2020 (2) TMI 1343 - AT - Income Tax

Addition u/s 68 - accommodation entries in various forms like bogus unsecured loans, bogus share capital, bogus sales and purchase etc. and charged commission thereon at the rate of 0.10% to 0.30% depending on the nature of entry - HELD THAT - AO except confronting the assessee with some details obtained from Shri Rahul Jhunjhunwala and his company, not able to produce any other material. AO should have granted an opportunity to cross-examine Shri Rahul Jhunjhunwala, Shri Satish Saraf or any other concerned whose statements he was relying upon, because all these statements were not recorded by the AO during the course of assessment proceedings. These were recorded by some other authorities during some other investigations. This can be used only as an information for initiating action against the assessee. They cannot be treated as gospel truth against the assessee. Therefore, if these statements are excluded on the strength of Hon ble Supreme Court judgment cited in the case of Andaman Timber Industries Vs. Comm. Of Central Excise, Kolkata, 2015 (10) TMI 442 - SUPREME COURT then nothing remained against the assessee to doubt the alleged commission expenses. Therefore, in view of the above facts and circumstances, we allow this ground of appeal, and delete addition. - Decided in favour of assessee.

Summary

Issues:
Appeal against order of ld.CIT(A) for Asstt.Year 2009-10 involving reopening of assessment and addition of ?28,03,000.

Analysis:

1. Reopening of Assessment:
The assessee chose not to press the issue of reopening. The ld.CIT(A) confirmed the upholding of reopening. The AO, based on information received, issued a notice under section 148. The assessee contended that the return originally filed should be treated as a response to this notice. The reassessment order was passed under section 143(3) r.w.s. 147, adding ?28,03,000. The CIT(A) upheld this addition, citing the investigation in the case of Shri Satish Saraf Group.

2. Addition of ?28,03,000:
The AO disallowed this amount as bogus commission expenditure, linking it to accommodation entries provided by M/s. Sunlight Agency P.Ltd. The ld.CIT(A) confirmed this addition, considering the nature of transactions and the involvement of shell companies in financial maneuvers. The AO's stance was based on entries found in the books of accounts of Shri Rahul Jhunjhunwala, who admitted to providing accommodation entries. However, the assessee requested cross-examination of Shri Rahul Jhunjhunwala, which was denied by the AO.

3. Legal Precedents:
The assessee relied on the Supreme Court judgment in Andaman Timber Industries case, emphasizing the right to cross-examine witnesses and challenge incriminating material. The Court held that denial of cross-examination violates principles of natural justice. In this case, the AO failed to produce substantial material and did not allow cross-examination of key witnesses, which could have affected the outcome. The Tribunal's rejection of the plea for cross-examination was deemed untenable.

4. Conclusion:
The Tribunal, considering the lack of opportunity for cross-examination and the reliance on statements not recorded during assessment proceedings, allowed the appeal and deleted the addition of ?28,03,000. The judgment underscores the importance of providing a fair opportunity for the assessee to challenge incriminating material and cross-examine witnesses to ensure a just assessment process.

In summary, the judgment addressed the issues of reopening of assessment and the addition of ?28,03,000, highlighting the importance of procedural fairness and adherence to legal principles in tax assessments.