2019 (3) TMI 2029 - AT - Income Tax

On-money payment - addition u/s 69 - in search at business premises incriminating documents were found and seized which revealed that the assessee made payment towards boundary expenses through cheque as on-money - HELD THAT - Lower authorities have not placed any material on record to show that the assessee had paid alleged on-money - Neither in the seized documents found from Shri Madan Mohan Gupta nor in the statement recorded u/s 132(4), he admitted that he received any amount from the assessee by way of on- money . From the reading of the statement of Shri Madan Mohan Gupta and the papers found from him, it is evident that there is nothing to suggest that allottees of the plot have paid any on-money on purchase of the plot. In fact, the assessee has not purchased any plot from Shri Madan Mohan Gupta rather he was allotted the plot by the Rajasthan Tehsildar Sewa Parishad and thus, there is no privity of contract between the assessee and Shri Madan Mohan Gupta. Therefore, no question of payment of alleged on-money by the assessee to Shri Madan Mohan Gupta arises for consideration. Annexure-A-3 referred by the AO in his order is a register where the details of the plot allotted to various persons is noted. This Annexure nowhere suggests that any on-money has been received by Shri Madan Mohan Gupta from the allottees of plot. At the time of possession of the plot, the final receipt is issued for the entire amount received and that receipt no. is also mentioned in this register. Thus, in these papers there is no evidence that any on-money has been paid by the assessee. Further, opportunity to cross examine Shri Madan Mohan Gupta was not provided even when specifically asked for on the ground that he is not a third party ignoring that assessee has not purchased any plot from him rather it is the Rajasthan Tehsildar Sewa Parishad who have allotted the plot to the assessee under the scheme framed by them. No merit in the addition so made by the AO and confirmed by the ld. CIT(A), hence, the Assessing Officer is directed to delete the same. - Decided in favour of assessee.

Issues Involved:
1. Legality of the order passed under Section 147.
2. Addition of Rs. 4,66,660/- under Section 69 for unexplained investment in land.
3. Denial of cross-examination opportunity.
4. Validity of the reopening of assessment under Section 147.

Issue-wise Detailed Analysis:

1. Legality of the Order Passed Under Section 147:
The assessee challenged the validity of the order passed under Section 147 of the Income Tax Act, 1961, arguing that it was illegal and bad in law. The tribunal upheld the reopening of the assessment, stating that the Assessing Officer (AO) had recorded detailed reasoning based on documents found during a search from Shri Madan Mohan Gupta, which provided a reason to believe that the income of the assessee had escaped assessment. Therefore, the reopening was deemed valid.

2. Addition of Rs. 4,66,660/- Under Section 69 for Unexplained Investment in Land:
The AO made an addition of Rs. 4,66,660/- under Section 69 of the Act, alleging that the assessee had made an unexplained investment in land by paying 'on-money' for a plot. This conclusion was based on documents seized from Shri Madan Mohan Gupta and his statement recorded under Section 132(4). However, the tribunal found that neither the seized documents nor the statement of Shri Madan Mohan Gupta provided any evidence that the assessee paid 'on-money'. It was noted that the assessee had not purchased the plot directly from Shri Madan Mohan Gupta but was allotted the plot by Rajasthan Tehsildar Sewa Parishad. Therefore, the tribunal concluded that there was no privity of contract between the assessee and Shri Madan Mohan Gupta, and no evidence of 'on-money' payment existed.

3. Denial of Cross-Examination Opportunity:
The assessee requested the opportunity to cross-examine Shri Madan Mohan Gupta, whose statement was used as the basis for the addition. The AO denied this request, arguing that Shri Madan Mohan Gupta was not a third party. The tribunal found this to be a violation of the principles of natural justice. Citing precedents, it was emphasized that not allowing the assessee to cross-examine witnesses, whose statements were used against them, constituted a serious flaw. The tribunal referred to the Supreme Court's decision in Andaman Timber Industries and other similar cases, which underscored the necessity of cross-examination to uphold the principles of natural justice.

4. Validity of the Reopening of Assessment Under Section 147:
The tribunal upheld the validity of the reopening of the assessment under Section 147, agreeing with the AO's reasoning that the documents found during the search provided a sufficient basis to believe that the income had escaped assessment. The tribunal distinguished this case from others where reopening was quashed, noting that in this instance, no assessment had been framed under Section 143(3), and only a return was processed under Section 143(1).

Conclusion:
The tribunal found no merit in the addition made by the AO and confirmed by the CIT(A). It directed the AO to delete the addition, emphasizing the lack of evidence for 'on-money' payment and the violation of natural justice principles by denying the cross-examination request. Consequently, the appeals filed by the assessees were allowed in part, and the stay application was dismissed as infructuous. The order was pronounced in the open court on 25/03/2019.

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