ITAT Mumbai Reiterates That Uncorroborated Third-Party Statements Cannot Sustain On-Money Additions

Background of the Dispute

The matter in Prakash Bhaguji Katkade Vs ITO came before the ITAT Mumbai in the context of an alleged “on-money” payment for the purchase of a residential flat from the Cosmos Group. The addition of Rs.14,25,000/- was made under Section 69A of the Income Tax Act 1961, treating it as unexplained money purportedly paid in cash over and above the recorded consideration.

The case once again tested the legality of additions based primarily on:

  • Statements of builders recorded during search proceedings
  • Internal excel sheets / email data allegedly reflecting cash components
  • Without sharing such material with the assessee or allowing cross-examination

Facts Leading to Reassessment

Original Return and Subsequent Reopening

  • The assessee, an individual, filed a return for AY 2012-13 declaring income of Rs. 2,71,280/-.
  • The return was originally accepted without scrutiny.
  • Subsequently, based on information from the DDIT(Inv), Unit – 1(4), Mumbai, relating to a search conducted on the Cosmos Group on 24.09.2014, the Assessing Officer (AO) initiated reassessment under Section 147.
  • Notice under Section 148 was issued on 29.03.2019 after approval from the Pr. CIT – 2, Thane.

Information Relied Upon by the AO

According to the AO:

  • During the search in the Cosmos Group, data in Gmail and Yahoo mail accounts and excel-based “cash books” allegedly captured details of on-money receipts for flat and shop sales.
  • Statements of key Cosmos Group functionaries, including:
    • Karuna Khambayat (sales head), and
    • Suraj Parmar (promoter of Cosmos Group)
      purportedly indicated that cash was routinely accepted over and above documented sale prices.

On this basis, the AO asserted that:

  • The assessee had purchased Flat No. 802, Cosmos Mary Park, Thane (W), from Cosmos Group.
  • In addition to the registered sale price, alleged cash payments of Rs. 34,50,000/- were made:
    • Rs. 25,50,000/- in AY 2012-13
    • Rs. 6,00,000/- in AY 2013-14

Since the assessee held a 50% share in the flat (joint ownership with spouse), the AO treated Rs. 14,25,000/- (50% of Rs. 28,50,000/- alleged cash pertaining to the year) as unexplained money under Section 69A.

Assessee’s Stand Before the AO

Denial of On-Money and Documentary Support

The assessee categorically denied having paid any cash component and placed on record:

  • A registered agreement dated 04.04.2012 for Flat No. 802 in Cosmos Mary Park, evidencing a total recorded consideration of Rs. 72,00,000/- jointly paid by the assessee and his wife.
  • Ledger extracts showing payment details (pages 98–101 of the paper book).
  • A written confirmation from Cosmos Builder clearly certifying that only Rs. 72,00,000/- had been received for the said flat, with no acknowledgment of any cash or on-money.

Request for Valuation and Access to Material

The assessee:

  • Requested that the property be referred to the Departmental Valuation Officer (DVO) to verify whether there was any undervaluation. The AO declined, contending that the issue was not one of valuation.
  • Asserted that no incriminating emails, excel sheets, or seized material had been furnished to him.
  • Repeatedly sought copies of the documents relied upon, but these were never provided at the assessment stage.

Despite the confirmation from the builder and the repeated denial of any cash payment, the AO proceeded to make the addition solely on the alleged incriminating material and statements, without supplying the underlying documents to the assessee.

Findings of the CIT(A)

On appeal, the CIT(A):