2025 (9) TMI 212 - AT - Income Tax

Addition under section 69C deleted where payment shown as bona fide investment in shop via bank and registered deed

ITAT MUMBAI - AT deleted AO's addition under s.69C treating an 'on money' payment as unexplained investment. Tribunal held the payment represented a bona ... Un-explained investment in the form of “on money” paid by the assessee to the builder - HELD THAT:- Assessee has made an investment by purchasing a shop from Runwal Homes Pvt. Ltd. and is not an expenditure incurred by her, for which AO has invoked provisions of section 69C. Assessee has purchased a property under a duly registered deed for which the transactions have been routed through banking channel. Addition so made by AO is on presumption basis without any effort made to examine the facts involved in the transaction except for placing reliance on the statement recorded during the course of search of an un-connected person. Thus, we delete the addition so made by the AO towards un-explained investment in the form of “on money” paid by the assessee to the builder. Grounds raised by the assessee in this respect are allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the reopening of assessment under section 147 (r/w section 148) is valid where the reasons to believe do not disclose or rely upon contemporaneous third-party statements seized in a search, and the only incriminating material is a third-party statement recorded under section 132(4) in a search of the builder. 2. Whether an addition under section 69C treating alleged 'on money' paid by the assessee as un-explained investments is sustainable where the assessee produced a registered sale deed, bank receipts and a confirmation letter from the builder denying receipt of any consideration beyond the deed, and where the Revenue's case rests primarily on statements of an unconnected third party. 3. Whether failure to afford the assessee an opportunity to cross-examine the maker of the third-party statement relied upon by the Revenue vitiates the assessment/reopening and the consequent addition. ISSUE-WISE DETAILED ANALYSIS - 1 & 3 (Reopening validity; reliance on third-party statements; right to cross-examination) Legal framework: Reopening under section 147/148 requires a 'reason to believe' that income has escaped assessment; the reasons must disclose objective material forming the basis for belief. Statements recorded under section 132(4) in a search can constitute material, but natural justice principles and settled authorities require that where adverse action is based on third-party statements, the assessee must be given an opportunity to test those statements, and reliance on uncorroborated third-party statements without giving chance to cross-examine can render the action bad in law. Precedent treatment: The Tribunal relied on higher judicial pronouncements holding that assessments founded on third-party statements, when those statements were not supplied to the assessee and no opportunity to cross-examine was afforded, are invalid. The Court followed the approach in authorities emphasizing that borrowed satisfaction or reopening solely on third-party statements without corroboration is not justified. Interpretation and reasoning: The Tribunal examined the reasons to believe and found no mention of the specific statement of the builder's director in the reasons recorded for initiating reassessment. The assessing officer's order relied on a statement recorded during a search, but the officer did not examine the declarant nor provide the assessee an opportunity to cross-examine or otherwise test the veracity of that statement. The only corroborative material on record was the registered sale deed and bank receipts produced by the assessee and a confirmation letter from the builder denying extra payments. Given that the statement of the unconnected third party formed the sole basis for reopening and the addition, and in absence of supporting independent material, the Tribunal held that the belief that income had escaped assessment was not reasonably founded. Ratio vs. Obiter: Ratio - Where reopening is based primarily on uncorroborated third-party statements from a search, and those statements are not specifically incorporated in the reasons to believe nor made subject to cross-examination, the reopening and consequent assessment are vitiated for lack of adequate objective material and denial of fair opportunity. Obiter - Observations on the broader unfairness of requiring the assessee to 'prove a negative' and on procedural practices in search cases may be treated as explanatory. Conclusions: The Tribunal concluded that the reopening under section 147/148 was not justified on the material placed on record, and that failure to examine the third-party declarant or to afford cross-examination deprived the assessee of a fair opportunity and rendered reliance on that statement impermissible for sustaining reopening or addition. ISSUE-WISE DETAILED ANALYSIS - 2 (Sustainability of addition under section 69C for alleged 'on money') Legal framework: Section 69C applies to unexplained investments where the assessee is unable to account for the source of such investments. For an addition under section 69C to stand, the Revenue must establish that the asset or payment is an unexplained investment and that the assessee failed to satisfactorily explain the source. Precedent treatment: Jurisprudence requires that additions based on alleged acceptance of 'on money' by third parties must be supported by concrete evidence linking the assessee to unreported receipt/expenditure; mere statements by third parties without corroboration and without procedural safeguards are inadequate. The Tribunal followed authorities disallowing additions that rest solely on third-party statements recorded in search proceedings when the assessee produces documented evidence of the transaction. Interpretation and reasoning: The assessee produced a duly registered sale deed reflecting the consideration and multiple bank receipts accounting for payments routed through banking channels, and a confirmation letter from the builder affirming receipt only of the consideration stated in the registered deed and denying receipt of any additional payment. The assessing officer ignored these documents and proceeded to treat the difference between total payments allegedly made and the agreement value as 'on money', relying on the builder's earlier statement in search proceedings. The Tribunal found the addition to be premised on presumption and borrowed satisfaction, without independent verification or investigation by the assessing officer. Given the documentary evidence that the transaction was effected by registered sale deed and banking entries, and the absence of irrefutable evidence of any cash 'on money' payment, the Tribunal held that the requirements for an addition under section 69C were not met. Ratio vs. Obiter: Ratio - Addition under section 69C cannot be sustained where the Revenue's case rests solely on an uncorroborated third-party statement and the assessee has produced a registered deed, bank receipts and a builder's confirmation showing no unexplained investment; such an addition is based on presumption and is unsustainable. Obiter - Comments that the assessing officer ought to have conducted independent inquiries and afforded the assessee appropriate procedural rights serve as guidance. Conclusions: The Tribunal deleted the addition under section 69C, holding that there was no reliable material to treat the disputed amount as un-explained investment. The assessee's grounds challenging the addition were allowed. CROSS-REFERENCES AND INTERPLAY OF ISSUES 1. The validity of reopening (Issues 1 & 3) and the sustainment of the section 69C addition (Issue 2) are interlinked: because the reopening and the substantive addition both hinged on the same uncorroborated third-party statement, infirmities in the reopening process and denial of opportunity to test that statement undermined the legal basis for the substantive addition. 2. The Tribunal treated the builder's contemporaneous confirmation and the registered transaction evidence as direct rebuttal material that the Revenue failed to address substantively before making the addition; accordingly, evidentiary inadequacy affected both procedural and substantive outcomes. FINAL CONCLUSION The appeal was allowed by the Tribunal: reopening premised on an uncorroborated third-party statement not disclosed in the reasons and without affording the assessee an opportunity to test the statement is invalid; consequential addition under section 69C based solely on such material, when the assessee produced registered deed, bank receipts and a builder's confirmation negating additional payments, is unsustainable and deleted.