SANJAY RATRA,MUMBAI vs. DCIT CIRCLE 3(3)(1), MUMBAI, MUMBAI

This appeal by the assessee is directed against the order dated 24.10.2025 passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as "the Ld. CIT(A)"] for the assessment year 2016-17.

Briefly stated, the facts of the case are that the assessee is an individual deriving income from salary, house property and income from other sources. The assessee filed his return of income on 08.04.2017 declaring total income of ₹3,69,17,870/-. The return was selected for scrutiny and assessment under section 143(3) of the Income-tax Act, 1961 ("the Act") was completed on 30.11.2018 accepting the returned income.

Subsequently, information was flagged under the Risk Management Strategy (RMS) through the ITBA software under the category of High Risk CRIU/VRU cases indicating that during the previous year relevant to the assessment year under consideration, the assessee had allegedly received cash of ₹1,30,00,000/- on sale of an immovable property. Based on the said information, notice under section 148A(b) dated 24.03.2023 was issued calling upon the assessee to explain why proceedings under section 148 should not be initiated. The assessee filed detailed objections denying receipt of any cash over and above the registered sale consideration. The Assessing Officer, however, rejected the objections by passing an order under section 148A(d) dated 17.04.2023 and simultaneously issued notice under section 148 of the Act.

During the reassessment proceedings, the Assessing Officer noticed that the assessee along with his mother, Smt. Aruna Ratra, had

Aggrieved by the reassessment order, the assessee preferred an appeal before the Ld. CIT(A). The assessee challenged the validity of the reassessment proceedings on the ground that the addition was founded on documents seized during the course of search in the case of Shri Dinesh Khatri and, therefore, proceedings ought to have been initiated under section 153C and not under section 147 of the Act. The Ld. CIT(A), however, rejected the said contention and upheld the validity of the reassessment proceedings initiated under sections 147/148 of the Act.

On merits, the assessee contended before the Ld. CIT(A) that no cash over and above the registered consideration had ever been received and that the addition was based merely on a retracted statement and a loose paper recovered from the premises of a third party. The assessee further contended that section 69A had no application to the facts of the case. The Ld. CIT(A) did not accept the aforesaid contentions. According to him, the statement of Shri Dinesh Khatri recorded under section 3

However, the Ld. CIT(A) noticed that the property in question was jointly owned by the assessee and his mother, Smt. Aruna Ratra, each having 50% share therein. Accordingly, he held that even assuming payment of on-money, the entire amount of ₹1.30 crore could not be brought to tax in the hands of the assessee alone. He, therefore, restricted the addition to ₹65,00,000/-, being the assessee's 50% share, and directed the Assessing Officer to assess the same under the head "Capital Gains" under section 45 of the Act. Being aggrieved by the order of the Ld. CIT(A), the assessee is in further appeal before us.

The Ld. Authorised Representative assailed the impugned order both on the issue of jurisdiction as well as on merits. On the legal issue, he submitted that the entire reassessment proceedings are without jurisdiction as the sole basis for reopening is page No.184 of Annexure A-1 seized during the course of search conducted in the case of Shri Dinesh Khatri. According to him, once the addition emanates from material seized during the course of search, the Revenue could have proceeded only under section 153C and not under section 147. He submitted that although the notice issued under section 148A(b) also referred to credit card expenditure, no addition has ultimately been made on that issue and, therefore, the only surviving basis for reopening is the seized material. In support of the said contention, reliance was placed upon several judicial precedents including the judgment of the Hon'ble Bombay High Court in Sejal Jewellery Exports India Pvt. Ltd. vs. ITO

On merits, the Ld. AR submitted that the entire addition rests upon the statement of Shri Dinesh Khatri and page No.184 of Annexure A-1. It was submitted that Shri Dinesh Khatri has subsequently retracted the statement recorded under section 132(4) and has categorically confirmed that except an advance of ₹3,00,000/-, which was subsequently returned by the assessee, no cash whatsoever was paid. Inviting our attention to page No.184 of Annexure A-1 reproduced by the Assessing Officer at page 27 of the assessment order, the Ld. AR submitted that the Revenue has completely misread the seized document. According to him, the document itself records payment of only ₹3,00,000/-, whereas ₹1,27,00,000/- is merely reflected as the balance payable. Thus, the seized paper itself disproves the allegation that ₹1.30 crore had actually been paid to the assessee. He further submitted that the property was an old residential house in a dilapidated condition and during negotiations the purchaser had agreed to reimburse the estimated expenditure of about ₹1.30 crore towards renovation and reconstruction. However, since the proposal for renovation never materialised, the advance of ₹3 lakh was returned and the sale was completed only for the registered consideration of ₹1.80 crore. It was further argued that there is absolutely no evidence regarding withdrawal of cash, movement of cash or actual receipt of ₹1.27 crore by the assessee. The Ld. AR also relied upon comparable sale instances, the subsequent sale of the property by Shri Dinesh Khatri for about ₹2.25 crore and the independent valuation obtained by Punjab National Bank to contend that the registered consideration represented the fair market value of the property. He, therefore, submitted that the addition sustained by the Ld. CIT(A) deserves to be deleted.

We have heard the rival submissions and perused the orders of the lower authorities as well as the material placed before us. We shall first deal with the legal grounds challenging the validity of the reassessment proceedings.

