2018 (11) TMI 1841 - AT - Income Tax

Additions u/s. 69C - commission expense incurred outside the books of accounts - Addition on the basis of the statement obtained from Shri Tejas V. Shah - Non providing opportunity of cross examination of the statement obtained under the provision of Act - denial of natural justice - HELD THAT - There was no other iota of evidence suggesting that the assessee has incurred any expenditure on account of commission paid to Shri Tejas V. Shah. The AO has not referred to any incriminating material found during the course of survey evidencing the payment by the assessee for the commission. In our considered view, for the addition made u/s 69C of the Act, the onus lies on the Revenue to prove that the assessee has incurred expenditure on account of commission expenses. The provision of Section 69C requires to make the disallowance of the expenses which has been incurred by the assessee and the assessee fails to explain the nature/ source of such expenditure. Thus, it is implied that first of all the AO has to prove whether the assessee has incurred expenditure and then the question comes for the explanation. In the instant case, the AO has not proved with the documentary evidences that the assessee has incurred expenditure on account of commission expenses. Thus, in such case the question of explanation does not arise. AO before making the addition on the basis of statement should have provided the opportunity of cross examination to the assessee. In this regard, we find support and guidance from the judgment of Hon ble Supreme court in the case of Andaman Timber Industries 2015 (10) TMI 442 - SUPREME COURT AO is directed to delete the Addition made by him. Hence, the ground of appeal of the assessee is allowed.

Summary

Issues Involved:
1. Confirmation of addition under Section 69C of the Income Tax Act, 1961.
2. Non-supply of the statement of Tejas V. Shah.
3. Principles of natural justice and opportunity for cross-examination.

Issue-wise Detailed Analysis:

1. Confirmation of Addition under Section 69C of the Income Tax Act, 1961:
The primary issue in the appeal is whether the addition of ?7,69,243/- under Section 69C of the Income Tax Act, 1961, was justified. The assessee, a partnership firm engaged in construction, was alleged to have paid this amount as commission to Tejas V. Shah of M/s. Tricon Construction for selling plots. The Assessing Officer (AO) observed that the assessee did not record this expenditure in its books. Despite the assessee's denial of any such payment, the AO relied on the statement of Tejas V. Shah and made the addition under Section 69C, which pertains to unexplained expenditure.

2. Non-supply of the Statement of Tejas V. Shah:
The assessee contended that the statement of Tejas V. Shah, which was the basis for the addition, was not provided to them despite requests. This non-supply was argued to be against the principles of natural justice. The CIT(A) dismissed this argument, stating that the assessee did not request the statement during the assessment proceedings and that the opportunity provided was adequate.

3. Principles of Natural Justice and Opportunity for Cross-examination:
The assessee argued that the addition was made without providing an opportunity for cross-examination of Tejas V. Shah, whose statement was used as evidence. The assessee cited several judicial precedents emphasizing the necessity of cross-examination to uphold the principles of natural justice. The Tribunal noted that the AO did not provide clear details on whether the statement was recorded under Section 132(4), 131, or 133A of the Act. The Tribunal emphasized that for an addition under Section 69C, the onus is on the Revenue to prove that the expenditure was indeed incurred by the assessee, which was not substantiated with any corroborative evidence in this case.

Tribunal's Findings:
The Tribunal found that the AO failed to provide any documentary evidence proving the expenditure incurred by the assessee. It was held that mere reliance on the statement of a third party without corroborative evidence is insufficient for making an addition under Section 69C. The Tribunal also highlighted the necessity of providing an opportunity for cross-examination, citing the Supreme Court's judgment in Andaman Timber Industries vs. CCE, which underscores the importance of cross-examination in upholding natural justice.

Conclusion:
The Tribunal concluded that the addition made by the AO was not sustainable as it was based solely on the statement of Tejas V. Shah without any corroborative evidence. The Tribunal reversed the orders of the lower authorities and directed the AO to delete the addition of ?7,69,243/-. The appeal of the assessee was allowed, reaffirming the principles of natural justice and the necessity of corroborative evidence for additions under Section 69C.

Order Pronouncement:
The order was pronounced in open court on 01/11/2018, allowing the appeal of the assessee.