ITAT Chandigarh on On-Money in Builder Search: Why Uncorroborated Digital Data Failed

Background of the Dispute

The Chandigarh Bench (SMC) of the Income Tax Appellate Tribunal (ITAT) has once again examined additions arising out of search proceedings conducted on a real estate developer, Homeland Group, and has granted significant relief to a flat purchaser, Smt. Jyoti.

The controversy centered around alleged “on-money” payments said to have been made in cash over and above the stated consideration in the registered sale deed for a flat in the “Homeland Heights” project at Sector 70, Mohali. The Revenue relied on:

  • Digital data retrieved from a laptop seized during search on M/s Homeland Buildwell Pvt. Ltd., and
  • Statements of a former Customer Relationship Manager (CRM) of the builder group

Based solely on this third-party material, the Assessing Officer (AO) concluded that the assessee had allegedly invested substantial cash in addition to the cheque component reflected in the sale deed, and made substantive additions in two different assessment years.

The ITAT held that such additions could not be sustained when:

  • The underlying material was not shared with the assessee,
  • There was no direct link between the assessee and the alleged cash payments, and
  • Cross-examination of the key third-party witness was not allowed.

At the same time, the Tribunal upheld the reopening of assessment under Section 147 for one of the years, holding that information from the Investigation Wing is adequate to form a prima facie belief of escapement of income, even if the subsequent addition does not survive on merits.

Appeals and Years Under Consideration

Two separate appeals were filed by the assessee against orders passed by the ld. CIT(Appeals), both arising from additions based on alleged on-money:

  • Assessment Year 2016-17 – order dated 05.08.2025
  • Assessment Year 2020-21 – order dated 30.10.2025

The issues in both years were substantially the same, and therefore the ITAT disposed of them by a consolidated order.

The assessee challenged:

  1. Quantum additions of:
    • Rs. 29,57,330/- for AY 2016-17, and
    • Rs. 28,50,000/- for AY 2020-21
  2. Reopening of assessment under Section 147 for AY 2016-17

Search on Builder and Basis for On-Money Allegations

Search on M/s Homeland Buildwell Pvt. Ltd.

A search and seizure operation under Section 132 of the Income Tax Act 1961 was conducted on 26.02.2020 at the premises of M/s Homeland Buildwell Pvt. Ltd., the developer of Homeland Heights.

The AO’s premise was that during this search action, certain seized materials indicated that multiple home buyers had paid cash (on-money) over and above the amounts recorded in registered sale deeds.

Flat Purchase by the Assessee

The assessee had purchased:

  • Flat No. 30, Tower-4, Third Floor, in the “Homeland Heights” project at Sector 70, Mohali.

According to the AO:

  • The total consideration allegedly paid by the assessee was Rs. 1,57,29,118/- (based on inputs from the search and digital data),
  • Whereas the registered sale deed reflected consideration of Rs. 70,10,818/- (after deduction of TDS of Rs. 70,110/-).

The AO treated the difference between these two figures as unexplained on-money, apportioned across two assessment years, and made the following additions as alleged unaccounted investment:

  • Rs. 27,50,000/- in AY 2016-17, and
  • Rs. 28,50,000/- in AY 2020-21

Proceedings Before CIT(A) and ITAT

First Appeal Before CIT(A)