2025 (2) TMI 405 - AT - Income Tax

Extrapolation of on-money receipts from loose papers found during search held unjustified without proper inquiry

Ganraj Homes LLP Versus ACIT, Central Circle 2 (3), Pune

ITAT Pune held that extrapolation of on-money receipts (20% of total consideration) based on loose papers found during search was unjustified. The ... Addition on-money received by the assessee being 20% of the total consideration - extrapolation on the basis of loose papers found during the course of search - HELD THAT:- We are of the considered opinion that extrapolation cannot be made on account of receipt of on-money for sale of shops in respect of which no evidence was found during the course of search and no enquiry or investigation was conducted either by the search party during the course of search or post-search enquiries or by the AO during the course of assessment proceedings. Since in the instant case, admittedly, not a single question was put to Mr. Subhash Goel about the statements of the employees and the incriminating documents which relate to the sale of pent house has actually not been sold, most of the flats were sold to the persons other than the persons whose names were appearing in the loose sheets towards sale of the said very flats and the buyers are unrelated parties and since the Ld. CIT(A) in the case of other partner of the joint venture has already deleted the addition on account of such on-money received on sale of flats in the project Ganga Acropolis, we are of the considered opinion that no addition is called for in the hands of the assessee. Accordingly, the addition made by the AO for assessment year 2017-18 being share of the assessee on account of extrapolation is deleted. Decided in favour of assessee. The legal judgment involves three appeals filed by an assessee, a firm engaged in real estate, against the order of the CIT(A), Pune, concerning the assessment years 2017-18, 2018-19, and 2019-20. The core issue revolves around the addition of 'on-money' received by the assessee, which was not recorded in the books of accounts.Issues Presented and ConsideredThe primary legal issue considered in this judgment is whether the addition of 'on-money' received by the assessee, as determined by the Assessing Officer (AO) and upheld by the CIT(A), is justified. The Tribunal examined whether the evidence and statements gathered during the search and survey operations could substantiate such additions.Issue-wise Detailed AnalysisRelevant Legal Framework and Precedents: The case involves provisions under the Income Tax Act, 1961, particularly sections 132, 133A, and 153A, concerning search and seizure operations, assessment of undisclosed income, and the evidentiary value of statements and documents obtained during such operations. The Tribunal also considered precedents relating to the evidentiary value of statements recorded under section 133A and the use of loose papers or documents as evidence.Court's Interpretation and Reasoning: The Tribunal scrutinized the evidentiary value of the documents and statements obtained during the search. It noted that statements recorded under section 133A do not hold evidentiary value and cannot be the sole basis for additions unless corroborated by other evidence. The Tribunal emphasized that the AO's reliance on loose papers and statements from employees without corroborative evidence was insufficient to justify the additions.Key Evidence and Findings: The AO had based the additions on statements from sales managers and loose papers indicating the receipt of on-money. However, the Tribunal observed that the managing partner of the assessee firm was not questioned about these statements, and no corroborative evidence was presented to link the alleged on-money to the assessee's accounts. Additionally, the Tribunal noted discrepancies in the names of buyers and the actual transactions, further weakening the AO's case.Application of Law to Facts: The Tribunal applied legal principles regarding the admissibility and corroboration of evidence obtained during search operations. It highlighted the need for concrete evidence to substantiate claims of undisclosed income and criticized the AO's reliance on assumptions and extrapolations without solid evidence.Treatment of Competing Arguments: The Tribunal considered the assessee's arguments that the statements and documents were unreliable and that no concrete evidence linked the alleged on-money to the assessee's accounts. The Tribunal also reviewed the CIT(A)'s decision in a related case involving the assessee's joint venture partner, where similar additions were deleted due to a lack of evidence.Conclusions: The Tribunal concluded that the additions made by the AO and upheld by the CIT(A) were based on assumptions and lacked corroborative evidence. It emphasized that extrapolation of on-money without concrete evidence was unjustified.Significant HoldingsThe Tribunal held that the statements recorded under section 133A have no evidentiary value unless corroborated by other evidence. It reiterated the principle that loose papers and documents without corroboration cannot be the basis for additions. The Tribunal also emphasized that extrapolation of on-money without evidence is not permissible.Core Principles Established: The judgment reinforced the principle that statements recorded during surveys have limited evidentiary value and must be corroborated. It also highlighted the need for concrete evidence when making additions based on alleged undisclosed income.Final Determinations on Each Issue: The Tribunal allowed the appeals filed by the assessee, deleting the additions made by the AO for the assessment years in question. It concluded that the additions were based on assumptions and lacked the necessary evidentiary support.