JAMRUTH BEGUM GOLKONDA,KURNOOL vs. ACIT, CENTRAL CIRCLE- 2(1), HYDERABAD

The assessee has raised more or less common grounds of appeal for all the three A.Ys, therefore, for the sake of brevity, grounds of appeal filed by the assessee in ITA No.936/Hyd/2026 for the A.Y 2020-21 are reproduced as under:

Brief facts of the case are that the assessee, an individual, filed her return of income for the A.Y 2020-21 on 13.10.2020 admitting a total income of Rs.4,80,000/-. A search & seizure operation under section 132 of the Income Tax Act, 1961 was conducted in the case of M/s. Raaga Mayuri Builders (P) Ltd ande its group concern on 05.01.2022 and during the course of search, summons under section 131(1A) of the Act was issued on 07.04.2022 to Shri Konikanti Janardhana Reddy, Managing Director of M/s. Raaga Mayuri Builders (P) Ltd and a statement was recorded on 17.05.2022, wherein he admitted that M/s. Raaga Mayuri Builders (P) Ltd had made an oral agreement with six landlords for a total consideration of Rs.30 crore and furnished ledger accounts of all the landlords alongwith the details of payment. On a perusal of the ledger extract vide page no.12, a total amount of Rs.2,23,00,000/- was paid to the assessee. Therefore, the assessment has been reopened as per Explanation 2(iv) to proviso to section 148 of the Act and a notice under section 148 of the Act, dated 11.03.2024 was issued and served on the assessee. In response to the said notice, the assessee neither filed return of income, nor submited any information. Therefore, the A.O by taking into account the relevant seized material found during the course of search completed the assessment under section 147 r.w.s. 144 of the Act and made an addition of Rs.50.00 lakhs under the head Short Term Capital Gain towards the consideration recceived in cash for sale of property as per the ledger account in the books of M/s. Raaga Mayuri Builders (P) Ltd.

Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT (A). Before the Ld. CIT (A), the assessee has filed detailed written submission on this issue which has been extracted in para 5.1 on pages 8 to 29 of the order of the Ld. CIT (A). The sum and substance of the argument of the assessee before the CIT (A) are that, she along with her family members purchased the property in financial year 1992-93 and the same has been sold in the financial year 2021-22 relevant to the A.Y 2022-23 and she being one of the co-owner received 1/7th of the share and the same has been declared in the updated return of income filed for the A.Y 2022-23. The assessee further submittted that the A.O made addition towards undisclosed Short Term Capital Gain on the basis of ledger account found during the course of search in the case of M/s. Raaga Mayuri Builders (P) Ltd and the statement recorded by Shri K. Janardhana Reddy, without providing the relevant evidences and statement of Shri K. Janardhana Reddy for the assessee for her rebuttal and comments. In the absence of any relevant corroborative evidences, the addition made by the A.O on the basis of 3rd party information is incorrect and cannot be sustained.

The Ld. CIT (A) after considering the submissions of the assessee and also taking note of the relevant ledger accounts which is the basis for making the addition towards Short Term Capital Gains observed that, although the assessee has received the consideration in cash along with the cheque payments for sale of property to M/s. Raaga Mayuri Builders (P) Ltd and the same is evdenced by the relevant ledger account and confirmed by Shri K. Janardhana Reddy, MD of M/s. Raaga Mayuri Builders (P) Ltd, but the facts remains that the sale transactions was completed in the financial year 2021-22 relevant to the A.Y 2022-23 and therefore, the additions made by the A.O towards the cash consideration under the head Short Term Capital Gains for A.Y 2020-21 cannot be upheld, therefore, deleted the addition made by the A.O. However, the Ld. CIT (A) further noticed that since the transfer took palce in the financial year 2021-22, relevant to A.Y 2022-23, the capital gain, if any, from transfer of property should be assessed for the A.Y 2022-23. The Ld. CIT (A) had also passed a corrigendum to the appellate order dated 27.01.2026 and modified the order in asmuch as the additions made by the A.O towards Short Term Capital Gain of Rs.50 lakhs has been treated as protective addition for AY 2020-21 and the substantive addition if any should be considered for the A.Y 2022-23.

