The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has allowed an appeal concerning an alleged receipt of undisclosed “on-money” on the sale of industrial plots, deleting an addition of ₹11,12,31,740.
The bench of Anubhav Sharma (Judicial Member) and Amitabh Shukla (Accountant Member) held that the addition could not be sustained merely on the basis of WhatsApp chats and other electronic material found on a third party’s mobile phone, particularly when there was no corroborative evidence of cash receipts and the Assessing Officer (AO) had relied upon directions and inputs from a superior authority while framing the assessment.
A search and seizure operation under Section 132 of the Income Tax Act was conducted in the Goyal Group on January 10, 2023, and the assessee was also covered by the search. For AY 2023-24, the assessee filed its return declaring total income of ₹2,02,25,890. During scrutiny proceedings, the AO made an addition alleging that the assessee had received consideration over and above the amount disclosed in the registered sale deeds in respect of industrial plots.
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The assessee owned approximately 4.91 acres of land situated at Poysha Industrial Estate, Faridabad. The land was subdivided into 36 industrial plots of varying sizes, of which 24 plots had been sold by the time of the search. During the search, the Department cloned and inventorized the mobile phone data of Rajeev Gupta, who was stated to have assisted S.C. Goyal in connection with property dealings. WhatsApp chats, screenshots, images and other documents were extracted, while Gupta’s statement was also recorded.
According to the AO, these materials indicated that the assessee had received amounts over and above the consideration recorded in the registered sale deeds and books of account. The AO consequently proceeded to determine additional consideration and made the substantial addition under Section 45 of the Act.
A key factor considered by the Tribunal was the limited connection between the seized material and the assessment year under consideration.
Out of the 24 plots sold up to the date of search, the alleged incriminating material relied upon by the Department related to only eight plots. More importantly, only one of those eight plots pertained to AY 2023-24, while the remaining seven related to transactions of earlier financial years.
The Tribunal noted that even with respect to the single plot falling within AY 2023-24, the material relied upon by the AO consisted merely of a WhatsApp communication concerning brokerage with a broker. The Tribunal found that there was no incriminating material establishing receipt of undisclosed consideration for the relevant year.
Despite this, the AO extrapolated material relating to earlier transactions to all eight plots sold during AY 2023-24. The AO adopted the highest alleged rate of ₹45,000 per square yard appearing in the seized material and applied it to the transactions under consideration, even though there was no material establishing that this rate actually applied to the plots sold during the relevant year.
The Tribunal also accepted a significant legal challenge concerning the manner in which the assessment was framed.
The assessee argued that the assessment order was not based on the AO’s independent satisfaction but had been passed under the dictates, directions and influence of superior authorities. The Tribunal admitted this additional legal ground because it could be decided on the basis of facts already available on record.
The assessment order itself contained an admission that the issues arising from the appraisal report had been regularly discussed with the Additional Commissioner of Income Tax, Central Range-8, New Delhi, and that the “directions and inputs” arising from those discussions had been incorporated into the assessment proceedings.
The Department argued that the AO had merely followed administrative instructions and that this did not prejudice the assessee. The Tribunal, however, drew a distinction between administrative supervision and the independent exercise of a quasi-judicial function.
According to the ITAT, while administrative guidance and supervisory control may be permissible for ensuring proper conduct of proceedings, the appreciation of incriminating material and determination of issues in an assessment are quasi-judicial functions entrusted to the AO. The AO cannot surrender that statutory responsibility or exercise it under the dictates or influence of a superior authority.
The Tribunal emphasized that an authority performing a quasi-judicial function must independently apply its mind, exercise its discretion and arrive at its own conclusions. If an assessment is made under the dictates of another authority, it amounts to surrender of statutory discretion and can vitiate the assessment proceedings.
The ITAT relied upon the principles laid down in Fin Doc Finvest (P.) Ltd. v. Deputy Commissioner of Income-tax, Central, as well as decisions including Shri Dheeraj Chaudhary v. Assistant Commissioner of Income Tax, DCIT, Central Circle-20 v. Proform Interiors Pvt. Ltd., and Hydrise Foods Pvt. Ltd. v. DCIT, Central Circle, Agra. These decisions recognize the requirement that the AO must independently examine the evidence and cannot delegate or surrender the statutory responsibility of assessment.
The Tribunal found that the Department had primarily relied upon the statement of Rajeev Gupta recorded under Section 132(4), together with WhatsApp chats and other electronic material. However, the assessee had not been provided an opportunity to cross-examine Gupta or effectively confront the evidence relied upon against it.
