SMT. G. HEMALATHA,,CHENNAI vs. ACIT, CC-1(3),, CHENNAI

The brief facts are that the Assessee had filed the original return of income for the Assessment Year 2015 – 2016 on 24th June, 2017 admitting a total income of Rs.4,51,18,970/- . Subsequently, a search and seizure operation was conducted in M/s. Pothys Private Limited group of cases on 18.10.2016. As a part of the search and seizure operation with a warrant in the name of M/s. Pothys Private Limited, the 3 -: office premises at No.15, Nageswara Rao Road, T. Nagar, Chennai – 600 017 was covered. During the course of the search at the above premises, printouts of cash ledger maintained in a pen-drive was taken out and was seized from which it was seen that Shri. K.V.P. Sadayandi and others had paid an amount of Rs.34,73,87,000/- as on-money to Smt.G. Hemalatha in connection with the purchase of property. Since the seized material had bearing on total income of the Assessee, after recording satisfaction note, the same was transferred to the Assessing Officer having jurisdiction over the Assessee. Pursuant to the transfer, the Assessing Officer has issued a notice u/s.153C dated 19.09.2019 to the Assessee and in response to the notice issued, the Assessee filed the return of income on 13.11.2008 admitting a total income of Rs.4,51,18,970/-. The Assessing Officer has found from the seized material that the Assessee has sold an immovable property for a consideration Rs.28,00,00,000/- to Shri. K.V.P. Sadayandi and others vide sale deed numbers 9676 dated 20.11.2014 during the Financial Year 2014 – 2015 relevant to the Assessment Year 2015 – 2016. Further, the Assessing Officer has seen from the seized document at Page Nos.514 to 516 of ANN/SP/PPL/LS/S-2 and Page No.69 of ANN/SP/PPL/LS/S-7 that an amount of Rs.34,73,87,000/- has been received from Shri. K.V.P. Sadayandi and others in cash, over and above the consideration mentioned in the sale deed.

The Assessing Officer had issued a show-cause notice to the Assessee to explain as to why the amount of Rs.34,73,87,000/- was 5 -: received over and above the sale consideration which should not be brought to tax as on-money and as to why the amount of Rs.7,27,75,182/- should not be brought to tax as per the provisions of Section 50C of the Income Tax Act, 1961. However, the Assessee had denied receipt of the on-money before the Assessing Officer.

In the Assessment Order, the Assessing Officer had noted that it is a fact that the Assessee had sold the property to M/s. Pothys Group, i.e. Shri. K.V.P. Sadayandi and others and therefore the seized documents are directly attributable to this transaction. As far as the seized documents are concerned, the Assessing Officer had noted that they were not merely a loose sheet with scribbling over it. It was a running account maintained at the business premises of M/s. Pothys Private Limited. These accounts were maintained by one, Shri S. Balasubramaniam, Accounts Assistant who is reporting to Mr. Sultan Mohideen, Chief Accountant. Further, Mr. S. Ramesh had admitted that the amounts have been paid as on-money in respect of the property purchased from the Assessee in his answer to the Question No.40 of his statement, recorded on 19.10.2016 with regard to the pages 514 to 516 of ANN/SP/PPL/LS/S-2, had admitted that an additional income of Rs.44,95,37,490/- for the Assessment Year 2015 – 2016. A statement was also recorded from Shri S. Balasubramanian, Accounts

The Assessing Officer by considering the seized documents that are mentioned in the aforesaid paragraph No.3 and also by considering the statement given by Shri S. Ramesh, Managing Director of M/s. Pothys Private Limited and also the statement given by Shri. S. Balasubramanian, Accounts Assistant came to a conclusion that the Assessee had received an amount of Rs.34,73,87,000/- in cash, over and above the sale consideration in the return of income. As on-money is being assessed in the hands of the Assessee, the amount of Rs.7,27,75,182/- being the excess of guideline value over the stamp duty value is telescoped and not considered for addition. Accordingly, the amount of Rs.34,73,87,000/- was brought to tax in the hands of the Assessee, (Income from capital gains).

Assessee carried the matter before the learned Commissioner of Income Tax (Appeals). The addition made by the Assessing Officer is based on the statement of the third parties. No opportunity was given to the Assessee to cross-examine the witnesses responsible for making the 7 -: addition to the income of the Assessee for the Assessment Year 2015 – 2016. It is further submitted that as per the seized document, nowhere it is mentioned that who has received the on-money paid in respect of the Chrompet property. Therefore, addition cannot be made in the hands of the Assessee unless it is fully established that the payment is made to the Assessee.

The learned Commissioner of Income Tax (Appeals) after considering the entire submissions of the Assessee has held that the cash payment have been given to the buyer group in relation to the Chrompet property. The Assessing Officer has drawn an appropriate and legally tenable inference based on the systematic and contemporaneous recording in the excel sheet that has been maintained for the purpose of financial transactions of the buyer group. The narration Chrompet-property could not by any stretch of imagination be said to be accidental or intentional. No prudent person and that too a business entity that has substantial huge financial transactions relating to its trading and investment activities would pick a random location such as Chrompet. It is only reasonable that the narrations are construed as relating to the impugned property transactions, i.e. the sale of property located at No.46, Rangasamy Street, Zameen, Pallavaram, Chrompet.

