2019 (5) TMI 1985 - AT - Income Tax

Unexplained investment - purchase of land - addition on the basis of statement of one Shri Madan Mohan Gupta scheme developer from whom assessee purchased a plot in residential project - HELD THAT - Addition made by AO merely on the basis of statement, when there is no corroborative material with AO suggesting the alleged addition, without allowing assessee an opportunity to cross examine the person on whose statement addition was made. Accordingly, AO is directed to delete the addition so made - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of reopening the case under Section 147 of the Income Tax Act.
2. Addition of Rs. 5,83,320/- on account of unexplained investment based on third-party statement.
3. Non-provision of the third-party statement to the assessee and denial of cross-examination opportunity.
4. Consideration of evidence and documents provided by the assessee.

Issue-wise Detailed Analysis:

1. Legality of Reopening the Case under Section 147:
The appellant contended that the reopening of the assessment under Section 147 was "totally bad in law and void-ab-initio." However, this ground was not pressed during the appeal, and thus, it did not require any comment from the Tribunal.

2. Addition of Rs. 5,83,320/- on Account of Unexplained Investment:
The Assessing Officer (AO) made an addition of Rs. 5,83,320/- to the assessee's income, treating it as unexplained investment in the purchase of land. This addition was based on the statement of Shri Madan Mohan Gupta, who had accepted receiving on-money for the sale of plots in the "Revenue Residency" scheme. The AO inferred that the assessee had paid this amount as on-money for the purchase of a plot, based on seized documents indicating such transactions.

3. Non-provision of Third-party Statement and Denial of Cross-examination:
The assessee argued that the addition was made solely based on the statement of Shri Madan Mohan Gupta without providing a copy of the statement or an opportunity for cross-examination. The Tribunal noted that not providing the opportunity for cross-examination amounted to a violation of the principles of natural justice. Citing the Supreme Court's decision in the case of Andaman Timber Industries and other relevant judgments, the Tribunal emphasized that the denial of cross-examination rights rendered the assessment order vulnerable and nullified the addition made by the AO.

4. Consideration of Evidence and Documents Provided by the Assessee:
The assessee had submitted various documents, including a lease deed, payment receipt, and possession letter, to support their claim. The Tribunal observed that the AO and CIT(A) did not adequately consider these documents and instead relied heavily on the statement of Shri Madan Mohan Gupta. The Tribunal found that the AO's addition lacked corroborative evidence and was primarily based on the third-party statement without proper examination of the assessee's submitted evidence.

Conclusion:
The Tribunal concluded that the addition made by the AO was not justified due to the lack of corroborative evidence and the denial of the assessee's right to cross-examine the third party whose statement was used against them. The Tribunal followed its earlier decision in a similar case (Shri Mehtab Singh Ujjawal Vs. ITO) and deleted the impugned addition. Consequently, the appeals of the assessees were allowed, and the addition of Rs. 5,83,320/- was deleted.