ITAT Mumbai Quashes Reassessment & Deletes On-Money Addition Based on Uncorroborated Search Material

Background of the Dispute

The Income Tax Appellate Tribunal, Mumbai Bench, in the case of Mamta Sharad Gupta Vs ITO, examined the validity of an addition of ₹10.52 lakh made as alleged on-money paid for purchase of a flat from Cosmos Group. The reassessment was carried out under Section 143(3) read with Section 147 of the Income Tax Act 1961.

The core issue was whether the Revenue could sustain an addition solely on:

  • The statement recorded from Shri Suraj Parmar, a promoter of Cosmos Group, under Section 132(4), and
  • Certain excel sheets/electronic data allegedly recovered during search in the Cosmos Group,

without any independent or direct evidence linking the assessee to the alleged cash component of the transaction.

The Tribunal ultimately allowed the appeal of the assessee and deleted the addition as unsustainable in law.

Condonation of Delay in Filing Appeal

Reason for Delay

The assessee had filed the appeal against the order of the Commissioner of Income Tax (Appeals)-2, Pune [CIT(A)] with a delay of around three years. The explanation offered was:

  • The CIT(A)’s order dated 14.09.2018 was never served upon the assessee either by post or by email.
  • The assessee claimed she became aware of the appellate order only when she checked the Income Tax Department’s e-filing portal.
  • An affidavit was filed supporting this explanation.

The Revenue did not bring any material on record to show actual service of the CIT(A) order.

Tribunal’s Decision on Delay

The Tribunal, invoking the principles of natural justice, held that:

  • There was no rebuttal by the Revenue to the assessee’s assertion of non-service.
  • A litigant should not be denied an opportunity to contest on merits when a plausible and uncontroverted reason for delay exists.

Accordingly, the delay in filing the appeal was condoned and the appeal was admitted for adjudication on merits.

Origin of Reassessment Proceedings

Information from Search in Cosmos Group

The reassessment stemmed from information shared by the Investigation Wing, Mumbai. A search and seizure operation under Section 132 had been carried out in the case of Cosmos Group. During the search:

  • The statement of Shri Suraj Kumar Parmar, a key promoter of Cosmos Group, was recorded under Section 132(4).
  • According to the Investigation Wing, he admitted that cash (on-money) was being received over and above the recorded sale price in respect of flats, shops and offices sold by the group.
  • Electronic data (including excel sheets/tally data) was claimed to have been found reflecting such alleged on-money receipts.

Alleged Transaction of the Assessee

On the basis of this search material, the Revenue alleged that the assessee:

  • Had purchased a flat from Cosmos Group (Cosmos project) jointly with another co-purchaser.
  • Had paid part of the consideration in cash, specifically:
    • ₹8 lakh allegedly in cash on 23.02.2011, and
    • ₹13.04 lakh allegedly in cash on 28.03.2011,
    • representing what was described as half-share of a joint transaction of ₹21.04 lakh.

The Assessing Officer (AO) formed a belief that income chargeable to tax had escaped assessment in Assessment Year 2011-12 and, accordingly, issued notice under Section 148 to reopen the assessment.

Assessment & First Appeal Before CIT(A)

Reassessment Order

In the reassessment framed under Section 143(3) read with Section 147, the AO: