RATNADEEP INFRASTRUCTURE PRIVATE LIMITED,AHMEDABAD vs. INCOME TAX OFFICER, OLD WARD 3(1)(3) NEW WARD3(1)(2)), AHMEDABAD

Aggrieved, the assessee filed an appeal before the CIT(A), NFAC, Delhi, challenging both the reopening under section 147 of the Act and the addition of Rs. 60,00,000/- as unexplained investment. In its written submissions, the assessee contended that reopening was invalid as it was based solely on a third-party statement without any independent verification or application of mind by the Assessing Officer. The assessee argued that the statement of Shri Bharatbhai Atmaram Patel could not be relied upon since he was never a director, CMD, or authorized signatory of M/s Hytaisun & 1491/Ahd/2025 Ratnadeep Infrastructure Private Limited vs.ITO Asst. Year : 2011-12 Magnetics Ltd., as confirmed by the company’s master data from the ROC portal. The assessee further submitted that the sale consideration of Rs. 2,50,00,000/- was duly recorded in the registered sale deed, agreement to sell (Banakhat dated 27.06.2011), and indemnity-cum-declaration dated 16.03.2012, and that the entire transaction was through banking channels. The assessee submitted that it had not paid any cash consideration either in the assessment year 2011–12 or 2012–13, and that the allegation of cash payment was fabricated by the seller to justify its own unaccounted cash deposits in another concern, Hysafe Investment Pvt. Ltd., which had no connection with the assessee. It was also submitted that the entire addition was based on a single unverified statement of a third party without any corroborative material, and since effective cross-examination was not provided, the addition was vitiated by violation of the principles of natural justice. The assessee placed reliance on various judicial pronouncements, including Andaman Timber Industries v. CCE [(2015) 62 taxmann.com 3 (SC)], Kishinchand Chellaram v. CIT [(1980) 125 ITR 713 (SC)], Dhakeswari Cotton Mills Ltd. v. CIT [26 ITR 775 (SC)], PCIT v. Kanubhai Maganlal Patel [2017] 79 taxmann.com 257 (Guj.), and CIT v. Indrajit Singh Suri [2013] 33 taxmann.com 281 (Guj.), to contend that additions based solely on third-party statements without cross- examination were invalid. The assessee also questioned the legality of the reopening notice as being time-barred and argued that since more than four years had elapsed from the end of the relevant assessment year, the AO’s action was bad in law.

The CIT(Appeals), after carefully examining the assessment records, written submissions, and documents, dismissed the appeal of the assessee. The CIT(A) observed that the reasons recorded for reopening were based on concrete information in the form of a sworn statement under section 131 by & 1491/Ahd/2025 Ratnadeep Infrastructure Private Limited vs.ITO Asst. Year : 2011-12 a key person of the seller company, and therefore, the reopening was legally valid. On the merits of the addition, the CIT(A) held that there was a significant difference between the registered consideration of Rs. 2.50 crore and the stamp duty value of Rs. 7.58 crore, which, as held in CIT v. P.V. Kalyanasundaram [(2006) 294 ITR 49 (Mad.)] and K.R. Builders v. ITO [ITA No. 1213/Bang/2016], constituted strong corroborative evidence of on- money payment. The CIT(A) noted that the statement of Shri Bharat Patel clearly quantified the cash payments year-wise, and that the same had never been retracted. Further, the CIT(A) held that the assessee was provided a copy of the statement and was granted an opportunity to cross-examine the witness; however, the witness could not attend for medical reasons beyond the Department’s control. Thus, the CIT(A) found that reasonable opportunity had been afforded and the failure to secure cross-examination did not invalidate the proceedings. The CIT(A) also observed that the seller, M/s Hytaisun Magnetics Ltd., had revised its return for A.Y. 2012–13 and offered the full sale consideration, including the alleged cash component, for taxation. This admission by the seller, according to the CIT(A), served as strong corroboration of the AO’s findings that on-money was indeed paid by the assessee. The CIT(A) further emphasized that under section 69 of the Act read with Explanation 1, the burden of proof lies on the assessee to explain any unexplained investment, and in the absence of any books, cash flow statement, or documentary evidence disproving the cash payment, the addition was justified. Considering the totality of the facts and evidence, the CIT(A) held that the addition of Rs. 60,00,000/- made by the Assessing Officer was reasonable, lawful, and supported by circumstantial and corroborative material. The CIT(Appeals) concluded that the assessee had failed to discharge its statutory onus and that the principles of natural justice were not violated since the opportunity for cross-examination was duly provided. & 1491/Ahd/2025 Ratnadeep Infrastructure Private Limited vs.ITO Asst. Year : 2011-12 Accordingly, the CIT(A) confirmed the addition of Rs. 60,00,000/- as unexplained investment under section 69 and upheld the initiation of penalty proceedings under section 271(1)(c), thereby dismissing the appeal filed by the assessee in its entirety.

The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee.