Aggrieved by the order of the Ld. CIT (A), the assessee is now, in appeal before the Tribunal.

The learned Counsel for the assessee Shri Hari Agarwal, Chartered Accountant submitted that the Ld. CIT (A) erred in converting the substantive addition made by the A.O towards Short Term Capital Gain for the A.Y 2020-21 and 2021- 22 into protective addition and further enhancing the assessment of the income for the A.Y 2022-023 and computed the Long Term Capital Gains by taking into total consideration of Rs.2,23,00,000/- alleged to have been received by the assessee from M/s. Raaga Mayuri Builders (P) Ltd for sale of property, even though the assessee has denied any knowledge of the cash received from M/s. Raaga Mayuri Builders (P) Ltd. The Learned Counsel for the assessee further submitted that initially the A.O assessed the cash considered alleged to have been received by the assessee from M/s. Raaga Mayuri Builders (P) Ltd under the head Short Term Capital Gains for the A.Y 2020-21 for Rs.50 lakhs and for A.Y 2021-22 for Rs.73,50,000/-. For A.Y 2022-23 the AO assessed Rs.75 lakhs which includes cheque payments of Rs. 54 lakhs and cash payment of Rs.21 lakhs. However, the Ld. CIT (A) converted the substantive addition made by the A.O towards the Short Term Capital Gains for the A.Y 2020-21 and 2021-22 into protective addition and further enhanced the assessment for the A.Y 2022-23 by taking into the total consideration of Rs.2,23,00,000/- as per the ledger account and assessed 1/7th share to the assessee by considering the ledger account of M/s. Raaga Mayuri Builders (P) Ltd and statement of Shri K. Janardhana Reddy, even though the assessee was not aware of any kind of cash transaction for sale of property. The learned Counsel for the assessee submitted that although the assessee has not responded to the notice issued by the A.O during the assessment proceedings, but during the appellate proceedings, she had written several letters to the Ld. CIT (A) and requested to furnish the relevant ledger account considered by the A.O for the purpose of assessment and also statement of Shri K. Janardhana Reddy for her rebuttal and comments, but the Ld. CIT (A) without providing the relevant evidences assessed the capital gain for the A.Y 2022-23. Since the additions made by the A.O and confirmed by the Ld. CIT (A) is on the basis of 3rd party information, the additions made by the A.O cannot be upheld. In this regard, he relied upon the decision of the ITAT Hyderabad Benches in the case of Nagarjuna Fertilizers & Chemicals Company Ltd Vs. ACIT in ITA No.104/Hyd/2024, order dated 15.07.2026.

The learned Counsel for the assessee further submitted that the Ld. CIT (A) sustained the additions made by the A.O for the A.Y 2020-21 and 2021-22 on protective basis for the purpose of assessing the total consideration of Rs.2,23,00,000/- on substantive basis for the A.Y 2022-23, even though the addition made by the A.O is not based on any evidences which is found in the possession of the assessee. Further, the A.O made addition only the basis of 3rd party, however, not provided the relevant evidences and statement of Shri K. Janardhana Reddy, MD of M/s. Raaga Mayuri Builders (P) Ltd and therefore, it is a clear case of violation of principles of natural justice and thus, the addition made by the A.O is unsustained in law. In this regard, he relied upon the decision of the Hon'ble Supreme Court in the case of Andaman Timber Industries Vs. Commissioenr of Central Excise, Kolkata--II, in Civil Appeal No.4228 of 2006 dated 02.09.2025. He also relied upon the decision in the case of Hon'ble Supreme Court in the case of Commissioner of Income Tax-Central Vs. Sunita Dhadda (2018) 100 Taxmann.com 526 (SC) dated 28th March, 2018.

