2019 (12) TMI 1193 - AT - Income Tax

Assessment u/s 153A - unexplained expenditure u/s 69C - HELD THAT - Addition made by the Assessing Officer based on the entries in the books found, belonging to and seized at the premises of the third party, in the absence of cross examination of such party based on which the addition has been made cannot be held to be sustainable in the eyes of the law. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of revival of assessment proceedings under Section 143(3) of the Income Tax Act, 1961.
2. Addition of unexplained expenditure under Section 69C of the Income Tax Act, 1961.
3. Denial of cross-examination of a key witness.

Detailed Analysis:

1. Legality of Revival of Assessment Proceedings:
The assessee argued that the assessment proceedings were barred by limitation as of 31.12.2006, and thus the assessment order dated 29.11.2013 should be quashed. The assessee contended that the provisions of Section 153A(2) introduced by the Finance Act, 2008, with retrospective effect from 01.06.2003, should not apply to their case as the reassessment proceedings for AY 2004-05 had already become time-barred by 31.12.2006. The Revenue argued that the amendments were retrospective and applicable from 01.06.2003, making the case not time-barred. The Tribunal upheld the CIT(A)'s decision, finding that the assessment proceedings were legally valid and not barred by limitation, as the law applicable on 16.05.2013 was duly applied by the AO.

2. Addition of Unexplained Expenditure under Section 69C:
The issue pertained to the addition of ?3,33,13,300/- for AY 2004-05 and ?1,85,08,800/- for AY 2005-06 under Section 69C, based on alleged unaccounted contributions made by the assessee to the Uttar Pradesh Distillers Association (UPDA). The AO relied on the statement of Shri R.K. Miglani, General Secretary of UPDA, recorded during a search operation, which indicated that the contributions were used for illegal payments to officials and politicians. The assessee argued that this addition was solely based on the uncorroborated statement of Miglani and without allowing the assessee to cross-examine him, despite his affidavit denying the statement. The Tribunal noted that the AO had not verified the corresponding entries in the assessee's books of accounts and relied solely on the seized documents and Miglani’s statement. The Tribunal found that the seized documents did not belong to the assessee and thus could not be used to justify the addition under Section 69C.

3. Denial of Cross-Examination:
The Tribunal addressed the issue of denial of cross-examination of Shri R.K. Miglani, whose statement was crucial for the addition made by the AO. The Tribunal emphasized the importance of cross-examination as a principle of natural justice, citing judicial precedents. It noted that despite repeated summons, Miglani did not appear for cross-examination, and the AO did not make sufficient efforts to ensure his presence. The Tribunal held that the failure to allow cross-examination rendered the statement inadmissible, making the addition unsustainable.

Conclusion:
The Tribunal allowed the appeals of the assessee, quashing the additions made under Section 69C due to the lack of corroborative evidence and the denial of cross-examination. The Tribunal upheld the legality of the revival of assessment proceedings under Section 153A(2) but found the additions based on uncorroborated statements and seized documents not belonging to the assessee to be unsustainable. The decision emphasized the necessity of adhering to principles of natural justice, particularly the right to cross-examine witnesses whose statements are used against the assessee.