2017 (4) TMI 1364 - HC - Income Tax

Addition u/s 69 on account of unexplained income - violation of principles of natural justice - Held that - The genuineness of the transaction proved. The AO made distinction of the facts of the present case with the facts of the cases relied upon by the AO. Certainly circumstantial evidences can also be used against the appellant but in the present case except the statement of 3rd party which was partially retracted, no other evidence was used by the AO. Under the facts and circumstances of the case the addition made by the AO being not based on any evidence is directed to be deleted. Hon ble Supreme Court in the case of Andaman Timber Industry Vs. Commissioner of Central excise 2015 (10) TMI 442 - SUPREME COURT has held that not allowing the assessee to cross examine the witnesses by adjudicating the authority, though the statement of those witnesses were made the basis of impugned order is a serious flaw, which makes the order nullity, inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. This to be borne in mind that the order of the CCE was based upon the statement given by two witnesses. - Decided in favour of assessee.

Summary

Issues:
Challenge to Tribunal's judgment partially allowing the appeal of the assessee based on unexplained income under section 69.

Analysis:
The appellant challenged the Tribunal's decision where the CIT(A) made an addition under section 69 on account of unexplained income. The Tribunal reversed the CIT(A)'s findings and deleted the addition, citing lack of evidence and failure to provide an opportunity for cross-examination. The Tribunal highlighted that the AO's addition was solely based on the statement of a third party, without any supporting material. The Tribunal emphasized the importance of proving the identity and creditworthiness of the creditor, as well as the genuineness of the transaction to avoid section 68 implications. The Tribunal concluded that the addition was not justified, and the appellant's appeal was allowed based on principles of natural justice and the need for cross-examination.

The Tribunal's decision was supported by a reference to a Supreme Court case emphasizing the importance of allowing cross-examination of witnesses whose statements are used as the basis for an order. The Tribunal upheld the CIT(A)'s order to delete the addition, citing lack of substantial evidence beyond the third party's statement. The Tribunal dismissed the appeal, stating that no substantial question of law arose, and allowed the appellant to revive the appeal within 90 days if necessary. Additionally, the department was advised not to follow penalty provisions based on the dismissed appeal. The judgment highlighted the significance of providing opportunities for cross-examination and ensuring substantial evidence before making additions under relevant sections of the Income Tax Act.

In conclusion, the Tribunal's decision to delete the addition under section 69 based on unexplained income was upheld, emphasizing the importance of evidence, cross-examination, and adherence to principles of natural justice. The judgment serves as a reminder of the necessity to establish the identity, creditworthiness, and genuineness of transactions to avoid adverse implications under relevant tax provisions.