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Facts
The assessee, engaged in denim cloth trading, filed its income tax return for AY 2018-19. Information from a search on Mr. Sanjay Tibrewal, an accommodation entry provider, led to the assessee being identified as a beneficiary of alleged bogus transactions amounting to ₹1,16,32,855/-. The AO and CIT(A) added this amount as unexplained money under Section 69A and denied the assessee's request for cross-examination of Mr. Tibrewal.
Held
The Tribunal found that the assessee had provided documentary evidence of sales, including cheque payments and lorry receipts, and had already credited the amount as sales and offered it to tax. It held that denying cross-examination, especially when adverse inferences are drawn from third-party statements, vitiates assessment proceedings. Citing High Court judgments, the Tribunal concluded that taxing the same income again under Section 69A would lead to double taxation.
Key Issues
Whether the addition of ₹1,16,32,855/- as unexplained money under Section 69A was justified when the sales were already recorded and offered for tax, and whether the denial of cross-examination of the third party whose statement formed the basis of the addition was proper.
Sections Cited
147, 144B, 143(1), 132, 142(1), 132(4), 133(6), 69A, 115BBE, 271AAC, 148
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Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: SMT. ANNAPURNA GUPTA & SHRI SIDDHARTHA NAUTIYAL
O R D E R
PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:
This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 19.11.2024 passed for A.Y. 2018-19. 2. The assessee has raised the following grounds of appeal:
1. That on the facts and circumstances of the case, the assessment under section 147 read with section 144B of the Income-tax Act, 1961 ( the Act") at an income of INR 1,52,30,465 is bad in law and void-ab-initio.
2. That on the facts and circumstances of the case, Learned Assessing Officer ["Ld. AO"] and Commissioner of Income tax (Appeals) ["CIT(A)"] have failed to appreciate that the transactions undertaken by the Appellant are genuine and duly supported by the evidences furnished during the course of assessment.
3. Ld. AO and CIT(A) has erred both in law and on facts without appreciating the sales can-not be treated as accommodation entry where the purchase and inventory records are duly audited and accepted by Ld. AO / CIT(A) to be genuine. Kartik Clothing & Fabrics Pvt. Ltd. vs. DCIT Asst.Year –2018-19 - 2–
4. Ld. AO and CIT (A) has erred both in law and on facts without appreciating the fact that sales to specific parties is supported by documentary evidences and books of accounts are duly audited by chartered accountant without any adverse remarks.
5. That on the facts and circumstances of the case, the assessment order passed under section 147 read with section 144B of the Act is invalid and bad in law as the same has been passed without providing opportunity of cross examination of the concerned persons in whose case search operations were carried out. 6. That on the facts and circumstances of the case, Ld. AO has erred on facts and in law while stating that no response was received in response to notice issued under section 133(6) of the Act, while in facts the response was duly filed and also acknowledged by Ld. AO in the order itself. 7. That on the facts and circumstances of the case, the order passed by Ld. CIT
(A) is bad in law as the same has been passed without providing an opportunity of being heard and without dealing with contentions and grounds of appeal raised by the Appellant.
8. That Ld. AO and CIT(A) has erred both in law and on facts while making the addition of INR 1,16,32,855 u/s 69A r.w.s. 115BBE of the Act and the same is required to be deleted.
9. Without prejudice, Learned Assessing Officer and Commissioner of Income tax (Appeals) has erred both in law and on facts while making the addition of INR 1,16,32,855 u/s 69A r.w.s. 115BBE of the Act without appreciating the fact that section 69A can be invoked only where the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of the account, if any maintained by the appellant for any source of income.
10. Without prejudice, if at all any addition is warranted, the same may be restricted only to the extent of average net profit applied on alleged sales transaction of INR 1,16,32,855 declared in the return of income and audit report filed for AY 2018- 19 and accepted by Ld. AO during the course of assessment proceedings.”
