Bombay High Court

PR COMMISSIONER OF INCOME TAX-3versusRHYTHM REAL ESTATES PVT LTD

Decided: 19 August 2026
Disposal: DISMISSED

Holding

The addition of Rs 8.87 crore under Sec. 69B is unsustainable as it lacks evidential support and the presumption under Sec. 132(4A) does not apply to the assessee.

Summary

Rhythm Real Estates Pvt Ltd, a real‑estate developer, filed a loss return for AY 2006‑07 which was assessed as nil. The Revenue, relying on information from the Director of Revenue Intelligence about large cash payments for property purchases, reopened the assessment under Sec. 147 and added Rs 8.87 crore as unexplained investment under Sec. 69B, based solely on a seized file from a search of a DRI official’s residence. The Assessing Officer offered no independent evidence of the cash payments. The assessee successfully challenged the addition before the CIT(A), which deleted it for lack of evidence, and the ITAT upheld that decision. On appeal, the High Court held that the addition was unsupported by any material evidence and that the presumption under Sec. 132(4A) applies only to persons searched, not to a third‑party assessee, thereby dismissing the Revenue’s appeal.

Issues considered

Whether the ITAT was correct in upholding the deletion of the addition under Sec. 69B on the ground that it was not based on any evidence.
Whether the presumption under Sec. 132(4A) of the Income Tax Act can be applied to a third‑party assessee not subjected to the search.

Legislation cited

Income Tax Act, 1961 — s. 132(4A), 143(3), 147, 148, 69B

Subjects

Income Tax
Section 69B
unexplained investment
Section 132(4A)
presumption
search and seizure
assessment reassessment
evidence
real estate

Judgment

6. ITXA-61-2020.doc
Pr. Commissioner of IT – 3 vs. Rhythm Real Estates Pvt.Ltd.

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION

INCOME TAX APPEAL (IT) NO. 61 OF 2020

Pr Commissioner of Income Tax-3 .. Appellant
V/s.
Rhythm Real Estates Pvt Ltd .. Respondent

______________________________________
Mr. Suresh Kumar for Appellant.
Ms. Aasifa Khan for Respondent.
_______________________________________
CORAM : B. P. COLABAWALLA AND
FARHAN P. DUBASH, JJ.

DATE : 19th AUGUST 2026

P.C.:

1. The above appeal has been filed by the Revenue seeking to challenge the

judgment and order dated 25th April 2018 passed by the Income Tax

Appellate Tribunal (“ITAT”) in Income Tax Appeal No. 3036/Mum/2016.

The appeal before the Tribunal was filed by the Revenue challenging the

order of the CIT (A) deleting the addition made by the Assessing Officer to

the income of the Respondent – Assessee to the tune of Rs. 8.87 Crores

under Section 69B of the Income Tax Act, 1961 (“IT Act”).

2. According to the Revenue, the impugned order of the ITAT gives rise to the

Page 1 of 8
-------------------------------------
Order dated 19th August 2026
6. ITXA-61-2020.doc
Pr. Commissioner of IT – 3 vs. Rhythm Real Estates Pvt.Ltd.

following two questions of law.

(a) “Whether, on the facts and the circumstances of the case and in
law, the Hon. ITAT was correct in facts and law in upholding
the order of Ld. CIT(A) deleting the addition made by the
A.O. under Section 69B of Rs. 8,87,14,048/- based on seized
evidence by stating that the same is not based on any
evidence?”
(b) “Whether on the facts and the circumstances of the case and in
law, the Hon. ITAT is right in ignoring the provisions of
section 132(4A) of the Income Tax Act, as per which contents
of the documents seized during the search are presumed to be
true?”

3. The brief facts of this case show that the Assessee Company was engaged in

the business of real estate development during the Assessment Year under

dispute, namely, Assessment Year 2006-07. For Assessment Year 2006-07,

the Assessee filed its Return of Income on 29 th November 2006 declaring a

loss of Rs. 44,492/-. The Return on Income of the Assessee was picked up

for scrutiny assessment and finally the assessment was completed under

Section 143(3) of the IT Act vide order dated 5th December 2008. In this

order passed under Section 143(3), the Assessing Officer computed the

income of the Assessee as ‘Nil’, after disallowing the loss claimed.

