2023 (8) TMI 1625 - AT - Income Tax

Addition u/s 69C - assessee had purchased two plots from NODPL - excel sheet was found in which the name of the assessee was mentioned and from the contents thereof it was clear that the assessee had given on-money towards purchase of the aforesaid two flats - HELD THAT - Firstly the additions have been made on the basis of excel sheet found at the premises of the third party i.e. Mr. Murlidhar M. Trivedi. However apart from the fact that the name of the assessee has been mentioned in the aforesaid excel sheet there is no further corroborative evidence which substantiates that the assessee had in fact made on-money payment with respect to the aforesaid two properties. Secondly admittedly the assessee had furnished all relevant documents viz. copies of agreements details of cheque payments etc. towards purchase of the aforesaid two products. Thirdly it is a settled law that additions cannot be made solely on the basis of notings / jottings in relation toward transaction without any corroborative evidence for sustaining the addition. In the case of Vinit Ranawat 2015 (6) TMI 608 - ITAT PUNE ITAT held that no addition can be made in the hands of the assessee on the basis of papers found with the third party when there was no business connection between the assessee and that third party. Fourthly it is a settled principle of law that no addition can be made on the basis of statement of a third party without allowing the assessee an opportunity of cross-examining the person on the basis of whose statement the addition has been made. The Hon ble Supreme Court in the case of Andaman Timber Industries 62 taxmann.com 3 (SC) held that when statements of witnesses are made the basis of demand not allowing the assessee to cross-examine the witness is a serious flaw which makes order a nullity as it amounts to violation of principles of natural justice. In the instant facts despite a specific request made by the assessee to cross-examine the person on the basis of whose statement the addition was made such opportunity of cross-examination was not granted to the assessee. Fifthly we also observed that the AO in the assessment order has not brought out the locus standi of Mr. Murlidahr M. Trivedi on the basis of whose statement the addition were made in the hands of the assessee. Mr. Murlidhar M. Trivedi in his affidavit merely stated that the transactions in question pertained to NODPL and from his statement it is not clear as to how Mr. Murlidhar M. Trivedi is related to NODPL since neither is he a Director or a Authorized person or an employee of NODPL. Therefore it is not clear as to what evidentiary value does the statement of Shri Murlidahr M. Trivedi carry and what is his locus standi to make such statement which can implicate the assessee. Decided against revenue.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

1. Whether the addition of Rs. 8,05,11,000/- as unexplained income under Section 69C of the Income Tax Act was justified based on an excel sheet found during a search operation.

2. Whether the principles of natural justice were violated by not allowing the assessee to cross-examine the witnesses whose statements were used against him.

3. Whether the evidence presented was sufficient to substantiate the claim that the assessee made on-money payments to Navratna Organisers & Developers Pvt. Ltd. (NODPL) for the purchase of property.

4. What is the evidentiary value of statements and affidavits from third parties, such as Mr. Murlidhar M. Trivedi, in implicating the assessee?

ISSUE-WISE DETAILED ANALYSIS

1. Addition of Rs. 8,05,11,000/- as Unexplained Income

- Relevant Legal Framework and Precedents: Section 69C of the Income Tax Act pertains to unexplained expenditure, which can be deemed as income if the source of such expenditure is not satisfactorily explained. The burden of proof lies on the Assessing Officer to substantiate the claim of unexplained income.

- Court's Interpretation and Reasoning: The Tribunal noted that the addition was primarily based on an excel sheet found with a third party, Mr. Murlidhar M. Trivedi, and not directly with the assessee. The Tribunal emphasized that mere entries in documents found with third parties cannot be considered conclusive evidence without corroborative material.

- Key Evidence and Findings: The excel sheet allegedly indicated on-money payments by the assessee to NODPL. However, the Tribunal found no direct evidence linking the assessee to these payments beyond the entries in the excel sheet.

- Application of Law to Facts: The Tribunal applied the principle that additions cannot be made solely on the basis of notings or entries without corroborative evidence. The lack of direct evidence linking the assessee to the on-money payments led to the conclusion that the addition was not justified.

