2024 (5) TMI 1392 - AT - Income Tax

Unexplained investment in the form of cash for the purpose of purchasing immovable property - Search and seizure operation carried upon - Confirmation of Addition Without Cross-Examination - Burden to prove - HELD THAT - We fail to find any merit in such observation of the lower authorities for the reasons that the search and seizure action have been conducted by the Income Tax Department on person to whom cash was given Mr. Nilesh Ajmera and certain documents and diaries were seized. Based on such documents and also taking basis of statements given by Mr. Nilesh Ajmera, reassessment proceedings have been carried out in the case of the assessee. Admittedly, search action was conducted on the assessee and the alleged addition is merely on the basis of third parties information. So, when the additions have been made on the basis of documents found from the possession of Mr. Nilesh Ajmera and the search operations have been carried out in the case of Nilesh Ajmera, then as per the direction of this Tribunal, it was the responsibility and duty of the AO to bring Mr. Nilesh Ajmera for cross examination before the assessee and give him the opportunity to assessee to cross examine Mr. Nilesh Ajmera so as to adhere to the principles of natural justice, since the additions have been made based on third parties statement. The burden to discharge the onus as directed by this Tribunal was purely on the AO and he could not absolve from his duty by mentioning that summons were sent twice to Mr. Nilesh Ajmera. The action of the AO seems like that there is a witness from the side of the Revenue and on his statement, the addition has been made in the hands of the affected party but when the opportunity of giving cross examination is to be given, then rather than the Revenue to bring its witness for cross examination the affected party is held responsible for bringing such witness. Similar approach of the Ld. AO in the instant case cannot be held to be justified. For the inability of the AO to comply with the directions of this Tribunal by not providing the opportunity to the assessee to cross- examine to Mr. Nilesh Ajmera leaves us with no option except to delete alleged addition for unexplained investment of cash given by the assessee. Even DR could not place on record any other material in support of revenue to prove that any such investment was made in Dubai flat and also failed to controvert the findings of this Tribunal given in the case of Pukhraj Soni 2016 (9) TMI 1489 - ITAT INDORE , wherein also under similar set of facts and circumstances, relief was given to the assessee, since no corroborative and concrete evidence was found, which could prove that Mr. Pukhraj Soni has advanced money to Mr. Nilesh Ajmera. Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the Ld. CIT(A) erred in confirming the addition of Rs. 30,00,000/- made by the AO without providing the opportunity of cross-examination to the assessee.
2. Whether the Ld. CIT(A) passed a vague and cryptic order by shifting the onus of presenting the witness onto the assessee.
3. Whether the Ld. CIT(A) maintained the addition of Rs. 30,00,000/- without following judicial propriety.
4. Whether the addition confirmed by Ld. CIT(A) is baseless and wrong on merits.

Detailed Analysis:

1. Opportunity of Cross-Examination:
The primary issue is whether the Ld. CIT(A) erred in confirming the addition of Rs. 30,00,000/- without providing the opportunity of cross-examination to the assessee. The Tribunal had previously directed the AO to provide the opportunity for cross-examination of Mr. Nilesh Ajmera, whose statements were the basis for the addition. The AO issued summons twice, but Mr. Ajmera did not attend. The Tribunal emphasized that the burden to produce Mr. Ajmera for cross-examination lay with the AO, not the assessee. The Tribunal cited the Supreme Court's decision in M/s. Andaman Timber Industries vs. Commissioner of Central Excise, which established that denying the right to cross-examine witnesses whose statements are used against the assessee violates the principles of natural justice. Consequently, the Tribunal found the AO's failure to provide this opportunity as a serious flaw, making the order nullity.

2. Shifting Onus to the Assessee:
The Tribunal criticized the Ld. CIT(A) for shifting the onus of presenting Mr. Ajmera for cross-examination onto the assessee. The Tribunal noted that the search and seizure operations were conducted by the Income Tax Department on Mr. Ajmera, and the addition was based on documents found in his possession. Therefore, it was the AO's responsibility to ensure Mr. Ajmera's presence for cross-examination. The Tribunal found no merit in the lower authorities' observation that the assessee should have produced Mr. Ajmera for cross-examination.

3. Judicial Propriety:
The Tribunal observed that the Ld. CIT(A) failed to follow judicial propriety by maintaining the addition without ensuring compliance with the Tribunal's directions. The Tribunal had previously restored the matter to the AO for a de novo decision after providing the opportunity for cross-examination. The AO's inability to comply with these directions and the Ld. CIT(A)'s subsequent confirmation of the addition were found unjustified. The Tribunal reiterated that the addition was based on third-party information, and the AO's failure to provide the opportunity for cross-examination violated the principles of natural justice.

4. Merits of the Addition:
On the merits, the Tribunal found the addition of Rs. 30,00,000/- baseless and wrong. The Tribunal noted that the addition was made solely based on entries in a diary found during the search on Mr. Ajmera, without any corroborative and concrete evidence. The Tribunal referred to its decision in the case of ITO vs. Pukhraj Soni, where a similar addition was deleted due to lack of evidence. The Tribunal found no evidence to prove that the assessee made any investment in a Dubai flat, as alleged by the Revenue Authorities. The Tribunal concluded that the addition was based on suspicion, surmises, and conjecture, and therefore, it deserved to be deleted.

Conclusion:
The Tribunal set aside the findings of the Ld. CIT(A) and allowed the appeal, deleting the addition of Rs. 30,00,000/- for unexplained investment. The Tribunal emphasized the importance of adhering to the principles of natural justice and the responsibility of the AO to provide the opportunity for cross-examination, especially when the addition is based on third-party statements. The appeal was allowed, and the order was pronounced in the open court on 10.01.2024.