Suspicion Is Not Evidence: ITAT Deletes Rs. 3.68 Crore ‘On-Money’ Addition Based on Flat Allotment Letters

Esque Finmark Pvt. Ltd. Vs ITO (ITAT Mumbai)

Suspicion Is Not Evidence: ITAT Deletes Rs. 3.68 Crore ‘On-Money’ Addition Based on Flat Allotment Letters

The Mumbai ITAT deleted an addition of ₹3.68 crore made on account of alleged unaccounted cash receipts from prospective flat purchasers, holding that the Revenue cannot presume receipt of on-money merely because the consideration mentioned in allotment letters exceeds the advances reflected in the books of account.

The assessee, a real estate developer engaged in a redevelopment project at Kalachowki, Mumbai, had issued allotment letters to prospective purchasers. The Investigation Wing noticed that the total consideration mentioned in the allotment letters was substantially higher than the advances recorded in the books and concluded that the difference of ₹3.68 crore represented cash received by the assessee. Based on this information, reassessment proceedings were initiated and the addition was made.

Before the Tribunal, the assessee explained that the documents relied upon by the Department were merely allotment letters and not agreements for sale. The project had become embroiled in disputes and litigation, construction had stalled, and therefore only advances had been received from the proposed purchasers. The balance consideration mentioned in the allotment letters was never realized. The assessee also pointed out that no revenue had been recognized as the project had not reached the stage of completion.

The ITAT found that the entire addition was based on assumptions. There was no statement from any purchaser admitting payment of cash, no seized material, no diary, no receipt, no cash ledger and no other evidence showing receipt of on-money. The Tribunal emphasized that an allotment letter only records the proposed consideration and does not establish actual receipt of the entire amount.

Holding that the Revenue had failed to discharge the burden of proving actual receipt of cash, the Tribunal observed that the addition rested merely on conjectures and the theory of what the AO believed should have happened in the normal course of business. Reiterating that suspicion, however strong, cannot substitute evidence, the ITAT deleted the entire addition of ₹3.68 crore

FULL TEXT OF THE ORDER OF ITAT MUMBAI

The present appeal has been preferred by the assessee against the impugned order dated 09.12.2025 passed by the learned Commissioner of Income Tax (Appeals)-15, Mumbai, arising out of the reassessment framed under section 143(3) read with section 147 of the Income Tax Act, 1961 for Assessment Year 2007-08. The assessee has challenged both the assumption of jurisdiction under section 147 as well as the addition of Rs.3,68,46,000/- sustained by the Assessing Officer on account of alleged unaccounted cash receipts said to have been received from prospective purchasers of flats in a real estate project undertaken by the assessee at Kalachowki, Mumbai.

2. The relevant facts borne out from the assessment records are that the assessee company was engaged in the business of real estate development and construction activities. It had undertaken a redevelopment project at Kalachowki, Mumbai. The original return of income for the year under consideration was filed declaring a loss of Rs.18,27,080/-. Subsequently, a search action under section 132 was carried out in the group cases on 26.05.2011. Pursuant thereto, notice under section 153A was issued and assessment under section 143(3) read with section 153A came to be completed on 28.03.2014 accepting the returned loss. Thereafter, information was received by the Assessing Officer from the Investigation Wing, Mumbai, on the basis of which he formed a belief that income chargeable to tax had escaped assessment and accordingly initiated proceedings under section 147 by issuance of notice under section 148.

3. The basis of reopening, as discernible from the reasons recorded and the reassessment order, was a report forwarded by the Investigation Wing stating that certain persons to whom flats had been allotted in the assessee’s Kalachowki project had made payments towards allotment of flats and that the amounts mentioned in the allotment letters did not tally with the receipts reflected in the books of account of the assessee. The Investigation Wing had examined certain allotment letters issued in favour of fourteen prospective purchasers and noted that the aggregate value reflected therein was approximately Rs.4.85 crores, whereas the receipts reflected in the books of account and supported by banking records aggregated to only Rs.1,16,54,000/-. According to the Investigation Wing, the differential amount of Rs.3,68,46,000/- represented cash received by the assessee from the said allottees.