The Ld. DR Smt. Seema Meena, CIT (DR) on the other hand supporting the orders of the Ld. CIT (A) submitted that, the A.O made addition towards the alleged cash receipts for sale of proeprty on the basis of ledger account furnished by M/s. Raaga Mayuri Builders (P) Ltd and statement recorded from Shri K. Janardhana Reddy, MD during the course of search, where he confirmed the purchase of property from the assessee and the other co-owners. Frutehr, the ledger account found during the course of search proceedings shows cash payment along with the cheque payments. The assessee has accepted cheque payments but denied the cash payments. Once cheque payment is accepted, then the cash payment should be considered as part of transaction and the A.O after considering the relevant facts has rightly assessed the cash transaction under the head the Short Term Capital Gain for the respective A.Ys based on the date of receipt of the cash considerationb. The Ld. CIT (A) upheld the reasons given by the A.O for assessment of cash consideration, however, modified the assessment and converted substantive addition into protective addition for the A.Ys 2020-21 and 2021- 22. Further, the Ld. CIT (A) has assessed the Long Term Capital Gain for the A.Y 2022-23 based on the date of sale and considered the total sale consideration of Rs.2,23,00,000/- and assessed 1/7th share of the assessee. Therefore, the argument of the assessee that the additions made by the A.O on the basis of 3rd party information is unsustainable in law in contrary to the material available on record and cannot be accepted. Further, there is no merit in the argument of the assessee on the violation of principles of natural justice in light of certain judicial precedents including the judicial decision in the case of Andaman Timber Industries Vs. Commissioenr of Central Excise, Kolkata— II (Supra), because once there are clear evidences, then the question of providing opportunity of cross examination to the assessee does not arise. Therefore, she submitted that the orders of the A.O and the Ld. CIT (A) should be upheld.

We have heard both the parties, perused the material available on recored and had gone through the orders of the authorities below. The A.O made the addition towards the cash receipts for sale of property under the head Short Term Capital Gains for the A.Ys 2020-21 and 2021-22 on the basis of the ledger account furnished by Shri K. Janardhana Reddy, MD of M/s. Raaga Mayuri Builders (P) Ltd while answering in the statement recorded during the course of search. The A.O assessed the cash transaction of Rs.50 lakhs for the A.Y 2020-21 under the Short Term Capital Gain. The A.O had also assessed sum of Rs.73,50,000/- for the A.Y 2021-22 towards the cash receipts for sale of property. Similarly, the A.O had assessed sum of Rs.75,00,000/- towards consideration received for sale of property which includes cheque payment of Rs. 54 lakhs and cash payment of Rs.21 lakhs. The Ld. CIT (A) upheld the reasons given by the A.O for assessment of consideration received for sale of property including the cash consideration, however, modified the addition and converted substantive addition for the A.Ys 2020-21 and 2021-22 into protective addition and enhanced the assessment and made the addition under the head Long Term Capital Gain by taking into the total sale consideration received as per the ledger account for Rs.2.23 crores on the ground that the transfer took place in the financial year 2021-22 relevant to the A.Y 2022-23 and the capital gain arising from the transfer of property should be assessable for the A.Y 2022-23.

We have given our thoughtful consideration to the reasons given by the A.O for making addition under the head Short Term Capital Gains for the A.Ys 2020-21, 2021-22 and Long Term Capital Gain for the A.Y 2022-23 and also reasons given by the Ld. CIT (A) to convert substantive assessment into protective assessment for the A.Y 2020-21 and 2021-22 and assessment of Long Term Capital Gain for the A.Y 2022-23. We find that, the A.O made addition towards consideration received in cash for sale of property on the basis of ledger account furnished by Shri K. Janardhana Reddy, MD of M/s. Raaga Mayuri Builders (P) Ltd during the course of statement recorded under section 131(1A) of the Act and as per the said ledger account, there are certain payments in the name of “land- Jamruth Bee-Lathief Land” Ledger Account which includes payment through bank and cash. The above ledger account was found in the premises of M/s. Raaga Mayuri Builders (P) Ltd durinbg the course of search under section 132 of the Act. The A.O made the addition on the basis of statement of Shri K. Janardhana Reddy, coupled with the ledger account furnished by him, however, the fact remains that the ledger account does not show name of the assessee except referring Jamruth Bee Lathief Land and further the said ledger account was not in the hand wiring of the assessee and not signed by the assessee. Once the document found from the possession of 3rd party is the basis for the addition, then the A.O should bring on record some corroboratiuve evidence to support the evidence found during the course of search to make the addition, when the assessee denies any knowledge of said document or transaction, because the presumption contained under section 132(4A) r.w.s. 292C of the Act is not applicable to a person in respect of a 3rd party information and the assessee is not required to explain any document which was found in the possession of third party, unless the said evidence is linked to the assessee with some other corroborative evidence. This principle is supported by the decision of the ITAT Hyderabad Benches in the case of Nagarjuna Fertilizers & Chemicals Ltd Vs. ACIT in ITA No. 104/Hyd/2024 for the A.Y 2017-18, dated 15.07.2026, where it has been clearly held that the presumption under section 132(4A) r.w.s. 292C of the Act is not applicable to 3rd party information, therefore, the assessee is not liable to offer any explanation with rregard to the said information. Therefore, in our considered opinion, the addition made by the A.O on the basis of 3rd party information without any corroborative evidence cannot be upheld.