4. It appears that thereafter, on the basis of the information received from the

Director of Revenue Intelligence (“DRI”), Mumbai, regarding payment of

on-money in cash by the Respondent – Assessee for purchasing properties

Page 2 of 8
-------------------------------------
Order dated 19th August 2026
6. ITXA-61-2020.doc
Pr. Commissioner of IT – 3 vs. Rhythm Real Estates Pvt.Ltd.

at New Delhi, the Assessing Officer reopened the assessment for

Assessment Year 2006-07 under Section 147, by issuing a notice under

Section 148 on 28th March 2013.

5. As mentioned by the Assessing Officer in the reasons recorded for

reopening, it was the case of the Assessing Officer that during the search

and seizure operation conducted in the residential premises of Ms. Zaver

Cyrus Dadina, NITCO’s Dy. Manager (Accounts), two electronic storage

devices (hard disk and pen drive) were found and recovered. A file found in

the hard disk contained details of the payment made towards purchase of 36

landed properties in Maidan Garhi area of South Delhi during the year

2005. According to the copy of the said file in excel format attached to the

letter of the Additional Director General, (DRI), the file contained details of

the sellers/buyers of 36 landed properties, as well as payments made, both

in demand draft and cash mode. As per the said information, the total

amount paid for acquisition of the properties was to the tune of Rs. 54.29

Crores comprising of a demand draft component of Rs. 14.43 Crores and a

cash component of Rs. 41.86 Crores. According to the DRI, the information

relating to transactions involving the present Assessee was given at serial

numbers 9, 10, 16 and 23 of the excel sheet. According to the DRI from the

information received, it was observed that the Assessee had paid on-money

Page 3 of 8
-------------------------------------
Order dated 19th August 2026
6. ITXA-61-2020.doc
Pr. Commissioner of IT – 3 vs. Rhythm Real Estates Pvt.Ltd.

in cash amounting to Rs. 7.07 Crores along with other cash payments

totalling to Rs. 8.87 Crores. Therefore, in the course of the reassessment

proceedings, the Assessing Officer proposed to treat the cash payment made

on account of on-money etc. as unexplained investment of the Assessee

under Section 69B of the IT Act. Though this addition was objected to by

the Assessee vide its letter dated 14th March 2014, the Assessing Officer

rejected the objections and relied upon the information received from the

DRI and passed a reassessment order adding an amount of Rs. 8.87 Crores

as unexplained investment under Section 69B of the IT Act.

6. Being aggrieved by the order passed by the Assessing Officer, the Assessee

preferred an appeal before the CIT (A). On the ground of addition of Rs.

8.87 Crores under Section 69B, the CIT (A) allowed the appeal filed by the

Assessee and directed the deletion of the addition of Rs. 8.87 Crores to the

income of the Assessee as an unexplained investment under Section 69B of

the IT Act.

7. Being aggrieved by the order of the CIT (A), the Revenue preferred an

appeal, being ITA No. 3036/Mum/2016 before the ITAT. The ITAT, relying

upon the order passed by it in the case of ITO vs. M/s. Saturn Advisory

Services Pvt. Ltd. upheld the order of the CIT (A) before it and dismissed

Page 4 of 8
-------------------------------------
Order dated 19th August 2026
6. ITXA-61-2020.doc
Pr. Commissioner of IT – 3 vs. Rhythm Real Estates Pvt.Ltd.

the appeal of the Revenue. This is how the present appeal is filed before us.

8. We have heard Mr. Suresh Kumar, the learned Counsel appearing on behalf

of the Appellant - Revenue and Ms. Khan, the learned Counsel appearing on

behalf of the Assessee. The CIT (A), whilst deciding the issue in favour of

the Assessee noted all the facts, as more particularly set out from paragraphs

5.2.1 to 5.2.9 of its order dated 22nd January 2016.

9. To put it in a nutshell, the CIT (A) came to the conclusion that apart from

the file received from the DRI, the Assessing Officer had gathered no other

evidence that the Appellant had paid any on-money. This is more so when

one considers that it was the Assessee’s specific case that the properties

purchased were not easily saleable because of the restriction for permission

of development from the Delhi Government and the fact that without

Government approval they cannot even be registered by the Registrar.

