2010 (3) TMI 879 - AT - Income Tax

Computation of income - unaccounted investment - survey u/s 133A - HELD THAT - In the present case, though assessee has stated that he has incurred expenditure to earn that income, the AO has over looked this fact. In view of this, we are of the opinion that the net income generated out of commission to be taxed in the AY 2007-08 and 2008-09 and balance receipt of Rs. 1.5 crores is being capital receipt cannot be brought to tax in these assessment years. further we are of the opinion that statement recorded u/s 131 consequent to the survey action cannot be sole basis for addition unless there is a material to support the departmental case. In these circumstances, on confessions during the course of search and seizure and survey operations do not serve any useful purposes. The CBDT instruction is binding on the department. In our opinion, addition on the basis of admission during the survey without any supportive material cannot be sustainable. In view of the judgments in the case of S. Khader Khan Son 2007 (7) TMI 182 - MADRAS HIGH COURT , Paul Mathews Sons 2003 (2) TMI 25 - KERALA HIGH COURT and in view of the CBDT instructions, section 133A does not empower any authority to examine any person on oath, any such statement has no evidentiary value and any admission made during such statement, cannot, by itself, be made the basis for addition unless the AO have corroborative material in hand to make such additions. If there is any unaccounted investment, the same should have been brought to tax as undisclosed income and not on the basis of MoU or on the basis of unsubstantiated statements recorded either from the assessee or from the third parties. Gross violation of principles of natural justice - opportunity of cross-examining - HELD THAT - In our opinion, the authorities concerned required to give an opportunity of cross-examining the parties concerned and also comments on the statements and books of account to be relied upon by the revenue authorities. This will enable assessee to prove the incorrectness or incompleteness of those books of account. The opportunity would therefore necessarily carrying with it right to examine witness and that would include the right to cross-examine the witness examined by the revenue authorities. The revenue authorities relied on the books of account of the M/s. Bharathi Estates and their statements and came to the conclusion that the assessee received Rs. 2.8 crores middle men commission. Placed in these circumstances, the assessee could prove the incorrectness or incompleteness of these evidences, only after cross examining them. The cross-examination of witness is one of the most efficacies method of establishing to and exposing falsehood. Though there is a record in the form of raising this ground before the CIT(A), the CIT(A) held that reasonable opportunity of being heard has been given to the assessee but the order is silent about giving the opportunity of cross-examining the witness. The normal principle is that ordinary cross-examination has to be granted when asked for. If the department to rely on any exceptions, the burden is on the department to establish the existence of any exceptions. The non-providing of cross-examination of witness clearly constitutes infraction of the right conferred on the assessee and that vitiated the order of the assessment made against the assessee. In the result, the appeals of the assessee in ITA Nos. 1152 and 1153/Hyd./2009 are allowed.

Issues Involved:
1. Legality and factual correctness of the CIT(A) order dated 30-11-2009.
2. Violation of principles of natural justice in the assessment process.
3. Substantive evidence for the addition of Rs. 25 lakhs and Rs. 2.55 crores for the assessment years 2007-08 and 2008-09.
4. Taxability of the receipt of Rs. 2.8 crores as neither revenue nor capital gains.

Detailed Analysis:

1. Legality and Factual Correctness of the CIT(A) Order:
The assessee contested the CIT(A) order dated 30-11-2009, arguing that it was against the law and facts of the case. The CIT(A) upheld the assessment order, which included additions of Rs. 25 lakhs and Rs. 2.55 crores for the assessment years 2007-08 and 2008-09 respectively. These additions were based on the survey findings and the Memorandum of Understanding (MoU) found during the survey, which indicated that the assessee received substantial amounts from M/s. Bharati Estates.

2. Violation of Principles of Natural Justice:
The assessee argued that the assessment was conducted in gross violation of the principles of natural justice. It was claimed that the CIT(A) did not consider the submissions made during the hearing and that the assessee was not given an opportunity to cross-examine the witnesses or comment on the books of account of M/s. Bharati Estates, which were relied upon by the Assessing Officer. The tribunal noted that the principles of natural justice require that the person concerned should have a reasonable opportunity to present their case, including the right to cross-examine witnesses.

3. Substantive Evidence for the Addition:
The Assessing Officer made additions based on the MoU and the statements recorded from the assessee during the survey. The assessee admitted to receiving Rs. 2.8 crores from M/s. Bharati Estates for relinquishing his right over the land and facilitating peaceful possession, including removing encroachments. However, the assessee argued that the MoU was never acted upon and that the amounts mentioned in the MoU were not actually received. The tribunal found that there was no corroborative evidence to support the exact income earned by the assessee and that the statements recorded during the survey could not be the sole basis for the addition.

4. Taxability of the Receipt:
The assessee contended that the receipt of Rs. 2.8 crores was not taxable as it was neither revenue nor capital gains. The tribunal noted that the receipt was a capital receipt for relinquishing the right to purchase the property, which did not give rise to any capital gains because the cost of acquisition could not be determined. The tribunal relied on the decision in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 (SC), which held that if the cost of acquisition cannot be determined, there can be no capital gains. Therefore, the amount of Rs. 1.5 crores received for relinquishing the right over the land was not taxable as capital gains.

Conclusion:
The tribunal allowed the appeals of the assessee, concluding that the assessment was not conducted in accordance with the principles of natural justice, the additions were not supported by substantive evidence, and the receipt of Rs. 2.8 crores was not taxable as capital gains. The tribunal emphasized the need for corroborative evidence to support the departmental case and the importance of adhering to the principles of natural justice in the assessment process.

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