AO Can’t Make Addition On The Basis Of Statement Without Corroborating It With Any Other Material: ITAT

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that an AO cannot make additions merely on the basis of a statement without corroborating it with any other material.

The bench of Pavan Kumar Gadale (Judicial Member) and B.R. Baskaran (Accountant Member) has observed that the AO has assessed entire cash receipts as income of the assessee without examining the nature of entries and whether those receipts can be considered revenue receipts accessible to tax.

The appellant/assessee is a partnership firm that is in the real estate business as a builder and developer. The assessee filed a revised return of income on October 31, 2017, declaring a total income of Rs. 79,89,053.

The Department had earlier carried out survey action under Section 133A in the hands of the assessee on August 30, 2016. During the course of the survey, a statement was recorded on oath from one of the partners, Govind V. Vikmani. In the statements, he had agreed to surrender a sum of Rs. 4.23 crore for taxation over and above regular profit.

The amount related to the "on-money" receipt on the sale of flats and the basis for arriving at the figure is explained in brief. During the course of survey operations, it was noticed that there was a difference of Rs. 11,33,21,965 between MM value and sale value, and the difference was considered "on money receipts".

It was noticed that the assessee had offered a sum of Rs. 7,10,00,000 under the Income Disclosure Scheme of 2016.

It was agreed by the partner to surrender the balance amount. The assessing officer noticed that the assessee did not offer the amount. Accordingly, during the course of scrutiny proceedings, the assessing officer asked the assessee to explain it.

The assessing officer did not agree with the explanations given by the assessee. He took the view that the assessee sold thirty flats during the year under consideration after 1.4.2016, and there was a difference in the sale consideration mentioned in the agreement and the MM value. The AO computed the difference relating to 30 flats. The AO assessed the amount as unexplained income u/s 69A towards money received by the assessee. The CIT (A) deleted the addition.

The ITAT noted that the AO has merely relied upon the statement given by the partner of the assessee firm and accordingly come to the conclusion that the alleged "on money" receipts are to be assessed to tax.

The ITAT held that the AO cannot rely upon the statement given by a third party, even when he has stated that the impugned document may or appears to belong to the assessee herein, i.e., even the deponent was not sure as to whom the document belonged to. Hence, the AO could not have related the document to the assessee. The document is undated, unsigned, and unnamed and contains receipts and payments. Hence, it cannot be guaranteed that the transactions, even if they are assumed to belong to the assessee, pertain to the year under consideration. Hence, the AO could not have made an addition.

Case Title: DCIT Versus M/s. Parshwa Associates

Case No.: I.T.A. No. 2584/Mum/2022

Date: 04.05.2023

Counsel For Appellant: Vimal Punmiya

Counsel For Respondent: V.K. Chaturvedi

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