The ITAT observed that where electronic evidence is relied upon and the AO reaches a conclusion not merely from its contents but from his own interpretation of the material, the assessee must have an opportunity to confront the material and its author. In the present case, the AO had assumed that figures appearing in communications represented actual sale consideration and treated the difference between those figures and the registered sale deed consideration as unaccounted cash receipts.
The Tribunal found this approach problematic because the Department’s own seized material showed that the project offered two distinct categories of plots—developed and undeveloped plots—with different pricing structures. The figures appearing in the chats could therefore not automatically be treated as the actual consideration for the undeveloped plots that were ultimately sold.
The Tribunal noted that the rates of ₹45,000 to ₹60,000 per square yard referred to developed plots with development facilities. These rates could not mechanically be applied to undeveloped plots. The development agreements and purchaser agreements also contained clauses concerning development obligations and payments, supporting the assessee’s explanation that discussions could relate to the developed-plot option even where the eventual transaction concerned only an undeveloped plot.
Another important piece of evidence considered by the Tribunal was the statements of purchasers recorded under Section 131 of the Income Tax Act.
The purchasers, who were actual counterparties to the transactions, stated that they had been offered both developed and undeveloped plot options but had opted for undeveloped plots. They specifically confirmed that the consideration paid by them was exactly the amount reflected in the registered sale deeds and denied making any cash payment over and above the recorded consideration.
The Tribunal attached considerable evidentiary significance to these statements, noting that the AO had neither rebutted nor discredited the purchasers’ statements nor produced material contradicting their categorical denial of cash payments. In the Tribunal’s view, these direct statements from the contracting parties carried greater evidentiary weight than inferences drawn from WhatsApp communications found on a third party’s mobile phone.
The Tribunal further examined the role of Rajeev Gupta, whose statement and mobile phone data formed a significant part of the Department’s case.
The ITAT noted that Gupta was neither a director nor a shareholder of the assessee company and had no authority to determine the sale consideration. His role was limited to coordinating site visits and communicating project information to prospective purchasers. Final negotiations and commercial decisions were taken by S.C. Goyal.
Therefore, according to the Tribunal, Gupta’s opinion regarding market rates or expected sale prices could not by itself constitute evidence of the actual consideration received by the assessee. Since his uncorroborated statement was relied upon against the assessee, particularly when the actual purchasers had supported the assessee’s position, the assessee ought to have been given an opportunity to challenge the veracity of that statement through cross-examination.
The assessee had also produced a valuation report prepared by Nagpal Associates, a qualified and registered valuer. The report specifically valued the undeveloped industrial plots in Poysha Industrial Estate and supported the consideration reflected in the registered sale deeds.
The Tribunal noted that the AO neither rejected the valuation report nor provided any specific reason for disregarding it. The assessee had additionally furnished comparative analysis of contemporaneous registered sale transactions involving similar undeveloped industrial plots in the same locality and period. The assessment order did not contain any rebuttal of this comparative analysis or identify any registered transaction supporting the higher rate adopted by the AO.
A decisive consideration for the ITAT was the absence of independent corroboration of the alleged cash component.
The Tribunal specifically noted that there was no cash found during the search, no cash trail, no receipt acknowledging cash payment, no admission by any purchaser and no unaccounted asset, investment or expenditure representing deployment of the alleged cash receipts.
In these circumstances, the Tribunal held that assumptions drawn from WhatsApp chats could not constitute the sole basis for a conclusive finding that “on-money” had been received. It characterized the ₹11.12 crore addition as the outcome of excessive inference, estimation and surmise rather than legally sufficient evidence.
The Tribunal also highlighted the disconnect between the alleged incriminating material and the transactions forming the basis of the addition.
Out of 24 plots sold up to the date of search, the Department had identified alleged incriminating material concerning only eight plots spread across multiple financial years. Of those eight, only one pertained to AY 2023-24, and even the material concerning that plot was merely a WhatsApp communication relating to brokerage rather than sale consideration or cash payment. For the other plots sold during AY 2023-24, there was no incriminating document, chat or communication.
The ITAT therefore found that the addition was not based on incriminating material specifically pertaining to the transactions of AY 2023-24, but rather on extrapolation of WhatsApp communications relating to isolated transactions of earlier years.
The ITAT sustained the assessee’s additional legal ground as well as its grounds on merits.
The Tribunal concluded that the assessment suffered from the lack of independent application of mind by the AO and that the alleged receipt of undisclosed consideration was not established through reliable and corroborative evidence.
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