4. During the course of reassessment proceedings, the assessee was confronted with the aforesaid information and called upon to explain the difference. In response, the assessee submitted that the entire premise adopted by the Investigation Wing was fundamentally erroneous. It was explained that what had been issued were merely allotment letters indicating the proposed consideration of the flats and that no agreements for sale had been executed with the concerned parties. The assessee further submitted that only advances had been received from the proposed purchasers and the actual receipts were duly recorded in the books of account. The amount mentioned in the allotment letters represented the total consideration agreed for the proposed allotment and could not be equated with actual receipts. It was further explained that the project itself had run into serious difficulties and was embroiled in disputes and litigations involving tenants, resulting in construction activity coming to a standstill. Consequently, the project had not progressed to a stage where further instalments could be demanded or realized from the prospective purchasers.

5. The assessee also placed reliance upon its books of account and ledger accounts of the respective allottees to demonstrate that the amounts reflected therein represented the actual advances received. It was specifically contended that the information received from the Investigation Wing itself contained discrepancies and that in some cases the figures reflected by the Investigation Wing did not tally with the ledger accounts maintained by the assessee. The assessee further pointed out that the project was being accounted for under the Project Completion Method and no revenue had been recognized because the project had not reached a stage of substantial completion. In support of this contention, the assessee had also referred to the ICAI Guidance Note on Accounting for Real Estate Transactions and explained that the significant risks and rewards associated with the project had not been transferred and therefore no revenue recognition had taken place.

6. The Assessing Officer, however, was not convinced with the explanation furnished by the assessee. According to him, the allotment letters represented the total consideration agreed between the parties and it was improbable that flats situated in Mumbai would remain blocked for several years against receipt of only a fraction of the agreed consideration. Proceeding on this assumption and relying upon the principle of human probabilities as propounded by the Hon’ble Supreme Court in the case of Sumati Dayal, the Assessing Officer inferred that the difference between the consideration mentioned in the allotment letters and the amounts reflected in the books must necessarily have been received in cash. On this reasoning alone, he treated the differential amount of Rs.3,68,46,000/- as unaccounted receipts of the assessee and added the same to its income.

7. The assessee carried the matter in appeal before the learned CIT(A). However, the appeal was unfortunately not adjudicated on merits. From a perusal of the impugned appellate order, it is seen that the learned CIT(A) observed that despite opportunities granted, the assessee had not furnished a copy of the impugned assessment order and certain base documents. On that basis, the appeal was treated as defective and dismissed for non-prosecution and non-submission of documents, leaving the grounds raised by the assessee completely unadjudicated.

8. Before us, the learned counsel submitted that the entire addition is based upon a wholly untenable presumption that the difference between the proposed consideration mentioned in the allotment letters and the actual receipts reflected in the books represented cash received by the assessee. He drew our attention to the fact that no agreement for sale had ever been executed with any of the purchasers and that the project itself had come to a halt. It was emphasized that even the purchasers examined by the Department had never stated that they had paid any cash amount to the assessee. Thus, according to him, there was absolutely no evidence whatsoever to support the conclusion reached by the Assessing Officer.

9. We have carefully considered the rival submissions and perused the material available on record. Having examined the entire factual matrix, we find that the addition made by the Assessing Officer proceeds entirely on a presumption unsupported by any substantive evidence. The sole foundation of the addition is that the consideration mentioned in certain allotment letters exceeded the amounts reflected in the books of account. From this circumstance alone, the Assessing Officer inferred that the difference must have been received in cash. However, neither the assessment order nor the material referred to therein discloses any evidence demonstrating actual receipt of cash by the assessee.

