2017 (6) TMI 778 - AT - Income Tax

Addition on account of alleged on money given for purchase of flats - Held that - The Department merely relied upon the statement of two person who were employees of a different group and there was no evidence with the Assessing Officer that in fact any on money was paid in cash. Even in the statement tendered by these two employees, it has not been mentioned that in fact any cash was received by the group from the assessee over and above the payments made through banking channel. Even if the other group has made any disclosure before the Settlement Commission does not prove that any cash was received from the present assessee. Thus, considering the totality of facts we direct the Ld. Assessing Officer to delete the addition, which has been made purely on suspicion. Thus, the appeal of the assessee is allowed.

Summary

Issues Involved:
1. Addition of ?3 crores on account of alleged 'on money' given for the purchase of flats.
2. Validity of reassessment proceedings under Section 147/148 of the Income Tax Act.
3. Right to cross-examine witnesses and access evidence.
4. Reliance on statements and documents obtained during search operations.

Detailed Analysis:

1. Addition of ?3 Crores on Account of Alleged 'On Money':
The primary issue in the appeal was the addition of ?3 crores to the assessee's income, alleged to have been paid as 'on money' to Kamla Group for the purchase of two flats. The Revenue based this addition on information from the Directorate of Investigation, which indicated that Kamla Group received 'on money' for flat sales. The assessee contended that there was no concrete evidence of such a payment and that the addition was based solely on statements from Kamla Group employees and a pen-drive, without any direct proof of cash transactions. The Tribunal found that the statements from Kamla Group employees were inconsistent and did not conclusively prove that the assessee paid any 'on money'. The Tribunal emphasized that presumptions cannot replace concrete evidence, and the addition was not justified without proof of cash receipt.

2. Validity of Reassessment Proceedings Under Section 147/148:
The Tribunal examined whether the reassessment proceedings initiated under Sections 147/148 were valid. The assessee argued that the Assessing Officer (AO) did not have sufficient material to form a belief that income had escaped assessment. The Tribunal referred to multiple judicial precedents, including the cases of COMMISSIONER OF INCOME TAX vs. SMT. PARAMJIT KAUR and UNITED ELECTRICAL COMPANY (P) LTD. vs. COMMISSIONER OF INCOME TAX & ORS., which held that the AO must have tangible material and a rational connection between the material and the belief of income escapement. The Tribunal concluded that the AO had acted on mere suspicion and information from the investigation wing without independent verification, making the reassessment proceedings invalid.

3. Right to Cross-Examine Witnesses and Access Evidence:
The assessee argued that they were not given an opportunity to cross-examine the individuals whose statements were used against them, nor were they provided with the evidence relied upon by the AO. The Tribunal noted that the AO should have allowed the assessee to cross-examine the witnesses and access the evidence. The failure to do so violated the principles of natural justice. The Tribunal emphasized that the AO must independently verify the information and provide the assessee with a fair opportunity to contest the evidence.

4. Reliance on Statements and Documents Obtained During Search Operations:
The Tribunal scrutinized the reliance on statements and documents obtained during the search operations on Kamla Group. The statements of Kamla Group employees, Nilesh Gawde and Mahendra Rawal, were found to be vague and inconsistent. The Tribunal noted that these statements did not specifically mention that the assessee paid any 'on money'. Additionally, the Tribunal highlighted that even if Kamla Group made disclosures before the Settlement Commission, it did not prove that the assessee paid cash. The Tribunal reiterated that the AO must have concrete evidence linking the assessee to the alleged cash payments, which was absent in this case.

Conclusion:
The Tribunal allowed the assessee's appeal, directing the AO to delete the addition of ?3 crores. The Tribunal emphasized the need for concrete evidence and adherence to principles of natural justice, including the right to cross-examine witnesses and access evidence. The reassessment proceedings were deemed invalid due to the lack of tangible material and the AO's reliance on mere suspicion. The order was pronounced in the presence of representatives from both sides.