Case Law Details
Kishore Avarsekar Vs DCIT (ITAT Mumbai)
“Common family cash pool” theory fails – Mumbai ITAT upholds penalty u/s 271AAA for failure to substantiate undisclosed income
In a significant ruling, the Mumbai ITAT upheld penalty of ₹9.57 lakh levied u/s 271AAA after holding that merely admitting undisclosed income during search is not sufficient unless the assessee also substantiates the manner in which such income was derived.
The case arose from a search and seizure action u/s 132 conducted in the Unity Infraprojects Group, during which incriminating documents relating to purchase of land at Chomu Mahela Site, Rajasthan were found. The seized documents reflected substantial cash payments and brokerage aggregating to ₹95.71 lakh, which the assessee later offered as undisclosed income in the return filed after search.
During penalty proceedings, the assessee claimed immunity under section 271AAA(2) by contending that the cash utilized for land purchase originated from cash received on sale of Matunga property by family members several years earlier. The assessee also argued that the family maintained a “common pool of funds”, a common practice in Indian families, and therefore the source stood explained through telescoping.
The AO, however, rejected the explanation on the ground that the assessee failed to produce any documentary evidence establishing a direct nexus between the alleged cash receipts from sale of property and the subsequent cash investment in land. It was held that the assessee had failed to satisfy the mandatory condition under section 271AAA(2)(ii) requiring substantiation of the manner in which undisclosed income was derived.
Affirming the penalty, the CIT(A) and ITAT observed that the theory of a common family cash pool was merely a general assertion unsupported by any credible evidence. The Tribunal specifically noted the significant three-year time gap between the alleged source of cash and its subsequent utilization, making the requirement of substantiation even more critical.
The ITAT further rejected the assessee’s argument that no specific question regarding the “manner” of earning undisclosed income was asked during recording of statement u/s 132(4). The Tribunal held that immunity under section 271AAA is not automatic and the burden squarely lies on the assessee to fulfill all statutory conditions during penalty proceedings.
Observing that the assessee failed to establish any live link or nexus between the earlier cash receipts and the impugned land investment, the Tribunal concluded that the essential condition for immunity remained unfulfilled and accordingly confirmed the levy of penalty u/s 271AAA.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This is an appeal filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-48, Mumbai [‘Ld.CIT(A)’], dated 10-09-2025, pertaining to Assessment Year (AY) 2012-13, wherein the Ld.CIT(A) has sustained the levy of penalty u/s. 271AAA of the Income Tax Act, 1961 (‘the Act’) amounting to Rs. 9,57,140/-.
2. None appeared on behalf of the assessee in spite of the fact that at the last date, when the matter was listed at the request of the Ld.AR of the assessee vide letter dt. 25-03-2026, the matter was adjourned for 28-04-2026 in the open court and in spite of taking note of the date of hearing, none appeared on behalf of the assessee nor any adjournment application filed on the scheduled date of hearing. Considering the matter under consideration, it was decided that no useful purpose would be served in adjourning the matter any further and to decide the same based on material available on record.
3. Briefly, the facts of the case are that a search and seizure action u/s. 132 of the Act was carried out on 10-02-2012 at the office premises of M/s. Unity Infraprojects Ltd., and assessee being one of the Directors, his residence and bank lockers were also searched. Subsequently, the assessee filed his return of income u/s. 139(1) of the Act on 16-03-2013, which includes a sum of Rs. 95,71,400/- on account of purchase of land (including brokerage) of Chomu Mahela Site in accordance with documents found and seized vide pg. 60 of Annexure-A1 at 1252, Pushpanjali Apartments. Subsequently, notices u/s. 143(2) and 142(1) of the Act were issued calling for necessary information and documentation and assessment was completed u/s. 143(3) of the Act, dt. 31-03-2014, wherein the assessed income was determined at Rs. 2,26,66,898/-.
