SHRI HARBANS LAL KHURANA ,ALWAR vs. INCOME TAX OFFICER, WARD-2-1, ALWAR

In this appeal, the assessee is aggrieved for the reopening of the assessment and the addition of Rs. 4.00 lacs U/s 69 of the Act made on account of unexplained investment in the land.

In so far as the merit of the addition is concerned, exactly under similar facts and circumstances, the issue has been decided in the case of Dhirendra Singh Vs. ITO in with two other appeals vide order dated 25/3/2019, wherein the Tribunal have deleted the addition on merit after observing as under:

After going through the order passed by the lower authorities, I observe that both the lower authorities have not placed any material on record to show that the assessee had paid alleged ‘on-money’ of Rs.4,66,660/-. Neither in the seized documents found from Shri Madan Mohan Gupta nor in the statement recorded u/s 132(4), he admitted that he received any amount from the assessee by way of ‘on- money’. In fact, in reply to question nos. 25 to 27 of his statement u/s 132(4) with reference to the amount of Rs. 1,60,96,000/- as referred by the Ld. CIT(A), he stated that he does not remember that what is this working but it may be with reference to commission with respect to certain property which he offered for tax. In statement u/s 131(1) dated 24.02.2016 and 29.02.2016 recorded by the AO in course of his assessment proceedings, he has categorically admitted that he has sold the plots to the Rajasthan Tehsildar Sewa Parishad at the rate of Rs.1,150 per sq. yard on which he earned profit of Rs.87,20,000/- which he has already offered for tax and the remaining profit of Rs. 1,60,96,000/- is not his profit but profit of the Parishad but to purchase peace of mind, he has surrendered this amount in his hand. Thus, from the reading of the statement of Shri Madan Mohan Gupta and the papers found from him, it is evident that there is nothing to suggest that allottees of the plot have paid any ‘on-money’ on purchase of the plot. In fact, the assessee has not purchased any 4 ITA 1308/JP/2018 Harbans Lal Khurana Vs ITO plot from Shri Madan Mohan Gupta rather he was allotted the plot by the Rajasthan Tehsildar Sewa Parishad and thus, there is no privity of contract between the assessee and Shri Madan Mohan Gupta. Therefore, no question of payment of alleged ‘on-money’ by the assessee to Shri Madan Mohan Gupta arises for consideration.

In the assessment order, the AO alleged that the assessee has paid to the seller Shri Madan Mohan Gupta on money of Rs.4,66,660/- for the purchase of plot no.84 having total area of 233.33 Sq.Yards 9. In reply to the same, assessee submitted as under:- “a. That the allegation of the Id.AO is baseless and imaginary and not maintainable. b. The Id.AO has relied upon the statement of Shri Madan Mohan Gupta recorded by the I.T. Authorities on 23.05.2013 during the course of search. But from reading the reply given by Shri Madan Mohan Gupta in the statement, it is clearly conveyed that Shri Madan Mohan Gupta sold the land for Rs.1150/- per Sq.Yard. and the appellant paid as purchase consideration to the seller Madan Mohan Gupta a sum of Rs.2,71,000/-. c. That the entire fabric being woven against the appellant for treating the alleged payment of on money go around the statement of Shri Madan Mohan Gupta. It is submitted that after thought statement carry no weight under the law 6 ITA 1308/JP/2018 Harbans Lal Khurana Vs ITO and they are against the spirit of natural justice because they have no evidence value. d. That except the above statement of Shri Madan Mohan Gupta there was no supporting evidence available with the Id.AO which could corroborate that on money of Rs.4,66,660/- was paid by the appellant to Shri Madan Mohan Gupta. e. That while making the allegation the Ld.AO has relied upon the statement of Shri Madan Mohan Gupta course of search proceedings.

