The Purchase

The registered sale agreement, dated 4 April 2012, recorded the total consideration for the flat at ₹72 lakh. Katkade filed his income tax return for Assessment Year 2012-13 declaring an income of ₹2,71,280. The IT Department processed the return and accepted it without objection. For Katkade, the matter was closed.

The Raid He Knew Nothing About

On 24 September 2014 — more than two years after Katkade had taken possession of his flat — the IT Department’s investigation wing conducted a search and seizure operation at the offices of Cosmos Group, the builder. Cosmos Group was engaged in real estate development and construction across the Mumbai Metropolitan Region.

During the raid, investigators claimed to have found Excel sheets containing flatwise and shopwise cash payment records, emails in the builder’s Gmail and Yahoo accounts, and what they described as a cash book of on-money received from buyers. Two key persons were questioned — Karuna Khambayat, the Sales Head of Cosmos Group, who made a general admission that cash payments were often involved in the sale of flats and shops, and Suraj Parmar, son of promoter Ramesh Parmar, who spoke about cash transactions in the business.

Flat No. 802 — Katkade’s flat — appeared in those Excel sheets with cash figures against it.

Katkade was not present during the raid. He was not questioned. No one from the IT Department contacted him. He had no knowledge that a file bearing his flat number now existed inside the investigation wing.

Five Years of Silence, Then a Bombshell

For nearly five years after the raid, nothing happened. Then, on 29 March 2019 — seven years after the original flat purchase and five years after the Cosmos Group raid — Katkade received a notice under Section 148 of the Income Tax Act. The IT Department was reopening his already-closed assessment for AY 2012-13.

The basis was information passed by the Directorate of Income Tax (Investigation), Unit 1(4), Mumbai. The Assessing Officer (AO) had obtained prior approval from the Principal Commissioner of Income Tax (Pr. CIT-2), Thane. The allegation was stark — that Katkade had paid ₹34.5 lakh in cash over and above the registered agreement value, split as ₹28.5 lakh in AY 2012-13 and ₹6 lakh in AY 2013-14. Since Katkade held a 50% share in the flat, the AO proposed to add ₹14.25 lakh — 50% of ₹28.5 lakh — to his income for AY 2012-13 as unexplained money under Section 69A of the Income Tax Act.

The Letter the IT Department Refused to Believe

Katkade fought back. He filed a fresh return in response to the notice, denied paying any on-money, and asked the AO to refer the matter to the District Valuation Officer for an independent valuation. The AO rejected that request, saying the case did not pertain to flat valuation.

When the AO issued a show cause notice asking Katkade to explain why ₹14.25 lakh should not be added to his income, Katkade did something significant. He went back to Cosmos Group and obtained a written confirmation letter from the builder stating that the total amount received from Katkade and his wife for Flat No. 802 was ₹72 lakh — nothing more, nothing less. The very builder whose internal records the IT Department was relying upon to allege cash payment was now confirming in writing that no such additional payment existed.

The AO dismissed the letter entirely and made the addition anyway, relying instead on the Excel sheet from the raid and the statements of Suraj Parmar and Karuna Khambayat.

There was one more problem — the actual incriminating documents, the Excel sheets, the emails, the cash book, were never shown to Katkade at any stage of the assessment. He was being taxed on the basis of evidence he had never seen.

Appeal Rejected, Fight Continues

Katkade appealed to the Commissioner of Income Tax (Appeals) — CIT(A) — at Panaji. He raised three arguments: that the reopening of the assessment after seven years was itself legally invalid; that the addition was baseless since no evidence had ever been produced before him; and that he had been denied the right to cross-examine Karuna Khambayat and Suraj Parmar, whose statements were being used against him.

The CIT(A) rejected all three. On the cross-examination request — a right firmly established by the Supreme Court in Andaman Timber Industries vs CCE — the CIT(A) gave a puzzling response, holding that the addition was not based only on the incriminating material and therefore cross-examination was not required. The order was passed on 26 September 2025.

ITAT: The Addition Was Never Sustainable

Katkade’s chartered accountant, Subodh Ratnaparkhi, filed an appeal before the ITAT Mumbai in November 2025. The case came up for hearing on 18 March 2026 before a two-member bench of Judicial Member Pawan Singh and Accountant Member Makarand Vasant Mahadeokar.

