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Facts
The assessee company allegedly paid on-money cash for the purchase of flats. This information was received from an investigation wing following a search action. The Assessing Officer (AO) made an addition to the assessee's income based on this information.
Held
The Tribunal held that the addition made by the AO was not sustainable. This was because the addition was based on a third-party statement and annexure-1, without corroborative evidence and without providing the assessee an opportunity to cross-examine the person who gave the statement.
Key Issues
Whether an addition can be made based on a third-party statement/document without providing an opportunity for cross-examination or contradiction?
Sections Cited
250 of the Income Tax Act, 1961, 132 of the Income Tax Act, 1961, 148 of the Act, 147 of the Act, 69C of the Act, 34 of the Evidence Act, 1972
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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI GAGAN GOYAL
Per : Narender Kumar Choudhry, Judicial Member:
Instant appeal and Cross objection have been preferred by the by the Revenue Department and the Assessee, against the order dated 04.07.2024, impugned herein, passed by the National Faceless Appeal Center (NFAC)/ Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) under section 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2007-08. we observe that an information was received from the office of DIT (Investigation)-2, Mumbai vide letter dated 27.03.2014 consequent to search action conducted u/s 132 on 11.03.2014 on Hiranandani Builder and Developer Group wherein certain evidences were found vis-à-vis that the Assessee Company has paid on money detailed below (cash for purchase of flats no.1601 & 2602 in Glenridge building constructed by M/s. Crescendo Associates of Hiranandani group) as per annexure-1.
Date of payments as Name of actual purchaser Flat Concern of Amount of On per evidence No. Hiranandani Group money per evidence
09.12.2008 1601 Energja Consultancy Pvt Crescendo 1,31,67,500/- Ltd. Associates 09.12.2008 2602 Crescendo 1,76,54,300/- Eriergia Consultancy Pvt Ltd. Associates 09.12.2006 1601 525,000/- Crescendo Energia Consultancy Pvt Ltd. Associates 3,43,46,800 /- TOTAL
On the basis of aforesaid information, the case of the Assessee was reopened by recording reasons for reopening and consequently notice dated 29.03.2014 u/s 148 of the Act was issued, in response to which the Assessee vide letter dated 19.02.2015 submitted that return of income filed originally on 27.10.2007 may be treated as filed in response to the notice u/s 148 of the Act. The Assessee in response to the show cause, vide letter dated 19.02.2015 inter-alia contended that it has not purchased flat No.1601. The Assessee also contended that information received from the office of DIT(Inv.) is not correct and reliable as far as purchase of flat No.1601 is concerned.
3.2 The Assessing Officer (AO) in order to examine the contentions raised by the Assessee, also raised enquiries with M/s. Crescendo Associates in this regard and asked to give the details of transactions in F.Y. 2006-07 qua flat No.1601 & 2062. The M/s. Crescendo Associates filed the cancellation letters dated 29.10.2007 qua flats no.1601/A, 1601/B & 1601/C and also filed copies of ledger account in respect of payment made by the Assessee for each flat.
3.3. The Assessee before the AO raised two issues; first whether any evidence is available in respect of cash payment on account of purchase of said flats, secondly flat No.1601 does not belong to the Assessee, hence the Assessee cannot be asked to explain the transaction in respect of said flat.
3.4 Thereafter vide detailed show cause notice dated 20.03.2015 giving detailed reasons and inclosing of the information available with the AO, the AO asked the Assessee to explain “as to why the amount of Rs.3,13,43,600/- so allegedly paid to M/s. Crescendo Associates, as onmoney in cash be not added to the total income of the Assessee u/s 69C of the Act”.
3.5 The Assessee mainly denied to have made any cash payment as alleged. The Assessee further asked the AO to provide the evidence against the Assessee and also an opportunity to cross examine the person whose statement has been recorded, so that the correctness of his disclosure as well as the relevance of the same can be examined.
3.6 The AO though considered the contentions raised by the Assessee, however not being influenced, not accepted the same and ultimately added the amount of Rs.3,13,43,600/- in the total income of the assessee u/s 69C of the Act, by observing and holding mainly as under:
“Relevant portion of annexure-A1 containing the details of onmoney transactions were duly confronted with Shri Niranjan Hiranandani at the time of his statement on 14.03.2014 which was duly provided with the show cause notice issued to the Assessee. Even relevant portion was reproduced in the show cause notice. Therefore, it is not correct on the part of the Assessee to contend that the relevant details are not given or there is no clarity as to the building in respect of which the unaccounted cash receipt in respect of sale of flats has been declared. Further, the request for cross examination of the person whose statement has been recorded, cannot be acceded to. It is not required, in view of the availability of the conclusive evidence and supporting statements as provided by investigation wing of the Department after conducting proper enquiry, investigation and due deliberation. It is also not possible due to proceeding getting barred by limitation on 31.03.2015. The AO ultimately added the amount of Rs.3,13,43,600/- in the total income of the Assessee u/s 69C of the Act”.
