2023 (1) TMI 410 - AT - Income Tax

Undisclosed investment - documents seized at the time of search - violation Principles of natural justice - contentions raised before the tax authorities by the assessee was that the hand written note and it has been stated therein that Mr. Nuruddin Ajani has taken amount of Rs. 60 lakhs - As argued AO has not allowed the opportunity of cross examining Shri Nuruddin Ajani - HELD THAT - We notice that the A.R stated that the revenue has not made any addition in the hands of Shri Nuruddin Ajani. The above submissions made by the assessee would show that the impugned rented premise, i.e., the tenancy right was held by M/s Empire Continental Exports P Ltd, a company owned by Shri Ajani. The said company has been acquired by the son and wife of the assessee on 18-09-2003. Accordingly, it was submitted that the tenancy right would form part of the company and hence there was no requirement to make separate payment for it. On a safer course, it was argued that the transaction, if at all is taxable, would be liable to be taxed in AY 2004-05 and not in AY 2005-06. The assessee, in whose hands, it is taxable is also a question at large. In the absence of providing opportunity to cross examine Mr Nuruddin Ajani, there is violation Principles of natural justice. Before us, the revenue has expressed its inability to produce the sworn statement recorded from Mr Nuruddin Ajani or Mr D N Israni. Hence, it is not clear as to whether the above said two parties have implicated the assessee in this deal, if any. Even if it is assumed for a moment that these parties have admitted to have received amount of Rs.60 lakhs from the assessee, it is not shown that the action taken by the revenue in the hands of the above said two persons in respect of the above said amount. Hence AO was not justified in making addition in the hands of the assessee, as other corroborative evidences militate against the impugned addition. Appeal filed by the assessee is allowed.

Summary

Issues Involved:
Appeal challenging addition of Rs. 60 lakhs towards undisclosed investment for A.Y. 2005-06.

Analysis:
1. The case involved an appeal by the assessee against the order confirming the addition of Rs. 60 lakhs made by the Assessing Officer towards undisclosed investment. The matter stemmed from a handwritten note found during a search operation, indicating a transaction between the assessee and another party regarding the sale of an office premises.

2. The Revenue initiated proceedings based on the note, alleging that the assessee had made an undisclosed investment of Rs. 60 lakhs in purchasing the office at Byculla. The initial assessment resulted in the addition of the said amount, which was later deleted by the learned CIT(A) in the first round of proceedings. Subsequently, the ITAT reversed the CIT(A)'s decision and remanded the matter back to the Assessing Officer for further examination.

3. In the subsequent proceedings, the Assessing Officer again added Rs. 60 lakhs, which was confirmed by the learned CIT(A), leading to the current appeal. During the appeal hearing, it was noted that certain statements crucial to the case were not available, including the statement recorded under section 132(4) from the relevant individuals mentioned in the note.

4. The assessee contended that the transaction in question had taken place before the note's date and involved the transfer of shares of a company holding the tenancy rights of the office premises. The assessee argued that no separate payment was required for the tenancy rights, as they were part of the company acquired by the son and wife of the assessee. Additionally, it was asserted that if any tax liability existed, it would pertain to a different assessment year.

5. The Tribunal observed that the Assessing Officer's failure to provide the opportunity to cross-examine the relevant individual, coupled with the absence of certain crucial statements, amounted to a violation of the principles of natural justice. Considering the lack of corroborative evidence and the inconclusive nature of the available information, the Tribunal concluded that the addition of Rs. 60 lakhs was not justified. Consequently, the Tribunal directed the Assessing Officer to delete the said addition, thereby allowing the appeal filed by the assessee.

This comprehensive analysis highlights the key aspects of the legal judgment, including the background of the case, the arguments presented by the parties, and the Tribunal's reasoning leading to the final decision in favor of the assessee.