4. In the assessment order, the AO has stated that during the course of search proceedings, certain documents were found and seized. On perusal of Annexure A1, page No. 60 found at 1252, Pushpanjali Apartments, it is seen that this is a copy of e-mail having subject Jobner Land Purchase-payment details, received from Mr. Chetan Paradkar to Mr. Dayanand Kadam (copy to Mr. Madhav Nadkarni, Prakash Gaikonde, Nitin Mule & Jyoti Pawar). On this paper party name, bank name, date wise payment detail is written. Inclusively total cheque payment is Rs. 99,03,500/- and cash payment of Rs. 93,81,400/- and hand written totaling Rs. 1,92,84,900/-, brokerage amount of Rs. 1,90,000/- is also written. Payment was made to Gita Devi Choudhary, Ram Chandra Choudhary, Ram Swaroop Choudhary & Vimla Devi Choudhary. The AO also stated that the assessee has already offered the cash component including brokerage involved in purchase of land of Chomu mahela site (Dist. Jaipur, Rajasthan), which aggregate to Rs. 95,71,400/- (i.e. 93,81,400/- + 1,90,000). However, the assessee has failed to explain the source of the cash utilized for purchase of the said land and therefore the investment in land of Rs. 95,71,400/- is held as unexplained in terms of section 69B of the Act. Further, the assessee has not fulfilled the conditions stipulated in section 271AAA(2) of the Act. Accordingly, penalty proceedings u/s. 271AAA of the Act were initiated separately by way of issuance of notice u/s. 274 r.w.s. 271AAA of the Act, dt. 31-03-2014.
5. Thereafter, during the course of penalty proceedings, a fresh show cause was issued to the assessee and in response, the assessee submitted that during the course of search, Mr. Abhijit Avarsekar had given a general disclosure of Rs. 20 crores which was restricted to Rs. 5 crore on account of discrepancies including such discrepancies found during the search. The breakup was given at the time of filing returns u/s 153A of the Act and thereafter during the course of assessment proceedings. It was further submitted that in the computation form annexed along with the return of income, the assessee had shown the disclosure made of Rs. 95,71,400/- under the head „Income from Other Sources‟. Further, as already stated, the cash was generated from sale of Matunga property sold by Abhijit Avarsekar and Shweta Avarsekar which is the source of the cash paid on purchase of land (including brokerage). In other words, by adopting telescoping approach, source has been explained.
6. The submissions so filed by the assessee were considered, but not found acceptable to the AO. Referring the provisions of section 271AAA of the Act, the AO held that the assessee has not satisfied the condition so laid down in terms of section 271AAA of the Act as the assessee has not substantiated the manner in which the sum of Rs. 93,81,400/- and Rs. 1,90,000/- was derived which is one of the pre-requisite condition for granting immunity from penalty. It was held that the assessee has admitted the said unaccounted cash payment towards land and brokerage, but has not substantiated with documentary evidence as to how the cash was derived by the assessee, thereby violating the provisions of section 271AAA(2) of the Act. The AO held that neither during the course of search proceedings nor during the course of assessment proceedings, the assessee could substantiate the manner in which this unaccounted income was earned. Merely stating that this unaccounted income is from the cash receipts of property at Matunga sold in AY. 2009-10 does not satisfy the condition of section 271AAA(2)(ii) of the Act which clearly states that assessee should substantiate the manner in which the undisclosed income was derived. Further, the assessee has failed to establish the nexus of cash receipts from sale of property at Matunga with that of cash payment for the purchase of land, including brokerage for purchase of land at Chomu Mahela Site. The AO accordingly recorded his satisfaction for levy of penalty u/s 271AAA and penalty @10% of the undisclosed income was levied on the assessee.
