On-money allegations in real estate sales and deemed rent for unsold units; on-money additions struck down, deemed rent upheld.

Revenue treated the difference between book/sale-deed value and assessed sale value as undisclosed 'on-money' based on seized loose papers and estimated project costs; the tribunal found reliance on assumptions without corroborative evidence impermissible and deleted the on-money additions. Revenue invoked deemed rent for unsold units under the statutory deeming provision and applied a standard deduction; the tribunal upheld deemed rent but restricted it to 3% of market value as a reasonable estimate, rejecting the assessee's plea that the provision excluded ongoing projects commenced before its enactment.

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Issues: (i) Whether additions for alleged 'on-money' based on loose/seized papers, excel sheets and broker communications can be sustained without independent corroborative evidence; (ii) Whether the CIT(A)'s direction to recompute sale consideration at a flat rate of Rs.6,500 per sq.ft. and tax the profit element at 17% is justified; (iii) Whether deemed rent under Section 23(5) of the Income-tax Act, 1961 is correctly estimated and whether restricting it to 3% of market value is permissible.

Issue (i): Whether additions for alleged 'on-money' based on seized loose papers and third-party documents are sustainable in absence of corroborative evidence.

Analysis: The Tribunal examined the evidentiary value of seized loose excel sheets, third-party work papers and broker WhatsApp chats relied upon by the Assessing Officer. It noted absence of unit-specific corroboration such as buyer names/dates/signatures confirming cash payment, no cash trail, no informal ledger or utilization of alleged cash, and absence of inquiries under section 133(6) of the Income-tax Act. The Tribunal applied established principles that suspicion or uncorroborated entries in seized material cannot substitute for proof; it relied on precedents and principles requiring corroborative evidence before treating seized notings as actual transaction values.

Conclusion: The additions for alleged on-money based solely on seized loose papers and similar material are deleted; the revenue's additions on this ground are not sustained (decision in favour of the assessee).

Issue (ii): Whether the CIT(A)'s direction to recompute sale consideration at Rs.6,500 per sq.ft. and to tax 17% as the profit element is justified.

Analysis: The Tribunal observed that the CIT(A) had rejected the AO's methodology yet nevertheless adopted a uniform estimated rate and a flat profit percentage, applying assumptions across diverse units without unit-wise corroboration. The Tribunal found the uniform application of Rs.6,500 per sq.ft. and a 17% profit ratio to be based on assumptions and not supported by concrete evidence, and thus not sustainable.

Conclusion: The CIT(A)'s recomputation at Rs.6,500 per sq.ft. and taxation of profit at 17% is not upheld; the related additions are deleted (decision in favour of the assessee).

Issue (iii): Whether deemed rent under Section 23(5) is exigible and whether restricting it to 3% of market value was correct.

Analysis: The Tribunal considered the statutory provision requiring deemed rent for unsold units when two years have lapsed from obtaining building permission. It found no exclusion for projects where construction commenced prior to enactment of the provision. The CIT(A)'s approach to compute deemed rent and allow standard deduction under Section 24 was reviewed for reasonableness.

Conclusion: The plea that Section 23(5) is inapplicable fails; however the estimate of deemed rent as fixed by the CIT(A) at 3% of market value (with applicable standard deduction) is sustained (decision against the assessee on this limited issue).

Final Conclusion: On balance and for the issues decided, the Assessing Officer's primary additions for alleged on-money are deleted for lack of corroborative evidence; the appellate authority's alternative estimation of on-money and profit element is also not sustained, while the limited addition of deemed rent estimated by the CIT(A) at 3% is upheld. The appeals result in overall relief to the assessee subject to the upheld deemed rent determination.

Ratio Decidendi: Entries in seized or third-party loose papers and communications cannot be equated to actual transaction receipts; revenue must produce independent corroborative evidence (cash trail, buyer confirmation, utilization or other direct proof) before making additions for undisclosed 'on-money'.

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