2022 (4) TMI 718 - AT - Income Tax

Addition based on the cash found in excess of the cash book balance and based on the sworn statement of Shri Rajeev N. Narayan under the head income from other sources in the computation of taxable total income - HELD THAT - We are inclined to hold that despite a specific request by the assessee to allow cross examination, ld. CIT(A) denied the same without any cogent justification and valid reason which is a clear violation of proposition rendered by the Hon ble Supreme Court in the case of Andaman Timber Industries 2015 (10) TMI 442 - SUPREME COURT - Therefore, we hold that the ld. CIT(A) was not correct in confirming the addition made by the AO keeping aside the evidence submitted by the assessee in the form of sales vouchers, VAT payment evidence, ledger entries, etc. only on the strength of reply letter received by him on 26.05.2019 from M/s National Pharma, Delhi without allowing cross examination to the assessee on the said letter/reply of M/s National Pharma. Therefore, respectfully following the proposition laid down by the Hon ble Supreme Court, we are compelled to hold that the addition confirmed by the ld. CIT(A) is not sustainable and the observations and findings recorded by the CIT(A) are hit by the proposition rendered by the Hon ble Supreme Court in the case of Andaman Timber Industries (supra). Accordingly, we allow the appeal of the assessee and direct the AO to delete the addition.

Summary

Issues:
Appeal against CIT(A) order for assessment year 2016-2017 - Addition of excess cash found in cash book balance and sworn statement of individual under income from other sources without proper justification.

Detailed Analysis:
The appeal was filed by the revenue against the CIT(A) order for the assessment year 2016-2017, challenging the addition of ?54,44,672 based on excess cash found and a sworn statement. The counsel for the assessee argued that the assessment of excess cash was incorrect, as it overlooked details of advance received for goods supply, sales transactions, VAT payments, and ledger entries. The counsel contended that reliance on confirmation from a party without allowing cross-examination was erroneous and unsustainable in law. The counsel emphasized the lack of proper opportunity before the order, violation of natural justice principles, and the submission of evidence like invoices and VAT payment records.

The Tribunal noted that the AO acknowledged the goods sold against advance money and that the CIT(A) sought information from a related party, which denied transactions with the assessee. The assessee requested cross-examination based on the Andaman Timber Industries case, but the CIT(A) dismissed it, citing the assessee's failure to explain the cash source directly. The AR argued that documentary evidence of sales to the related party was not doubted by the AO or CIT(A), and the denial of cross-examination violated the Andaman Timber Industries case. Consequently, the Tribunal found the addition unsustainable, as the CIT(A) confirmed it without considering the assessee's evidence, contravening the principles of natural justice and the Supreme Court's precedent.

In conclusion, the Tribunal allowed the appeal, directing the AO to delete the addition. The decision was based on the failure to allow cross-examination, the dismissal of the assessee's evidence, and the violation of natural justice principles, as per the Andaman Timber Industries case. The appeal was allowed in favor of the assessee, emphasizing the importance of fair procedures and evidence consideration in tax assessments.