2024 (2) TMI 241 - AT - Income Tax

Unaccounted interest payment on cash loan - search and seizure action u/s 132 - loose paper seized from the premises of an employee of the assessee as well as the tally account in the name of XYZ 0809-2 taken from laptop - scope of 'dump document' - no opportunity to assessee to cross examine - denial of natural justice - CIT(A) has considered the tally account as dummy one created for training purpose incorporating the data from different sources including that of assessee and therefore, the Tally account found in the laptop as well as loose paper were held to be having no evidentiary value being dump documents, thus deleted addition - HELD THAT - Statement and witness cannot be used against the assessee without affording reasonable an opportunity of being heard as well as giving the assessee an opportunity for cross examination of the witnesses It is settled preposition of law that if any evidence or statement is made the basis of the assessment order without allowing the assessee to cross examine the witness or to rebut the evidence then it would amount to violation of principle of natural justice as held by the Hon ble Supreme Court in case of Andaman Timber Industries vs. Commissioner of Central Excise 2015 (10) TMI 442 - SUPREME COURT It is also settled proposition of law that the presumption u/s 132(4A) of the Act is subject to rebut and therefore, the assessee has right to be confronted with the information being used against the assessee. AO has used the loose paper seized from the premises of employee as well as his statement without giving an opportunity to assessee to cross examine or to substantiate its claim based on the affidavit filed. Accordingly, we are of the considered view that there is a violation of principle of natural justice, so far as the addition is made by the AO on account of alleged unaccounted payment of interest on the basis of the statement of employee of assessee and consequently, it renders the assessment order nullity as much as the additions are made by the AO. Further when the assessee has denied the alleged transactions of taking any loan or payment of any interest on the same then it was incumbent on the AO to conduct a further inquiry by examining the person concerns from who alleged loans are stated to be taken. The AO has not even verified stands of those parties about confirming the transactions of the alleged loans and receipt of the interest. In case the assessee has taken this cash loans from these parties then a necessary consequence would be the said transactions to be taken for assessment in the hands of those persons as out of book transactions. AO has relied upon the statement of Shri G.C. Patidar to consider the contents and transactions in the seized documents as cash loan taken by the assessee therefore, except the statement of employee these documents do not speak themselves about the nature of the transactions. Hence, the non-affording opportunity of cross examination of employee is a gross violation of principle of natural justice rendering the assessment order as nullity. No error or illegality in the impugned order of the CIT(A) qua this issue of addition made on account of unaccounted/unexplained payment of interest on the alleged cash loans. Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition on account of unaccounted interest payment on cash loan for A.Y. 2009-10 and 2010-11.
2. Validity of assessment based on seized documents and statements without cross-examination.

Summary:

1. Deletion of Addition on Account of Unaccounted Interest Payment on Cash Loan:
The Revenue challenged the deletion of additions of Rs. 82,03,684/- for A.Y. 2009-10 and Rs. 58,55,122/- for A.Y. 2010-11 made by the Assessing Officer (AO) on account of unaccounted interest payment on cash loans. The AO's additions were based on documents seized during a search and seizure action, including a laptop and loose papers from an employee of the assessee. The AO presumed these documents indicated unaccounted cash loans and corresponding interest payments. However, the assessee contended that these documents were "dumb documents" and that the AO did not consider an affidavit retracting the statement of the employee, Shri G.C. Patidar, which was the basis for the additions. The CIT(A) deleted the additions, agreeing with the assessee that the documents were not reliable evidence.

2. Validity of Assessment Based on Seized Documents and Statements Without Cross-Examination:
The Tribunal noted that the AO relied heavily on the statement of Shri G.C. Patidar recorded under Section 132(4) of the Income Tax Act, which was later retracted by an affidavit. The Tribunal emphasized that the AO did not provide the assessee an opportunity to cross-examine Shri G.C. Patidar, which is a violation of the principles of natural justice. The Tribunal referenced several legal precedents, including the Hon'ble Supreme Court's decision in Andaman Timber Industries vs. Commissioner of Central Excise, which held that not allowing cross-examination of witnesses whose statements are used against the assessee is a serious flaw. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the additions, as the AO's reliance on unverified and uncorroborated documents and statements without cross-examination rendered the assessment invalid.

Conclusion:
The Tribunal dismissed the Revenue's appeals for A.Y. 2009-10 and 2010-11, affirming the CIT(A)'s deletion of the additions on account of unaccounted interest payment on cash loans, due to the AO's failure to provide an opportunity for cross-examination and reliance on unreliable evidence.