noted that from the tabulation prepared by the Assessing Officer himself—based on statements recorded during the search—the assessee’s role was repeatedly described as that of a middleman, with documents identifying the names of lenders, borrowers, amount advanced, duration, and rate of interest. The seized papers consisted of documents issued by borrowers in favour of lenders, which demonstrated that the principal cash transactions did not belong to the assessee. The Bench also observed that neither the disclosure petition nor the assessment order nor even the remand report identified the source of the alleged ₹20 crore figure, and that no document seized during the search supported such an income.

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Referring to the CBDT Circular dated March 10, 2000, which cautions that “no addition should be made on the basis of confession” without supporting material, the Tribunal questioned how figures of ₹20 crore could be adopted when even the peak balance in the seized papers never exceeded ₹1.93 crore. It found that the disclosure was “bereft of corroborative material” and that the Assessing Officer had not discovered any asset or investment that could justify the alleged undisclosed income.

The Tribunal noted that proceedings before the Settlement Commission also demonstrated that the substantial transactions belonged to third parties and that the assessee earned only brokerage or commission. This finding aligned with the pattern of seized documents, which consistently showed the assessee acting only as an intermediary. The Commissioner (Appeals) had therefore held that only brokerage income could be treated as undisclosed income, and not the principal amounts reflected in the seized documents.

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Upholding this view, the Tribunal held that an addition cannot be founded on a disclosure petition that has been retracted, especially when the statement itself is unsupported by seized material. It concluded that the assessee’s income consisted only of brokerage arising from finance broking, and therefore no addition could be made on account of undisclosed income except to the extent of such brokerage. The Tribunal accordingly dismissed the Revenue’s appeal.

Cause Title: Sobha Chand Bhansali V. Dy. Commissioner of Income Tax, Central Circle 1(2)

Case No: ITA No. 1090/KOL/2025

Coram: Pradip Kumar Chobey (Judicial Member), Rajesh Kumar (Accountant Member)