SHYAM MOHAN SAJJAN JINDAL,THANE vs. ASSESSMENT UNIT, THANE

The assessee is an individual carrying on the business of trading in ply under the proprietorship concern M/s. Jindal Marketing. The assessee filed his return of income for the Assessment Year 2022-23 on 22.07.2022 declaring total income of Rs.7,49,140/- under section 44AD of the Act. The case was subsequently selected for complete scrutiny through CASS and notices under sections 143(2) and 142(1) of the Act were issued to the assessee. In the course of the assessment proceedings, the assessee furnished various documents including the financial statements, computation of income, profit and loss account, sale and purchase ledger, bank statement, demat account statement, overdraft account statement, ledger relating to M/s. Radha Krishna Ply & Board Industries, transporter bills and loan confirmations.

The Assessing Officer noted that a search and seizure operation under section 132 of the Act had been conducted in the case of M/s. Radha Krishna Ply & Board Industries, Badi Majra, Yamuna Nagar, Haryana on 11.01.2022. During the course of the search, certain incriminating documents and ledger accounts were seized from the premises of the said concern, one of which was stated to relate to the assessee. The Assessing Officer further noted that a statement under section 132(4) of the Act had been recorded from Shri Rakesh Khurana of M/s. Radha Krishna Ply & Board Industries, who admitted that the ledgers had been written by him and contained records of actual sales made by the said concern to various parties. According to the Assessing Officer, Shri Rakesh Khurana had also stated that the amounts mentioned as “cash” and the amounts shown as “Trf” in the ledger represented amounts received in cash. On the basis of the seized ledger and the statement recorded under section 132(4), the Assessing Officer inferred that the assessee had made cash payments towards purchases from M/s. Radha Krishna Ply & Board Industries.

The Assessing Officer observed that, as per the seized ledger account, goods of Rs.17,00,000/- had been purchased by the assessee and payment thereof had been made in cash. The assessee, however, denied having made any such cash payment. The Assessing Officer was of the view that the seized ledger constituted concrete evidence found during the search and that the same had been written by Shri Rakesh Khurana, who, in his statement recorded under section 132(4) of the Act, had admitted that the amounts shown as “Trf” in the ledger were also amounts received in cash. The assessee was accordingly called upon to explain the nature and source of the alleged cash payment of Rs.17,00,000/-. The assessee continued to deny having made the alleged cash payment and also requested an opportunity to cross- examine the concerned person. The Assessing Officer, however, did not accept the explanation furnished by the assessee and proceeded to treat the amount of Rs.17,00,000/- as unexplained money under section 69A of the Act read with section 115BBE of the Act.

While dealing with the request for cross-examination, the Assessing Officer recorded that the right of cross-examination was not an absolute right and that it depended upon the circumstances of each case and the statute concerned. The Assessing Officer relied upon the judgments of the Hon’ble Supreme Court in J&K v. Bakshi Ghulam Mohammad, AIR 1967 SC 122, and of the Hon’ble Delhi High Court in Nath International Sales v. UOI, AIR 1992 Del 295, holding that the right of hearing does not necessarily include the right to cross-examine. The Assessing Officer further recorded that, according to him, the assessee had been provided sufficient opportunities to present his case. On that basis, and principally relying upon the seized ledger account and the statement of Shri Rakesh Khurana recorded under section 132(4) of the Act, the Assessing Officer concluded that the assessee had purchased goods from M/s. Radha Krishna Ply & Board Industries and had made payment in cash amounting to Rs.17,00,000/- during the relevant previous year. Since, according to the Assessing Officer, the assessee had failed to substantiate the transaction and the source thereof by documentary evidence, the said amount was treated as unexplained money under section 69A of the Act and added to the total income. Consequently, the total income was determined at Rs.24,49,140/- as against the returned income of Rs.7,49,140/-.