Having said so, let us come back to another aspect of the issue. Admittedly, during the assessment proceedings, the assessee has not responded to any of the notices and filed any information to explain her case. However, during the appellate proceedings, the assessee has filed several letters on various dates requesting the Ld. CIT (A) to provide copy of the sworn statement recorded from Shri K. Janardhana Reddy along with copy of the seized material to explain her case. The Ld. CIT (A) neither furnished the ledger account considered by the A.O for the purpose of addition nor provided statement recorded from Shri K. Janardhana Reddy to the assessee to explain and rebuttal. Therefore, in our considered view, once the A.O and the Ld. CIT (A) not furnished the relevant information which is basis for addition to the income of the assessee and not allowed her an opportunity to cross examination of a person who gave adverse statement against the assessee, then the additions made by the A.O suffers from principles of natural justice, because not allowing the cross examine the witness by the A.O though statement of those witnesses were made as basis of the impugned order amounts in serious flaw which make the impugned order nullity as it amounted to violation of principles of natural justice as held by the Hon,ble Supreme Court in the case of Andaman Timber Industries vs. CCE(Supra). A similar view has been taken by the Hon'ble Supreme Court in the case of CIT Vs. Sunita Dagga (Supra), wherein the Hon'ble Supreme Court held that where the A.O while making addition on account of on-money received by the assessee on sale of land to a builder group relied upon statement of director or builder and did not allow the assessee to cross examine the said director, there being violation of principle of natural justice, impugned addition was to be deleted. A similar view has been taken by the Hon'ble Bombay High Court in the case of Addl. CIT Vs. Lata Mangeshkar (1974) 97 ITR 696 (Bom.), where it has been clearly held that the Revenue has got a tendency to make addition on the basis of entries appearing in the books of a 3rd party or a statement recorded from a third party or loose papers seized from a 3rd party. In all such cases, it is imperative to afford an opportunity to the assessee to cross- examine the said third party.

In the present case, it is abundantly clear that the additions made by the A.O is on the basis of a 3rd party information which was not found in the possession of the assessee and in this situation, it is the duty of the A.O to provide relevant material and statement to the assessee for her comments and rebutal. In case, the A.O makes addition without providing the relevant material and statement of 3rd party, then it is a clear cut violation of principles of natural justice and the addition made by the A.O becomes nullity and cannot be upheld. The Ld. CIT (A) without appreciating the relevant facts simply uphelde the reasons given by the A.O for making the addition towards the Short Term Capital Gains for the A.Y 2020-21 and 2021-22 on protcetive basis and also enhanced the assessment for the A.Y 2022-23 by considering the total consideration of Rs.2.23 crores and computing Long Term Capital Gains. Thus, we set aside the orders of the Ld. CIT (A) and delete the additions made by the A.O towards Short Term Capital Gains for Rs.50 lakhs for the A.Y 2020-21 and for Rs.73,50,000/- for the A.Y 2021-22 on substantive basis and later converted into protective assessment by the Ld. CIT (A). We further delete the addition made by the A.O and enhanced by the CIT(A) towards Long Term Capital Gain for the A.Y 2022-23.

In the result, all the three appeals of the assessee in ITA No.936/Hyd/2026, 937/Hyd/2026 and 987/Hyd/2026 for the A.Ys 2020-21 to 2022-23 respectively are allowed.