The Assessee, being aggrieved, challenged the said addition on merit as well as reopening of the case u/s 147 of the Act before the Ld. Commissioner, who vide impugned order though affirmed the reopening of the case, however deleted the addition under consideration by holding as under:
“5.17 In this case appeal was filed by the appellant on 15.04.2015 against order of the assessing officer u/s 143(3) r.w.s 147 dated 27.05.2015. Detailed submission were filed by the appellant on 25.07.2016. In view of the submissions of the appellant remand report was called by CIT(A)-12, Mumbai.
The case was transferred to the faceless appeal and in view of the submissions of the appellant again remand report was called for on 08.02.2023. Reminders were sent for the submission of the remand report on 27.03.2023, 15.05.2023 and 01.12.2023 but the report has not been received in this office till date. As no remand report has not been received in the case hence the order is being finalized on the basis of material available on record.
5.18 Appellant has submitted that the statement of Sh. Niranjan Hiranandani does not support the allegation made by the assessing officer. During the course of search in Hiranandani Group Annexure-1 was found which showed that Energia Consultancy had paid cash for purchase of two flats to Crescendo Associates. It was based upon this annexure that addition in the case of the appellant was made. The total cash payment was Rs. 3,13,46,800/-. As alleged by the appellant no cross examination of Sh. Niranjan Hiranandani was provided to the appellant. Furthermore the appellant has also submitted that the statement of Sh. Niranjan Hiranandani nowhere refers to any building or any flat in respect of which on-money has been paid. The statement has no significance as no specifics have been mentioned. Furthermore, Annexure A-1 based upon which the addition has been made was also never provided to the appellant during the assessment proceeding.
5.19 The appellant has also submitted that flat no. 1601 does not belong to the appellant as the same was initially booked but cancelled within few days. The crucial evidence in favour of the appellant is that when an enquiry with Crescendo Associates was made to provide details of the transactions with the appellant they replied that appellant had booked flat no. 1601-A, B & C and flat no. 2602-A, B & C but flat no. 1601-A, B & C were cancelled. Further the copy of agreement for sale of flat no. 2602-A, B & C were provided by M/s. Crescendo Associates to the assessing officer. Thus Crescendo Associates did not say that they received any money over and above the agreement value. Hence the claim of the appellant finds strength from the reply of Crescendo Associates as the searched party itself did not say that it had received any cash from Energia Consultancy. Appellant's claim also finds strength from the facts that agreement value in respect of the flat was much higher than the ready reckoner rate prevalent at the time of booking of flat.
5.20 In view of the above facts ground 4 of the appellant is allowed and the addition made of Rs. 3,13,46,800/- is deleted.”
The Revenue, being aggrieved, has preferred the instant appeal. The Revenue Department mainly claimed that the Assessee had failed to bring any material evidence to explain its transaction with M/s. Crescendo Associates, therefore, the Ld. Commissioner was not justified in deleting the addition in hand. Further, the Ld. Commissioner ignored the statement of Shri Nirnajan Hiranandani, Director of Hiranandani Builder and Developer recorded during the search action u/s 132 of the Act wherein he had confirmed the receipt of onmoney cash (over and above the registered value of the flats) from the Assessee company.
On the contrary, Shri Ajay Singh, Ld. Advocate/Counsel of the Assessee refuted the claim of the Revenue Department by submitting that the addition made by the AO has no base, as well as no corroborative evidence and therefore the same has rightly been deleted by the Ld. Commissioner.
Having heard the parties and perusing the material available on record and giving thoughtful consideration to the rival claims of the parties following question emerge:
“Whether the statement/document made by/received from third party can be relied on making the addition, without giving an opportunity to contradict the same and/or the opportunity to cross examine the person who gave the statement/document”.