Aggrieved by the assessment order, the assessee preferred an appeal before the learned Commissioner of Income-tax (Appeals). The assessee challenged the addition, inter alia, on the ground that the alleged cash payment of Rs.17,00,000/- had not been made by him and that the Assessing Officer had failed to properly appreciate the submissions and documentary evidence furnished during the assessment proceedings. It was further contended that the addition had been made on the basis of the statement of a third party without granting an opportunity of cross-examination and that such action was in violation of the principles of natural justice. The assessee also contended that the addition had been made merely on the basis of the statement of Shri Rakesh Khurana without any independent or corroborative evidence establishing the alleged cash transaction.

During the appellate proceedings before the learned Commissioner of Income-tax (Appeals), several notices were issued to the assessee. The appellate order records that the assessee did not furnish any response or written submissions in support of the grounds of appeal, except for a request for adjournment on one occasion. The learned Commissioner of Income-tax (Appeals), therefore, proceeded to decide the appeal on the basis of the material available on record and the assessment order. The learned Commissioner of Income-tax (Appeals) considered the provisions of section 69A of the Act and observed that, in a case falling under the said provision, the assessee is required to offer an explanation regarding the nature and source of the money and that the explanation is required to be satisfactory. The appellate authority also referred to the principles relating to the burden of proof in cases involving unexplained money and unexplained credits.

The learned Commissioner of Income-tax (Appeals) thereafter examined the assessment order and observed that the assessee had not furnished any explanation or evidence during the appellate proceedings to rebut the material relied upon by the Assessing Officer. According to the learned Commissioner of Income-tax (Appeals), the assessee had not discharged the burden cast upon him in respect of the alleged cash transaction. The learned Commissioner of Income-tax (Appeals) further observed that the contentions raised in the grounds of appeal were not supported by any evidence or documents and that, despite several opportunities, the assessee had not responded to the notices issued during the appellate proceedings. On this basis, the learned Commissioner of Income-tax (Appeals) held that the assessee had failed to discharge the burden of explaining the source of the cash transaction and consequently held that the addition made by the Assessing Officer was liable to be sustained.

The learned Commissioner of Income-tax (Appeals) accordingly concurred with the findings and decision of the Assessing Officer, particularly observing that there were no meaningful or worthwhile submissions or documentation before him to effectively counter the position adopted by the Assessing Officer. The grounds raised by the assessee were consequently not allowed and the addition of Rs.17,00,000/- made under section 69A of the Act was sustained.

The assessee is in further appeal before the Tribunal and has raised grounds challenging the confirmation of the addition of Rs.17,00,000/- under section 69A of the Act. The assessee has also specifically challenged the addition on the ground that no opportunity of cross-examination of the third party whose statement was relied upon by the Assessing Officer was granted. It has further been contended that the addition was made merely on the basis of the statement of Shri Rakesh Khurana without independent or corroborative evidence.

During the course of hearing before us, the learned Authorised Representative (ld.AR) of the assessee submitted that the entire addition is founded upon the material stated to have been found during the course of search in the case of M/s. Radha Krishna Ply & Board Industries and, in particular, upon the statement recorded under section 132(4) of the Act from Shri Rakesh Khurana. It was submitted that the said statement, which constitutes material evidence relied upon by the Assessing Officer for making the addition, was not furnished to the assessee. According to the ld.AR, the assessee was therefore not placed in a position to properly meet the material relied upon by the Assessing Officer, and the failure to furnish the statement constituted a violation of the principles of natural justice. It was further submitted that the assessee had specifically sought an opportunity to cross-examine the concerned person, but the assessment was completed without affording such opportunity. It was accordingly submitted that the matter requires to be restored to the file of the Assessing Officer so that the assessee may be confronted with the material relied upon and be afforded a proper opportunity to respond to the same.

The learned Departmental Representative (ld.DR), on the other hand, relied upon the orders of the Assessing Officer and the learned Commissioner of Income-tax (Appeals). It was submitted that the addition had been made after considering the seized material and the statement recorded under section 132(4) of the Act and that the learned Commissioner of Income-tax (Appeals) had rightly confirmed the addition on the basis of the material available on record.