Before the Tribunal, Ratnaparkhi placed on record five previous ITAT orders where identical additions had been made against other Cosmos Group flat buyers — and deleted in every single case. The buyers included Bharat Laxman Bhiwapurkar, Mamta Sharad Gupta, and Monika Anand Gupta. In each case, the basis was the same Excel sheet, the same statement of Suraj Parmar, and the same methodology. In each case, the Tribunal had ruled against the IT Department.

The Revenue’s Senior Departmental Representative, Usha Gaikwad, supported the lower authorities and argued that the statements and seized material were sufficient basis for the addition.

The Tribunal was unconvinced. In its order pronounced on 4 June 2026, the bench held that the addition was based solely on third-party statements, which cannot be used as evidence against a buyer without cross-examination. It further held that the Excel sheet was inadmissible as electronic evidence since it had not been authenticated under Section 65B of the Indian Evidence Act. The actual seized documents — the emails and cash books — had never been brought on record before any authority at any stage. The builder’s own confirmation letter confirming ₹72 lakh had been ignored without any valid reason. Following five coordinate bench decisions on identical facts, the Tribunal deleted the addition entirely.

Since Katkade had won on merit, the bench did not even find it necessary to rule on whether the 2019 reopening was legally valid in the first place.

What This Means for Homebuyers

The Katkade case is not an isolated incident. It is part of a pattern. The ITAT has now deleted on-money additions linked to Cosmos Group in at least six cases, consistently finding that the Excel sheets seized during the 2014 raid are inadmissible, that general admissions by builder insiders cannot be attributed to specific buyers without corroboration, and that denying buyers the right to cross-examine witnesses whose statements are used against them is a violation of natural justice.

For homebuyers across India, the case carries a broader warning. A builder raid can trigger tax demands against buyers years or even decades after a purchase. The IT Department can reopen assessments using information from someone else’s search. And the buyer — who had no part in that raid, never saw those documents, and may have paid every rupee above board — can find themselves fighting a tax addition based entirely on a figure in someone else’s spreadsheet.

The only protection is documentation. A registered agreement, a complete payment trail through banking channels, and written confirmations from the builder at the time of purchase are a homebuyer’s best defence if the taxman comes knocking years later.

For Katkade, that defence ultimately worked — but it took fourteen years, two appeals, and a Tribunal order to prove it.

The order is dated June 4, 2026.

Also Read: ITAT Mumbai Clears Real Estate Developer of Fraud Allegations, Allows ₹1.79 Crore Tax Deduction

The post Builder Confirmed No Cash, IT Department Didn’t Believe Homebuyer appeared first on Square Feat India.

The order, delivered on January 23, 2026, by Judicial Member Shri Sandeep Gosain and Accountant Member Shri Om Prakash Kant (ITA Nos. 3895 to 3897/MUM/2025), covered Assessment Years 2014-15 to 2016-17. It dismissed three appeals filed by the Deputy Commissioner of Income Tax (DCIT), Central Circle-2(3), Mumbai, against relief granted earlier by the Commissioner of Income Tax (Appeals)-48, Mumbai.

How the Suspicion Arose

F A Construction (PAN: AAAFF0282D), a partnership firm specializing in civil construction projects — including government and semi-government contracts — regularly withdrew large sums of cash from its declared bank accounts. For AY 2014-15 alone, the figure was ₹35,87,16,800 (with comparable amounts in the following two years).

The Income Tax Department spotted these high-value withdrawals through its internal INSIGHT portal. Suspecting the cash might be unexplained or linked to undisclosed income, the Assessing Officer reopened the assessments under Sections 147/148. When the firm initially failed to respond fully, the reassessment was finalized ex-parte under Section 144.

The tax officer added:

• The full ₹35.87 crore (and equivalents in other years) as unexplained money under Section 69A of the Income Tax Act — essentially treating it as potential black money.
• An additional ad-hoc disallowance of ₹12,09,21,303 (5% of ₹2,41,84,26,074 in claimed business expenses), arguing that verifiable details were lacking.

