ITAT Scraps Rs. 14.2 Crore 'On-Money' Tax Demand: No Evidence Found Against Real Estate Firm [Read Order]

The Income Tax Appellate Tribunal (ITAT), Pune bench, has quashed a ₹14.2 crore tax demand against a real estate firm, ruling that the income tax department failed to provide concrete evidence to prove alleged "on-money" transactions in the firm's real estate projects. The tribunal deleted additions made across three assessment years (2017-18 to 2019-20), holding that the tax authorities relied solely on uncorroborated employee statements and rough notes without examining buyers or partners.

Ganraj Homes LLP, a Pune-based real estate developer engaged in the "Ganga Acropolis" project through a joint venture with Kalyanee Fortune Constructions. During a January 2019 search operation, tax authorities alleged the firm received unaccounted cash ("on-money") from flat buyers, based on seized diaries and statements from three sales managers. The Assessing Officer (AO) extrapolated these findings, adding ₹2.42 crore for AY 2017-18, ₹5.31 crore for AY 2018-19, and ₹10.43 crore for AY 2019-20 as undisclosed income totaling ₹14.2 crore. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld these additions.

The ITAT bench, comprising Vice President R.K. Panda and Judicial Member Astha Chandra, noted critical flaws in the department's case. First, the seized documents primarily related to an unsold penthouse, and most flats were sold to buyers different from those named in the alleged incriminating records. Second, the sales managers whose statements were recorded had joined the firm only in 2018, yet the additions covered earlier years. Crucially, neither the managing partner, Subhash Goel, nor any flat buyers were questioned about the alleged cash transactions.

The tribunal referenced the Madras High Court's ruling in CIT vs. S. Khader Khan Son (2008), which held that statements recorded under Section 133A lack evidentiary value unless corroborated. It also cited the Mumbai ITAT's decision in Smt. Madhu Gupta vs. DCIT (2006), emphasizing that employee statements cannot form the basis for additions unless confronted with the assessee. Notably, the CIT(A) had already deleted similar additions for Kalyanee Fortune Constructions, the joint venture partner, in a related case.

The ITAT rejected the extrapolation method used by the AO, observing that no evidence linked the alleged on-money receipts to unsold flats. It highlighted that the department failed to establish a single instance where cash was actually received, trace its utilization, or prove the firm's share in such transactions. The bench emphasized that tax demands cannot rest on "suspicion, conjectures, or surmises," citing the Supreme Court's stance in Dhakeswari Cotton Mills (1954).

With the deletions, Ganraj Homes LLP secures a full waiver of the ₹14.2 crore demand. The ruling underscores that tax authorities must base additions on verifiable evidence not assumptions especially when dealing with third-party documents and unconfronted statements. The decision also reinforces that extrapolation requires cogent material connecting alleged irregularities to specific transactions.

The order brings relief to the real estate sector, where on-money allegations often arise from ambiguous documentation. By insisting on direct evidence and due process, the ITAT has set a clear benchmark for such cases, ensuring taxpayers aren't penalized based on unsubstantiated inferences.

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