Summary: The ITAT Mumbai in Prakash Bhaguji Katkade vs. ITO deleted an addition of ₹14.25 lakh made under Section 69A on account of alleged on-money payment for the purchase of a flat, holding that the addition lacked evidentiary support. The reassessment arose from information received following a search on the Cosmos Group, where statements of key personnel and alleged Excel sheets purportedly indicated receipt of cash from flat purchasers. The assessee consistently denied making any on-money payment, produced the registered sale agreement showing consideration of ₹72 lakh, and furnished a builder’s confirmation certifying receipt of only the documented amount. The Tribunal found that the Revenue neither supplied the alleged electronic records nor produced any incriminating material directly linking the assessee to cash payments. It also noted that requests for cross-examination of the persons whose statements were relied upon were not effectively granted. Holding that untested third-party statements and unverified electronic material cannot constitute sufficient evidence without corroboration, the Tribunal concluded that the addition was unsustainable and deleted it in full.
Core Issue: Whether an addition under section 69A for alleged on-money payment in purchase of a flat could be sustained solely on the basis of statements recorded from key persons of the Cosmos Group and an Excel sheet prepared by the Investigation Wing, without producing any corroborative incriminating material, providing cross-examination, or furnishing the alleged electronic evidence to the assessee.
Facts: The assessee, an individual, had originally filed his return of income for AY 2012-13 declaring income of ₹2,71,280. The return was initially processed and accepted. Subsequently, information was received from the Investigation Wing pursuant to a search conducted on 24.09.2014 in the case of the Cosmos Group, a real estate developer engaged in construction and sale of flats. During the search, the Department allegedly found records relating to receipt of on-money from purchasers of flats. According to the Investigation Wing, such details were maintained through Gmail and Yahoo accounts and compiled in Excel sheets containing flat-wise details of cash receipts.
Based on statements of Ms. Karuna Khambayat, Sales Head of Cosmos Group, and Shri Suraj Parmar, one of the promoters of the group, the Department formed a view that purchasers had paid cash over and above the agreement value. On the basis of this information, the AO alleged that the assessee and his wife had purchased Flat No. 802 in Cosmos Mary Park, Thane (West), for an agreement value of ₹72 lakh but had additionally paid on-money of ₹34.50 lakh, of which ₹28.50 lakh allegedly pertained to AY 2012-13. Since the assessee held a 50% share in the property, the AO proposed addition of ₹14.25 lakh in his hands. Notice under section 148 was issued on 29.03.2019 after obtaining approval from the Principal CIT.
The assessee consistently denied making any on-money payment and furnished the registered sale agreement dated 04.04.2012 along with a confirmation from the builder certifying that only ₹72 lakh had been received towards the flat. The assessee also repeatedly sought copies of the alleged incriminating material and requested cross-examination of the persons whose statements were being relied upon. However, neither the material nor effective cross-examination was provided.
AO’s Findings: The AO relied exclusively upon information received from the Investigation Wing, the alleged Excel sheets, and the statements of key persons of the Cosmos Group. According to the AO, the seized material indicated that the assessee had paid on-money over and above the documented consideration. The AO disregarded the builder’s confirmation that only ₹72 lakh had been received and did not furnish the alleged Gmail records, Yahoo records or Excel sheets relied upon. Based on the statement of Shri Suraj Parmar and the investigation report, the AO concluded that the assessee had paid cash consideration of ₹28.50 lakh during the relevant year and, being a co-owner of the property, added ₹14.25 lakh as unexplained money under section 69A.
CIT(A)’s Findings: The CIT(A) upheld the reassessment and the addition. The request for cross-examination of the Cosmos Group personnel was rejected on the ground that the addition was not based solely on statements but also on incriminating material allegedly found during the search. Accordingly, the addition of ₹14.25 lakh was sustained.
ITAT Findings: The Tribunal found that the entire addition was founded solely on statements of key persons of the Cosmos Group and an Excel sheet allegedly prepared by the Investigation Wing. Significantly, the Revenue failed to place on record or supply to the assessee any of the alleged incriminating material contained in Gmail accounts, Yahoo accounts or electronic records. The Tribunal noted that neither the AO nor the CIT(A) had considered the builder’s written confirmation certifying receipt of only the agreement value of ₹72 lakh.
The Tribunal held that a third-party statement, by itself, cannot constitute evidence against another person unless such statement is tested through cross-examination. Reliance was placed on the principle laid down by the Supreme Court in Andaman Timber Industries, which recognizes denial of cross-examination as a serious violation of natural justice. The Tribunal further observed that similar additions made in the hands of other purchasers of flats from the Cosmos Group had already been deleted by various coordinate benches of the Tribunal. In those cases also, the Revenue had relied on the same statements and the same alleged search material.
The Tribunal specifically noted that no incriminating document showing payment of cash by the assessee was ever produced. The alleged electronic evidence was not shown to be compliant with the requirements governing admissibility of electronic records. The addition was therefore based merely on assumptions arising from third-party statements and unverified electronic material. Since no corroborative evidence existed against the assessee, the addition lacked evidentiary foundation and could not be sustained. Following the earlier decisions involving the same Cosmos Group search, the Tribunal deleted the addition in entirety.
Having granted relief on merits, the Tribunal held that adjudication of the legal challenge to reopening had become academic and therefore left the issue open.
Case Laws Relied Upon:
1. Andaman Timber Industries vs. Commissioner of Central Excise
2. CIT vs. P.V. Kalyanasundaram
3. ITO vs. Lakhmani Mewal Das
4. Aakash Developers vs. ACIT
5. Bharat Laxman Bhiwapurkar vs. ITO
6. Mrs. Mamta Sharad Gupta vs. ITO
7. Monika Anand Gupta vs. ITO.
Relevant Paras: Paras 8 and 9.
Held: The addition of ₹14.25 lakh under section 69A towards alleged on-money payment for purchase of a flat was deleted. The Tribunal held that the Revenue had relied only on untested third-party statements and alleged electronic material which was neither furnished to the assessee nor supported by independent corroborative evidence. Since no incriminating material directly linking the assessee to any cash payment was produced, the addition lacked evidentiary support and was unsustainable. The appeal was allowed, while the challenge to reopening was left undecided as academic.
Author Bio
