2024 (9) TMI 1455 - HC - Income Tax

Addition as unexplained income from purported sale of casurina trees u/s 69 - Assessment u/s 144(A) - assessment of agricultural income reported as unexplained income based on the enquiry report of the Income Tax Inspector - HELD THAT - In this case, the Department has disbelieved the letter of the person who had given a statement in favour of the appellant without subjecting the said person to any cross examination. Therefore, the substantial question of law to be answered in this appeal is whether a statement of a person who had given a statement in favour of the appellant can be disbelieved and discredited long after it was given without cross examination of the said person by a mere reliance on an enquiry Report of the Income Tax Officer based on information gathered by the Income Tax Officer from the Village Headman. The evidence which department has gathered is long after the felling of trees and sale by the appellant by placing reliance on the statement of the Village Headman. The statement of the Village Headman can at best only corroborate the stand which department based on evidence, if there were other compelling evidence. As incumbent on the part of the Income Tax Department to have summoned the said Mr.Thangasamy of Alangudi Taluk, Pudukottai District and verified and confirmed whether the said person had indeed given the statement which was produced by the Appellant and if so whether the statement given by the said person was true or not. Although the department is governed by preponderance of probability and not by strict rules of evidence, yet it was incumbent to have secured the presence of the said person. They should have cross examined him before disbelieving the statement. Therefore, an issuance of summon to Mr.Thangasamy who had given statement by the Income Tax department is not sufficient. Income Tax department should have secured the presence of Mr.Thangasamy to answer to the summons and should have confronted him and contradicted the content of the statement of Mr.Thangasamy produced by the appellant by way of cross examination. Therefore, without cross examination, the statement of Mr.Thangasamy can neither be disbelieved nor disregarded. The statement of Mr.Thangasamy cannot be therefore discredited. If Mr.Thangasamy had refused to co-operate, the Income Tax Department was not without remedy under the provisions of the Income Tax Act, 1961 to secure his presence. Since this exercise was not done, the demand confirmed u/s 144(A) which view was affirmed by the AO passed u/s 143(3) and by the Commissioner of Income Tax (Appeals) and by the Income Tax Appellate Tribunal vide order are liable to be interfered as unsustainable. We are therefore of the view, the succeeding orders passed against the appellant in so far as the addition under Section 69A of the Income Tax Act, 1961 as unexplained credit / unexplained money of the appellant are incorrect and are liable to the set aside. Decided in favour of assessee.

Summary

Issues:
1. Addition of income from the sale of trees
2. Unexplained investment in residential property
3. Levy of interest under sections 234A, 234B, and 234C
4. Dispute over unexplained income from the sale of trees
5. Assessment under Section 144(A) of the Income Tax Act, 1961
6. Confirmation letter from an agent named Thangasamy
7. Assessment under Section 143(3) of the Income Tax Act, 1961
8. Addition under 'Imprest Account' as unaccounted income
9. Disbelief of statement without cross-examination
10. Cross-examination of Mr. Thangasamy
11. Sustainment of demand based on previous orders

Analysis:

The appellant challenged an order by the Income Tax Appellate Tribunal regarding the addition of income from the sale of trees and unexplained investment in a residential property for the Assessment Year 2009-10. The Tribunal partly allowed and partly dismissed the appeal. The appellant contested the addition of Rs. 22.00 Lakhs from the sale of trees as unexplained income. The Tribunal found that the appellant failed to provide reliable evidence to support the sale of trees, leading to the dismissal of this ground of appeal. However, the addition for the unexplained investment in the residential property was overturned as it was funded by the appellant's wife from her own sources.

The appellant raised issues regarding the levy of interest under sections 234A, 234B, and 234C, which the Tribunal dismissed as consequential. The dispute primarily focused on the addition of Rs. 22,00,000 as unexplained income from the purported sale of casuarina trees under Section 69 of the Income Tax Act, 1961. The appellant questioned the assessment under Section 144(A) of the Income Tax Act, 1961, where the Joint Commissioner concluded that the income from the sale of trees was unexplained.

The appellant presented a confirmation letter from an agent named Thangasamy, stating the purchase of country wood and payment of Rs. 22 lakhs to the appellant. However, the Assessing Officer added the amount as unexplained credit due to insufficient evidence. The Tribunal upheld this decision, prompting the appellant to challenge the credibility of the statement without cross-examination.

The Court emphasized the necessity of cross-examining Mr. Thangasamy to verify the statement's authenticity. Without proper cross-examination, the statement could not be disbelieved or disregarded. The Court criticized the Income Tax Department for not summoning Mr. Thangasamy for cross-examination, leading to unsustainable conclusions in previous orders. Consequently, the Court ruled in favor of the appellant, setting aside the addition of Rs. 22,00,000 as unexplained income.