ITAT Mumbai Deletes ₹21.99 Lakh Addition Under Section 69B: On-Money Allegation Based on Third-Party Statement Without Cross-Examination Held Legally Unsustainable

Case Overview

Case Name: Bhagawati M Jain Vs ITO (ITAT Mumbai)
Assessment Year: 2018-19
Section in Dispute: Section 69B of the Income Tax Act, 1961
Forum: Income Tax Appellate Tribunal, Mumbai
Order Date: 10 March, 2026

The Mumbai Bench of the Income Tax Appellate Tribunal delivered a significant ruling in favour of the assessee by striking down an addition of ₹21.99 lakh made under Section 69B of the Income Tax Act, 1961. The addition had been framed on the allegation that the assessee had made an undisclosed cash payment — commonly referred to as "on-money" — while purchasing a commercial shop from a builder group that had earlier been subjected to a search and seizure action under Section 132 of the Act.

The Tribunal's ruling rests on two foundational pillars: the absence of specific, corroborated evidence against the assessee, and the denial of the right to cross-examine the person whose statement was used as the primary basis for the impugned addition. Both deficiencies, the Tribunal held, rendered the addition legally infirm and liable to be deleted entirely.

Background and Factual Matrix

The Search Operation and Information Sharing

A search and seizure operation was conducted on 15.10.2018 in the case of M/s. Bhagawati Developers and its group concerns. In the course of this operation, the investigating authorities gathered seized material and recorded statements from key individuals associated with the builder group. Based on an analysis of this material, the search group concluded that several purchasers of properties developed by the group had made cash payments over and above the declared agreement values — the classic "on-money" arrangement.

Information derived from this search was transmitted through the INSIGHT portal by the office of DDIT, Central Circle-1(3), Mumbai, to the Assessing Officer dealing with the assessee's case. This information indicated that the assessee had purchased a shop from M/s. Patel Enterprises — one of the group concerns of M/s. Bhagawati Developers — and had allegedly paid cash consideration amounting to ₹21.99 lakh in excess of the stated agreement value.

The Assessee's Property Purchase

The assessee had entered into a registered sale agreement dated 23.06.2017 for the purchase of a commercial shop from M/s. Patel Enterprises. The agreement value was recorded at ₹29,50,000/-. The assessee maintained that all payments towards this purchase were made exclusively through proper banking channels and that no cash was paid at any point during the transaction. Detailed payment records were submitted to substantiate this position.

It is pertinent to note that the assessee had not filed an original return of income under Section 139(1). As a result, when the reassessment proceedings were initiated, a notice under Section 148A(b) dated 08.03.2022 was issued, prompting the assessee to file a detailed reply on 14.03.2022.

Reassessment Proceedings and AO's Findings

The Assessing Officer examined the available material and noted that the stamp duty value (Index-II) of the purchased property was ₹37,20,500/-, which was higher than the agreement value of ₹29,50,000/-. He placed primary reliance on the statement of Shri Kulin Shantilal Vora, a partner of M/s. Patel Enterprises, recorded on oath during the search proceedings under Section 132(4) of the Act. According to the Assessing Officer, Shri Kulin Shantilal Vora had admitted to receiving on-money on sales made by the group and its concerns, and the shop purchased by the assessee was among the transactions covered in such admission.