This created a significant extra tax demand on the firm.

The Turnaround: Full Proofs Submitted

On appeal, the firm — represented by advocate Mr. Vijay Mehta — provided comprehensive evidence during the CIT(Appeals) stage. The appellate authority called for a remand report from the Assessing Officer, who reviewed the documents but could not identify any specific irregularities.

Key submissions included:

• Bank statements showing withdrawals from the firm’s own disclosed accounts.
• Main cash book and site-wise petty cash books.
• Detailed summaries of cash utilization (by project site and expense head).
• Sample vouchers, bills, creditor ledgers, and Running Account (RA) bills signed by government engineers for public projects.

The firm explained that its operations are inherently cash-intensive:

• Labourers, many migrants from other states, demand daily or weekly cash wages.
• Urgent purchases of materials, repairs, and on-site needs (food, transport) often require immediate cash.
• Many project sites are remote with limited banking access.

All cash payments complied with Section 40A(3) restrictions (no excessive single cash transactions).

ITAT’s Clear Verdict

The Tribunal examined Section 69A, which applies only to money not recorded in books where the assessee fails to explain the source satisfactorily. Here:

• The source was undisputed — withdrawals from declared bank accounts.
• Once the source is explained, mere doubts about utilization do not justify invoking Section 69A.
• If any expense was unverifiable, it should have been scrutinized under normal provisions (e.g., Section 37 for business deductions), not reclassified as unexplained income.

The ITAT noted:

• No specific discrepancies, fake bills, or adverse material were found by the Assessing Officer in the remand report.
• The construction sector’s realities (labour-oriented, site-based, remote locations) make cash usage normal and necessary.
• Precedents from various ITAT benches (Raipur, Ahmedabad, Mumbai, Surat) support that documented cash withdrawals from disclosed accounts cannot be taxed as unexplained under Section 69A without contrary evidence.

On the 5% ad-hoc disallowance of expenses:

• Blanket percentage cuts are not allowed without rejecting the books of account (under Section 145(3)) or pinpointing specific bogus items.
• Full details were later furnished; no defects were highlighted.
• Deletion upheld.

Final Outcome

All three Revenue appeals were dismissed. The CIT(Appeals)’ orders — deleting the ₹35+ crore Section 69A addition and the ad-hoc disallowance — were confirmed. F A Construction faces no additional tax liability on these grounds for the three years.

This decision highlights a recurring theme in tax disputes involving construction firms: what initially appears as “black money” often stems from legitimate cash needs for labour payments, especially when full records eventually prove the case.

Also Read: ITAT Mumbai Clears Real Estate Developer of Fraud Allegations, Allows ₹1.79 Crore Tax Deduction

The post Taxman Says Builder Had Black Money, Turns Out He Was Paying Labourers in Cash appeared first on Square Feat India.

By Varun Singh

The Income Tax Department (IT) initiated search and seizure operations on a real estate group, engaged in the construction of residential and commercial projects, in Mumbai and Navi Mumbai Region on November 25.

The group where the IT Dept carried out the search operations is mainly into development of slum rehabilitation projects. The search action covered around 30 premises.

The search action by the IT Dept unearthed various methods of tax evasion adopted by the group.

Several documentary and digital evidences have been found and seized demonstrating receipt of cash to the tune of Rs.100 crore, as part of consideration on sale of flats, which is not accounted for in the regular books of account.

The fact of receipt of on- money on such transactions is also corroborated in the statements recorded during the search proceedings.

IT Dept says, “The modus operandi adopted by the group includes issuing of promissory notes equivalent to the on- money component to the customers and these promissory notes are destroyed after registration of the flat.”

Incriminating evidence regarding unaccounted cash payments made not only to the original tenants of the slums for vacating the dwelling unit but also to some other persons for facilitating vacation of the properties by slum dwellers has been found and seized.

The dept says, “Further evidences suggesting irregularities and violation of guidelines of Slum Rehabilitation Authority (SRA) have also been detected.”

According to the IT dept, the preliminary analysis of evidences revealed that the group has acquired controlling stake in a company by paying consideration in cash.