Assessee also asked before the AO to provide opportunity for the cross examination of the person on whose statement addition was made. However, no such opportunity was provided neither by the AO nor by the CIT(A). Thus, without affording cross examination, the AO has made addition on the basis of statement of Shri Madan Mohan Gupta u/s 69 being unexplained investment and added the same in assessee’s income. However, there was no corroborative material available with the AO for making addition. As per our considered view, not providing opportunity of cross examination amount to violation of principle of natural justice, a serious flaw which makes the order null and void.

For this purpose, reliance can be placed on the decision of Hon'ble Supreme Court in the case of Andaman Timber Industries 281 CTR 241 wherein it was held that not allowing assessee to cross-examine witnesses by adjudicating authority though statements of those witnesses were made as basis of impugned order, amounted in serious flaw which made impugned order nullity as it amounted to violation of principles of natural justice. The precise observation of the Hon'ble Supreme Court was as under :- "Not allowing the appellant to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the appellant was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon 7 ITA 1308/JP/2018 Harbans Lal Khurana Vs ITO the statements given by the aforesaid two witnesses. Even when the appellant disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the appellant. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the appellant. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. Appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross- examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above."

Reliance can also be placed on the on the decision of Bombay High Court in the case of Ashish international in 1TA No.4299/Murn/2009 dated 22/02/2011, wherein Court held as under:- "The question raised in this appeal is, -whether the Tribunal justified in deleting the addition on account of bogus purchases allegedly made by the appellant from M/s. Thakkar Agro Industrial Chem Supplies P. Ltd. According to the revenue, the Director of M/s. Thakkar Agro Industrial Chem Supplies P.Ltd. in his statement had stated that there were no sales/ purchases but the transactions were only accommodation bills not involving any transactions. The Tribunal has recorded a finding of fact that the appellant had disputed the correctness of the above statement and admittedly the appellant was not given any opportunity to cross examine the concerned Director of M/s. Thakkar Agro Industrial Chem Supplies P. Ltd. who had made the above statement. The appellate authority had sought remand report 8 ITA 1308/JP/2018 Harbans Lal Khurana Vs ITO at that stage the genuineness of the statement has not been established by allowing cross examination of the person whose statement was relied upon by the revenue. In these circumstances, the decision of the Tribunal being based on the fact, no substantial question of law can be said to arise from the order of the Tribunal. The appeal is dismissed with no order as to costs ".

Reliance is also placed on the decision of Bombay High Court in the case of H.R. Mehta in its order dated 07/07/2016. The Hon’ble High Court held as under:- “The assessee is bound to be provided with the material used against him apart from being permitted to cross examine the deponents. The denial of such opportunity goes to root of the matter and strikes at the very foundation of the assessment order and renders it vulnerable.”

Applying proposition of law laid down by Hon’ble Supreme Court and High Court as discussed above, I do not find any merit for the addition made by AO merely on the basis of statement, when there is no corroborative material with AO suggesting the alleged addition, without allowing assessee an opportunity to cross examine the person on whose statement addition was made. Accordingly, AO is directed to delete the addition so made.

Before parting with the matter, I observe that Ld. AR had placed on record order of ITAT Jaipur Bench in the case of Navrtattan Kothari vs. ACIT in in which proceedings initiated u/s.148 was quashed. However, the facts of this case are entirely distinguishable from the facts of instant case, in so far as in the case of Navrattan Kothari (supra) reopening of assessment after four years of assessment framed u/s.143(3)/153 was quashed, whereas in the instant case, no assessment was framed u/s.143(3) and only return was processed u/s.143(1). Accordingly, it is not going to help the assessee in any manner.

In the result appeal of assessee is allowed in terms indicated hereinabove.

In the result, appeal filed by assessee is allowed in terms indicated hereinabove and stay application is dismissed as infructuous.”

In view of the above facts and circumstances, I do not find any merit in the addition so made by the Assessing Officer and confirmed by the ld. CIT(A), hence, the Assessing Officer is directed to delete the same.

In the result, appeal of the assessee is allowed in part in terms indicated hereinabove. Order pronounced in the open court on 26th March, 2019