- Treatment of Competing Arguments: The Department argued that the excel sheet and the Settlement Commission's acceptance of on-money by NODPL substantiated the addition. The assessee countered by highlighting the absence of direct evidence and the denial of cross-examination rights.

- Conclusions: The Tribunal concluded that the addition was not sustainable due to the lack of corroborative evidence directly linking the assessee to the alleged on-money payments.

2. Violation of Principles of Natural Justice

- Relevant Legal Framework and Precedents: The principles of natural justice require that the assessee be given an opportunity to cross-examine witnesses whose statements are used against them. The Supreme Court's rulings in cases like Andaman Timber Industries emphasize this requirement.

- Court's Interpretation and Reasoning: The Tribunal found that the assessee was not allowed to cross-examine Mr. Murlidhar M. Trivedi, whose statement was used as a basis for the addition. This was deemed a violation of the principles of natural justice.

- Key Evidence and Findings: The Tribunal noted that the affidavit from Mr. Trivedi was not provided to the assessee, and no opportunity for cross-examination was granted.

- Application of Law to Facts: The Tribunal applied the principle that denial of cross-examination rights renders the assessment void due to the violation of natural justice.

- Treatment of Competing Arguments: The Department's reliance on Mr. Trivedi's statement was countered by the assessee's argument for the right to cross-examine, which the Tribunal upheld.

- Conclusions: The Tribunal concluded that the assessment was void due to the violation of natural justice principles.

3. Sufficiency of Evidence for On-Money Payments

- Relevant Legal Framework and Precedents: The burden of proof lies on the Department to provide evidence linking the assessee to the alleged on-money payments. Past rulings have established that entries in third-party documents require corroborative evidence.

- Court's Interpretation and Reasoning: The Tribunal found that the evidence presented, primarily the excel sheet and Mr. Trivedi's statement, was insufficient to substantiate the on-money payments claim.

- Key Evidence and Findings: The Tribunal observed that the Department failed to provide any corroborative evidence linking the assessee to the on-money payments beyond the excel sheet entries.

- Application of Law to Facts: The Tribunal applied the principle that without corroborative evidence, entries in third-party documents cannot be used to justify additions.

- Treatment of Competing Arguments: The Department's reliance on the excel sheet was countered by the assessee's provision of legitimate transaction documents and the lack of direct evidence.

- Conclusions: The Tribunal concluded that the evidence was insufficient to substantiate the on-money payments claim.

4. Evidentiary Value of Third-Party Statements and Affidavits

- Relevant Legal Framework and Precedents: Statements from third parties require corroboration to have evidentiary value. The burden is on the Department to establish the relevance and connection to the assessee.

- Court's Interpretation and Reasoning: The Tribunal found that Mr. Trivedi's affidavit did not establish a clear link between the assessee and the alleged on-money payments.

- Key Evidence and Findings: The Tribunal noted that Mr. Trivedi's relationship with NODPL was unclear, and his statement did not directly implicate the assessee.

- Application of Law to Facts: The Tribunal applied the principle that third-party statements require corroboration and a clear connection to the assessee to have evidentiary value.

- Treatment of Competing Arguments: The Department's reliance on Mr. Trivedi's affidavit was countered by the lack of evidence linking the affidavit's contents to the assessee.

- Conclusions: The Tribunal concluded that Mr. Trivedi's affidavit lacked evidentiary value in implicating the assessee.

SIGNIFICANT HOLDINGS

- The Tribunal upheld the principle that additions cannot be made solely on the basis of entries in third-party documents without corroborative evidence.

- The Tribunal emphasized the importance of adhering to the principles of natural justice, particularly the right to cross-examine witnesses.

- The Tribunal reinforced the burden of proof on the Department to substantiate claims of unexplained income with direct and corroborative evidence.

- The Tribunal highlighted the need for clear evidentiary value in third-party statements and affidavits to implicate an assessee.

- The appeal of the Department was dismissed, affirming the decision of the Ld. CIT (A) to delete the additions made by the Assessing Officer.