2019 (8) TMI 773 - AT - Income Tax

Addition on account of unexplained source of investment - seller declared higher price of sales value including cash deposited in account and offered for capital gain and also make statement - no opportunity for cross examination was provided - HELD THAT - In the present case, except statement of Sri Ganta Punna Rao, no other evidence is available on record that the assessee has paid the amount more than the sale consideration. That apart, when the statement of the seller is solely relied on by the AO, it is the duty of the AO to ask the assessee that the seller has stated that he received sale consideration more than the documented price and ask the assessee if he wanted to cross examine, to provide an opportunity to cross examine the seller. In the present case, no such opportunity has been given by the AO to the assessee. We find that the observation made by the ld. CIT(A) is baseless and it cannot survive in judicial scrutiny for the reason that there is no agreement in respect of the assessee, however, he further mentioned that the seller is a habit of taking on money, therefore he came to a conclusion that assessee also paid on money. The above observation given by the ld. CIT(A) is without any basis and cannot be accepted. From the observations of the ld. CIT(A), it is very clear that the seller of the property-Sri Ganta Punna Rao is accepting on money from other persons, therefore, the deposits made in his bank account, cannot be concluded that the amount paid by the assessee. It can be also said that the amount deposited in the bank account is anybody s amount because no details are available with regard to what is the amount received and what is the amount deposit. In view of the decision of the Hon'ble Supreme Court in the case of M/s. Andaman Timber Industries 2015 (10) TMI 442 - SUPREME COURT and also the decision of the coordinate bench of the tribunal in the case of Sri Venkata Rama Sai Developers 2015 (11) TMI 1608 - ITAT VISAKHAPATNAM and also by considering the facts and circumstances of the case, we find that the orders passed by the AO and ld.CIT(A) cannot survive. - appeal filed by the assessee is allowed

Issues Involved:
1. Determination of the actual sale consideration for the property purchased by the assessee.
2. Legitimacy of the addition made by the Assessing Officer based on the seller's statement and bank deposits.
3. Requirement of corroborative evidence to support the addition.
4. Opportunity for the assessee to cross-examine the seller.
5. Applicability of legal precedents and principles of natural justice.

Issue-wise Detailed Analysis:

1. Determination of the actual sale consideration for the property purchased by the assessee:
The assessee purchased a vacant site measuring 384 sq. yards for ?4,80,000 as per the registered sale deed. The Assessing Officer (AO) received information that the seller, Sri Ganta Punna Rao, deposited a significant amount in his bank account and admitted in a sworn statement that he sold the property for ?32,91,750. The AO concluded that the assessee paid ?32,91,750, treating the difference of ?28,60,240 as unexplained investment.

2. Legitimacy of the addition made by the Assessing Officer based on the seller's statement and bank deposits:
The AO based the addition solely on the seller’s statement and cash deposits in his bank account. The AO did not provide details of the deposits or dates, nor did he substantiate the claim that the assessee paid more than the documented amount. The Tribunal noted that the AO failed to provide concrete evidence beyond the seller's statement.

3. Requirement of corroborative evidence to support the addition:
The Tribunal emphasized that the AO must provide corroborative evidence to support the claim that the assessee paid more than the registered sale consideration. In this case, the AO did not present any evidence other than the seller’s statement, which was insufficient to justify the addition.

4. Opportunity for the assessee to cross-examine the seller:
The Tribunal highlighted the importance of allowing the assessee to cross-examine the seller, whose statement was the basis for the addition. The AO did not provide this opportunity, violating principles of natural justice. The Tribunal referenced the Supreme Court’s decision in M/s. Andaman Timber Industries, which underscored that not allowing cross-examination when the statement is the basis of the order is a serious flaw.

5. Applicability of legal precedents and principles of natural justice:
The Tribunal cited various judicial precedents, including the case of Sri Venkata Rama Sai Developers, where it was held that additions cannot be made based on third-party admissions without sufficient evidence. The Tribunal also referenced the decision of the Hon’ble Supreme Court in K.P. Varghese, which established that the burden of proof lies with the department to show that the actual sale consideration exceeded the documented amount.

Conclusion:
The Tribunal concluded that the AO’s addition based on the seller’s statement and bank deposits, without corroborative evidence and without allowing cross-examination, could not be sustained. The orders of the AO and the CIT(A) were reversed, and the appeal filed by the assessee was allowed. The Tribunal emphasized the need for concrete evidence and adherence to principles of natural justice in such cases.

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