ITAT slashes Tax Demand on Builder LLP, Rejects 'On-Money' Extrapolation Due to Lack of Evidence [Read Order]

The case involved Meenamani Ganga Builder LLP, a real estate firm, which was subjected to a search operation under Section 132 of the Income Tax Act in January 2019. During the search, the department claimed to have found evidence suggesting that the builder had accepted cash payments ("on-money") over and above the documented sale consideration for certain properties. Based on seized documents and the statement of a sales manager, the Assessing Officer made additions to the taxable income for three assessment years (2017-18 to 2019-20) and extrapolated the alleged on-money receipts to other unsold properties.

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The builder contested the additions, arguing that the seized documents were merely draft booking forms reflecting negotiations and not final transactions. The firm also pointed out that its managing partner, Annuj Goel, had denied any receipt of on-money in his statement recorded during the search. Additionally, no cash, valuables, or corroborative evidence from buyers were found to support the department's claims.

The ITAT, comprising Vice President R.K. Panda and Judicial Member Astha Chandra, scrutinized the evidence and noted critical gaps in the department's case. The tribunal observed that the sales manager's statement, recorded under Section 131, was not backed by any independent verification from buyers or additional incriminating material. Moreover, the managing partner's denial of on-money receipts was not properly confronted or investigated by the tax authorities.

Referring to past rulings, including the Madras High Court's decision in CIT V. S. Khader Khan Son’s case, the ITAT emphasized that statements recorded under survey proceedings (Section 133A) have no evidentiary value unless supported by tangible material. The tribunal also distinguished the department's reliance on the Bombay High Court's judgment in Harish Textile Engineers Ltd V. DCIT (2015) noting that in that case, the assessee had admitted to receiving on-money, whereas Meenamani Ganga Builder LLP had consistently denied it.

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On the issue of extrapolation, the ITAT ruled that the department could not arbitrarily apply the alleged on-money pattern to all transactions without specific evidence. The tribunal allowed partial additions only where discrepancies between booking forms and registered sale deeds were clearly established. For Assessment Year 2017-18, the ITAT upheld an addition of Rs. 20 lakh for one property, while for AY 2019-20, it reduced the addition to Rs. 5.4 lakh for three other properties.

Also, No addition was sustained for AY 2018-19 due to lack of evidence.

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