2021 (2) TMI 22 - AT - Income Tax

Assessment u/s 153A - admission made under section 132(4) - statement recorded under section 132(4) - loose paper notings relied upon - cross examination of the maker not provided - unaccounted cash receipts - HELD THAT - It is well settled that where the evidence adverse to assessee is brought on record, the assessee must be given opportunity to rebut it. It is also well settled that AO is not entitled to make a pure guess while making an assessment. There must be more than bare suspicion to support an assessment. As observed earlier, the loose paper does not categorically identify the name of the recipients of cash payments allegedly given by the purchaser of various parcels of land. The statement in corroboration also continues to remain silent on the specific details. A basic enquiry towards flow of payments is absent. The initial onus was always on Revenue to justify its allegation of payment of on-money by the sellers to the assessee. The decision of Hon ble Supreme Court in K. P. Verghese vs. ITO 1981 (9) TMI 1 - SUPREME COURT may be referred in this regard. This primary onus could never be shifted upon the assessee successfully in the instant case. The Revenue has not adduced any cogent material which could expose the falsehood in the records of the assessee Despite drastic action of search on a third party, no material other than the loose document of inexplicable nature whose author is not known and which does not bear any material particulars, was brought on record to implicate the assessee. A lump sum figure of ₹ 5.30 crores written in summary manner in bottom side of loose paper is the basis for whole action. CIT(A) itself has recorded that a direction was given to the AO to record fresh statement of the witness of the department, i.e. purchaser Mehul G. Patel and also grant cross-examination thereon to the assessee in case of any adverse inference. Needless to say, when a statutory direction has been given to do an act in a particular manner, the AO could not have refused to do so. Apart from loose paper and an obscure statement of third party, there is nothing else in the possession of the AO. The primary onus which lay upon the AO to support its allegation against the assessee was never shifted. In such a situation, in the absence of any demonstrable evidence, the stage for cross examination never arose. Assessee on its part, has demonstrated from the loose paper itself that apart from the land owners i.e. appellants herein, there were other stakeholders too who received money from the purchasers for execution of sale to sail through. Thus, an evident uncertainty doubt had crept in about actual recipient of purported cash component. Before the CIT(A), the assessee also filed duly sworn affidavit of Mehul G. Patel whereby he affirmed on oath that the cash payments were not made to the assessee and other appellants herein but was paid to some old land owners/ banakhat owners/( bharward /farmers) (i.e. Ganotia) and others, who were claiming ownership in the said land CIT(A) has approved the action of AO despite complete defiance of statutory directions as well as natural justice. Needless to say that proper opportunity to an affected party is not a gift but an absolute and salutary right which cannot be simply bye-passed. The legitimate expectation of the assessee to seek cross-examination of a person who supposedly made adverse comment against the assessee, to enable it to traverse the assertions, cannot be shunted in subversion of judicial propriety while weighing the issue. The infringement of basic principle of natural justice has thus vitiated order of the AO to the core The fundamental difference between evidentiary value of statement under S. 132(4) against the maker of statement vis-a-vis a third party has not been recognised by the revenue. The statement of the maker may possibly operate as estoppel against him in certain circumstances. However, truthfulness thereof is required to be proved beyond doubt for it to bind a third party. The deptt. was duty bound to give cross examination of the maker where it seeks to rely upon it. Failure to do so has resulted in serious flaw and has rendered the action a nullity as ruled by the Hon ble Supreme Court in the case of Andaman Timber Industries 2015 (10) TMI 442 - SUPREME COURT . Year of assessment - On the face of such tell tale facts, the unaccounted consideration cannot be said to have accrued in a preceding Assessment year for the purpose of its taxability on the basis of assumptions and presumptions. The co-ordinate benches of the Tribunal have held in so in chorus in D R Construction vs. ITO 2011 (4) TMI 1343 - ITAT AHMEDABAD Ranade Dighe and Associates 2011 (8) TMI 1183 - ITAT PUNE . Thus when tested on the touchstone of year of taxability also, the action of the AO is unfounded. We however do not seek to delineate any further as the we see no merits in additions in either of the years owing to failure of the AO to shift its onus on assessee - Decided in favour of assessee.

Issues Involved:

1. Jurisdiction under section 153C of the Income Tax Act.
2. Addition of unaccounted cash receipts on sale of land.
3. Evidentiary value of loose papers and statements under section 132(4).
4. Opportunity for cross-examination.
5. Year of taxability of alleged unaccounted cash receipts.

Issue-wise Detailed Analysis:

1. Jurisdiction under section 153C of the Income Tax Act:

The Tribunal noted that the proceedings under section 153C were initiated based on documents seized during a search on a third party, which allegedly related to the assessee. The CIT(A) upheld the jurisdiction, stating that the seized document related to the assessee and justified the initiation of proceedings under section 153C. The Tribunal, however, did not find it necessary to delve into jurisdictional issues further, as the primary contention revolved around the merits of the addition.

2. Addition of unaccounted cash receipts on sale of land:

The AO made additions based on a loose paper found during the search, which indicated cash payments for land sales. The AO apportioned the alleged unaccounted cash receipts among the landowners, including the assessee, in proportion to their land holdings. The CIT(A) upheld these additions, citing the loose paper and the statement of the purchaser recorded under section 132(4) as evidence.

3. Evidentiary value of loose papers and statements under section 132(4):

The Tribunal critically examined the loose paper and the statement of the purchaser. It noted that the loose paper did not bear the names of the assessee or other landowners, nor was it signed by them. The statement of the purchaser did not specifically implicate the assessee. The Tribunal emphasized that the loose paper was vague, lacked specific details, and did not provide a sound basis for the additions. The Tribunal also highlighted that the affidavit of the purchaser, submitted later, clarified that the cash payments were made to previous landowners and not to the assessee.

4. Opportunity for cross-examination:

The Tribunal found that the AO had failed to provide the assessee with an opportunity to cross-examine the purchaser, despite specific directions from the CIT(A). This denial of cross-examination was deemed a violation of natural justice. The Tribunal cited the Supreme Court's decision in Andaman Timber Industries, which mandates that evidence used against an assessee must be subject to cross-examination.

5. Year of taxability of alleged unaccounted cash receipts:

The Tribunal agreed with the assessee's contention that the sale of land and receipt of consideration occurred in the financial year 2013-14, relevant to the assessment year 2014-15. Therefore, any alleged unaccounted cash receipts could not be taxed in the assessment year 2013-14. The Tribunal referred to previous decisions of coordinate benches, which supported the view that income from the sale of property accrues in the year of sale, not before.

Conclusion:

The Tribunal allowed the appeals of both assessees, quashing the additions made by the AO. It held that the loose paper and the statement of the purchaser did not provide a sufficient basis for the additions, especially in the absence of cross-examination and specific details. The Tribunal emphasized the importance of adhering to principles of natural justice and the need for cogent evidence to support additions of unaccounted income.

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