ITAT Mumbai Deletes ₹11.59 Crore Addition Under Section 69A; Broker’s Papers and Retracted Statement Held Insufficient [Read Order]

Mumbai: The Income Tax Appellate Tribunal, ‘E’ Bench, Mumbai, comprising Shri Amit Shukla, Judicial Member, and Shri Arun Khodpia, Accountant Member, has allowed the appeal filed by Tanishq Builders and dismissed the Revenue’s cross-appeal, deleting an addition of Rs. 11,59,21,060/- made under Section 69A of the Income Tax Act, 1961 on account of alleged receipt of on-money in cash in respect of a real estate project named “Palatina” situated at Ghatkopar, Mumbai, for the Assessment Year 2024-25.

The dispute arose from a reassessment framed under Section 147 read with Section 143(3) of the Act, following a search and seizure action conducted on 19 January 2024 in the cases of Ajmera Group and Goshar Group. A coordinated search was simultaneously conducted at the premises of Shri Rajesh Gandhi, a real estate broker operating through his proprietorship concern “Rajesh Gandhi Realtors”, who was associated with the marketing and facilitation of bookings in project “Palatina”. Tanishq Builders, a partnership firm engaged in construction and real estate development and developing the said project, in which M/s Goshar Alliance LLP holds a 51% ownership stake, had filed a belated return of income declaring a total loss of Rs. 58,37,315/- for the Assessment Year 2024-25.

Critically, no incriminating material was found from the premises of the assessee during the search proceedings, a fact that remained undisputed throughout the assessment and appellate proceedings. The Revenue’s case was constructed substantially upon materials seized from the broker’s premises, comprising handwritten loose sheets, coded paper sheets, a spiral pocket diary titled “JSW SHOPPE”, WhatsApp conversations and images extracted from a 256 GB iPhone 14 seized from the broker, and an Excel workbook titled “Brokerage” containing a sheet named “Palatina” found on a 32 GB Sandisk pen drive, all of which the Assessing Officer treated as primary documentary evidence of cash on-money receipts by the developer.

During the search, the statement of Shri Rajesh Gandhi was recorded under Section 132(4) of the Act. In that statement, he is stated to have admitted that the seized loose sheets and diary entries pertained to the project “Palatina” and that the differential amounts mentioned therein represented on-money received in cash over and above the registered agreement value. He further acknowledged that the Excel sheet “Palatina” contained details of buyers, flat numbers, and cash receipts. On the basis of these seized materials and the broker’s statement, the Assessing Officer issued a show cause notice dated 21 March 2025 proposing addition of Rs. 22.17 crores towards alleged on-money on flats and Rs. 9.45 crores towards alleged parking receipts. The assessment order dated 17 April 2025 ultimately made an addition of Rs. 11,59,21,060/- under Section 69A, treating the alleged on-money as unexplained money, while no addition was made on the parking component.

However, within five days of the original statement, on 29 January 2024, Shri Rajesh Gandhi filed a notarised affidavit retracting his statement in its entirety. In the affidavit, he alleged that the search was conducted for approximately six days under prolonged pressure, that his signed statements contained replies that were not actually given by him, and that he was forced to affix his signature on statements prepared to suit the requirements of the authorised officers. He further stated that he had facilitated the sale of only five flats in project “Palatina”, that parking charges were inclusive in the agreed consideration, and that the handwritten sheets and Excel compilation were fabricated by him to convince his own clients that flats were being sold at a uniform rate of Rs. 27,500 per square foot — a figure he had himself arrived at on a presumptive basis to address client grievances.

The statement of Shri Rajesh Gandhi was confronted before Shri Pankaj Goshar, a partner of Tanishq Builders, on 24 January 2024. Shri Goshar denied the allegation of receipt of on-money in toto and stated that the broker’s role was confined to introduction of clients, that transactions were recorded strictly as per agreement value, and that the assessee had no control over how the broker maintained his records.

