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2021 (1) TMI 84 - AT - Income TaxUnexplained investment - Addition u/s 69/69B - search u/s 132 carried out on 21.7.2011 at the premises of both the assessee, and certain other persons of the group - Notices under section 153A were issued upon both the assessee, and they have filed their returns of income - HELD THAT - Respondents in order to rebut belief of the AO that these assessees have given on-money over and above consideration stated in the agreement to sale, they have submitted that two types of transactions at the most could be alleged as done by these assessees viz. (a) purchase of non-agriculture land/agriculture land, (b) purchase of old tenure land/new tenure land. Respondents have compiled details in tabular form. They have put the rates on which they have entered into agreement for purchase viz. banakhat. Thereafter they have appraised the AO circle rate/jantri available for similarly situated land in these years. The assessees thereafter compiled details of other sale deeds which has taken place in these years during that very period, and demonstrated that the rates at which they entered into an agreement are higher than the jantri rate as well as the rates at which transactions have taken place. Similarly, with regard to new tenure land is concerned, they have demonstrated that unless Government gives permission for change of character of the land i.e. unless the land is made freehold, it cannot be transacted. For getting the land freehold i.e. new tenure land, the land owners are required to pay premium amount to the Government of Gujarat. Once the alleged premium/fee is paid only then this land could be transacted. At the time of hearing, it was brought to our notice that the land at Vastral had not been purchased even till today; because it has not been converted into new tenure land. Thus, the transaction in this land was subject to clearance from the Government i.e. conversion of old tenure land to new tenure land. If that be so, how an assessee could be presumed to pay cash over and above the amounts stated in the alleged agreement. An agreement even itself will not be enforceable in the eyes of law unless character of the land is changed viz. it is being converted into new tenure and such conversion is depended upon the payment of premium to the Government, and sanction from the Government. In these situations, it is difficult to infer that the assessee would pay on-money before such incident of conversion happen. This was the positive evidence produced by the assessees for rebutting the belief formed by the AO on the basis of Annexure A/2 and A/89 and the alleged disclosure of the MRK. If we have a glance on all these factors in their totality, then it can safely be concluded that the ld.CIT(A) has rightly deleted the additions. We do not find any error in the order of the ld.CIT(A) on this point in all these appeals, and accordingly, all the appeals of the Revenue are dismissed. Unexplained cash credit - estimated the expenses at the rate of 1% for arranging this accommodation entry - HELD THAT - The assessee has submitted bank statement, copy of PAN, balance sheet, copy of confirmation from M/s.Sarang Chemicals Ltd. Only evidence possessed by the AO to doubt this transaction is alleged disclosure made by the director of M/s.Sarang Chemicals Ltd. Director, Shri Lalit Kantilal Rathod has nowhere taken name of the assessee. He took time of 2-3 hours to peruse the record, but thereafter, the ld.AO neither asked any question nor conducted further inquiry. There is an abrupt end to the recording of the statement. This is one factor to disbelieve the version of the AO. The other fact is that the assessee has been emphasizing for providing an opportunity to cross-examine the alleged director Shri Lalit Kantilal Rathod, but the AO did not allow cross-examination of this person. Therefore, before appreciating reliability and veracity of this piece of evidence, i.e. statement of Shri Lalit K. Rathod, we would like to make reference to the decision of Hon ble Supreme Court the case of Andaman Timber Industries 2015 (10) TMI 442 - SUPREME COURT as categorically observed that if some statement was taken from the back of an assessee without confronting the assessee or giving opportunity to cross-examine, then such statement is to be excluded from the evidence. If this statement is excluded then there is nothing with the AO. On the basis of which, he can doubt evidence submitted by the assessee in the shape of confirmation, bank statement, PAN etc. Though the AO has created a suspicion by recording half-statement, thereafter inferring that director has deposed that he has received money from the assessee in cash which was deposited in the bank account, and cheques were issued to the assessee, there is no such disclosure by the Lalit k. Rathod qua the assessee. Therefore, taking into consideration all the material facts and circumstances, there is no justification to add this amount as unexplained cash credit in the hands of the assessee. - Decided in favour of assessee.
Issues Involved:
1. Deletion of additions made by the AO on account of unexplained investment under sections 69/69B of the Income Tax Act, 1961. 2. Validity of substantive additions made in the hands of two different assessees based on identical seized material. 3. Evidentiary value of documents seized from a third party (MRK) and statements made by MRK. 4. Impact of the Settlement Commission's order on the assessment of the assessees. 5. Addition of unexplained cash credit under section 68 of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Deletion of Additions Made by the AO on Account of Unexplained Investment: The primary issue in the appeals by the Revenue revolves around the deletion of additions made by the AO on account of unexplained investment by the assessee for the assessment years 2008-09 to 2012-13. The AO made these additions under sections 69/69B of the Income Tax Act, 1961, based on documents seized during a search operation at the premises of MRK. The CIT(A) deleted these additions, which led to the Revenue's appeal. 2. Validity of Substantive Additions Made in the Hands of Two Different Assessees: The AO made identical substantive additions in the hands of both Galaxy Developers and Shri Uday Bhatt based on the same seized material (Annexure-A/2 and A/89). The CIT(A) found this approach unjustified, as the same material cannot substantiate additions in the hands of two different assessees simultaneously. The CIT(A) emphasized that substantive additions should not be duplicated across different assessees without clear evidence linking the transactions to both parties. 3. Evidentiary Value of Documents Seized from a Third Party (MRK) and Statements Made by MRK: The AO relied on documents seized from MRK and statements made by MRK to make additions in the hands of the assessees. However, the CIT(A) noted that MRK's statements were conflicting and lacked corroborative evidence. MRK had retracted his initial statements and claimed that the transactions recorded in the seized documents were internal rotations of his own funds. The CIT(A) highlighted that the presumption of truth attached to seized documents applies primarily to the person from whose premises they were found, not to third parties. 4. Impact of the Settlement Commission's Order on the Assessment of the Assessees: MRK and HVT had approached the Settlement Commission, admitting the transactions recorded in the seized documents as their own and offering the peak amount for taxation. The Settlement Commission accepted their claim and the peak working of the amounts. The CIT(A) concluded that if the Settlement Commission accepted the transactions as MRK and HVT's own funds, it would be inconsistent to attribute the same transactions to the assessees. The CIT(A) also noted that the Settlement Commission's order was not challenged by the Revenue. 5. Addition of Unexplained Cash Credit Under Section 68: In the case of Shri Uday Bhatt for the assessment year 2010-11, the AO made an addition of ?3,40,20,000/- as unexplained cash credit under section 68, based on the statement of Shri Lalit Kantilal Rathod, director of M/s. Sarang Chemicals Ltd. The AO also added ?3,40,000/- as estimated expenses for arranging the accommodation entry. The CIT(A) upheld these additions. However, the Tribunal found that the AO did not provide the assessee with an opportunity to cross-examine Shri Lalit Kantilal Rathod, violating principles of natural justice. The Tribunal excluded the statement from evidence and deleted both additions, citing the Supreme Court's decision in Andaman Timber Industries vs. Comm. of Central Excise, Kolkata. Conclusion: The Tribunal upheld the CIT(A)'s deletion of additions made by the AO under sections 69/69B, finding that the evidence relied upon by the AO was not sufficient to substantiate the additions. The Tribunal also deleted the additions made under section 68 for the assessment year 2010-11 in the case of Shri Uday Bhatt, emphasizing the importance of providing an opportunity for cross-examination. Consequently, all appeals and cross-objections were dismissed, except for the appeal of Shri Uday Bhatt for the assessment year 2010-11, which was allowed.
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