2024 (6) TMI 1439 - AT - Income Tax

Addition u/s. 69 - AO made the addition solely based on the seized data and statement of the searched person who paid the taxes on admission of such undisclosed on-money in cash - HELD THAT -Such addition was made without affording an opportunity to the assessee to cross-examine the person whose statements were relied upon. This is against the principles of natural justice. Furthermore the payments made by cheque aggregating were duly recorded in the assessee s books of account and reflected in her Axis Bank account. These entries have not been disputed by the AO. Therefore the addition to this extent is not justified. As regards the cash component assessee has consistently denied making such payment and there is no corroborative evidence brought on record by the AO to substantiate this addition. Therefore in the absence of any conclusive evidence the addition is not sustainable. Appeal of the assessee allowed.

2025 (3) TMI 718 - AT

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

Whether the proceedings initiated under Section 153C of the Income Tax Act, 1961, were valid and lawful.
Whether the addition of Rs. 17,22,700/- as unexplained investment under Section 69 of the Act was justified.
Whether the assessee was afforded sufficient opportunity to contest the findings and whether the principles of natural justice were adhered to.

ISSUE-WISE DETAILED ANALYSIS

Validity of Proceedings under Section 153C

The relevant legal framework involves Section 153C of the Income Tax Act, which pertains to assessments in cases where any document or asset seized during a search belongs to a person other than the one searched.
The Court noted that the Authorized Representative (AR) for the assessee contended that the notice under Section 153C was issued after an unreasonable delay of over four years from the date of search, which was argued to be against the principles of reasonable time.
The Departmental Representative (DR) countered that there is no statutory time limit prescribed for issuing such notice.
Ultimately, the Court did not adjudicate on this issue as the assessee's representative chose not to press these grounds, focusing instead on the substantive addition under Section 69.

Justification for Addition under Section 69

Section 69 of the Income Tax Act deals with unexplained investments, where the assessee is unable to satisfactorily explain the nature and source of investments.
The Court examined the evidence, primarily the excel-sheet found during the search, which allegedly documented the cash payments made by the assessee.
The AR argued that the cheque payments of Rs. 9,34,250/- were duly recorded in the assessee's bank account and books, and there was no evidence of the cash payment of Rs. 7,86,450/-.
The DR maintained that the excel-sheet should be considered alongside the Settlement Commission's order, which involved the developer admitting to receiving 'on-money'.
The Court found that the addition was made without allowing the assessee to cross-examine the individuals whose statements were relied upon, violating the principles of natural justice.
The Court also noted the lack of corroborative evidence to substantiate the cash payment, as the excel-sheet was unsigned and unverified.
The Court referenced a precedent from the Gujarat High Court, which emphasized the need for corroborative evidence when relying on documents found in third-party premises.

SIGNIFICANT HOLDINGS

The Court held that the addition of Rs. 9,34,250/- was unjustified as these payments were recorded and undisputed in the assessee's financial records.
The addition of Rs. 7,86,450/- was also deemed unsustainable due to the lack of conclusive evidence and the failure to adhere to procedural fairness by not allowing cross-examination.
The Court emphasized the principle that documents found in third-party premises require corroborative evidence for proceedings against an assessee.
The appeal was partly allowed, resulting in the deletion of the entire addition of Rs. 17,22,700/-.

The judgment reinforces the necessity of adhering to procedural fairness and the requirement for substantive evidence when making additions under the Income Tax Act. The Court's reliance on established precedents underscores the importance of corroborative evidence and the opportunity for cross-examination in upholding the principles of natural justice.

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