2024 (3) TMI 426 - AT - Income Tax

Assessment u/s 153C - Addition u/s 69A - Certain incriminating documents/information contained in the seized material pertained to the assessee, the proprietor found from third party - During assessment proceedings the common plea of the assessee in both the AY(s) was that merely entries found in the Hajir Johri ledger of M/s. JBL supposedly in the name of M/s. S.K. Impex, the proprietary concern of the assessee does not tantamount to actual transactions having taken place in the absence of any corroborative evidence such as bills, invoices, challans etc HELD THAT - AR submitted before us that Ms. Parul Ahluwalia nowhere in her statement identified that alleged cash transactions related to the assessee. No specific questions in this regard were asked from her. Nothing is forthcoming from the side of the Revenue to controvert the above pleadings of the assessee. As during the course of assessment proceedings the show cause notice dated 09.12.2021 issued to the assessee does not have any whisper about the statement of Ms. Parul Ahluwalia that her statement is being used adversely against the assessee. It is submitted by the Ld. AR that the assessee got the knowledge of such statement only on receipt of assessment order. If that is the scenario, the question of allowing the assessee an opportunity to cross-examine Ms. Parul Ahlulwalia does not arise. In fact this has not taken place. Therefore, we are of the opinion that the statement of Ms. Parul Ahluwalia recorded during search of M/s. JBL cannot legally be adversely used against the assessee. In taking this view, we are supported by the decision of SMC Share Brokers Ltd. 2006 (8) TMI 110 - DELHI HIGH COURT wherein the court held that where statement of a third person is acted upon without giving an opportunity to cross examine him, principles of natural justice has not been followed and order would not be valid. This decision was rendered in the context of order under section 158BD which is equally applicable in the case of the assessee to order passed under section 153C of the Act. As AO has used his imagination in applying the provision of section 69C for making the impugned addition in both the years treating the alleged cash transactions as expenditure incurred by the assessee towards purchase of gold/bullion from M/s. JBL, theCIT(A) was in a fix. So he confirmed the impugned addition in AY 2016-17 u/s 69C as unexplained expenditure and in AY 2017-18 under section 69A as unexplained money. In our view the impugned addition made by the Ld. AO in both the AY(s) is not sustainable because it is based on mere suspicion, surmise and conjectures and not on legally sound footing and the Ld. CIT(A) admittedly confirmed the addition based alone on facts which emerges from the details and findings made by the Ld. AO - Assessee appeal allowed.

Summary

Issues Involved:
1. Legality of additions under section 69A of the Income Tax Act, 1961.
2. Adequacy of evidence and cross-examination rights.
3. Applicability of sections 69A and 69C for unexplained cash transactions.

Summary:

Issue 1: Legality of Additions under Section 69A of the Income Tax Act, 1961

The common issue in both appeals relates to the addition of Rs. 11,45,348/- and Rs. 10,88,000/- under section 69A of the Income Tax Act, 1961, made by the Assessing Officer (AO) for AY 2016-17 and 2017-18, respectively. The AO based these additions on entries found in the "Hajir Johri" software of M/s. Jindal Bullion Ltd. (JBL), which allegedly recorded cash transactions with the assessee. The AO treated these amounts as unexplained expenditure under section 69C of the Act.

Issue 2: Adequacy of Evidence and Cross-Examination Rights

The assessee argued that mere entries in the Hajir Johri software, maintained by JBL, do not constitute actual transactions without corroborative evidence such as bills, invoices, or challans. The assessee was not confronted with the statement of Ms. Parul Ahluwalia, Director of JBL, during the assessment, and thus, was denied the opportunity to cross-examine her. The Tribunal noted that the Revenue did not provide any supporting evidence to substantiate the alleged cash transactions and relied solely on conjectures and surmises.

Issue 3: Applicability of Sections 69A and 69C for Unexplained Cash Transactions

The CIT(A) confirmed the additions but under different sections: section 69C for AY 2016-17 and section 69A for AY 2017-18. The Tribunal found that the AO's application of section 69C was based on mere suspicion without legal grounding. The CIT(A) also failed to provide a sound basis for confirming the additions. The Tribunal emphasized that the statement of Ms. Parul Ahluwalia could not be used adversely against the assessee without allowing cross-examination, as per principles of natural justice and supported by the decision of the Delhi High Court in CIT vs. SMC Share Brokers Ltd.

Conclusion:

The Tribunal allowed the appeals of the assessee for both AY 2016-17 and AY 2017-18, directing the AO to delete the impugned additions. The Tribunal concluded that the additions were not sustainable as they were based on suspicion and lacked corroborative evidence. The order was pronounced in the open court on 7th March, 2024.