HIMANGI SANJAY PADWAL,KAUTILYA BHAVAN BKC vs. ITO WARD 42(2)(3), KAUTILYA BHAVAN BKC

Based on the above information, the Assessing Officer reopened the assessment by issuing notice under section 148 of the Act. In response, the assessee filed her return of income and explained that although her name appeared in the agreement for sale, the flat had actually been purchased by her husband, Shri Sanjay S. Padwal, who had paid the entire consideration from his own bank. It was submitted that the assessee was merely a salaried employee and her name had been included in the agreement only as a second holder for convenience. The assessee also furnished copies of the bank statements of her husband, his income-tax returns and computation of income, and contended that the property had always been disclosed by him in his returns as his asset.

The Assessing Officer, however, rejected the explanation. He observed that the Rajesh Lifespaces Group had admitted during the course of search that it had received on-money from purchasers of flats and had subsequently disclosed such receipts before the Settlement Commission. The Assessing Officer further noted that the agreement for sale of Flat No. 604 was registered in the name of the assessee and the purchase transaction had been routed through a bank account bearing the assessee's name. According to the Assessing Officer, the documentary evidence proved that the assessee was the purchaser of the property and the builder's records specifically reflected receipt of cash on-money of ₹5,32,500/- in respect of the said flat. The Assessing Officer held that the cash component was the unexplained investment made by the assessee and he added a sum of ₹5,32,500/- to her total income.

Aggrieved by the assessment order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The learned CIT(Appeals), however, upheld the addition made by the Assessing Officer. He observed that it was an undisputed fact that the builder had admitted receipt of on-money in respect of Flat No. 604 during the search proceedings and had also disclosed the same before the Income Tax Settlement Commission by offering the corresponding income to tax. According to the learned CIT(Appeals), the seized documents, the statements recorded from the key persons of the builder group and the disclosure before the Settlement Commission constituted corroborative evidence proving that an on-money payment of ₹5,32,500/- had in fact been received in connection with the purchase of the flat. The CIT(Appeals) held that in transactions involving unaccounted cash payments, direct documentary evidence is generally unavailable and therefore the evidentiary value of seized records, corroborative statements and surrounding circumstances is significant. Since the flat number mentioned in the seized material exactly matched with the flat purchased by the assessee and the cheque component also corresponded with the registered document, the learned CIT(Appeals) held that the seized material related to the assessee's purchase. On the contention that the assessee was merely a second holder and her husband was the real owner of the property, the learned CIT(Appeals) held that the assessee was admittedly one of the legal owners of the flat as her name appeared in the registered agreement for sale. He observed that the builder's seized records recorded the assessee's name against the cash component relating to Flat No. 604 and this fact was subsequently reaffirmed through the disclosure made before the Settlement Commission. According to the learned CIT(Appeals), the fact that the sale consideration had been paid by the husband through banking channels did not negate the possibility that the cash component could have been paid by the assessee herself. He further observed that the assessee was an independent salaried individual having her own source of income and there was nothing on record to establish that she could not have contributed the cash component. Accordingly, the learned CIT(Appeals) held that the Assessing Officer was justified in treating the amount of ₹5,32,500/- as unexplained investment under section 69 of the Act in the hands of the assessee.

The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee.

We have heard the rival contentions and perused the material available on record. The solitary issue arising for our consideration is whether the addition of ₹5,32,500/- made under section 69 of the Act on account of alleged on-money payment for purchase of Flat No. 604 in the Raj Splendor Project is sustainable in the hands of the assessee.

