2017 (4) TMI 52 - AT - Income Tax

Addition u/s 69 - source of investment made by the assessee in respect of purchase of the property - Held that - In this case, the alleged party Sri Nallamilli Veerabhaskara Reddy is a crucial party, the Assessing Officer ought to have given opportunity to the assessee to produce before him. Such an opportunity has not been given to the assessee. Even the Assessing Officer has examined the document writer Sri J. Sadashiva Reddy and no opportunity was given to the assessee to cross examination him. Therefore,find that the Assessing Officer has made an enquiry behind back of the assessee without following proper procedure and without giving proper opportunity to substantiate his case and to prove the source of investment. Assessing Officer has committed gross violation in coming to the conclusion that the investment made by the assessee is not a genuine transaction. Under these facts and circumstances of the case, find that the addition made by the Assessing Officer under section 69 cannot be sustained. Insofar as, the claim of savings of ₹ 2,28,000/- is concerned, the Commissioner of Income Tax (Appeals) has already given relief of ₹ 1.5 lakhs, hence, find that the order passed by the Commissioner of Income Tax (Appeals) is justified and no interfere is called for. In view of the above, appeal filed by the assessee is partly allowed.

Issues Involved:
1. Escapement of income due to discrepancies in property transactions.
2. Source of investment for property purchase.
3. Validity of addition of unexplained investment under section 69 of the Act.
4. Opportunity for cross-examination and proper procedure followed during assessment.

Analysis:
1. The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the assessment year 2006-07. The Assessing Officer observed discrepancies in property transactions by the assessee and issued a notice under section 148 for escapement of income. The assessee purchased a property below market value, later sold it at a loss, and failed to explain the source of investment for the property purchase, leading to the addition of unexplained investment under section 69 of the Act.

2. The assessee claimed the source of investment for the property purchase was from proceeds of a prior sale, an agreement for sale, and personal savings. However, the Assessing Officer disbelieved the explanations provided by the assessee, especially regarding an alleged advance of ?5 lakhs received from a third party. The Commissioner of Income Tax (Appeals) upheld the addition of ?5 lakhs as unexplained income but allowed a portion of the savings claim.

3. The Commissioner of Income Tax (Appeals) justified the addition of ?5 lakhs as unexplained income due to the party allegedly involved declining to cooperate and discrepancies in the document's date provided by the document writer. However, a partial relief of ?1.5 lakhs was granted towards the savings claim, considering the income declared by the assessee.

4. The Judicial Member noted procedural irregularities during the assessment, including lack of opportunity for cross-examination of relevant parties and conducting inquiries without informing the assessee. The Judicial Member criticized the Assessing Officer for not following proper procedures and violating the assessee's right to substantiate claims, ultimately leading to the conclusion that the addition made under section 69 was not sustainable. The order of the Commissioner of Income Tax (Appeals) was upheld, partially allowing the appeal filed by the assessee.

In conclusion, the judgment addressed issues related to discrepancies in property transactions, the source of investment for property purchase, the validity of additions under section 69, and procedural fairness during assessment, resulting in a partial allowance of the appeal.

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