“Defaults on compliances to the provisions of tax deduction at source have also been found. The assessee group did not deduct tax at source on certain payments claimed by it which aggregate to more than Rs 300 crore,” said the department.

As a result of the search action, unaccounted cash exceeding Rs 6.00 crore has been seized. Further investigations are under progress.

Also Read: Is A Homebuyer Protected If SRA Terminates Builder?

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By Varun Singh

Post demonetization, Indian housing sales have outstripped new supply, reveals ANAROCK Research. Confusion and uncertainty immediately after demonetization notwithstanding, the negative impact has receded after a major market derailment within the first year of its announcement.

Anuj Puri, Chairman – ANAROCK Group, says, “A notable impact of the triple whammy of DeMo, RERA, and GST was a significant deceleration in new property launches. ANAROCK data shows that in the pre-DeMo period between 2013 till Q3 2016, the top 7 cities saw approx. 16.15 lakh new units launched while the post-DeMo period (Q4 2016-Q3 2021) saw 9.04 lakh units launched in the top 7 cities – a drop of nearly 44% between the two periods.”

“In the pre-DeMo period, new supply outstripped housing sales – whereas, in the post-DeMo period, housing sales overtook new supply in the top 7 cities”, says Puri. “In the pre-DeMo period (2013-Q3 2016), the top 7 cities saw approx. 16.15 lakh units launched while housing sales in this period stood at approx. 11.78 lakh units. After DeMo, between Q4 2016 and Q3 2021, these cities saw cumulative new launches of approx. 9.04 lakh units and housing sales clocked in at approx. 10.37 lakh units.”

With major lessons learned and a huge market realignment following this period of upheaval, the ongoing trend of sales exceeding supply will continue as developers keep a sharp eye on the demand-supply gap. 

‘What does not kill us makes us stronger’

In his book ‘Twilight of the Idols’, the German philosopher Friedrich Nietzsche’s words – ‘what does not kill us makes us stronger’ aptly sum up the long-term effects of demonetization on the real estate sector. The housing market has emerged stronger, with speculative buying and selling now done away with and end-users firmly in the driver’s seat. Even luxury housing, which took a major hit after DeMo, has seen a significant resurgence after the COVID-19 pandemic caused latent demand to surface strongly.

Impact on cash transactions in real estate

Predictably, the secondary sales or resale housing market proved far more vulnerable to demonetization than the primary market. This segment, along with luxury housing, historically drew the bulk of ‘cash components’. While the resale housing sector continues to reel from the aftereffects of DeMo, affordable and mid-segment housing demand in primary sales (sales by developers) increased.

Has the once-ubiquitous cash component been fully eradicated from Indian housing?

“Not completely,” says Puri. “However, unlike earlier, people no longer buy homes primarily to get rid of black money – they now buy them because they want to own homes. Most of the end-users now majorly driving housing sales expect their property transactions to be transparent and above-board. Nevertheless, black money is still finding its way into property transactions in smaller towns and peri-urban areas. Overall, the use of black money in Indian housing has reduced by at least 75-80%.”

One major driving factor behind this is that branded, listed players – who now attract a significant majority of housing demand to their projects – play by the book and avoid unaccounted monies in their transactions. After DeMo and the roll-out of RERA and GST, homebuyer demand gravitates towards branded products. Leading developers shifted their previous focus on luxury projects to the new demand for affordable and mid-segment housing.

This demand-supply equilibrium has helped keep the sales momentum going, especially when housing demand rose significantly during the pandemic. As per ANAROCK Research, of the total sales from April to December 2020, the top 8 listed realty players’ share in overall housing sales rose to 22% from the modest 6% in FY 2017. Even strong non-listed developers ramped up their sales share – from 11% in FY 2017 to 18% in the first three quarters of FY21.

Today, the housing sector’s rough ride due to demonetization has smoothened. Still, DeMo has changed the very fundamentals of why and how residential real estate is bought and sold in India. Today, housing sales happen because of actual demand, not as a means to launder black money.

This is a major evolutionary step that would have taken decades to bring about under any other circumstances.

Also Read: Bhushan Kumar Of T-Series Paid Rs 167 Crore For Juhu Bungalow

The post Black Money Deals Down 75-80% in Post DeMo era appeared first on Square Feat India.

