Can “Diary Notings” and “Retracted Statements” Alone Sustain an Addition? 

In appellate tax practice, the truth is simple: a case is only as strong as the evidence that supports it. 

In a recent landmark decision, the Income Tax Appellate Tribunal (ITAT), Mumbai Bench, delivered a judgment that every tax professional should take note of. The Tribunal deleted additions totaling ₹4.99 crores that were made solely based on employee-maintained diaries and retracted statements. 

The case, The Estate Investment Company Pvt. Ltd. vs. DCIT (ITA No. 3224/Mum/2025 & batch), reiterates one of the golden principles of appellate jurisprudence — 

Suspicion, however strong, can never replace evidence. 

Case in Brief

The Assessing Officer had made substantial additions treating certain handwritten diary entries and employee statements as proof of unaccounted receipts. These were alleged to represent cash received for granting NOCs and releasing rights in land in the Mira–Bhayandar region. 

However, both employees later retracted their statements, clarifying that the diaries were personal rough notings made for day-to-day reference — not official business records of the company. Despite this, the AO proceeded to treat them as conclusive evidence of undisclosed income. 

The ITAT stepped in to examine whether such unverified and retracted materials could legally sustain a tax addition. 

Factual Background 

The assessee, a company incorporated in 1945, was engaged in acquiring and managing land parcels in the Mira–Bhayandar belt. During a search and survey operation on 7th October 2021, the department seized several diaries, loose sheets, and digital data from its premises. 

These documents allegedly contained shorthand notings, initials, and figures, which the AO interpreted as records of unaccounted cash receipts. Statements were recorded from key employees — Mr. Pawan Kumar Sharma (PKS), the cashier, and Mr. Nandkumar Seksaria (NKS), the director. 

The AO concluded that the notings represented NOC receipts and unexplained money, making the following key additions: 

₹4.96 crore as unaccounted capital gains on land rights; 

₹2.50 lakh as unexplained money u/s 69A. 

However, the entire assessment rested only on those diaries and statements — with no corroborative evidence, no third-party confirmation, and no seized cash or assets. 

Issues Before the Tribunal 

1️⃣ Whether uncorroborated diary entries and retracted statements could form the sole basis of assessment. 
2️⃣ Whether the presumption under Section 132(4A) applied when the seized diaries were maintained by an employee for personal reference. 
3️⃣ Whether the AO erred in failing to verify, cross-examine, or corroborate the evidence with counterparties or independent material. 

Tribunal’s Findings 

The Tribunal conducted a detailed examination of the seized records and statements. Its key observations were: 

🔹 The diaries were personal records of employee PKS, not maintained under the company’s direction. PKS himself admitted that these were rough internal notes, unverified, and often duplicated. 

🔹 Both PKS and NKS formally retracted their statements, clarifying that their earlier answers were given under confusion and without awareness of the consequences. 

🔹 The AO extrapolated one diary entry to all years and all parties, without verification or corroboration. 

🔹 No corroborative evidence — such as confirmations, agreements, or bank trails — was ever produced to support the additions. 

🔹 The Tribunal reiterated that loose papers, Excel sheets, and handwritten notes are “dumb documents” unless validated by independent, tangible evidence. 

In words that resonate strongly with every appellate professional, the Bench observed: 

“Loose papers or personal diaries, uncorroborated by external evidence, cannot by themselves form the sole basis of addition. The Assessing Officer must apply independent judgment, not act as a mere forwarding agent of the Investigation Wing.” 

Takeaway for Professionals 

This decision is a wake-up call for both practitioners and assessing officers. It underscores the importance of evidentiary discipline in tax proceedings. 

Here are the key lessons every CA and tax professional should draw: 

💡 1. Retraction Changes Everything: 
Once a statement is retracted, the burden shifts back to the Department to corroborate it with independent proof. 

💡 2. Dumb Documents Don’t Talk: 
Unverified diaries, Excel sheets, or WhatsApp chats have zero evidentiary value unless they are linked through credible evidence. 

💡 3. Suspicion ≠ Proof: 
Even the strongest presumption must give way to proof. In the absence of corroboration, additions cannot stand. 

💡 4. Independent Judgment is Non-Negotiable: 
An AO’s role is quasi-judicial. Merely reproducing the findings of the Investigation Wing is not assessment — it’s abdication. 

To download the full judgement –

https://counselvise.com/direct-tax/judgements/the-estate-investment-company-private-limited-mumbai-dcit-central-circle-8-1-mumbai-ita-3224-mum-2025

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