The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has deleted a Rs 20 lakh addition made to a taxpayer’s income over an alleged cash payment for a flat, holding that the Income Tax Department failed to provide the material relied upon against the taxpayer and did not offer a genuine opportunity to cross-examine the person whose statement formed the basis of the addition.
How the tax dispute began
A Mumbai-based taxpayer filed his return for assessment year (AY) 2011-12 declaring an income of Rs 1.22 crore. His original assessment was completed in 2013 at Rs 1.45 crore.
The matter resurfaced in 2016, when the Income Tax Department searched the Indiabulls Group. During the search, the group’s CFO gave a statement under Section 132(4), admitting that the group had received unaccounted “on-money” from several buyers.
The taxpayer’s name reportedly appeared in the statement in connection with a flat purchased in the Indiabulls Sky project for a disclosed consideration of Rs 5.33 crore.
Department alleges Rs 20 lakh cash payment
Based on CFO statement and electronic data recovered from his laptop, the Assessing Officer reopened the taxpayer’s assessment under Section 147.
The Department alleged that the taxpayer had paid an additional Rs 20 lakh in cash outside the sale deed. The taxpayer denied making the payment and asked the Department in writing to allow him to cross-examine Sharma.
Cross-examination opportunity came too late
The Assessing Officer issued a summons under Section 131 fixing the cross-examination for December 14, 2018. However, the tracking report showed that the speed-post carrying the summons was booked only on December 15, a day after the hearing date.
Despite this, the assessment order recorded the taxpayer as a no-show.
The taxpayer was also not provided with the CFO’s statement or the electronic records that the Department claimed corroborated the allegation. These materials were not supplied with the show-cause notice, during reassessment proceedings or during the appeal.
ITAT rejects Department’s case
The Commissioner of Income Tax (Appeals) had upheld the addition, reasoning that the reasons recorded for reopening had disclosed the “substance” of the allegation. It also noted that the taxpayer had not produced a builder confirmation ruling out the cash payment.
The ITAT rejected both grounds.
The tribunal held that a hearing communicated after the date fixed for it could not constitute a real and effective opportunity to cross-examine the witness.
It also rejected the view that the taxpayer had to disprove a cash payment he denied making by obtaining a confirmation from the builder. The Department first had to establish, through material that the taxpayer could examine, that the alleged payment had actually taken place.
In the absence of such material, the tribunal held that there was no basis for the addition under Section 69.
What the Department would need to establish
An tax expert explained that for an on-money addition under Section 69 to hold up on similar facts, the Department would need to furnish the taxpayer with the statement, seized diary, ledger or electronic entry naming them, rather than merely informing them that such material exists.
She said the taxpayer should also receive a cross-examination opportunity with enough lead time to make it usable, including where an adjournment is sought for genuine reasons.
Tax experts say that the Department would need independent corroboration linking the specific figure to the specific transaction, such as a matched cash trail, unexplained bank withdrawal, third-party confirmation or identifiable entries relating to the taxpayer rather than a generic project-level ledger.
The Department would also need to provide a reasoned finding showing how the seized material links the taxpayer to the particular unit and amount, rather than making a general reference to “corroborative electronic records”.
What the ruling means
The ruling does not mean that on-money additions are unsustainable or that statements recorded during a search cannot be relied upon. It is a ruling about process: where the Department relies on a third-party statement and seized material, the taxpayer must receive the material and a genuine opportunity to cross-examine the person concerned.
The ITAT also clarified that payment of the disclosed consideration through traceable sources does not, by itself, rule out an additional cash payment. What sank the addition was the missing evidentiary chain.
The validity of the reopening was left undecided, and the ruling turned on the specific procedural and evidentiary defects in this case.