7. The assessee thereafter carried the matter in appeal before the ld CIT(A). During the course of appellate proceedings, the assessee submitted that during the course of recording statement u/s. 132(4) of the Act, the son of the assessee, Shri Abhijit Avarsekar had made a declaration of Rs.70 crores. Out of the same, Rs.20 crores was on account of Purchases from M/s Dev Steels and M/s Magnum Infraprojects Ltd. and also on account of other discrepancies, which may arise during the search proceedings in relation to seized material. To substantiate the same, the assessee attached a Statement of Oath of Mr. Abhijit Avarsekar taken by the recording authorities as Annexure 1. It was further submitted that later on, while concluding the search and seizure action, in relation to the total declaration of 20 crores, declaration was restricted to the extent of 5 crores and 15 crores was retracted in the affidavit (enclosed as Annexure 2). During the course of assessment proceedings, the break-up of the declaration made of Rs.5 crores was bifurcated assessee-wise (which is also reproduced in the assessment order of M/s. Unity Infraprojects Ltd. for AY. 2012-13). The same is as under:
8. It was submitted that on perusal of the above, it can be observed that Rs. 95,71,400/- is also a part of disclosure of Rs.5 crores. Hence, the undisclosed income was duly admitted before the authorities during search and seizure procedures. Further, it was submitted that no specific query regarding substantiating the manner in which undisclosed income was derived was asked while recording statements u/s 132(4) of the Act. The same can be substantiated on perusal of the statement of oath provided as Annexure-1. The relevant question for the undisclosed income of Rs. 95,71,400/- (which forms part of declaration of 20 crores restricted to 5 crores) is Question No. 15, which is reproduced as under.
“In view of the above, it is clear that M/s. Dev Steels (M/s. Steelconinfratrade Pvt. Ltd.) is engaged in providing the accommodation entries. Please go through the above mentioned statement and comment on this, also give the documentary evidence to prove the genuineness of the transactions with M/s. Dev Steels (M/s. Steelconinfratrade Pvt. Ltd.)”.
9. It was submitted that in reply to the above, a declaration of 20 crores was made subject to verification of actual discrepancy to be given within a week. Thus, from the above, it is very clear that no question to substantiate the manner in which undisclosed income was derived was ever asked by the tax authorities.
10. It was further submitted that nevertheless, the assessee had disclosed the source of the same before the income tax authorities after search and seizure proceedings. It was submitted that the source of the above cash payment is receipt of cash of Rs. 2,65,00,000 on sale of Matunga Property by the family members of the assessee Mr. Abhijit Avarsekar (son of the assessee) and Mrs. Shweta Avarsekar (daughter-in-law of the assessee). The said cash receipt has also been offered to tax in return u/s 153A for AY 2009-10 by Mr. Abhijit Avarsekar (to the tune of Rs. 1,42,06,679/-) and by Mrs. Shweta Avarsekar (to the tune of Rs. 1,22,93,321/-) respectively, being the amounts attributable to their share. In this regard, the assessee drew the attention to the panchnama which had been drawn during search and seizure on Shri Abhijeet Avarsekar, Shri Kishore Avarsekar & Smt. Pushpa Avarsekar at 14th floor, 1252, Pushpanjali Apartments (Annexure 3). In the panchnama, the authorized officers had not been able to attribute the assets to any one member of the Avarsekar family. It is further brought to the notice that the panchnama is drawn at the residence of the assessee. However, it also names Shri Abhijit Avarsekar, who resides at a different place. By doing so, the authorized officer has recognized the fact that differentiating between the Avarsekar family is not relevant. Even during the assessment proceedings, common submission dated 20-01-2014 for the entire family relating to cash found was filed before the department. Reconciliation of the jewellery found in the search proceedings was also done on an overall basis for the entire family. In view of the above facts, it is crystal clear that the assessee and entire Avarsekar family maintain a common pool of funds. The said pool is utilized as and when the need for fund arises and the same is typical of any Indian family.
11. It was accordingly submitted that the undisclosed income had been derived from the cash receipt on sale of Matunga property of Rs. 2,65,00,000/- by assessee’s son and daughter-in-law a common pool of funds in the family, which is a common practice in Indian family. Further, the cash receipt has also been offered to tax by the family members, and thus, is on record. Thus, to conclude, the cash receipt of Rs. 2,65,00,000/-was used to make payment of Rs. 95,71,400/- for purchase of land including brokerage at Chomu Mahela site and the assessee thus satisfied the necessary conditions for grant of immunity from levy of penalty u/s 271AAA.
