2019 (5) TMI 1271 - AT - Income Tax

Addition based on documents / records allegedly found and seized during a search operation - denial of natural justice - addition without affording opportunity of cross examination of the concerned parties whose records and statements were relied upon by the AO and made the basis for making addition - HELD THAT - Respectfully following the order of the Tribunal SMC Bench Delhi in the case of Smt. Jyoti Gupta vs. ITO 2018 (11) TMI 1353 - ITAT NEW DELHI and case of Andaman Timber vs. CIT 2015 (10) TMI 442 - SUPREME COURT on identical facts and circumstances the addition in dispute is deleted and the appeal of the assessee is allowed. As regards the case laws cited by the Ld. DR are concerned in the case of Udit Kalra vs. ITO 2019 (4) TMI 834 - DELHI HIGH COURT has adjudicated the case on merits and has not adjudicated the issue on cross examination therefore it will not help the department. As regards ITAT SMC Delhi decision in the case of Pooja Ajmani vs. ITO 2019 (4) TMI 1665 - ITAT DELHI in this case the assessee has not raised any legal ground and argued only on merit for which asseseee has failed to substantiate his claim before the lower revenue authorities as well as before the Tribunal which establish the facts are not identical to the present case hence do not support the case of the Department.

Summary

Issues Involved:
1. Addition of ?40 lakh based on statements and documents without cross-examination.
2. Opportunity for cross-examination of concerned parties.
3. Evaluation of evidence and explanation provided by the assessee.
4. Application of natural justice principles.

Detailed Analysis:

1. Addition of ?40 lakh based on statements and documents without cross-examination:
The core issue revolves around the addition of ?40 lakh to the assessee's income based on the statements and documents obtained during a search operation. The AO inferred that the assessee received accommodation entries amounting to ?40 lakh from companies managed by the S.K. Jain group. The AO's assessment was based on the seized documents and statements, which were not corroborated independently or verified by cross-examination.

2. Opportunity for cross-examination of concerned parties:
The assessee argued that the addition was made without affording the opportunity to cross-examine Satish Garg, the alleged entry provider. The AO and CIT(A) denied this request, which the assessee contended was a violation of the principles of natural justice. The Tribunal emphasized that making an addition based on third-party statements without allowing cross-examination is a serious flaw, citing the Supreme Court's decision in Andaman Timber Industries vs. CIT, which underscores the necessity of cross-examination to uphold natural justice.

3. Evaluation of evidence and explanation provided by the assessee:
The assessee provided all relevant documents and sought to cross-examine the concerned parties to verify the records. However, the AO did not adequately consider the explanation and evidence furnished by the assessee. The CIT(A) also failed to properly adjudicate the grounds raised by the assessee, particularly regarding the right to cross-examine and the proper consideration of the provided evidence.

4. Application of natural justice principles:
The Tribunal highlighted that the denial of cross-examination violated the principles of natural justice. The CIT(A)'s observation that the right to cross-examine is not absolute was deemed incorrect. The Tribunal referenced the ITAT, SMC, Delhi Bench decision in Smt. Jyoti Gupta vs. ITO, which similarly dealt with the issue of cross-examination and upheld the necessity of it for a fair assessment.

Conclusion:
The Tribunal concluded that the addition of ?40 lakh was not sustainable due to the lack of opportunity for cross-examination and the improper consideration of the assessee's evidence. The Tribunal allowed the appeals, setting aside the additions and emphasizing adherence to natural justice principles. The decision was pronounced on 21/05/2019, allowing all three appeals filed by the assessee.