2018 (10) TMI 1842 - AT - Income Tax

Addition u/s 69 - Unexplained investment - payment in cash over and above the sales consideration recorded in the sale deeds - assessee alleged as no opportunity of cross examination given - HELD THAT - Addition is not based merely on the statement but the documentary evidence in the shape of agreement dated 11/05/2005, the bank statement of the sale deeds showing deposits of cash on the dates of the execution of the agreement as well as sale deeds and further the part consideration paid through cheque find mentioned in the agreement to sell as well as in sale deed established the fact of existence of the said agreement between the parties. The statements recorded by the Investigation Wing further corroborates the documentary evidence and hence it is not a case of addition based on mere statement of third party. Further the statements of the seller cannot be said to be the statement of the third party but they were very much party to the transaction of sale of the lands in question to the assessee. As regards the opportunity for cross examination, the ld CIT(A) called for a remand report from the Assessing Officer after allowing the opportunity of cross examination. Despite various opportunities given by the Assessing Officer, both the parties kept on seeking deferment of remand proceedings and finally the statements on behalf of the sellers were made that they stand by their statements made on the earlier occasions. Assessing Officer made sincere efforts for granting the opportunity to cross examine to the assessee, however, it appears that both the parties in collusion avoided the cross examination. Thus, the blame cannot be shifted on the Assessing Officer for non-cross examination if any. Addition made by the Assessing Officer in the hand of seller U/s 68 instead of capital gain would not affect the merits of the addition made in the hand of the assessee. Having analysed the entire facts, the relevant record including the evidence brought on record by the Assessing Officer, we do not find any error or illegality in the orders of the authorities below, hence uphold the order of the ld. CIT(A) qua this issue.- Decided against assessee.

Summary

Issues Involved:
1. Addition of ?2,23,10,000/- under Section 69 of the Income Tax Act.
2. Opportunity for cross-examination of sellers.
3. Evidentiary value of a photocopy of an unregistered agreement.
4. Source of income for the assessee firm in its first year of constitution.

Issue-wise Detailed Analysis:

1. Addition of ?2,23,10,000/- under Section 69 of the Income Tax Act:
The assessee, a partnership firm, declared a loss in its return of income. The Assessing Officer (AO) received a report indicating that the assessee made an on-money payment of ?1,80,80,000/- in cash for the purchase of land, in addition to the recorded sale consideration of ?1,76,34,000/-. Consequently, the AO reopened the assessment and added ?2,23,10,000/- under Section 69 of the Income Tax Act as unexplained investment. The AO relied on a photocopy of an agreement that mentioned a higher sale consideration per bigha than recorded in the sale deed. The assessee contested this addition, arguing that the agreement was neither signed nor notarized and lacked corroborative evidence. The AO also considered statements from various individuals, including the sellers, and bank statements showing cash deposits matching the dates of the sale agreement and sale deeds.

2. Opportunity for Cross-examination of Sellers:
The assessee objected to the addition on the grounds of not being granted an opportunity to cross-examine the sellers. The CIT(A) called for a remand report, and during the remand proceedings, the AO provided opportunities for cross-examination. However, the assessee either sought adjournments or chose not to cross-examine the witnesses. The CIT(A) noted that the AO made sincere efforts to facilitate cross-examination, and the assessee's failure to utilize these opportunities invalidated their objection.

3. Evidentiary Value of a Photocopy of an Unregistered Agreement:
The AO based the addition partly on a photocopy of an unregistered agreement that was not signed by the assessee. The assessee argued that such a document has no evidentiary value under the Evidence Act. However, the CIT(A) and the Tribunal found that the contents of the agreement, particularly the part consideration paid through cheque, were corroborated by the registered sale deeds and bank statements. Therefore, despite the agreement's lack of legal enforceability, its contents were considered valid evidence when corroborated by other documents.

4. Source of Income for the Assessee Firm in its First Year of Constitution:
The assessee argued that since it was the first year of its constitution, it had no source of income, and hence, no addition under Section 69 could be made. The Tribunal referred to the Supreme Court's decision in CIT vs. P.K. Noorjehan, which states that the AO has discretion in treating unexplained investments as income. However, the Tribunal noted that the assessee denied making any cash payment, and since the payment of cash was established, the lack of explanation for the source warranted the addition under Section 69.

Conclusion:
The Tribunal upheld the addition of ?2,23,10,000/- under Section 69, noting that the AO's assessment was based on tangible evidence, including bank statements, the agreement, and sale deeds, all corroborating the cash payment. The Tribunal dismissed the appeal, affirming the CIT(A)'s order. The decision emphasized that the assessee's failure to cross-examine the witnesses and the corroborative evidence presented by the AO justified the addition. The Tribunal pronounced the order in the open court on 09/10/2018.