12. The submissions so filed by the assessee were considered by the Ld.CIT(A) however, the same were not found acceptable and the ld CIT(A) has confirmed the levy of penalty u/s 271AAA amounting to Rs 957140/-.
13. Heard the Ld.DR and purused the material available on record. We have gone through the penalty order wherein the AO has levy the penalty due to non-fulfillment of one of the essential conditions for grant of immunity from levy of penalty under section 271AAA(2) of the Act. We have also gone through the order of the Ld.CIT(A) and find that all the contentions so raised by the assessee during the appellate proceedings have been duly addressed by him and we donot find any perversity in the findings of the Ld.CIT(A) wherein he has held as under:
“10.5. After a careful analysis of the facts and legal provisions, I am unable to agree with the contentions of the appellant. Section 271AAA(2) provides immunity from penalty subject to the fulfillment of all three conditions stipulated therein. The language of the section is clear and unambiguous. The onus is on the assessee to prove that all conditions have been met to be eligible for the immunity.
10.6. In the present case, the appellant’s explanation for the source of cash is that it was received on the sale of a Matunga property in A.Y. 2009-10 by Shri AbhijitAvarsekar and Smt. ShwetaAvarsekar. This cash was allegedly utilized by the appellant for the purchase of land in A.Y. 2012-13. The word “substantiates” in section 271AAA(2)(ii) implies that the assessee must support the explanation with credible and cogent evidence. A mere statement or a vague explanation is not sufficient. The appellant’s argument of a “common pool of funds” is a general assertion without any supporting evidence. The appellant has not produced any documentary evidence, to demonstrate that the cash generated in A.Y. 2009-10 was available and was actually transferred to him for use in A.Y. 2012-13. There is a significant time lag of about three years between the alleged source and its application, which makes the requirement of substantiation even more critical. In the absence of any evidence to establish this live link or nexus, the A.O. was correct in holding that the appellant has failed to substantiate the manner in which the income was derived.
10.7. The appellant’s reliance on the argument that no specific question regarding the manner of deriving the income was asked during the recording of the statement u/s 132(4) is also misplaced. The immunity under section 271AAA(2) is not granted by default. It is a benefit that the assessee must claim by fulfilling the stipulated conditions. The assessee had ample opportunity during the penalty proceedings, especially in response to the show-cause notice dated 10.02.2017, to furnish evidence to substantiate his claim. The failure of the authorized officer to ask a specific question during the search does not absolve the assessee of his statutory obligation to substantiate his claim during the penalty proceedings. In the instant case, there is a clear finding by the A.O. on the failure to substantiate the source, which is a finding of fact based on the material on record.
10.8. In view of the above discussion, it is held that the appellant has failed to fulfill the mandatory condition specified in section 271AAA(2) (ii) of the Act. Consequently, he is not entitled to the immunity from penalty provided under the said sub-section. The A.O. was, therefore, fully justified in levying the penalty of Rs. 9,57,140/- under section 271AAA(1) of the Act. The ground of appeal raised by the appellant is accordingly dismissed.”
14. The Ld.CIT(A) has rightly held that the appellant’s argument of a “common pool of funds” is a general assertion, that the appellant has not produced any documentary evidence to demonstrate that the cash generated in AY. 2009-10 was available and was actually transferred to him for use in AY. 2012-13 for purchase of the subject piece of land and given the significant time lag of about three years between the alleged source and its application, makes the requirement of substantiation even more critical and in the absence of any evidence to establish this live link or nexus, the AO was correct in holding that the appellant has failed to substantiate the manner in which the income was derived and the assessee has got sufficient time even during the penalty proceedings and inspite of that, the assessee has failed to substantiate the same. We accordingly do not find any infirmity in the findings of the Ld.CIT(A) where the essential condition for grant of immunity from levy of penalty, which equally requires strict construction, as is the case for levy of penalty, doesn‟t get satisfied in the instant case and the penalty so levied has been confirmed by him.
15. In the result, the appeal filed by the assessee is dismissed.
Order pronounced in the open court on 05-05-2026
Author Bio