By Varun Singh

On a positive note, due to demonetization, the pouring of unaccounted capital into the real estate sector has become virtually impossible. The future growth in the sector will be based on much more credible and sustainable principles than ever before. In the post-RERA era, all the property transactions today are already taking place on the basis of transparent cheque payments and legal online payment gateways.

From a consumer’s perspective, due to demonetization, the influx of liquidity in the system has ensured attractive home loan rates which are at their lowest in almost a decade. Owing to the ongoing transformation, developers have also been offering attractive rates and payment plans to draw potential buyers.

The real estate industry share their views on demonetization on its 5th Anniversary: 

Pritam Chivukula, Co-Founder & Director, Tridhaatu Realty, and Hon. Secretary, CREDAI MCHI
“It has been five years since the government took a stringent step by announcing demonetization while encouraging to adopt digital transactions over cash transactions. An important goal of demonetization was to reduce the use of cash in transactions and inspire people to pay using non-cash modes. The real estate industry has welcomed this move towards the positive side since it helped the sector to increase the direct tax collections. This has brought a large number of evaders in the tax net. It has indirectly made things more systematic, accountable and transparent. Overall, the move has declined cash transactions, increased the bank deposits and financial savings has seen an uptick too.”

Kaushal Agarwal, Chairman, The Guardians Real Estate Advisory
“Even though the sudden and initial impact of demonetization over the economy was severe and real estate was the worst hit sector. However, today I feel that it was a much-calculated move by the government to streamline the economy and bring transparency in key sectors. It has helped the sector to consolidate the market, it brought a level playing field for the organised and transparent entities. It has prevented the inflow of black money and nearly wiped-out the unorganised players. More importantly, it has paved the path for corporate and listed companies to expand and grow, which in other cases was tilted in favour of local and unorganised players.

Demonetization has also increased the awareness about digital payments and online transactions amongst the home buyers. This has drastically helped the sector to eradicate the age-old menace of illicit transactions and dubious sales. In a nutshell, Demonetization along with RERA has made the sector more organized, transparent, and robust which appears to me as the stepping stones towards attaining the much-awaited industry status for Real Estate.”

Himanshu Jain, VP – Sales, Marketing and CRM, Satellite Developers Private Limited (SDPL)
“Just like the Covid-19 pandemic, initially we thought that demonetization would affect all the major industries including real estate. But the move has created a positive impact and the real estate industry has done better in the last 5 years. Demonetization has led to a level playing field in a lot many sectors including real estate. It led to further consolidation in the category, nearly wiping out the non-serious players. It has also led to an increased understanding of digital payments and financial transactions amongst the people of India. Since the announcement, the government has incentivised digital payments and desires to envision a country which survives with limited requirements of cash based dealings. Demonetization has brought in much needed transparency and helped to double the trust of the investors in the real estate sector.”

Vedanshu Kedia, Director, Prescon Group
“The impact of demonetization has had a positive impact in the long run on the real estate industry. The move has had an impact on the perception of real estate transactions. All the 3 major objectives of curbing black money, fake notes and most importantly creating a cashless economy have been achieved as India has become one of the largest markets for digital payments. After demonetization, a large share of the population has gone digital and have adopted cashless transactions. There are many proptech startup’s now that are working on creating platforms that allow homebuyers to experience property and make a block on their inventory by committing an expression of interest. This will definitely enable ease of doing business and bring liquidity to the real estate market.”

Piyush Gupta, Managing Director, Capital Markets & Investment Services, Colliers India
“The big-ticket Reforms in Indian Business started with Demonetisation in 2016 followed by RERA, single tax regime of GST and Real Estate sector has witnessed the significant impact of these reforms. Overall past five years, there is a significant improvement in Corporate Governance and Transparency in Real Estate and the confidence of Investors and end buyers to acquire Real Estate has got better. The Real Estate Sector as a whole has moved up the curve on organisation and administration since reforms started, it helped navigate the crisis such as NBFC and then Covid”

Also Read: Vicky Kaushal rents a flat in Juhu, the deposit he paid can get you an awesome Home in Mumbai

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