2013 (4) TMI 230 - AT - Income Tax

Re-opening the assessment - addition as undisclosed income on account of unaccounted receipts - Held that - Taking into account the submissions of the assessee, the stand of the AO, reasoning of the CIT (A) in sustaining the action of the AO and also in conformity with the rulings of the Hon ble jurisdictional High Court of CIT v. S.C. Sethi (2006 (3) TMI 60 - HIGH COURT, RAJASTHAN), CIT (A) was not justified in sustaining the addition of ₹ 57.5 lakhs made by the AO in the hands of the assessee as the AO had solely depended upon the information received from the Investigation Wing of Pune. AO had failed to substantiate the same with any credible documentary evidence to the effect that the assessee had indeed received the alleged cash payment of ₹ 57.5 lakhs from Shri Sohanraj Mehta as the assessee had categorically pleaded before the AO that he was making purchases through Ambika Distributors who were the C & F Agents for Gujarat Region. The total unaccounted sales effected by Shri Sohanraj Mehta C & F of RMD Gutkha on behalf of Dhariwal Industries Limited for the period of April 2003 to Feb 2008 was ₹ 345.72 crores (approx). The unaccounted income for the AY 2004-05 was arrived at ₹ 40,88,32,514/-, the same was added substantively in the case of M/s. Dharival Industries Limited and concluded the assessment for the AY 2004-05 u/s 153A r.w.s. 143 (3) of the Act, dated 29.12.2011 by the ACIT, C.C. 1(1), Pune. Thus once the alleged sum of ₹ 57.5 lakhs was subjected to tax in the hands of Dhariwal Industries Limited, the same cannot be subjected to suffer further tax. This view has been fairly conceded by the CIT (A) that the appellant is right to the extent that no income can be taxed twice...... The AO had candidly admitted that during the course of assessment proceeding itself the assessee had sought permission to cross examine Shri Sohanraj Mehta which was summarily rejected by taking refuge .....Due to paucity of time, the cross examination could not be granted . This stand of the AO, to view it mildly, is against the spirit of judicial pronouncements. Thus the AO had merely come to a conclusion based on a statement of a third party, without bringing any credible documentary evidence to the contrary on record to nail the assessee. No reliance can be placed on the statements of a third person whose premises were subjected to a search since he had retracted his own statement made earlier on oath and precisely the assessee has been denied to cross-examine him to bring out the truth. Thus the addition made for ₹ 57,50,000/- by the AO on account of undisclosed income, which was further sustained by the CIT(A) requires to be deleted - also ground No.1 raised by the assessee with respect to reopening of the assessment u/s 148 is dismissed and ground No.2 with respect to addition on account of undisclosed income is allowed in favour of the assessee.

Summary

Issues Involved:
1. Validity of re-opening the assessment by issuance of a notice u/s 148 of the Act.
2. Addition of Rs. 57,50,000/- as undisclosed income on account of unaccounted receipts.

Issue-wise Detailed Analysis:

1. Validity of Re-opening the Assessment by Issuance of a Notice u/s 148 of the Act:

The assessee challenged the validity of the notice issued u/s 148 of the Act, arguing that the notice was for the assessment year 2005-06 instead of 2004-05. The CIT (A) rejected this objection, stating that mere technical or typographical mistakes in notices are to be ignored if the substance is in order, citing various judicial pronouncements. The CIT (A) also noted that the assessee did not raise this specific objection during the assessment proceedings but only objected to the issuance of the notice itself. The Tribunal agreed with the CIT (A), highlighting that the assessee did not challenge the validity of the notice during the assessment proceedings, and thus, the objection does not survive as per the provisions of s. 292BB of the Act and the precedent set by the case of Varia Pratik Engineering (120 TTJ 1 (Ahmd)).

2. Addition of Rs. 57,50,000/- as Undisclosed Income on Account of Unaccounted Receipts:

The AO added Rs. 57,50,000/- to the assessee's income based on seized documents and the statement of a third party, Shri Sohanraj Mehta, indicating unaccounted cash payments. The assessee contested this addition, arguing that the documents did not specifically identify him and that the statement was inconsistent and retracted. The assessee also emphasized that he was not given an opportunity to cross-examine Shri Sohanraj Mehta, which is a violation of natural justice.

The Tribunal noted several key points:
- The AO relied solely on the information from the Investigation Wing and the statement of Shri Sohanraj Mehta without corroborating evidence.
- The statement of Shri Sohanraj Mehta was inconsistent and retracted, reducing its evidentiary value.
- The assessee's request for cross-examination was denied by the AO, which is against the principles of natural justice.
- The same amount was already taxed substantively in the hands of Dhariwal Industries Limited, and thus, taxing it again in the hands of the assessee would result in double taxation, which is not permissible.

The Tribunal referred to the rulings of the Hon'ble jurisdictional High Court in DCIT v. Mahendra Ambalal Patel (40 DTR (Guj) 243) and DCIT (Asst) v. Prarthana Construction Pvt. Ltd (Tax Appeal No.79 of 2000), which emphasized the necessity of cross-examination and the inadmissibility of statements without it.

Conclusion:
The Tribunal held that the addition of Rs. 57,50,000/- as undisclosed income was unjustified due to the lack of corroborative evidence, the denial of cross-examination, and the issue of double taxation. Consequently, the addition was deleted. The assessee's appeal was partly allowed, with the ground regarding the reopening of the assessment dismissed and the ground regarding the addition of undisclosed income allowed.