ITAT Mumbai Sets Aside On-Money Addition Under Section 69 for Breach of Natural Justice
Background of the Dispute
The appeal in Shivaji Tukaram Pawale Vs ITO (ITAT Mumbai) arose from an order dated 16-1-2026 passed by the National Faceless Appeal Center (NFAC), Delhi for Assessment Year 2017-18.
Two distinct issues came up for adjudication before the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT):
- Addition of alleged on-money of
Rs. 25,00,000/-underSection 69relating to the purchase of a flat. - Disallowance of deduction under
Section 80TTAin respect of interest income.
The crux of the matter was whether an addition under Section 69 could be sustained solely on the basis of a statement recorded from third parties (Section 131), without sharing that material with the assessee or granting an opportunity for cross-examination.
Facts of the Case
Return of Income and Basic Details
- The assessee is a resident individual.
- For AY 2017-18, the assessee filed a return of income on 23-7-2017 declaring total income of
Rs. 20,23,130/-. - The assessment proceedings revealed that the assessee had purchased a flat for a documented consideration of
Rs. 49,00,000/-.
During scrutiny, the Assessing Officer (AO) relied on information gathered in the course of a survey on the builder and proceeded to make an addition of Rs. 25,00,000/- as unexplained investment under Section 69.
Survey on Builder and Statement Under Section 131
A survey under Section 133A was carried out in the case of the partners of M/s Lakshmi Builders and Developers. In connection with this survey:
- Statements of the partners were recorded under
Section 131. - According to the AO, the partners admitted that:
- They had received cash (“on money”) from purchasers of flats.
- Such cash was over and above the recorded sale consideration in the sale agreements.
From the material with the department, the AO inferred that the assessee had allegedly paid Rs. 25,00,000/- in cash as on-money for purchase of the flat from the said builder.
Assessee’s Stand During Assessment
When confronted with the allegation of on-money payment:
- The assessee categorically denied having paid any amount in cash beyond the declared consideration of
Rs. 49,00,000/-. - The assessee specifically requested the AO to:
- Provide copies of the statements recorded from the partners of M/s Lakshmi Builders and Developers under
Section 131. - Grant an opportunity to cross-examine those partners whose statements formed the basis of the proposed addition.
- Provide copies of the statements recorded from the partners of M/s Lakshmi Builders and Developers under
Despite these clear and specific requests, the AO:
- Did not furnish copies of the statements.
- Did not offer any opportunity to cross-examine the partners.
- Proceeded to rely heavily on those statements as conclusive evidence that on-money had been paid by the assessee.
Addition Under Section 69 and First Appeal
Proceeding on the presumption that the assessee had indeed paid cash over and above the documented sale price, the AO:
- Treated
Rs. 25,00,000/-as unexplained investment underSection 69. - Added the same to the total income of the assessee.
The assessee challenged this addition before the NFAC (First Appellate Authority). However:
- The NFAC upheld the AO’s action.
- The assessee’s objections regarding non-supply of statements and denial of cross-examination were not accepted.
Aggrieved, the assessee carried the matter in appeal before the ITAT Mumbai.
Tribunal’s Examination of the On-Money Addition
Nature of Evidence Relied Upon by the AO
The ITAT carefully examined the assessment order and noted that: