Undisclosed income addition deleted due to insufficient evidence linking WhatsApp communications to all assessed property transactions

ITAT Surat upheld CIT(A)'s deletion of addition for undisclosed income from on-money received through inflated flat purchase prices. WhatsApp communications found during search related to only seven flats, not all 31 flats assessed by AO. Court noted significant time gap between alleged communications and booking dates, with AO failing to provide corroborative evidence. However, ITAT partially allowed revenue's cross-objection, sustaining 10% of CIT(A)'s estimated on-money figure to prevent revenue leakage while dismissing revenue's main appeal for lack of supporting evidence.

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Issues Involved:
1. Deletion of addition made by the Assessing Officer on account of "On-Money" received.
2. Sufficiency of incriminating material for concluding the receipt of on-money.
3. Taxability of on-money on the actual receipt basis versus the year of executing the registered document.
4. Application of taxability of on-money to the entire project.
5. Justification of addition based on extrapolation of on-money.
6. Consideration of the "Human Probability Test" in income tax proceedings.
7. Directions regarding chargeability of on-money receipt in the year of executing the registered document.

Summary:
1. Deletion of Addition on Account of "On-Money" Received:
The Assessing Officer (AO) made additions based on the difference between the documented sale price and the alleged on-money received, calculated from WhatsApp messages indicating higher rates for seven flats. The CIT(A) deleted these additions, stating that the WhatsApp chats did not provide sufficient evidence of on-money transactions for all flats and lacked corroborative material.

2. Sufficiency of Incriminating Material:
The CIT(A) noted that the WhatsApp chats related to only seven flats and were incomplete, lacking details such as buyer names, flat areas, and actual receipt dates. The CIT(A) emphasized the need for corroborative evidence beyond the incriminating material to prove the receipt of on-money, as established in CIT Vs Maulik Kumar K Shah.

3. Taxability on Actual Receipt Basis:
The CIT(A) upheld that income accrues only when the sale is materialized, not at the time of booking. The assessee followed the project completion method of accounting, recognizing revenue at the time of executing the sale deed or handing over possession, consistent with CIT Vs Shivalik Buildwell Pvt. Ltd. and CIT Vs Happy Home Corporation.

4. Application to Entire Project:
The CIT(A) rejected the AO's extrapolation of on-money receipts to the entire project, noting that the WhatsApp chats pertained to only seven flats. The Tribunal concurred, finding no scope for extrapolation without cogent evidence, as supported by CIT Vs Standard Tea Processing Co. Ltd. and CIT Vs B. Nagendra Baliga.

5. Justification of Addition Based on Extrapolation:
The Tribunal affirmed the CIT(A)'s finding that extrapolation was unjustified without rejecting the assessee's books of account and without evidence of systematic receipt of on-money. The AO's addition based on a straight formula was deemed speculative and unsupported by concrete evidence.

6. Consideration of "Human Probability Test":
The CIT(A) and Tribunal found that the AO's reliance on human probability and preponderance of probabilities was insufficient without corroborative evidence. The Tribunal emphasized the need for fair and reasonable assessment, aligning with judicial precedents like Dhakeshwari Cotton Mills Ltd. Vs CIT.

7. Directions on Chargeability of On-Money Receipt:
The CIT(A) did not issue specific directions regarding the chargeability of on-money in the year of executing the registered document, as the addition itself was found unwarranted based on the evidence available.

Conclusion:
The Tribunal dismissed the revenue's appeals for A.Y. 2014-15 and 2015-16, affirming the CIT(A)'s deletion of additions. For A.Y. 2016-17, the Tribunal partly allowed the assessee's cross-objection, reducing the addition to 10% of the on-money estimated by the CIT(A), considering the possibility of revenue leakage. The Tribunal emphasized the need for corroborative evidence and adherence to established accounting principles for recognizing income.

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