ITAT deletes Rs 14 lakh ‘on-money’ addition against Thane flat buyer

Mumbai: The Income Tax Appellate Tribunal (ITAT) has deleted an addition of Rs 14.25 lakh made in the hands of a Thane resident over an alleged cash payment for purchase of a flat. The tax tribunal held that the I-T department failed to produce evidence linking the buyer to any ‘on-money’ transaction.ITAT’s Mumbai bench ruled in favour of the taxpayer, who had purchased a flat in Cosmos Mary Park, Thane, jointly with his wife for Rs 72 lakh. The flat was registered in April 2012. In subsequent years, a search was conducted on Cosmos Group, the real-estate developer. During this search, I-T investigators claimed to have found records (including emails) indicating receipt of cash over and above documented sale value in certain property transactions.Based on information received from the investigation wing, the I-T officer alleged that the buyer had paid Rs 28.5 lakh in cash during the financial year of 2011-12. As the taxpayer owned 50% of the property, the I-T officer added Rs 14.25 lakh to his income as unexplained money, which would attract a steep rate of tax.In fact, in response to a show-cause notice, the Thane resident had furnished a confirmation letter from Cosmos builder that they have received Rs 72 lakh from the buyer. However, this confirmation was not accepted and the I-T officer relied on the evidence found by the I-T investigation wing during the search and the statements made by officials of the builder that cash payments were received from buyers.The ITAT bench composed of Pawan Singh, judicial member and Makarand Vasant Mahadeokar, accountant member, observed that the addition of Rs. 14.25 lakh to the taxpayer’s income rested primarily on statements recorded from Cosmos officials and references to electronic records allegedly recovered during the search.The bench noted that copies of the alleged incriminating material were neither placed on record nor supplied to the taxpayer. It also observed that the Gmail and Yahoo mail records referred to by the I-T department were not produced during the assessment proceedings.The taxpayer had denied making any cash payment and had furnished a confirmation from the builder stating that Rs 72 lakh had been received towards the flat purchase, observed the ITAT bench.Allowing the appeal, the tax tribunal held that statements alone cannot be treated as evidence against a third party unless they are tested through cross-examination. It further noted that in respect of real estate transactions similar additions made against other buyers have been deleted by ITAT’s coordinate benches.Tax experts said the order could have implications for a number of disputes arising from real-estate searches, particularly those involving allegations of ‘on-money’ payments and would strengthen the case of taxpayers. The order signals that unless the I-T department can demonstrate, through credible and independently verifiable evidence, that a specific buyer paid cash over and above the documented sale consideration, such additions may struggle to survive appellate scrutiny.