Allotment Letters Alone Cannot Prove Cash Payments: ITAT Deletes Rs 3.68 Crore Tax Addition

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has deleted an addition of Rs 3.68 crore made against Esque Finmark Private Limited, holding that the Income Tax Department failed to prove that the company had received unaccounted cash from prospective flat buyers.

The present matter pertained to a redevelopment project at Kalachowki, Mumbai. During reassessment proceedings, the tax authorities relied on information from the Investigation Wing, which found that the total consideration mentioned in certain flat allotment letters was much higher than the amounts recorded in the company’s books. Based on this difference, the Department alleged that the balance amount had been received in cash and treated Rs. 3.68 crore as an undisclosed cash receipt merely on assumptions and conjectures. Accordingly, the entire amount was added to the assessee’s taxable income.

The company argued that the allotment letters only reflected the proposed sale value of the flats and did not prove actual receipt of money. It explained that only advance payments were received and properly recorded in its books. The project had become stalled due to disputes and litigation, and no sale agreements had been executed with the proposed buyers.

The dissatisfied assessee approached ITAT Mumbai. When the tribunal analysed the entire case, it noted that the tax authorities had completely relied on the information received from the Investigation Wing and thereafter made assumptions without any evidence. It noted that an allotment letter merely indicates the proposed consideration and cannot establish that the entire amount was paid. The Tribunal also emphasised that none of the purchasers had admitted making any cash payments, and no supporting evidence such as receipts, diaries, cash records, or other incriminating material was found.

The tribunal held that “Revenue has failed to establish that the assessee received any amount over and above the advances reflected in its books of account. The differential figure between the amount mentioned in the allotment letters and the amount actually recorded in the books cannot, in the peculiar facts of the present case, be treated as undisclosed cash receipt merely on assumptions and conjectures. We accordingly hold that the addition of Rs.3,68,46,000/- lacks any evidentiary foundation and is liable to be deleted”.

The ITAT concluded that the Department had failed to establish any actual receipt of unaccounted cash by the assessee, holding that suspicion cannot replace proof. Accordingly, the impugned addition of Rs 3.68 crore was deleted and assessee’s appeal was allowed.