The Ld. Commissioner of Income-Tax (Appeals)-48, Mumbai, while partly granting relief, proceeded to restrict the addition to an estimated profit element by treating the alleged receipts as business income, rather than deleting the addition entirely. Both the assessee and the Revenue filed cross-appeals before the Tribunal assailing the appellate order in different directions.

Before the Tribunal, the assessee contended that the statutory pre-condition of Section 69A — that the assessee must be “found to be the owner” of unexplained money — was inherently absent since no cash or valuable article was found from the assessee’s premises. It was further argued that a third-party document does not ipso facto become evidence against the assessee unless a legally sustainable nexus is established demonstrating that the document was authored, accepted, ratified, or acted upon by the assessee, and that no such nexus was demonstrated here. The assessee also submitted that the WhatsApp chats and Excel sheet, even if authentic, could at best show negotiations and not actual receipt of cash, and that the retracted statement, absent independent corroboration, could not sustain an addition of this magnitude. Reliance was placed on the judgments of the Bombay High Court in CIT vs Lavanya Land (P.) Ltd. and the Karnataka High Court in DCIT vs Sunil Kumar Sharma, affirmed by the Supreme Court, to contend that additions cannot be sustained purely on third-party notings absent proof of actual cash changing hands.

The Revenue, per contra, contended that the seized materials were detailed, transaction-specific, and internally consistent, and that the retraction affidavit was an afterthought intended to dilute the admission made during search. The Departmental Representative urged that the Ld. CIT(A) had erred in restricting the addition to a profit element and that the entire amount ought to be sustained.

The Tribunal, after detailed analysis, held that the jurisdictional premise of Section 69A was not satisfied. The Bench observed that the expression “found to be the owner” in Section 69A constitutes a jurisdictional pivot and that in the present case, the Revenue’s case was not one of physical discovery from the assessee but of inference drawn from third-party documents and a third-party statement. The Tribunal noted that the seized loose sheets, diary, WhatsApp extracts, and Excel workbook — all emanating from the broker — were not found from the assessee, not authenticated by the assessee, and did not bear the assessee’s signatures or internal identifiers connecting them to the assessee’s accounting system. Correlation of figures between agreement values and broker-maintained sheets was held to be, at best, a basis for inquiry, not proof of receipt.

The Tribunal further held that while a statement recorded under Section 132(4) carries evidentiary value, such value is not synonymous with evidentiary conclusiveness. The prompt retraction of the broker’s statement by notarised affidavit within five days compelled the Revenue to discharge a heavier burden of corroboration. Since no buyer confirmation, cash trail, bank deposit, seizure of cash, or incriminating material from the assessee’s premises was brought on record, the retracted statement could not stand as the sole fulcrum of addition. The Bench also held that adjudication based on third-party papers proved by the statement and the statement proved by the third-party papers would render the reasoning circular, as both emanated from the same source.

Addressing the Ld. CIT(A)’s approach of restricting the addition to an estimated profit element, the Tribunal held that estimation of profit can logically follow only after the foundational fact of receipt is proved, and that sustaining any portion of the addition on an estimated basis where receipt itself remains unproved amounts to sustaining a conclusion without a proven premise.

The Tribunal also noted that the Assessing Officer’s selective acceptance of the seized material — making addition on the flat on-money component while declining to make addition on the parking component proposed in the show cause notice — reflected that the Assessing Officer himself did not accept the seized material as wholly reliable in all its parts. This selective reliance was held to call for stronger corroboration of the accepted portions, which was found absent.

Accordingly, the Tribunal directed deletion of the entire addition of Rs. 11,59,21,060/- under Section 69A, allowed the assessee’s appeal, and dismissed the Revenue’s appeal as infructuous.

The case was argued by Advocate Upvan Gupta on behalf of the assessee before the Mumbai Bench of the ITAT.

Appearances:
For the Appellant (Assessee): Shri Upvan Gupta, Advocate
For the Respondent (Revenue): Shri Ritesh Misra, CIT DR

Case Title: Tanishq Builders vs. The Assistant Commissioner of Income Tax

[Read Order]