3. The brief facts of the case are that the assessee, Kartik Clothing & Fabrics Pvt. Ltd., is a company engaged in the business of trading in denim cloth and had filed its return of income for the Assessment Year (A.Y.) 2018- 19 on 11.10.2018, declaring a total income of ₹35,97,610/-. The return was initially processed under section 143(1) of the Income-tax Act, 1961 (Act). Subsequently, based on information received from the office of the DDIT(Inv.)-1(2), Ahmedabad, which had conducted a search under section 132 of the Act on 12.04.2019 at the premises of one Mr. Sanjay Govindram Agarwal (also known as Sanjay Tibrewal), who was found to be engaged in providing accommodation entries through various entities, including Ganpati Kartik Clothing & Fabrics Pvt. Ltd. vs. DCIT Asst.Year –2018-19 - 3– Textiles, Hanuman Fabrics, and Narayan & Company. During the search, it was discovered that Mr. Tibrewal was involved in the business of cash discounting and accommodation entries using dummy firms, where cash was layered through various accounts and returned to the beneficiary parties in the guise of legitimate transactions. The assessee was identified as one such beneficiary, having allegedly received accommodation entries amounting to ₹1,16,32,855/- during the Financial Year 2017-18 under the heads of transactions with the aforementioned entities. During assessment proceedings, the assessee expressed difficulty in verifying the alleged transactions in the absence of specific details such as cheque numbers and transaction dates. The assessee also raised objections about not having been provided with the statement of Mr. Tibrewal and sought an opportunity for cross-examination. The Department responded by issuing another notice u/s 142(1) on 22.02.2023, enclosing the relevant extract from the statement recorded under section 132(4) of Mr. Tibrewal, wherein he admitted to the accommodation entry business and named the assessee as one of the beneficiaries. The Assessing Officer noted that despite this, no further substantive reply was submitted by the assessee. Simultaneously, the Assessing Officer issued notices under section 133(6) of the Act to Mr. Sanjay Tibrewal, Jigna Shah, and Alpaben Shah, but no replies were received from Jigna Shah or Alpaben Shah, and the reply from Mr. Tibrewal did not satisfactorily address the transactions with the three parties mentioned. The assessee vide response dated 14.03.2023, reiterated the request for cross- examination and submitted that the transactions were genuine sales, supported by ledger extracts for the three entities - Ganpati Textiles (₹48,72,855), Hanuman Fabrics (₹42,25,000), and Narayan & Co. (₹25,35,000). However, the Assessing Officer was of the view that except for ledger copies, no other documentary evidence such as sales invoices, delivery challans, transport receipts, or confirmations from these parties were Kartik Clothing & Fabrics Pvt. Ltd. vs. DCIT Asst.Year –2018-19 - 4– furnished. The Assessing Officer noted that upon further examination it can be seen that while Mr. Tibrewal’s entity had shown purchases from the assessee amounting to ₹39,87,106 in F.Y. 2017-18, payments against these were made only in the subsequent year, which raised questions about the veracity and timing of these transactions. Based on the evidence gathered, including Mr. Tibrewal’s admission, bank transaction patterns involving high-value cash withdrawals, and the assessee’s failure to provide evidence to prove the genuineness and creditworthiness of the parties. Accordingly, the Assessing Officer held that the amount of ₹1,16,32,855/- represented unexplained money. The assessee’s requests for cross-examination were rejected on the grounds that the right to cross-examination is not absolute and, in the present case, it was not deemed necessary in light of the overwhelming evidence against the assessee. Accordingly, the aforesaid sales were added to the total income under section 69A of the Act. The final assessed income for A.Y. 2018-19 was computed at ₹1,52,30,465/-, and penalty proceedings under section 271AAC were also initiated for concealment of income.
4. In appeal, CIT(Appeals) dismissed the appeal of the assessee. The assessee had challenged the reopening of assessment under Section 148 of the Act and the addition of ₹1,16,32,855/- made under Section 69A of the Act as unexplained money. The CIT(A) upheld the validity of notice issued under section 148 of the Act by noting that the Assessing Officer had received credible information from the Investigation Wing following a search action on one Sanjay Govindram Agarwal (also known as Sanjay Tibrewal), who was found to be engaged in providing accommodation entries through bogus concerns like Ganpati Textiles, Hanuman Fabrics, and Narayan & Co. The assessee was specifically named as a beneficiary of such entries during the impugned assessment year. The CIT(Appeals) held that the assessee could not furnish sufficient evidence to prove the genuineness of the sales Kartik Clothing & Fabrics Pvt. Ltd. vs. DCIT Asst.Year –2018-19 - 5– made to these parties during assessment or appellate proceedings. Merely submitting ledger extracts without supporting documents was held by CIT(Appeals) to be inadequate. The CIT(A) also rejected the assessee's argument regarding the denial of cross-examination, holding that such a right is not absolute and depends on the context of the case. Given the lack of documentary evidence, failure to prove the identity and creditworthiness of the parties, and the findings of the Investigation Wing, the CIT(A) confirmed the addition of ₹1,16,32,855/- as unexplained money under Section 69A and dismissed the appeal of the assessee.
5. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee. Before us, the Counsel for the assessee submitted that the assessee is a trader in clothes and does not sell in cash. The assessee had submitted list of parties to whom sales have been made, he had produced the sale bills and also the details of cheque payments received from these parties. The assessee had also made a request for cross examination of the concerned parties, which was denied to the assessee. The Counsel for the assessee drew our attention to page 57 of Paper- Book being the details of cheques received from M/s Ganpati Textiles. The Counsel for the assessee also drew our attention to page 60 of the Paper- Book, being lorry receipt towards proof of transportation of goods sold by the assessee. Further, the Counsel for the assessee submitted that the sale consideration had also been credited as sales in the profit and loss account and the assessee had also offered the aforesaid sales as its taxable income sales for the impugned assessment year under consideration. Accordingly, the Counsel for the assessee submitted that once the sales had been offered as income by the assessee during the impugned assessment year under consideration and taxes paid thereon, by making separate addition of the same sale consideration u/s 69A of the Act would amount to double taxation. The Counsel for the assessee also drew our attention to page 144 of Paper- Kartik Clothing & Fabrics Pvt. Ltd. vs. DCIT Asst.Year –2018-19 - 6– Book giving the details of cheques received from M/s C Narayan. The Counsel for the assessee drew our attention to page 470 of Paper-Book giving details of purchase bills. Accordingly, the Counsel for the assessee submitted that in light of the above facts, there is no occasion to invoke the provisions of section 69A of the Act. Further, it was submitted that it is a well settled law that denial of opportunity of cross examination also renders the assessment order bad in law.
In response, the Ld. DR placed reliance on the observations made by the Assessing Officer and Ld. CIT(Appeals) in their respective orders.
We have heard the rival contentions and perused the material on record. In the case of Commissioner of Income-tax vs. Navinbhai N. Patel [2014] 41 taxmann.com 424 (Gujarat)/[2014] 221 Taxman 141 (Gujarat) (Mag.)[30-04-2013], in the course of search, some documents were seized evidencing receipts against sale of land. The Assessee submitted that said deal of sale of land did not materialize and sum received was returned back to purchaser and that land was sold to another purchaser and accordingly, he offered short-term capital gains. However, Assessing Officer was following the view that sum received from first purchaser was unaccounted income of assessee and made the addition. The Gujarat High Court held that since documents seized during search indicated receipt of money from purchasers and repayment by assessee at different dates and assessee had disclosed short term capital gain on entire amount, any attempt on part of Revenue to tax said amount once again would amount to double taxation. In the case of Principal Commissioner of Income-tax -Central Ludhiana vs. Garg Acrylics Ltd. [2025] 174 taxmann.com 1061 (Delhi)/[2025] 305 Taxman 285 (Delhi)/[2025] 476 ITR 737 (Delhi)[22-05- 2025], during the relevant year, Assessing Officer made an addition to assessee's income based on difference between receipts from alleged bogus Kartik Clothing & Fabrics Pvt. Ltd. vs. DCIT Asst.Year –2018-19 - 7– sales and payments towards bogus purchases, treating net amount as undisclosed income. In appeal, Delhi High Court noted that sales were already reflected in revenue disclosed by assessee and payments represented outflow on account of purchases. Thus, net revenue (sales minus purchases) was already included in declared income. Therefore, in light of the above facts, at best, Assessing Officer could have disallowed any related expenditure. However, by separately adding net revenue again, Assessing Officer effectively taxed same income twice. Accordingly, High Court held that the impugned addition amounted to double taxation and was liable to be deleted.
After considering the submissions of both parties and examining the material available on record, we find that the addition of ₹1,16,32,855/- made by the Assessing Officer and sustained by the CIT(Appeals) under section 69A of the Act is not sustainable in the eyes of law. The assessee is engaged in the business of trading in denim cloth and had declared income of ₹35,97,610/- in its return for A.Y. 2018-19. The case was reopened based on information obtained during the search conducted on Mr. Sanjay Tibrewal, who was found to be running an accommodation entry business. The assessee was treated as a beneficiary of alleged bogus transactions with entities such as Ganpati Textiles, Hanuman Fabrics, and Narayan & Co., and the entire amount received from these entities was treated as unexplained money. However, before us, the Counsel for the assessee has drawn attention to relevant documentary evidence placed in the Paper Book. It was pointed out that the assessee had provided full details of sales made to the above parties, including sale bills, ledger accounts, and details of cheque payments, as placed at pages 57 and 144 of the Paper Book. The assessee also submitted lorry receipts evidencing actual transportation of goods to these parties, as placed at page 60 of the Paper Book. Further, the assessee demonstrated that the entire amount in question had been credited as sales in the profit and loss Kartik Clothing & Fabrics Pvt. Ltd. vs. DCIT Asst.Year –2018-19 - 8– account and was duly offered to tax during the impugned assessment year. These facts have not been rebutted by the Revenue. The assessee had also specifically requested an opportunity to cross-examine Mr. Tibrewal, whose statement formed the basis of the addition, but this opportunity was denied on the ground that the right to cross-examination is not absolute. In our considered view, in cases where an adverse inference is drawn based primarily on third-party statements, denial of cross-examination vitiates the assessment proceedings. Further, the Gujarat High Court in the case CIT vs. Navinbhai N. Patel and the Hon’ble Delhi High Court in PCIT vs. Garg Acrylics Ltd. have held that once a transaction has been recorded in the books of accounts and income therefrom has been offered to tax, the same amount cannot be taxed again by treating it as unexplained or undisclosed income, as doing so would result in double taxation. The present case in our considered view is covered by these Judgments, as the assessee has already included the impugned sales in its revenue and paid tax thereon. Treating the same amount again as unexplained money under section 69A of the Act amounts to taxing the same income twice. Accordingly, in light of the facts presented, the documentary evidence submitted by the assessee, the denial of cross-examination which affected the principles of natural justice, and the settled legal position laid down by the Hon’ble Gujarat and Delhi High Courts, we are of the view that the addition of ₹1,16,32,855/- made under section 69A is not justified and is liable to be deleted.