The case involved Nilesh Jasvantlal Parekh, who had purchased Flat No. 2201 on the 22nd floor of the Indiabulls Sky project at Senapati Bapat Marg, Elphinstone Road (West), Mumbai. The agreement value of the flat was ₹5.33 crore. Parekh paid part of the consideration from his own funds and financed the rest through a loan from Indiabulls Housing Finance. He disclosed the transaction and filed his return of income for Assessment Year 2011-12 declaring total income of ₹1.22 crore. The assessment was originally completed under section 143(3).

Years later, the Assessing Officer received information from the Investigation Wing following a search conducted on the Indiabulls Group in July 2016. According to the information, the Group CFO, Ashok Kumar Sharma, had stated under section 132(4) that the group had received on-money, including ₹20 lakh in cash from Parekh towards the flat. Relying on this information and certain electronic data allegedly recovered from Sharma’s laptop, the Assessing Officer reopened the assessment under section 147 and added ₹20 lakh under section 69 as unexplained investment. The total income was assessed at ₹1.65 crore.

Parekh denied the allegation outright. He submitted that he had paid only the recorded consideration through disclosed banking channels and had never paid any cash. He specifically requested the Assessing Officer to supply the statement of Ashok Kumar Sharma and the electronic records relied upon, and to allow him to cross-examine Sharma. The Assessing Officer issued a summons under section 131 fixing the cross-examination for 14 December 2018. However, postal records showed that the summons was booked only on 15 December 2018 — after the date fixed for appearance. As a result, Parekh never received an effective opportunity to confront the person whose statement formed the basis of the addition.

The CIT(A) confirmed both the reopening and the addition. The appellate authority held that the statement under section 132(4) read with the seized electronic material had a live nexus with the transaction, that the reasons recorded for reopening disclosed the substance of the allegation, and that the assessee had not produced any confirmation from the builder negating the cash component. The CIT(A) also observed that the assessee had not sought rescheduling of the cross-examination.

The ITAT Mumbai (Accountant Member Makarand Vasant Mahadeokar and Judicial Member Challa Nagendra Prasad) disagreed. In its order pronounced on 13 August 2026, the Tribunal deleted the entire addition of ₹20 lakh. The key findings were:

First, there is a clear distinction between communicating an allegation and furnishing the primary evidence on which the allegation rests. The show-cause notice merely stated that information had been received about a cash payment of ₹20 lakh. It did not reproduce the relevant portion of Sharma’s statement, identify the specific electronic record, or supply either of them to the assessee. Without access to the material, the assessee could neither examine its contents nor effectively challenge its authenticity or alleged connection to his transaction.

Second, the opportunity of cross-examination was illusory. The Assessing Officer himself considered cross-examination necessary and fixed a date. Yet the summons was despatched only after that date had passed. An opportunity communicated after the appointed day cannot be treated as a real and effective opportunity. The Tribunal rejected the CIT(A)’s view that the assessee should have asked for a fresh date, noting that Parekh had already made a specific request for cross-examination in October 2018 and could not be expected to reschedule a hearing of which he had no effective prior notice.

Third, the addition rested on untested third-party material. No document evidencing payment of ₹20 lakh was found from Parekh’s possession. No cash trail, corresponding withdrawal, or independent inquiry from the builder was brought on record. Once the statement and the undisclosed electronic data were excluded for want of supply and cross-examination, nothing remained to support the allegation.

The Tribunal relied on the Supreme Court’s decision in Andaman Timber Industries v. Commissioner of Central Excise, which held that denying cross-examination of witnesses whose statements form the basis of the order is a serious flaw that renders the order a nullity. It also referred to the Bombay High Court’s ruling in H.R. Mehta v. ACIT, which underlined that an assessee is entitled both to the material proposed to be used against him and to an opportunity to cross-examine the person whose statement is relied upon. Denial of such opportunity goes to the root of the matter.

The Tribunal further observed that the CIT(A) had effectively required the assessee to prove a negative — that he had not paid cash. Once the assessee denied the allegation and showed that the recorded consideration was paid through disclosed sources, the burden lay on the Revenue to establish, with admissible evidence, that an additional cash payment had in fact been made. Section 69 cannot be invoked merely because the assessee is unable to produce evidence disproving an allegation founded on material withheld from him.

The Tribunal declined to restore the matter to the Assessing Officer. It noted that the department had already had full opportunity during the reassessment proceedings and before the CIT(A) to supply the material and afford effective cross-examination. Remanding the issue would amount to giving the Revenue a second chance to cure deficiencies in its own case.

The ground challenging the validity of reopening under sections 147 and 148 was left open as academic, since the addition itself had been deleted.

The order underscores a basic principle of natural justice in tax proceedings: a statement recorded from a third party, even during a search, cannot by itself sustain an addition against a homebuyer unless the buyer is given the statement, the underlying material, and a real opportunity to cross-examine the maker of the statement. In the absence of these safeguards, the addition is liable to be deleted.

Also Read: Buyer’s Name in Builder’s Sheet Not Enough to Prove Cash Payment

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