The principal contention of the Ld. AR is that once the addition is founded upon material seized during the course of search conducted in the case of Shri Dinesh Khatri, the Assessing Officer ought to have assumed jurisdiction under section 153C of the Act and not under section 147. It was argued that after the Assessing Officer accepted the explanation regarding the credit card expenditure, the only surviving issue was the alleged on-money emanating from the seized material and, therefore, the reassessment proceedings deserve to be quashed. Reliance was placed upon various judicial precedents including the

We have given our thoughtful consideration to the aforesaid submission. It is an admitted position that the reassessment proceedings were initiated after the substituted reassessment provisions introduced by the Finance Act, 2021 came into force. Notice under section 148A(b) was issued on 24.03.2023 followed by an order under section 148A(d) and notice under section 148 dated 17.04.2023. The records further reveal that the proceedings were initiated on the basis of information flagged under the Risk Management Strategy (RMS) through the ITBA software under the category of High Risk CRIU/VRU cases. Thus, the Assessing Officer assumed jurisdiction under sections 148A and 148 on the basis of information available in the RMS system and not on the basis of any satisfaction recorded by the Assessing Officer of the searched person under section 153C of the Act.

The provisions of section 153C come into operation where the Assessing Officer of the searched person records satisfaction that the books of account or documents seized belong or pertain to another person and thereafter forwards the same to the jurisdictional Assessing Officer of such other person. In the present case, admittedly, no proceedings have been initiated under section 153C nor is there any satisfaction recorded by the Assessing Officer of the searched person. Merely because the information available with the Assessing Officer had its genesis in the material found during search would not automatically render the reassessment proceedings under section 147 invalid. In our considered view, therefore, the decision of the Hon'ble Bombay High Court in Sejal Jewellery Exports India Pvt. Ltd. (supra) is distinguishable on facts, as in the present case the jurisdiction has been assumed independently under the amended reassessment provisions on the basis 7

We shall now examine the addition sustained by the Ld. CIT(A). The Assessing Officer treated the entire alleged cash receipt of ₹1.30 crore as unexplained money under section 69A read with section 115BBE. The Ld. CIT(A), while upholding the evidentiary value of the statement recorded under section 132(4) of Shri Dinesh Khatri and the existence of on-money, restricted the addition to ₹65 lakh considering that the assessee was only a 50% co-owner of the property and directed the Assessing Officer to assess the said amount under the head "Capital Gains".

The principal submission of the assessee on merits is that the very foundation of the addition is unsustainable. The addition is based only upon (i) the statement of Shri Dinesh Khatri recorded during search and (ii) page No.184 of Annexure A-1 seized from his premises. It is not in dispute that Shri Dinesh Khatri has subsequently retracted his statement and has also confirmed in writing that except an advance of ₹3 lakh, which was subsequently returned, no cash was ever paid to the assessee. Therefore, according to the assessee, the original statement, having been retracted, could not be relied upon in the absence of any independent corroborative evidence.

We find considerable force in the submission of the assessee regarding the seized document itself. Page No.184 of Annexure A-1, reproduced by the Assessing Officer at page 27 of the assessment order, records payment of only ₹3,00,000/- whereas ₹1,27,00,000/- is merely reflected as the balance payable. The document nowhere records that the balance amount had actually been paid. On the contrary, it continues

The explanation offered by the assessee also cannot be brushed aside lightly. The assessee has consistently explained right from the stage of proceedings under section 148A(b) that the property was an old residential house in a dilapidated condition and during negotiations it was contemplated that the purchaser would reimburse the estimated expenditure towards renovation and reconstruction. According to the assessee, the purchaser initially paid an advance of ₹3 lakh, but as the proposal for reconstruction did not materialise, the advance was returned and the sale was eventually completed only for the registered consideration of ₹1.80 crore. Significantly, this explanation is in consonance with the seized paper which records payment of only ₹3 lakh and not ₹1.30 crore.

We further find that except the aforesaid statement and the loose paper, the Revenue has not brought on record any independent evidence to establish actual payment of ₹1.27 crore. The Revenue has also not brought on record any material to indicate that the assessee was found to be in possession of such money or had utilised the alleged cash in any manner. Thus, the addition rests solely on a retracted statement and a loose paper recovered from the premises of a third party.

The surrounding circumstances also support the explanation furnished by the assessee. The comparable sale instances placed before

We are conscious that a statement recorded under section 132(4) is an important piece of evidence. However, it is equally well settled that such a statement is not conclusive. Once the maker of the statement retracts or explains the earlier admission and the contemporaneous seized document itself does not support the allegation of actual payment, the Revenue is required to bring some independent corroborative material on record. In the present case, no such corroborative evidence has been produced. Suspicion, however strong, cannot substitute proof.

In view of the foregoing discussion, we are of the considered opinion that the Revenue has failed to establish by cogent evidence that the assessee had received any amount over and above the registered consideration of ₹1.80 crore. Once the very receipt of additional consideration is not proved, the consequential finding of the Ld. CIT(A) restricting the addition to ₹65 lakh being the assessee's 50% share also cannot survive. The question of apportioning alleged on-money between the co-owners would arise only after the Revenue establishes that such on-money had in fact been received. Since the foundational fact itself has not been proved, the direction issued by the Ld. CIT(A) to assess ₹65,00,000/- under the head "Capital Gains" is unsustainable. We

In the result, the legal grounds challenging the validity of the reassessment proceedings are dismissed. The grounds raised on merits are allowed. Consequently, the addition sustained by the Ld. CIT(A) stands deleted.

In the result, the appeal of the assessee is partly allowed.