10. In fact the Assessee had called upon the Assessing Officer to himself

inquire about the market rate in the vicinity on the date of purchase which

would establish that the price paid and reflected in the balance sheet of the

Assessee is commensurate with the prevailing market price. Despite this,

the Assessing Officer made no independent inquiry to ascertain the market

Page 5 of 8
-------------------------------------
Order dated 19th August 2026
6. ITXA-61-2020.doc
Pr. Commissioner of IT – 3 vs. Rhythm Real Estates Pvt.Ltd.

rate of the lands in the locality. In fact, even though a remand report was

called from the Assessing Officer, the Assessing Officer vide its letter dated

18th August 2015 merely stated that all the documents forwarded to him

were already considered while passing the Assessment Order under Section

143(3) read with Section 147 of the IT Act. The CIT (A) therefore came to

the conclusion that even at the remand stage, the Assessing Officer did not

make any further inquiries or produce any substantive or material evidence

to establish payment of on-money by the Assessee.

11. The CIT (A), therefore, relying upon certain decisions of the Supreme

Court, came to the conclusion that before any addition was made, there

should be material on record as evidence. Additions made on the basis of

presumption cannot be sustained in law. It is on this basis that the CIT (A)

allowed the appeal of the Assessee and deleted the addition of Rs. 8.87

Crores made by the Assessing Officer under Section 69B of the IT Act.

12. The ITAT also taking note of the detailed factual findings given by the CIT

(A), and which were not even controverted before the ITAT, upheld the

order of the CIT (A) and dismissed the appeal. When one goes through the

order of the CIT (A) as well as the order of the ITAT, we find that the entire

dispute in the present case is fact driven. In our view, the CIT (A) correctly

Page 6 of 8
-------------------------------------
Order dated 19th August 2026
6. ITXA-61-2020.doc
Pr. Commissioner of IT – 3 vs. Rhythm Real Estates Pvt.Ltd.

came to the conclusion that apart from the file received from the DRI, the

Assessing Officer gathered no other evidence that the Appellant had paid

any on-money. In fact, the Assessing Officer did not even proceed to

conduct an independent inquiry regarding the market rate of the lands in the

locality in which the Assessee had purchased the property to come to the

conclusion that there was a big difference between the market value and the

price paid by the Respondent – Assessee, which would then lead to an

inference that the Assessee had paid the difference in cash. Once these are

the facts, we find that the above appeal does not give rise to any substantial

question of law as projected in Question (a) reproduced by us earlier.

Hence, Question (a) is not entertained.

13. As far as Question (b) is concerned, we find that the provisions of Section

132(4A), and the presumption referred to therein, would apply to persons

searched and not a third party like the Respondent – Assessee. In fact, the

Hon’ble Supreme Court in the case of P. R. Metrani v. Commissioner of

Income-tax, Bangalore [2006] 157 taxmann 325(SC) has categorically held

that the presumption under Section 132(4A) is available only in regard to

proceedings for search and seizure under Section 132 and such presumption

would not be available for framing a regular assessment. In fact, the

Supreme Court has stated that Section 132 being a complete code in itself

Page 7 of 8
-------------------------------------
Order dated 19th August 2026
6. ITXA-61-2020.doc
Pr. Commissioner of IT – 3 vs. Rhythm Real Estates Pvt.Ltd.

cannot intrude into any other provision of the IT Act and similarly other

provisions of the Act cannot interfere with the scheme or the working of

Section 132 or its provisions. Since the factual situation before us is that the

Respondent – Assessee was not the person who was searched, the reliance

placed on Section 132(4A) by the Revenue is wholly misplaced. Hence, we

find that Question (b) as projected by the Revenue also does not give rise to

any substantial question of law, and hence is not entertained.

14. In view of the aforesaid discussion, the above appeal is dismissed.

However, in the facts and circumstances of the case, there shall be no order

as to costs.

15. This order will be digitally signed by the Private Secretary / Personal

Assistant of this Court. All concerned will act on production by fax or email

of a digitally signed copy of this order.

( FARHAN P. DUBASH, J. ) ( B. P. COLABAWALLA, J.)

Shubham Gadhavepatil

Digitally signed
by SHUBHAM
SHUBHAM SHESHRAO
SHESHRAO GADHAVEPATIL Page 8 of 8
GADHAVEPATIL Date:
2026.08.25 -------------------------------------
11:27:40 +0530 Order dated 19th August 2026

Continue reading with your account

Checking your session…

Lawyer court records for this case

Associated through the court’s case reference.