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2019 (4) TMI 1112 - AT - Income TaxReopening of assessment - accommodations entries in the nature of bogus sales and unsecured loans - addition was made on the statement of Sh. Vikrant Kayan without providing any opportunity to the assessee to cross examine the same - HELD THAT - Assessee has considerable cogency that addition was made on the basis of statement of Sh. Rajendra Jain, but the assessee was not granted the opportunity to cross examine Sh. Rajendra Jain which ground was also raised before the CIT(A), who did not adjudicate the same, which is against the settled law. Since the impugned addition was made on the statement of Sh. Vikrant Kayan without providing any opportunity to the assessee to cross examine the same, which is in violation of principle of natural justice and against the law laid down by the Hon ble Supreme Court of India in the case of Andaman Timber vs. CIT 2015 (10) TMI 442 - SUPREME COURT the addition in dispute is deleted and the appeal of the assessee is allowed. See SMT. JYOTI GUPTA VERSUS THE I.T.O, DELHI 2018 (11) TMI 1353 - ITAT NEW DELHI
Issues Involved:
1. Whether the Assessing Officer (AO) erred in forming a negative inference based on third-party statements without confronting the assessee. 2. Whether the assessee was denied the opportunity to cross-examine the persons whose statements were used against them. 3. Whether the addition of ?7,47,431 as unexplained cash credits under Section 68 of the Income Tax Act was justified. Issue-wise Detailed Analysis: 1. Negative Inference Based on Third-Party Statements: The AO formed a negative inference against the assessee based on statements made by third parties, specifically Shri Rajendra Jain and others, who admitted to providing accommodation entries in the nature of bogus sales and unsecured loans. The AO relied on these statements to conclude that the assessee had made bogus purchases amounting to ?7,47,431 from entities managed by Rajendra Jain Group. The AO issued notices under Section 133(6) for verification, and the concerned entities denied any transactions with the assessee. The AO added the amount of ?7,47,431 to the assessee's income as unexplained cash credits under Section 68 of the Income Tax Act. 2. Denial of Opportunity to Cross-Examine: The assessee contended that the AO made the additions without providing an opportunity to cross-examine the persons whose statements were used against them. The assessee argued that this was a violation of the principles of natural justice. The CIT(A) dismissed the assessee's appeal, stating that sufficient opportunity was given to present their contentions. However, the Tribunal noted that the CIT(A) did not adjudicate the issue of cross-examination, which was raised by the assessee. The Tribunal emphasized that the addition was made solely based on the statements of Shri Rajendra Jain, without giving the assessee an opportunity to cross-examine him, which is against the settled law. 3. Justification of Addition under Section 68: The Tribunal examined the evidence and submissions, including the retraction affidavit by Shri Rajendra Jain and the letters from M/s Kriya Impex Pvt. Ltd. and M/s Arihant Exports, which denied any transactions with the assessee. The Tribunal found that the assessee's claim that no business activity was conducted during the relevant period was supported by the incorporation date and other evidence. The Tribunal also referred to the ITAT, SMC, Delhi Bench's decision in the case of Smt. Jyoti Gupta vs. ITO, where it was held that additions based on third-party statements without cross-examination violate the principles of natural justice. The Tribunal concluded that the addition of ?7,47,431 was not sustainable and deleted the addition. Conclusion: The Tribunal allowed the assessee's appeal, holding that the addition made by the AO was based on third-party statements without providing an opportunity for cross-examination, which is a violation of the principles of natural justice. The Tribunal deleted the addition of ?7,47,431 as unexplained cash credits under Section 68 of the Income Tax Act. The decision was pronounced on 05/04/2019.
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