2022 (6) TMI 1144 - AT - Income Tax

Assessment u/s 153C - Denial of natural justice - no copy of satisfaction note was provided by the Assessing Officer in the course of assessment proceedings - HELD THAT - It is fact on record that apart from the statements recorded u/s 131 from the assessee and from Shri Navin Nishar, Shri N K Sodhani and Shri Jayesh Zanani and relied upon by the Assessing Officer, there was no incriminating material found in support of the addition towards receipt of the purported alleged commission receipt. We also notice that though the Ld. CIT(A) has also relied on the statements of Shri Navin Nishar, Shri N K Sodhani and Shri Jayesh Zanani, the assessee was never provided with an opportunity to cross examine Shri Jayesh Zanani. It is also a fact that the statements of these parties were later retracted. We also notice that no new material was ever brought on record by the Assessing Officer to corroborate the allegation of commission receipt even despite the fact that the statements u/s 131 of the Acts relied upon by the Assessing Officer stood retracted. From perusal of the records and order of the lower authorities it is abundantly clear that there is no corroborative evidence or incriminating material to support the allegation on the assessee having received commission income. We have observed that the assessee was not provided an opportunity of cross examination of Shri Jayesh Zanani, whose statements were relied upon by the AO for passing the order. Without prejudice, there is no mention in the statement of Shri Jayesh Zanani that the assessee has been paid commission at the rate of 0.15 percent by the companies stated to be entry providers. When no opportunity for cross examination is given, it is not proper to rely on such statements and fatal to the order passed. There has been gross violation of the principles of natural justice and bearing in mind the above judicial precedents, we have no hesitation in holding that there was gross violation of principles of natural justice and fair play as the additions has been made without providing an opportunity to the assessee to cross examine those persons whose statements has been relied upon by the AO. And as regards merits of the case, we find that the issue is covered in favour of the assessee by the decision of the Coordinate bench in assessee s group case of M/s Hemadri Machine Tools Private Limited wherein the alleged bogus donation on which the commission is alleged to have been earned was deleted. Thus in view of above findings and also considering the merits of the case in that there is no incriminating material/corroborative evidence to affirm the receipt of commission income, all the grounds stand allowed. The addition made by AO accordingly stands deleted.

Issues Involved:
1. Validity of notice issued under Section 153C of the Income Tax Act.
2. Denial of opportunity to cross-examine key witnesses.
3. Reliance on retracted statements for making additions.
4. Addition of alleged unexplained commission income.

Issue-wise Detailed Analysis:

1. Validity of Notice Issued under Section 153C:
The assessee challenged the jurisdiction of the Assessing Officer (AO) in issuing a notice under Section 153C of the Income Tax Act, arguing that no satisfaction was recorded by the AO of the searched party or the AO of the appellant. The CIT(A) dismissed this ground, stating that the AO had recorded satisfaction and that the assessee had participated in the assessment proceedings without raising objections. However, the Tribunal noted that no copy of the satisfaction note was provided during the assessment proceedings and found that no incriminating material was found during the search that had a bearing on the determination of the assessee's total income. The Tribunal held that there was a lack of jurisdiction on the part of the AO to issue the notice under Section 153C.

2. Denial of Opportunity to Cross-Examine Key Witnesses:
The assessee contended that the AO erred in not providing an opportunity to cross-examine Shri Jayesh Zanani, whose statements were relied upon for making the addition. The Tribunal observed that the assessee was not given an opportunity to cross-examine Shri Jayesh Zanani, which amounted to a violation of the principles of natural justice. The Tribunal cited several judicial precedents, including the Supreme Court's decision in Andaman Timber Industries vs. CCE, which held that not allowing cross-examination of witnesses whose statements were relied upon is a serious flaw that renders the order nullity.

3. Reliance on Retracted Statements for Making Additions:
The assessee argued that the AO relied on statements recorded during the survey, which were later retracted, and that no corroborative material was found to support the addition. The Tribunal noted that the statements of the assessee and other individuals were retracted and that no new material was brought on record to corroborate the allegation of commission receipt. The Tribunal held that statements recorded during a survey under Section 133A do not have evidentiary value unless corroborated by further material, as held by the Madras High Court in CIT vs. P. Balasubramanian.

4. Addition of Alleged Unexplained Commission Income:
The AO made an addition of Rs. 2,00,250/- as alleged unexplained commission income based on the assessee's statement during the survey. The CIT(A) upheld the addition, relying on the assessee's statement and the statements of other individuals. However, the Tribunal found that there was no incriminating material or corroborative evidence to support the addition. The Tribunal also noted that the alleged bogus donation, on which the commission was purportedly earned, was deleted in a related case (M/s Hemadri Machine Tools Private Limited). Consequently, the Tribunal deleted the addition of Rs. 2,00,250/-.

Conclusion:
The Tribunal allowed the assessee's appeals for AY 2012-13 to AY 2018-19, holding that the notice issued under Section 153C was void for lack of jurisdiction, the assessee was denied the opportunity to cross-examine key witnesses, the reliance on retracted statements was unjustified without corroborative evidence, and the addition of alleged unexplained commission income was not substantiated. The Tribunal emphasized the importance of adhering to principles of natural justice and corroborating statements with material evidence.

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