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Facts
The assessee challenged an order upholding additions made by the AO under Section 69 of the Income Tax Act. A search action on a developer revealed alleged receipt of 'on-money'. The AO reopened the assessee's case based on this information and made additions.
Held
The Tribunal held that the additions were made solely based on the statement of a third party (the builder) without providing the assessee an opportunity for cross-examination, violating principles of natural justice. The assessment order was deemed bad in law.
Key Issues
Whether additions made solely on the basis of a third party's statement without an opportunity for cross-examination are valid?
Sections Cited
69, 250, 147, 144B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI SANDEEP GOSAIN
Per: SHRI. SANDEEP GOSAIN, J.M.: The present appeal has been filed by the assessee challenging the impugned order 24.07.2024 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre, Delhi (NFAC) for the assessment year 2015-16.
Ground nos 5 & 6 raised by the assessee are factual in nature and interrelated and interconnected and relates A.Y. 2015-16 Rekha Narayan Dama to challenging the order of Ld. CIT(A) in upholding the additions made by the AO u/s 69 of the Act. Therefore I have decided to adjudicate the above grounds firstly through the present consolidated order.
I have heard the counsels for both the parties, perused the material placed on record, judgements cited before me and the orders passed by the revenue authorities. From the records, I noticed that as per the facts of the present case a search action was conducted in the case of M/s Bhagwati Developers and its Group concerns, wherein it was found that group was engaged in receiving on-money in cash. Therefore, based on such information, the case of the assessee was reopened and ultimately after serving statutory notices and seeking reply of the assessee, order of assessment u/s 147 r.w.s 144B of the Act was passed thereby making additions of Rs. 30,50,000/- u/s 69 of the Act.
After evaluating the facts of the case and hearing the parties at length, I found that additions have been made by the AO by holding that M/s. Bhagwati Developers Group was engaged in receiving on-money in various projects, and in this regard relied upon the statement of one Kulin Shantilal Vora recorded during the course of search and
Whereas on the contrary, assessee categorically submitted at every stage that the flat was purchased by the assessee for Rs. 60,63,775/- for which the stamp duty value as per stamp valuation authorities was just Rs. 32,06,500/- i.e. half of the price actually paid by the assessee and the entire consideration was paid through banking channel. Therefore, there was no occasion before the assessee to make any on-money payment in cash.
From the records, I also noticed that there is no evidence on record of making on-money payment by the assessee and even the statement of Kulin Shantilal Vora is not backed by any evidence and moreover no opportunity to cross examine the said Kulin Shantilal Vora was granted to the assessee even in spite of the fact that the assessee had requested to cross examine the said Kulin Shantilal Vora.
Even otherwise the total sale value of the flat was Rs. 60,63,775/- and for purchasing the same, the assessee had borrowed housing loan from ICICI bank amounting to Rs. 48 lakhs. However, the stamp duty value of the said flat as per stamp duty authorities was Rs. 32,06,500/- A.Y. 2015-16 Rekha Narayan Dama only, which is much less than the purchase price and therefore it appears to be illogical on the part of the AO to believe that the assessee will still pay any amount over and above its market price.
It has also been brought to my notice that under the identical set of facts, the coordinate bench of ITAT in in the case of Kunal Raghubir Bhandari Vs. ITO has dealt with the same issue of same builder i.e. M/s. Bhagwati Developers Group and deleted the addition on account of on-money. The operative portion of the order of the Coordinate Bench of ITAT is at para No. 18 which is reproduced here in below:
Considered the rival submissions and material placed on record, we observe that there was a search action in the case of the builder Shri Kulin S Vora and in that case the builder has accepted that they have received on-money from the various projects conducted by them and he has disclosed the name of all the flat owners. The Tax Authorities proceeded to make the addition based on the above declaration of receipt of on-money in the hands of the Flat Owners. Assessee being one of the flat purchaser, the assessment was reopened. However, no cross examination opportunity was given to the assessee. In this case, no such opportunity was granted to the assessee and only the statement recorded were supplied to the assessee and in fact, it was asked the assessee to bring the builder before the Assessing Officer. After careful consideration, we observe that the assessee is or will never in a position to bring any builder before the tax authorities, it is the duty of the tax authorities if they want to rely on statement to arrange for the cross examination and opportunity to be extended to the assessee. Apart from the above statement of the builder and whatever they have declared in their assessment was with the authorities, this information was never available with the A.Y. 2015-16 Rekha Narayan Dama Assessing Officer in this case, hence, there is no evidences available in the hands of the Tax Authorities against the assessee except the statement of the builder. The additions proposed by the Assessing Officer merely relying on the statement of the builder. Therefore, in our considered view the addition cannot be made without bringing proper material on record or bringing on record the proper joint statement from the builder as well as the assessee wherein assessee should be one of the party should concede that they have made the on- money. In this case merely relying on the statement of the third party and without giving opportunity to the assessee to prove its point of view, which is against the natural justice. In this situation, the addition cannot be made in the hands of the assessee. Therefore, we are inclined to treat the assessment order as bad in law which was made purely on the basis of assumption and unverified statement of the third party. Accordingly, appeal filed by the assessee is allowed.
Since in the present case as well, no cross- examination opportunity was given to the assessee. The AO merely relying upon the statement of Kulin Shantilal Vora made additions without any material on record. Therefore, while following the decision of the Coordinate Bench and also considering the facts of the present case, I am of the view that the addition cannot be made without bringing proper material on record or bringing on record the proper joint statement from the builder as well as the assessee, wherein assessee should be one of the party and should concede that he had made the on money payment.
However, in this case, merely relying upon the statement of the third party and without giving opportunity A.Y. 2015-16 Rekha Narayan Dama to the assessee to prove its point of view is against the principles of natural justice. In this situation, the additions cannot be allowed to be sustained in the hands of the assessee. Therefore, I am inclined to treat the assessment order as bad in law, which was made purely on the basis of assumptions and was verified statement of the third party. Accordingly, both the grounds raised are allowed and AO is directed to delete the additions
Since I have deleted the additions by allowing ground No. 5 & 6 and the other grounds raised by the assessee have not been pressed.
Consequently, appeal filed by the assessee stands partly allowed with no order as to cost.