During the course of hearing, the learned counsel for the assessee submitted that the addition has been made solely on the basis of statements recorded from the representatives of M/s. Rajesh Estate & Nirman Pvt. Ltd. during the course of search proceedings in the case of the builder and the disclosure made by the builder before the Settlement Commission. It was contended that no independent material or corroborative evidence has been brought on record by the Assessing Officer to prove that the assessee herself had made any cash payment towards on-money. It was further submitted that it is now well settled by a catena of judicial precedents that an addition cannot be sustained merely on the basis of a third-party statement unless the same is supported by independent corroborative evidence and the assessee is confronted with such material. The learned counsel further invited our attention to pages 86 and 87 of the Paper Book containing the registered Agreement for Sale to support that the assessee was merely the second holder of the property, whereas her husband, Shri Sanjay S. Padwal, was the first holder. It was submitted that the Assessing Officer as well as the learned CIT(A) proceeded on the erroneous premise that the assessee was the purchaser of the property without appreciating the legal and factual distinction between a joint holder and the beneficial owner. Our attention was also drawn to pages 66 and 67 of the Paper Book containing the bank statements of Shri Sanjay S. Padwal, which showed that the entire consideration for purchase of the flat was paid exclusively from his bank accounts. It was further pointed out that the Revenue has not disputed the genuineness of these banking transactions.The learned counsel also referred to page 44 of the Paper Book to show that after the property was let out, the entire rental income was offered to tax by Shri Sanjay S. Padwal in his own return of income. Thus, all throughout, the husband has treated himself as the sole beneficial owner of the property and the Revenue has accepted such position. Notably, despite being the first holder of the property and the person who admittedly made the entire cheque payment, no proceedings for reopening of assessment were initiated in the case of Shri Sanjay S. Padwal (husband of the assessee)and no adverse finding has been recorded against him in respect of the on-money payment. According to the learned counsel, these undisputed facts clearly establish that the assessee was only a joint holder for convenience and there is no material whatsoever to attribute the unexplained investment to her.

We have carefully considered the rival submissions and examined the material placed before us. It is an undisputed fact that the impugned addition has been made solely on the basis of information received from the search conducted in the case of the builder. Except for the statements recorded from the representatives of the builder and the disclosure made by the builder before the Settlement Commission, no evidence has been brought on record by the Revenue to establish that the assessee herself paid any amount in cash towards the on-money. No document proving payment by the assessee, no cash flow, no withdrawal, no incriminating material recovered from the assessee and no other corroborative evidence has been brought on record. The settled position of law is that although a third-party statement may constitute a relevant piece of evidence, it cannot, by itself, be the sole basis for making an addition in the absence of independent corroboration.

We further find force in the contention of the learned counsel that the registered Agreement for Sale placed at pages 86 and 87 of the Paper Book clearly shows that the assessee was only the second holder of the property, whereas Shri Sanjay S. Padwal was the first holder. The bank statements placed at pages 66 and 67 of the paper book further show that the entire purchase consideration was paid from the bank accounts of Shri Sanjay S. Padwal. These documentary evidences have not been disputed by the Revenue. Further, page 44 of the Paper Book shows that the entire rental income from the said property has been offered to tax by Shri Sanjay S. Padwal in his return of income, thereby treating himself as the beneficial owner of the property. The Revenue has accepted this factual position and has not brought any material to show that the assessee derived any benefit or ownership rights independent of her husband.

Another significant circumstance which cannot be ignored is that no reassessment proceedings have been initiated in the case of Shri Sanjay S. Padwal, who admittedly is the first holder of the property, paid the entire cheque consideration and disclosed the rental income in his own return of income. No adverse finding has been recorded against him with regard to the on-money payment. In these circumstances, merely because the assessee's name appears as a joint holder in the registered agreement cannot, by itself, justify the inference that she made the unexplained investment.

In our considered opinion, the Revenue has failed to discharge the initial burden of establishing, through corroborative evidence, that the assessee had actually made the cash payment of ₹5,32,500/-. The addition is based merely on third-party statements and the builder's disclosure without any independent evidence connecting the assessee with the on-money payment. Such addition cannot be sustained in law. Accordingly, we hold that the Assessing Officer was not justified in making the addition of ₹5,32,500/- under section 69 of the Act in the hands of the assessee and the learned CIT(A) erred in confirming the same.

In the result, appeal of the assessee is allowed.