10. A crucial fact which emerges from the record is that the documents relied upon by the Revenue are merely allotment letters. Admittedly, no agreement for sale had been executed with any of the concerned purchasers. An allotment letter merely records the proposed allotment of a flat and the consideration payable therefor. It does not establish that the entire consideration mentioned therein has actually been paid. The distinction between an amount agreed to be paid and an amount actually received is fundamental. Unless there is evidence demonstrating that the purchaser has discharged the liability by making payment, the amount mentioned in the allotment letter cannot be treated as actual receipt in the hands of the developer.

11. Equally important is the undisputed factual position that the project itself had not progressed in the normal course. The assessee had consistently maintained before the authorities that the project had become embroiled in disputes and litigation and that construction activity had substantially stopped. This assertion finds support from the written submissions filed before the first appellate authority wherein it was specifically explained that the project had not reached a stage of substantial completion and therefore no revenue had been recognized. Once the project itself had stalled and no sale agreements had materialized, the natural corollary would be that further payments from prospective purchasers may not have been forthcoming. In such circumstances, the explanation offered by the assessee that only advances were received and that the balance consideration was never paid appears entirely plausible and consistent with commercial realities.

12. What, however, completely demolishes the Revenue’s case is the absence of any direct evidence from the purchasers themselves. The entire allegation of cash receipt necessarily presupposes payment of cash by the purchasers. Therefore, the most direct and best evidence would have been statements from the concerned purchasers admitting payment of such cash consideration. However, no such material has been brought on record. On the contrary, the purchasers examined by the Department never stated that they had made any cash payment to the assessee. There is not a single statement, document, receipt, diary, loose paper, cash ledger or any other incriminating material evidencing receipt of on-money by the assessee. Thus, the very source from which the alleged cash is stated to have emanated does not support the Revenue’s allegation.

13. We further find that the Assessing Officer has proceeded on the basis of what, according to him, ought to have happened in the ordinary course of business. According to him, it was improbable that a builder in Mumbai would keep flats blocked for years against receipt of only a small advance. Such reasoning may perhaps justify further enquiry, but it cannot constitute evidence of receipt of income. The issue before us is not whether the assessee’s conduct was commercially prudent; the issue is whether the Revenue has established receipt of cash. Tax liability cannot be fastened merely because the Assessing Officer believes that a different commercial course would have been more probable. The burden was upon the Revenue to establish by cogent material that the differential amount was actually received. That burden has remained wholly undischarged.

14. In fact, the entire addition is built upon a chain of assumptions. First, it is assumed that the consideration mentioned in the allotment letters necessarily became payable. Secondly, it is assumed that the purchasers paid the entire consideration. Thirdly, it is assumed that the difference was paid in cash. Finally, it is assumed that such cash was received by the assessee. None of these assumptions is supported by any independent evidence. The settled principle of law is that suspicion, however strong, cannot substitute proof. More so in a case where the surrounding circumstances, namely the stalled project, absence of sale agreements, non-recognition of revenue and absence of any admission by the purchasers, actually support the explanation offered by the assessee.

15. Having regard to the entirety of the facts and circumstances, we are unable to sustain the conclusion reached by the Assessing Officer. The Revenue has failed to establish that the assessee received any amount over and above the advances reflected in its books of account. The differential figure between the amount mentioned in the allotment letters and the amount actually recorded in the books cannot, in the peculiar facts of the present case, be treated as undisclosed cash receipt merely on assumptions and conjectures. We accordingly hold that the addition of Rs.3,68,46,000/- lacks any evidentiary foundation and is liable to be deleted.

16. In view of the foregoing discussion, the addition of Rs.3,68,46,000/- is directed to be deleted. Since the assessee succeeds on merits, the grounds challenging the validity of reopening under section 147 are left open and are not adjudicated, the same having become academic in nature.

17. In the result, the appeal of the assessee is allowed.

Order pronounced on 09th June, 2026.