We have heard the rival contentions and perused the material available on record. The only issue for consideration is whether the addition of Rs. 60,00,000/– as unexplained investment under section 69 of the Act, made by the Assessing Officer and confirmed by the CIT(A), can be sustained when the sole basis of such addition is the statement of a third party, Shri Bharatbhai A. Patel, recorded under section 131 of the Act. The learned Counsel for the assessee submitted that the entire addition rests only on the uncorroborated statement of Shri Bharatbhai Patel, who, as per the master data of M/s Hytaisun Magnetics Ltd. obtained from the ROC (page 115 of Paper Book), was never a Director, Managing Director, or Chairman of the said company and therefore had no authority to depose on behalf of the seller company. It was further submitted that even as per his own statement (page 91 of Paper Book), Shri Bharatbhai Patel admitted that there was no Banakhat or written agreement evidencing the alleged cash payment of Rs. 5,08,79,556/–, and that the bifurcation between cheque and cash was decided “orally.” The assessee contended that despite repeated requests, no effective opportunity for cross-examination of Shri Bharatbhai Patel was afforded. The Revenue merely stated that the witness could not attend due to medical reasons, and thereafter proceeded to rely on his statement without testing its veracity. The Counsel submitted that the assessee cannot be expected to & 1491/Ahd/2025 Ratnadeep Infrastructure Private Limited vs.ITO Asst. Year : 2011-12 prove a negative, namely that no cash payment was made, when the Revenue itself failed to bring any independent evidence to substantiate the alleged cash component. We find force in the submissions of the assessee. It is settled law that any statement recorded from a third party, without affording the assessee an opportunity to cross-examine such person, cannot be relied upon for making an addition. The Hon’ble Supreme Court in Andaman Timber Industries v. Commissioner of Central Excise [(2015) 62 taxmann.com 3 (SC)] held that denial of cross-examination where a statement forms the sole basis of the order amounts to a violation of the principles of natural justice, rendering the entire order null and void. The Court observed that not allowing cross-examination “is a serious flaw which makes the order a nullity inasmuch as it amounts to violation of principles of natural justice.” Similar view has been taken in Kishinchand Chellaram v. CIT [(1980) 125 ITR 713 (SC)] and Dhakeswari Cotton Mills Ltd. v. CIT [26 ITR 775 (SC)], where it was held that no addition can be made merely on the basis of untested statements or assumptions unsupported by evidence. The Hon’ble Gujarat High Court in CIT v. Indrajit Singh Suri [(2013) 33 taxmann.com 281 (Guj.)] and PCIT v. Kanubhai Maganlal Patel [(2017) 79 taxmann.com 257 (Guj.)] reiterated that where additions are based on statements of persons who were not made available for cross-examination, such additions cannot stand in law. Likewise, in Late Harbhajan Singh Makkar v. ACIT [ITA No. 2451/Del/2015, ITAT Delhi, order dated 16.10.2019], the Tribunal held that denial of cross-examination when the statement is the sole basis of addition is a serious flaw that renders the assessment order nullity.

In the present case, it is an undisputed fact that no other material or documentary evidence was brought on record by the Department to establish that the assessee had made any cash payment. The registered sale deed dated & 1491/Ahd/2025 Ratnadeep Infrastructure Private Limited vs.ITO Asst. Year : 2011-12 16.03.2012 (No. KAD/1382/2012), the registered Banakhat dated 27.06.2011, and the indemnity-cum-declaration executed by the seller company all confirm that the total sale consideration was Rs. 2,50,00,000/–, which was paid through banking channels. No document, seized material, or independent witness has been produced by the Revenue to corroborate the alleged cash payment. Even the seller company’s alleged revision of return is subsequent to the statement and cannot be treated as conclusive proof against the purchaser, especially when the seller’s representative’s authority and credibility itself are in doubt. Moreover, as pointed out by the learned Counsel, Shri Bharatbhai Patel, who gave the statement, was not a Director or shareholder of M/s Hytaisun Magnetics Ltd., and therefore, his statement has no legal sanctity. In his own words, he admitted that there was “no documentary evidence” to prove the alleged cash receipt. In such a situation, the Revenue’s reliance on an untested and unauthorized third- party statement cannot be sustained either in law or on facts. The addition has been made on pure suspicion and presumption without any cogent material. It is trite law that suspicion, however strong, cannot take the place of proof — as held by the Supreme Court in Omar Salay Mohamed Sait v. CIT [37 ITR 151 (SC)]. When the Department fails to produce reliable and admissible evidence, and when cross-examination of the only witness relied upon is denied, the addition so made cannot be legally upheld.

In light of the above discussion and the binding precedents of the Hon’ble Supreme Court and jurisdictional High Court, we hold that the addition of Rs. 60,00,000/– made under section 69 of the Act solely on the basis of an uncorroborated and untested third-party statement, without granting the assessee an opportunity to cross-examine, is unsustainable in law and deserves to be deleted. Accordingly, the impugned orders of the & 1491/Ahd/2025 Ratnadeep Infrastructure Private Limited vs.ITO Asst. Year : 2011-12 lower authorities are set aside and the addition of Rs. 60,00,000/– is directed to be deleted.

In the result, the appeal of the assessee is allowed. for AY 2012-13 11. Since the facts and issues for consideration are same for assessment year 2012-13 as well, the assessee’s appeal is allowed for assessment year 2012-13 as well.