2017 (2) TMI 1181 - AT - Income Tax

Addition of undisclosed income - non granting an opportunity to the assessee to cross examine Held that - We find that the assessee in response to the show cause notice issued by the AO has submitted that he has given the address of the parties earlier and the AO may confirm with the parties by using the power vested in the Act. This has been 7 mentioned by the AO at para 9.3 (page 4-5) of the assessment order. It is also found that the assessee vide written submission dated 29.04.2014 has submitted before the learned CIT(A) that the name and address of the flat buyers were given to the AO as required and at the repeated request of the assessee, the AO did not confront with the flat buyers that they had paid cash to the assessee, over and above the agreement value. Before us, the learned counsel of the assessee submitted that specific request was made to the AO to issue summons to the purchasers. In State of Kerala vs. K.T. Shaduli Grocery Dealer 1977 (3) TMI 160 - SUPREME COURT SC recognised the importance of oral evidence by holding that the opportunity to prove the correctness or completeness of the return necessarily carry with it the right to examine the witnesses and that includes equally the right to cross examine witnesses. The contentious issues in the instant appeal can be resolved by examining the flat buyers and granting an opportunity to the assessee to cross examine them. Therefore, we set aside the order of the learned CIT(A) and restore the same to the file of the AO to make a fresh 8 assessment as per the provisions of the Act after examining the flat buyers and granting an opportunity to the assessee to cross examine them - Decided n favour of assessee for statistical purpose.

Summary

Issues:
1. Addition of undisclosed income by the JCIT.
2. Failure to substantiate charge made on the appellant.
3. Confirmation of addition by CIT(A) without corroborative evidence.
4. Addition made by AO without specifying the section.
5. Discrepancy in sale considerations of constructed flats.

Analysis:

Issue 1: Addition of Undisclosed Income
The appellant contested the addition of undisclosed income by the JCIT, arguing that there was no evidence to support the claim. The AO adopted a notional sale consideration based on the rate per sq. ft. of one flat for all flats, resulting in the addition of a substantial amount. The appellant maintained that the consideration received was actual, with no unaccounted cash involved. The CIT(A) upheld the addition, citing discrepancies in sale prices and lack of evidence to justify variations.

Issue 2: Failure to Substantiate Charge
The appellant raised concerns regarding the burden of proof, asserting that the AO did not provide concrete evidence to support the charge of undisclosed income. The appellant highlighted that the consideration received exceeded government-approved stamp values, negating any allegations of on-money transactions. Despite the appellant's justifications for price variations, the CIT(A) dismissed the appeal, emphasizing the lack of buyer confirmation and reliance on conjectures.

Issue 3: Lack of Corroborative Evidence
The CIT(A) based the confirmation of the addition on observations rather than concrete evidence, leading to the dismissal of the appellant's appeal. The appellant's arguments regarding negotiation, payment terms, and project specifics were not adequately supported, resulting in the maintenance of the addition by the CIT(A).

Issue 4: Unspecified Section for Addition
The appellant contested the addition made by the AO, highlighting the absence of a specific section under which the addition was imposed. The ambiguity regarding the legal basis of the addition raised questions about the procedural correctness of the assessment.

Issue 5: Discrepancies in Sale Considerations
The AO's assessment of undisclosed income was primarily based on discrepancies in sale considerations of constructed flats. The appellant's explanations for these variations were deemed insufficient by the CIT(A), leading to the affirmation of the addition. The appellate tribunal set aside the CIT(A)'s decision, directing the AO to reevaluate the assessment by examining flat buyers and allowing cross-examination to ensure procedural fairness.

In conclusion, the appellate tribunal allowed the appeal for statistical purposes, emphasizing the importance of providing opportunities for cross-examination and substantiating charges through concrete evidence in tax assessments.