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Facts
The Revenue challenged an order by the CIT(A) concerning the assessment year 2011-12. The AO made additions based on information regarding on-money paid for a flat purchase, citing a statement from a builder during a search.
Held
The Tribunal held that the assessment order was bad in law as the AO relied on a third-party statement without providing the assessee an opportunity for cross-examination or supplying the relevant documentary evidence. This violated principles of natural justice.
Key Issues
Whether additions made by the AO based on borrowed satisfaction and without providing cross-examination opportunity to the assessee are valid?
Sections Cited
147, 250, 132, 132(4)
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Income Tax Appellate Tribunal, “SMC” BENCH MUMBAI
Date of Hearing 10.03.2025 Date of Pronouncement 11.03.2025 आदेश / ORDER
PER SANDEEP GOSAIN, JM:
The present appeal has been filed by the revenue challenging the impugned order 21.08.2024 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre, Delhi / CIT(A), for the A.Y 2011- 12. The assessee has raised the following grounds of appeal:
1. The Ld. CIT(A) erred in upholding the jurisdiction u/s. 147 which has been entered upon on the basis of borrowed satisfaction and hence the reopening is bad in law 2 Raju Bugromal Varandani, Mumbai
The Ld CIT(A) has, with respect, ignored that the Ld. AO has proceeded on borrowed satisfaction and without independent inquiries, which is evident from the difference in the figure of escaped income mentioned in the reasons recorded and in the Assessment Order.
3. The Ld. CIT(A) fell in error of law in not appreciating that the Appellant/assessee had not been provided with relevant documentary evidence pertaining to the search.
4. The Ld. CIT(A) failed to appreciate that the entire addition was made on the basis of material supposedly found with the person searched which cannot be relied upon without any corroborative evidence.
5. The Ld. CIT(A) further failed to appreciate that the assessee had not been given any opportunity of cross-examining such persons whose statements had been relied upon by the Ld. AO, despite repeated requests for the same.
6. The Ld. CIT(A) was not justified in not addressing the Appellant's contention that opportunity of cross-examination was NOT provided to the Appellant.
7. The Ld. CIT(A) was not justified in holding that the Appellant had not produced relevant evidence and thereby placing a negative burden/onus of proof on the Appellant.
8. The appellant craves leave to add, alter, amend, modify any grounds of appeal.
2. Ld. AR appearing on behalf of assessee outrightly challenged the additions made by AO and upheld by Ld. CIT(A).
I have heard the counsels for both the parties, perused the material placed on record and the orders passed by the revenue authorities.
3 Raju Bugromal Varandani, Mumbai
From the records, I noticed that as per the facts of the present case an information was received by the AO from DDIT, Investigation that during the year under consideration the assessee had paid on-money in cash to the tune of Rs. 23,40,000/- in respect of purchase of a flat No. 1005 in the project “Sabari Shaan” under M/S Sankeshwar Properties Private Limited of “Sabari Group and Company”.
It is pertinent to mention that during the search proceedings u/s 132 of the act in the case of Sabri Group of companies, statement of Shri Hiren, Bharani was recorded u/s 132(4) of the act, wherein he had admitted that he had received on money in cash on account of sale of flats of all the projects. In this regard, he had also furnished project wise list of flats in which on money in cash had been accepted by the authorised partner/partner of Sabri Group. Therefore on the basis of said statement, it was noticed by the AO that the assessee has booked flat No. 1005, in Sabari Shaan and had paid on-money in cash of Rs. 23,40,000/- to M/s Shankheshwar Properties Private Limited for booking and purchasing the said property.
Whereas the contrary, from the very beginning the stand of the is clear that AO that he had not paid any on 4 Raju Bugromal Varandani, Mumbai money in cash for the purchase of flat and the entire payment for purchase of this property has been made by the assessee from his account. In this regard, a specific request was made by the assessee vide his letter dated 14/11/2018 and requested the AO for providing copy of reasons for reopening, certified copy of the documentary evidences in possession of AO on the basis of which he has formed “reasons to believe” that income has escaped assessment and also to provide the opportunity to cross examine the person on whose statement the AO has relied upon. But even in spite of specific request made in this regard no documentary evidences were supplied to the assessee nor the assessee was provided opportunity to cross examine the person on whose statement the AO had formed the ‘reasons to believe’ that income has escaped assessment in the case of assessee. To substantiate the above contentions, my attention was drawn to the paper book wherein page No. 46 to 55 contains the letter written by the assessee to the AO with regard to the above request, apart from this, several other letters were also written by the assessee to the AO which are forming part of the paper book, but even in spite of letters and reminders, the required documents were never supplied to the assessee. In this regard, I place reliance upon the decision of Hon’ble Supreme Court in the case of Andaman Timber industries Vs Commissioner of Central Excise, 2015. 5 Raju Bugromal Varandani, Mumbai 281 CTR 241 (SC) and also on the decision of the Coordinate Bench of ITAT in in the case of Kundan Raghuveer Vs. ITO wherein it was held as under:
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 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 6 Raju Bugromal Varandani, Mumbai 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.
After having considered the facts of the present case and also the judgement cited before me, I am of the view that it is the duty of tax authorities if they want to rely upon statement to arrange for the cross examination of the said persons and an opportunity to cross examine should in this regard be extended to the assessee.
Further, AO is under an obligation to supply the material to the assessee, which he is relying upon for making the additions. But as per the facts of the present case none of those legal obligations have been discharged by the Ld.AO. Hence the additions proposed by the AO merely relying upon the statement of the builder is uncalled for. Therefore, in my considered view, the additions cannot be made without providing opportunity of cross examination to the assessee regarding the persons on whose statement AO has relied upon. The denial of opportunity to the assessee to cross examine the witness, whose statement was made the sole basis for making additions is a serious flaw rendering the order as nullity 7 Raju Bugromal Varandani, Mumbai in as much as it amounted to violation of principles of natural justice. Apart from this even in spite of specific request the material /statements were never supplied to the assessee, which also renders the impugned orders as nullity and against the principles of natural justice. Therefore I am inclined to treat the assessment order as bad in law. Accordingly, grounds raised by the assessee stands allowed. No other ground has been argued or pressed before me.
Consequently, the appeal filed by the assessee stands partly allowed with no orders as to cost.