He has also noted that the buyer has admitted that the additional and unaccounted income was in his hands. In so far as the cross- examination is concerned, the learned Commissioner of Income Tax (Appeals) has observed that the assessee has not been asked for cross examination of all the parties who gave the statement before the Assessing Officer and therefore the plea of denial of natural justice cannot be put forth before the ld. CIT(A) and distinguished the citation of Andaman Timber Industries Vs. Commissioner of Central Excise [2016] 15 SCC 785.

On being aggrieved, the Assessee carried the matter before the Tribunal.

The learned Counsel for the Assessee has submitted that a search was conducted at M/s. Pothys Private Limited, Group case and they seized the documents, wherein payment in cash was paid to Chrompet, and nowhere the Assessee’s name was mentioned. He further submitted that based on the seized materials and also of the statement given by Shri S. Ramesh, Managing Director of the company and Shri S. Balasubmramanian, Account Assistant, addition was made and no cash was seized from the Assessee but only on the basis of the seized material, with reference to Chrompet and the statement given by the 9 -: Managing Director and the Accounts Assistant, the addition was made and he submitted that this cannot be sustained. He further submitted that the Assessing Officer was not allowed to cross-examine the parties who gave the statement before him stating that the on-money was paid and therefore it was submitted that it is a clear violation of the principles of natural justice and relied upon the citation Andaman Timber Industries Vs. Commissioner of Central Excise (supra) and submitted that the addition cannot survive. He alternatively submitted that the issue may be remitted back to the Assessing Officer to allow the Assessing Officer to cross-examine the third-parties who made the statement with reference to the on-money payment.

On the other hand, the learned Departmental Representative has submitted that the seized document clearly mentioned that which is in Page No.3 of the Assessment Order, the payment of on-money made in different dates, wherein specifically mentioned Chrompet / Chrompet property and submitted that the Assessing Officer after examining all the details, the addition was made. He further submitted that the Managing Director of M/s. Pothys Private Limited has admitted that the on-money was paid and additional income was offered for taxation. Therefore, the addition made by the Assessing Officer was based on the incriminating materials and 10 -: submitted that the addition has to survive or sustain. In so far as the cross-examination is concerned, the Assessee has not asked before the Assessing Officer and therefore the learned Commissioner of Income Tax (Appeals) rightly observed that no cross-examination is required and that he also distinguished the case-law relied by the Assessee in the case of Andaman Timber Industries Vs. Commissioner of Central Excise (supra) and submitted that the Assessing Officer and the learned Commissioner of Income Tax (Appeals) has passed a detailed order by considering all the factual and legal issues and strongly supported the orders of the lower authorities.

We have heard both the sides, perused the materials available on record and gone through the orders of the authorities below. There was a search operation conducted at M/s. Pothys Private Limited on 18.10.2016 at the office premises at No.15, Nageswara Rao Road, T. Nagar, Chennai – 600 017. During the course of the search at the above premises, printouts of cash ledger maintained in a pen-drive was taken out and was seized from which it was seen that Shri. K.V.P. Sadayandi and others had paid an amount of Rs.34,73,87,000/- as on-money to Smt.G. Hemalatha in connection with the purchase of property. The seized material that was referred by the Assessing Officer in Page No.3 of the Assessment Order shows that the payments were made in 11 -: reference to the Chrompet property in different dates and in different amounts, (approximately about 20 times). Only in one transaction which is on 03.12.2015, the name of Smt. G. Hemalatha was mentioned and in all other remaining transactions, only the reference was made to Chrompet property. The Assessing Officer has examined one Mr. S. Ramesh, Managing Director of M/s. Pothys Private Limited who has admitted that on-money payment in respect of the Chrompet property was offered for taxation along with the additional income. In his statement, nowhere he has mentioned that payment was made to Smt. G. Hemalatha. The statement of Mr. S. Balasubramanian who is the Accounts Assistant, was also recorded and he also stated that the on- money was paid but no reference to Smt. G. Hemalatha. The Assessee has denied receipt of the on-money and submitted before the Assessing Officer that she has received the sale consideration as per the sale deed to nearly about Rs.28,00,00,000/-. However, the Assessing Officer by considering the seized document and also the statements given by Mr. S. Ramesh, Managing Director of M/s. Pothys Private Limited and the Accounts Assistant, additions were made. On appeal, the learned Commissioner of Income Tax (Appeals) has confirmed the order of the Assessing Officer.

We find that from the seized document, except one transaction, nowhere the name of the Assessee is mentioned.

Under these facts and circumstances, we are of the opinion that the Assessing Officer ought to have given an opportunity to the Assessee to cross-examine all the parties, whose statement were the basis on which the Assessing Officer had made additions. In this context, the Hon’ble Supreme Court in the case of Andaman Timber Industries Vs. Commissioner of Central Excise (Supra), wherein the Hon’ble Supreme Court has held that failure to allow to cross- examine all the witnesses whose statement is relied upon is a breach to principles of natural justice and referred to the order in nullity.

Keeping in view the decision of the Hon’ble Supreme Court in the case of Andaman Timber Industries Vs. Commissioner of Central Excise (supra), we set aside the order passed by the learned Commissioner of Income Tax (Appeals) and remit the issue back to the file of the Assessing Officer and direct the Assessing Officer to allow the Assessee

In the result, the appeal of the Assessee in is allowed for statistical purpose. Order pronounced on 22nd July, 2021 in Chennai.