We have considered the rival submissions and perused the material available on record. The assessment order itself records that the addition of Rs.17,00,000/- was made on the basis of the ledger account seized during the course of search in the case of M/s. Radha Krishna Ply & Board Industries and the statement recorded under section 132(4) of the Act from Shri Rakesh Khurana. The assessment order specifically refers to the statement of Shri Rakesh Khurana and records that, according to the said statement, the amounts shown as “Trf” in the ledger were also amounts received in cash. Thus, the statement recorded under section 132(4) constitutes material which has been expressly relied upon by the Assessing Officer while arriving at the conclusion that the assessee had made cash payment of Rs.17,00,000/- towards purchases.

It is equally relevant that the assessee had denied the alleged cash transaction and had requested an opportunity to cross-examine the concerned person. The Assessing Officer rejected the request by observing that the right of cross-examination was not an absolute right and that sufficient opportunities had been granted to the assessee. However, the specific grievance now raised before us by the ld.AR is that the statement recorded under section 132(4), which is relied upon as material evidence against the assessee, was itself not furnished to the assessee. The question of whether the assessee was entitled to the statement and whether the other material relied upon by the Assessing Officer was required to be confronted to the assessee has to be considered in the context of the assessee's specific denial of the alleged cash payment and his request for an opportunity to meet the evidence relied upon against him.

In our considered view, where an assessment is founded, inter alia, upon material evidence gathered from a third party and such material is relied upon for making an addition against the assessee, the assessee must be given a reasonable opportunity to examine and respond to the material which is proposed to be used against him. In the present case, the statement recorded under section 132(4) of the Act has admittedly been referred to by the Assessing Officer as one of the principal bases for drawing the inference that the alleged cash payment of Rs.17,00,000/- was made by the assessee. The assessee has specifically stated before us that the said statement was not furnished to him. In these circumstances, without expressing any opinion at this stage on the merits of the addition or on the evidentiary value of the statement or the seized ledger, we are of the view that the assessee ought to be afforded a proper opportunity to meet the material relied upon by the Assessing Officer.

The learned Commissioner of Income-tax (Appeals) has principally sustained the addition on the ground that the assessee did not furnish submissions or evidence during the appellate proceedings and therefore failed to discharge the burden cast upon him. However, the grievance raised before us concerns the foundational material relied upon by the Assessing Officer for making the addition, namely, the seized ledger and the statement recorded under section 132(4) of the Act. The fact that the assessee did not effectively participate in the appellate proceedings cannot, in our view, dispense with the requirement of ensuring that the material relied upon for making the addition is made available to the assessee so that the assessee can meaningfully respond to the same. The principles of natural justice require that the assessee be given a fair and effective opportunity to meet the evidence which is proposed to be used against him.

In view of the above discussion, and without expressing any opinion on the merits of the addition of Rs.17,00,000/- under section 69A of the Act, we deem it appropriate, in the interest of justice, to set aside the impugned order of the learned Commissioner of Income-tax (Appeals) as well as the assessment order to the file of the Assessing Officer for fresh adjudication of the issue. The Assessing Officer shall furnish to the assessee the material evidence in his possession which has been relied upon or is proposed to be relied upon for deciding the issue, including the statement recorded under section 132(4) of the Act of Shri Rakesh Khurana, along with the relevant material forming the basis of the proposed addition.

Upon furnishing the aforesaid material, the Assessing Officer shall provide reasonable opportunity to the assessee to examine the same and to submit his explanation, objections and comments thereon. The Assessing Officer shall duly consider the submissions and evidence, if any, furnished by the assessee in response to such material and shall thereafter adjudicate the issue afresh in accordance with law by passing a speaking order. Needless to state, the assessee shall cooperate with the assessment proceedings and shall avail the opportunity so provided by the Assessing Officer.

Since the matter is being restored to the file of the Assessing Officer for fresh adjudication on the above issue after providing the material relied upon and reasonable opportunity to the assessee, we refrain from adjudicating the grounds raised by the assessee on the merits of the addition at this stage. All contentions of the assessee and the Revenue on the merits of the addition are left open for consideration by the Assessing Officer in the fresh proceedings. The Assessing Officer shall decide the issue uninfluenced by any observation made in this order on the merits of the addition.

In the result, the appeal of the assessee is allowed for statistical purposes in terms of the aforesaid directions.