2010 (2) TMI 867 - AT - Income Tax

Unexplained investment in property - unexplained investment in the properties (50 per cent owned by Shri Ramesh Arora) which are not recorded in the regular books of accounts of Shri Ramesh Arora was accepted and disclosed by him in his statement recorded during the course of search. Rest of 50 per cent of the investment of the property pertains to the assessee. However the assessee has not given any explanation in respect of on money paid by him for purchase of the said property. Merely saying that the on money was not paid by him and the on money was paid by Shri Ramesh Arora only cannot be believable at this stage as in the custom of society once the property is registered the on money has to be paid in advance. Here the assessee said that he has not given the on money and the register has been executed without making the payment of on money. Held that - AO merely considering the business relation between assessee and Arora Brothers presumed that since they have admitted payment of on money therefore assessee might have also paid the on money. If Arora Brothers have not recorded any entry in their books of account as noted by the AO how assessee could be blamed. The above conclusion of the AO is not supported by any material or evidence. The conclusion of the AO is purely based upon suspicion and surmises. It is settled law that suspicion howsoever strong may be could not take place of legal proof appeal of the assessee is allowed.

Issues Involved:

1. Confirmation of addition of Rs. 3.70 crores for alleged unexplained investment in property.
2. Legal presumption under Section 132(4A) of the IT Act.
3. Evidentiary value of seized documents not recovered from the assessee.
4. Admissibility of statements made by third parties.
5. Requirement of cross-examination of statements used against the assessee.
6. Applicability of Section 69 of the IT Act for unexplained investment.

Issue-wise Detailed Analysis:

1. Confirmation of Addition of Rs. 3.70 Crores for Alleged Unexplained Investment in Property:

The assessee challenged the addition of Rs. 3.70 crores made by the AO for alleged unexplained investment in property. The AO's conclusion was based on a seized diary from the residence of the directors of M/s Avichal Group, which recorded financial transactions under "HF a/c" and included the entry "3.70 to be paid." The AO inferred that this amount was an on-money payment made by the assessee. However, the assessee argued that no such payment was made and that the diary was not found in their possession.

2. Legal Presumption Under Section 132(4A) of the IT Act:

The AO invoked the legal presumption under Section 132(4A) of the IT Act, which allows for certain presumptions about documents found during a search. However, the assessee contended that this presumption only applies to the person from whom the documents were seized, not to third parties. The Tribunal agreed with the assessee, noting that the presumption under Section 132(4A) could not be applied against the assessee since the diary was not found in their possession.

3. Evidentiary Value of Seized Documents Not Recovered from the Assessee:

The Tribunal found that the seized diary did not indicate that the assessee paid any on-money. The entry "3.70 to be paid" suggested that the amount was outstanding and not yet paid. The Tribunal emphasized that the AO's conclusion was based on assumptions and lacked corroborative evidence. The Tribunal also noted that the diary's contents did not impose any legal liability on the assessee to explain the entries.

4. Admissibility of Statements Made by Third Parties:

The AO relied on statements made by the Arora Brothers, who confirmed their investment in the property and mentioned the on-money payment. However, the Tribunal highlighted that these statements did not specifically implicate the assessee in making any on-money payment. The Tribunal stressed that admissions by third parties could not be used as evidence against the assessee without corroborative evidence.

5. Requirement of Cross-Examination of Statements Used Against the Assessee:

The Tribunal noted that the assessee was not given an opportunity to cross-examine the statements of the Arora Brothers. Citing precedents, the Tribunal held that statements made at the back of the assessee without cross-examination could not be used as evidence against the assessee. The Tribunal emphasized the necessity of cross-examination to ensure the reliability of such statements.

6. Applicability of Section 69 of the IT Act for Unexplained Investment:

The Tribunal found that the AO's reliance on Section 69 for unexplained investment was not justified. The Tribunal cited the Gujarat High Court's decision in Ushakant N. Patel vs. CIT, which held that the ingredients of Section 69 must be satisfied independently and could not be presumed based on Section 132(4A). The Tribunal concluded that there was no material evidence to support the AO's conclusion that the assessee made any on-money payment.

Conclusion:

The Tribunal set aside the orders of the lower authorities and deleted the addition of Rs. 3.70 crores. The appeal of the assessee was allowed, emphasizing the lack of corroborative evidence, the improper application of legal presumptions, and the necessity of cross-examination for statements used against the assessee.

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