Pune ITAT Quashes ₹4.02 Crore ‘On-Money’ Addition Based Only on Third-Party Material

Background of the Dispute

The Pune Bench of the Income Tax Appellate Tribunal in DCIT Vs Karan Gupta (ITAT Pune) upheld the relief granted by the CIT(A) by deleting an addition of ₹4.02 crore made as alleged cash “on-money” for purchase of land at Savargaon. The addition was framed under Section 153C read with Section 143(3) of the Income Tax Act 1961, on the footing that the assessee had invested unaccounted cash over and above the stated consideration in the registered sale deed.

The core controversy revolved around whether:

  • Loose sheets and noting seized from the sellers (Kokani family),
  • Statements of those sellers recorded during search under Section 132(4), and
  • A broad inference of market practice and presumptions,

could, without any specific corroboration against the assessee, justify an addition of alleged unaccounted investment in the assessee’s hands.

The Tribunal decisively held that such an addition was unsustainable in law, especially when:

  • No incriminating document or material was found in the assessee’s search or assessment records,
  • The seized papers from the Kokani family did not identify the assessee or prove any cash flow from him, and
  • The sellers, on cross-examination, categorically denied receiving any on-money from the purchasers and retracted their earlier stand claiming it was only to buy peace with the Department.

Facts in Brief

Land Transaction and Assessee’s Role

  1. A search under Section 132 was conducted on 08.09.2015 in the case of the Kokani Group, Nashik.

  2. During this search, the Department examined transactions relating to the sale of agricultural land at Savargaon, Taluka and District Nashik, bearing Survey Nos. 53/2, 54 and 55, admeasuring in total 92 Acres and 20 Gunthas.

  3. This land was sold by 14 members of the Kokani family to six purchasers, namely:

    • M/s Thakker Apna Ghar Pvt. Ltd.
    • M/s Thakker Housing Development Pvt. Ltd.
    • M/s Thakker Gruh Nirman Pvt. Ltd.
    • Dhananjay Marketing Pvt. Ltd.
    • Asian Food Products Ltd.
    • The present assessee (an individual), who is one of the co-purchasers.

  4. The aggregate sale consideration as per registered sale deed dated 05.07.2013 was ₹65,21,25,992/-.

  5. The assessee’s share corresponded to 8 Acres of land, for which the recorded consideration paid was ₹5,64,00,000/-. The assessee also received remuneration income from a partnership firm and had originally filed his return for A.Y. 2014-15 on 31.03.2015 declaring income of ₹35,16,960/-.

The assessee maintained that he is an independent buyer, not related to the Thakker Group entities, despite being a co-purchaser of the same land.

Seized Material and Statements of Kokani Group

During the search on Kokani Group, certain loose sheets and papers were seized. On the basis of these:

  • Members of the Kokani family, in their statements under Section 132(4)/Section 131, initially declared additional income of ₹8,58,19,700/-.
  • Upon further questioning during search, they offered another ₹3,36,00,000/-.

Thus, the total income of ₹11,94,19,700/- was declared as additional income in the hands of Kokani Group, claimed to be on account of alleged “on-money” in cash purportedly received from Thakker Group in respect of the Savargaon land transaction.

This information was later forwarded by the DDIT (Inv.) – I to the Assessing Officer (AO) of the assessee.

Initiation of Proceedings Under Section 153C

Relying on the material and disclosures in Kokani Group’s search, the AO issued a notice under Section 153C to the assessee on 29.03.2018.

  • The assessee e-filed his return in response on 31.10.2018 under Section 153C, showing the same income as in the original return – ₹35,16,960/-.
  • Notices under Section 143(2) and Section 142(1) were also issued and complied with.

After considering the submissions, the AO determined that cash “on-money” had been paid by the purchasers of Savargaon land and worked out total cash component allegedly at 50% of consideration.

In the assessee’s case, the AO:

  • Spread the alleged cash investment of ₹5,64,00,086/- over relevant years,
  • Added ₹4,02,62,258/- in A.Y. 2014-15 as unexplained investment,
  • Completed assessment under Section 143(3) r.w.s. Section 153C on 31.12.2018,
  • Assessed total income at ₹4,37,79,218/- as against ₹35,16,960/- returned.

The key plank of the AO’s case was:

  • Seized loose sheets from Kokani Group,
  • Statements under Section 132(4) of Kokani family members admitting on-money receipts,
  • An overall working of total unaccounted cash in the Savargaon transaction at ₹65,21,25,992/- and identification of assessee’s proportionate share.

CIT(A)’s Decision: Addition Deleted

The assessee challenged the assessment before the CIT(A), Pune-12.

The CIT(A):

  • Noted that the assessee is one of the entities connected with Thakker group transactions, being a co-owner of the same Savargaon land,
  • Observed that identical on-money additions made in the hands of other co-purchasers (co-owners) on the basis of the same seized documents and same reasoning had already been examined by coordinate benches of ITAT.

The CIT(A) placed express reliance on jurisdictional Tribunal rulings, including: