INCOME-TAX OFFICER, WARD-1(2)(3), AHMEDABAD, AHMEDABAD vs. K. MART, PREM DARWAJA

The Revenue also filed following additional grounds of appeal:\n1. Whether on the facts and in the circumstances of the case and in law, the Ld.\nCIT(A) has erred in deleting the addition of Rs.2,65,00,000/- made u/s 69A of\nthe Act in the order passed u/s 147 r.w.s.144 of the Act, ex parte and without\nappreciating the facts of the case.\n2. Whether the Ld. CIT(A) has erred in not providing opportunity to the Assessing\nOfficer as per Rule 46A of the IT Rules, as the assessee had filed its submission\non 19.03.2022 at the fag end of the time barring date, which remained unverified,\nand the same is accepted as additional evidence without remanding the matter to\nthe AO for adjudication?\n5\n Income Tax Officer vs. K.Mart\nAsst. Year: 2017-18\n3. The appellant craves leave to amend or alter any ground or add a new ground,\nwhich may be necessary.\n4. It is therefore prayed that the order of the Ld. CIT(A) may be set aside and that\nof the Assessing Officer be restored.\nDuring the course of hearing before us, the Learned Departmental\nRepresentative (DR) submitted that the CIT(A) erred in deleting the addition\nof Rs.2.65 crore made under section 69A of the Act without giving an\nopportunity to the Assessing Officer to verify the assessee's reply dated\n19.03.2022. The DR contended that this submission, filed close to the time\nbarring date, was accepted without calling for a remand report, thereby\nviolating Rule 46A of the Income Tax Rules, 1962. It was further submitted\nthat the assessee had remained non-compliant during the assessment\nproceedings and the assessment was rightly completed ex parte u/s.144\nr.w.s.147 and 144B of the Act. The addition was based on survey findings\nand impounded hundis in the case of a third party, Shri Pravin S. Shah, and\nthe AO had valid reason to treat the cash loan as unexplained money. The\nDR, therefore, prayed for setting aside the CIT(A)'s order and restoring the\nmatter to the AO for fresh verification and adjudication.\n6. The Learned Authorized Representative (AR) for the assessee, on the\nother hand, strongly defended the order passed by the Learned CIT(A) and\nopposed the appeal filed by the Revenue. The AR submitted that the addition\nof Rs.2,65,00,000/- made by the AO under section 69A of the Act was wholly\nunjustified, arbitrary, and unsustainable in law. He pointed out that the\nreopening of the case was based solely on information received from a third-\nparty case, namely, Shri Pravin S. Shah, Proprietor of Manibhadra, pursuant\nto a survey conducted under section 133A of the Act. However, the AO failed\nto bring on record any direct or corroborative evidence to establish that the\nassessee had received any cash loan from the said party.\n7.\nThe AR submitted that the assessee had duly responded to the show\ncause notice dated 15.03.2022 by filing a reply on 19.03.2022, clearly denying\nany transaction with Shri Pravin S. Shah. The AR also submitted that, the\nassessee clarified, by way of reply to notice, that due to technical difficulties,\nit could not file a fresh return in response to notice under section 148 and had\ntherefore requested that the original return filed earlier be treated as the\nreturn filed in compliance. The AR argued that the Revenue's contention\nregarding violation of Rule 46A was factually incorrect, since the reply was\nfiled before completion of the assessment and formed part of the assessment\nrecords. Hence, it could not be treated as “additional evidence," and Rule 46A\nhad no application.\n7.1.\nIt was further pointed out that despite repeated requests, the AO failed\nto furnish the assessee with copies of the alleged hundis, the statement of Shri\nPravin S. Shah recorded under section 131 of the Act, or any other material\nrelied upon. The assessee was also not granted an opportunity to cross-\nexamine the said person. The AR contended that such failure to supply\nmaterial and deny cross-examination amounted to a gross violation of the\nprinciples of natural justice, and therefore, the entire addition was vitiated.\nThe AR further submitted that based on the turnover of Rs.36.30 lakhs\ndeclared by the assessee, the maximum working capital requirement, even\nunder liberal banking norms, would not exceed Rs.7.5 lakhs. Therefore, the\nconclusion drawn by the AO that the assessee had taken a cash loan of\n6\nITA No.1323/Ahd/2024\nThe Income Tax Officer vs. K.Mart\nAsst. Year: 2017-18\nRs.2.65 crores was not only unsubstantiated but also illogical. It was argued\nthat the AO proceeded on the basis of suspicion and surmise alone, without\nany real-time inquiry or verification. The AR emphasized that it is a settled\nprinciple of law that suspicion, however strong, cannot take the place of\nevidence.\n7.2.\nIn support of the submissions, the AR relied upon the decision of the\nCo-ordinate Bench in the case of Kirtikumar Champaklal Shah v. ITO (ITA\nNo. 1014/Ahd/2023), where the Tribunal had deleted the addition made\nsolely on the basis of third-party information in excel sheet and without\nallowing cross-examination. He also placed reliance on the decision of the\nHon'ble Gujarat High Court in the case of Kaushik Nanubhai Majithia (Tax\nAppeal No. 20 of 2024 dated 06.03.2024), which held that when third-party\nmaterial is used against an assessee, opportunity of cross-examination must\nbe provided and corroborative evidence must be brought on record to\nsupport the addition.\n8.\nWe have heard the rival submissions and carefully perused the orders\nof the lower authorities as well as the materials available on record. The core\nissue for consideration in the present appeal is the validity of the addition of\nRs.2,65,00,000/- made by the Assessing Officer under section 69A of the Act,\nbased on information received from a third-party survey conducted in the\ncase of one Shri Pravin S. Shah, wherein it was alleged that the assessee had\nreceived unexplained cash loans through hundis during the relevant\nprevious year.\n7\nITA No.1323/Ahd/2024\nThe Income Tax Officer vs. K.Mart\nAsst. Year: 2017-18\n8.1.\nThe assessment was framed ex parte under section 144 r.w.s.147 and\n144B of the Act. It is an undisputed fact that the assessee responded to the\nshow-cause notice dated 15.03.2022 and filed a detailed reply on 19.03.2022,\ncategorically denying any transaction with the said third party. The assessee\nalso submitted that it faced technical issues in filing the return electronically\nand had requested that the original return already on record be treated as\nreturn filed in response to notice under section 148 of the Act. The Assessing\nOfficer, however, did not acknowledge or discuss the said reply and\nproceeded to make the impugned addition solely based on the third-party\ninformation, without bringing any independent corroborative material on\nrecord or allowing cross-examination of the said third party, despite specific\nrequest.\n8.2.\nIt is settled law that for invoking the provisions of section 69A of the\nAct, the Revenue must establish that the assessee is the owner or possessor of\nthe alleged unexplained money and that such money has not been recorded\nin the books of account. In the present case, there is no material brought on\nrecord by the Assessing Officer to prove the existence of any actual\ntransaction between the assessee and Shri Pravin S. Shah. No copy of the\nalleged hundi, no date-wise loan record, no signature of the assessee, and no\nstatement of Shri Pravin S. Shah relied upon by the AO has been brought on\nrecord or confronted to the assessee. There is also no evidence to show that\nany money was found in possession of the assessee or routed through its\nbooks.\n8.3.\nThe entire addition is based on generalized information received from\na third-party survey and lacks any evidentiary value in the absence of\n8\nITA No.1323/Ahd/2024\nThe Income Tax Officer vs. K.Mart\nAsst. Year: 2017-18\ncorroboration. It is trite law that documents found in possession of a third\nparty cannot be used against an assessee unless the material is confronted\nand opportunity of rebuttal, including cross-examination, is granted. This\nprinciple has been reaffirmed by the Hon'ble Gujarat High Court in the case\nof Kaushik Nanubhai Majithia (Tax Appeal No. 20 of 2024, dated\n06.03.2024).\n8.4.\nThe Revenue's contention that the CIT(A) violated Rule 46Am of the\nAct is misplaced. The reply dated 19.03.2022 was filed in response to a show\ncause notice during the course of assessment proceedings and formed part of\nthe assessment record. It was not a case of fresh evidence being filed for the\nfirst time before the CIT(A). Therefore, Rule 46A of the Act has no application.\nThe CIT(A), in our considered view, rightly appreciated the facts and the\nlegal position in deleting the addition.\n8.5.\nWe also note that the CIT(A) relied upon the CBDT Circular No. 20\ndated 07.07.1964, which clarifies that for invoking section 69A of the Act,\nownership must be clearly established, and the explanation of the assessee\nmust be found unsatisfactory after due inquiry. None of these preconditions\nwere satisfied by the AO in the present case. The addition was made in a\nmechanical and arbitrary manner without discharging the burden of proof\nwhich squarely lay upon the Revenue.\n8.6.\nIn view of the above legal and factual matrix, we find no infirmity in\nthe order of the CIT(A) deleting the addition. The findings of the CIT(A) are\nreasoned, legally sound, and in accordance with binding judicial precedents.\n9\nITA No.1323/Ahd/2024\nThe Income Tax Officer vs. K.Mart\nAsst. Year: 2017-18\n9.\nIn the result, the appeal filed by the Revenue is dismissed.\nOrder pronounced in the Open Court on 1st April, 2025 at Ahmedabad.\nSd/-\nSd/-\n(SUCHITRA KAMBLE)\nJUDICIAL MEMBER\n(MAKARAND V. MAHADEOKAR)\nACCOUNTANT MEMBER\nअहमदाबाद/Ahmedabad, दिनांक/Dated 01/04/2025\nटी. सी. नायर, व.नि. स. / T.C. NAIR, Sr. PS\nआदेश की प्रतिलिपि अग्रेषित/