2012 (5) TMI 442 - AT - Income Tax

Reassessment - Addition u/s 69C - Unexplained expenditure - Withdrawal of cash from third party account after making payment against purchases - held that - The information emanates from a third party, namely, JECPL. - The impugned bank account and the Kachhi Rokar is owned, operated and maintained by JECPL. The third party in factual terms accepted that the assessee used to make the payment of purchases by way of a/c payee cheques, which are deposited in JECPL a/c in clear and unambiguous terms. - In our considered opinion, looking at the entirety of facts and circumstances and in view of above observations, the addition on the basis of such a third party s evidence cannot be made in the hands of the assessee. - The bank a/c is owned and operated by JECPL, assessee clearly has no role or involvement in operation of this bank a/c. - In our considered opinion, by interpreting 2 or 3 sentences of third party s statement, which is not allowed for cross-examination by the assessee, cannot be made a basis to make these additions in the hands of the assessee u/s 69C as unexplained purchases. - Decided in favor of assessee.

Summary

Issues Involved:
1. Addition of unexplained cash payments under Section 69C of the Income Tax Act for A.Y. 2000-01 and 2001-02.
2. Jurisdiction of the Assessing Officer (AO) in reframing the assessment based on ITAT's directions.
3. Validity of evidence and cross-examination rights concerning statements made by third parties.

Issue-wise Detailed Analysis:

1. Addition of Unexplained Cash Payments under Section 69C:
The primary issue in these appeals pertains to the addition of Rs. 24,50,500/- for A.Y. 2000-01 and Rs. 20,51,356/- for A.Y. 2001-02 under Section 69C of the Income Tax Act. The AO initially made these additions based on documents seized during a search at the premises of Jindal group, which indicated cash payments to M/s Jindal Electro Castings Pvt. Ltd. (JECPL). The CIT(A) provided partial relief by reducing the additions, which the revenue did not appeal further. The ITAT remanded the matter back to the AO, directing him to provide the assessee with the opportunity to cross-examine Shri Pradeep Jindal, whose statement was crucial for the additions. However, the AO repeated the original additions without adhering to the ITAT's directions, leading to the appeals.

2. Jurisdiction of the AO in Reframing the Assessment:
The ITAT's directions were clear that the AO should only address the specific additions of Rs. 24,50,500/- and Rs. 20,51,356/- as contested by the assessee. The CIT(A) held that the AO exceeded his jurisdiction by reassessing the entire original additions of Rs. 86,87,000/- and Rs. 2,42,71,186/-, which had already been partly deleted and accepted by the revenue. This principle of jurisdictional limitation was supported by the Supreme Court judgment in CIT v. Amritlal Bhogilal and Co., which states that an appellate decision supersedes the original order, limiting the scope of reassessment to the issues specifically remanded.

3. Validity of Evidence and Cross-Examination Rights:
The ITAT had directed the AO to allow the assessee to cross-examine Shri Pradeep Jindal, whose statement formed the basis of the additions. Instead, the AO procured a letter from Shri Jindal reiterating his earlier statements without providing an opportunity for cross-examination. The CIT(A) and the ITAT found this to be a violation of procedural fairness. The ITAT emphasized that the assessee's payments were made through account payee cheques deposited in JECPL's bank account. The cash withdrawals from this account, recorded in JECPL's Kachhi Rokar, were beyond the assessee's control and should not be attributed to the assessee without proper cross-examination and verification.

Conclusion:
The ITAT upheld the CIT(A)'s decision that the AO exceeded his jurisdiction and failed to comply with the ITAT's directions for cross-examination. The additions under Section 69C for both assessment years were deleted, and the assessee's appeals were allowed. The revenue's appeals were dismissed, affirming that the AO should have confined his reassessment to the specific amounts contested by the assessee. The judgment underscores the importance of procedural fairness and adherence to jurisdictional limits in tax assessments.