7.1 The Hon'ble High Court of Rajasthan in the case of Commissioner of Income Tax, Central, Jaipur vs. Smt. Sunita Dhadda (2018) 100 taxmann.com 525 (Rajasthan) (31st July 2017) also dealt with the identical issue wherein the addition on account of onmoney allegedly received as appears from the document seized during the search u/s 132 of the Act from the third party's premises has been taken a base, however, the Ld. CIT(A) and Tribunal deleted the addition after considering the peculiar facts and circumstances of the case, wherein no other corroborative evidence/material was available and the opportunity of cross examination was also not afforded to the Assessee and therefore the Hon'ble High Court affirmed the deletion of the addition made by the Tribunal by dismissing the appeal of the Revenue Department.
7.2 It is also a fact that the aforesaid judgment in the case of Smt. Sunit Dhadda (supra) stands affirmed by the Hon'ble Apex Court in the case of Commissioner of Income Tax, Central vs. Sunita Dhadda (2018) 100) taxman 526 (SC). Hence, on this aspect itself, the addition is unsustainable.
7.3 We further observe that Hon'ble High court of Delhi in the case of Commissioner of Income Tax-II vs. Anil Khandelwal of 2015 & decided on 21.04.2015 has also dealt with the identical issue wherein certain documents were seized from third party. The Assessee denied the contents of the impugned seized documents and the person from whom the impugned documents were seized as also stated during the cross examination that there has been no cash transaction between him and the Assessee or his family members or entity in which they are interested.
The Hon'ble High Court considered the aforesaid aspects and held that it is well settled law that the loose papers, diaries and documents cannot possibly be construed as books of account regularly kept in the course of business, such evidence would therefore be outside the purview of section 34 of the Evidence Act, 1972. Therefore, the Revenue would not be justified in raising its case just on the loose papers and documents found from third party if such documents contained narrations of transactions with the Assessee, as decided by the Hon'ble Supreme Court in the case of Central Bureau of Investigation vs. VC Shukla (1988) 8 SCC 410.
7.4 On the aforesaid analyzations we are of the considered view that the statement/document made by/received from third party cannot be relied on making the addition, without giving an opportunity to contradict the same and/or the opportunity to cross examine the person who gave the statement/document. Thus, the question no. 1 is answered accordingly.
7.5 Coming to the instant case, we observe that admittedly, the addition in hand was made by the AO mainly on the basis of annexure-1 and the general statement made by Shri Nirnajan Hiranandani, who nowhere refers to any building or any flat qua onmoney received. Even otherwise admittedly no opportunity for cross examination of Shri Nirnajan Hiranandani was afforded by the AO to the Assessee. It is also a fact that the Assessee vehemently denied to have received any such onmoney as alleged. Further, M/s. Crescendo Associates also by filing specific reply dated 12.03.2015 denied to have received any such payment. M/s. Crescendo Associates also filed the cancellation letter of flat No.1601 A, B & C as well as the copies of ledger account in respect of payments made by the Assessee for each flat and there is no other material/statement was available before the AO and therefore the Ld. Commissioner on the statements made by the Assessee specifically called for the remand report from the AO. The AO, even on various reminders sent by the Ld. Commissioner, has not filed any remand report. Therefore, in the constrained circumstances the Ld. Commissioner passed the impugned order on the basis of material available on record and mainly on the reasons that no cross examination of Shri Nirnajan Hiranandani was provided to the Assessee. Further, Shri Nirnajan Hiranandani, nowhere refers to any building or any flat in respect of which onmoney has allegedly been paid. Further, flats no.1601 A, B & C does not belong to the Assessee, as the same were initially booked but cancelled within 2 days. Further M/s. Crescendo Associates did not say that they have received the money over and above the agreement value, hence the claim of the Assessee finds strength from the reply of M/s. Crescendo Associates, as the search party itself did not say that it had received any cash from Energia Consultancy. Further, the agreement value in respect of the flat was much higher than the ready reckoner rate prevalent at the time of booing of flat, On the aforesaid facts and circumstances, consequently the Ld. Commissioner deleted the addition under consideration.
7.6 As we have observed above that admittedly there was no material available before the AO except the general statement made by the Director of the Hiranandani group qua onmoney received and the annexure A-1, without any corroborative evidence and even otherwise without affording any opportunity of cross examination of the person whose statement has been made as base for making the addition and therefore considering the peculiar facts and circumstances in totality, we are of the considered view that the Ld. Commissioner rightly deleted the addition under consideration, hence we are inclined not to interfere in the decision of the Ld. Commissioner in deleting the addition. Consequently, the appeal filed by the Revenue Department stands dismissed.
Coming to the cross objection filed by the Assessee, we observe that this is more or less in favour of the impugned order. As we have decided the appeal of the Revenue Department and affirmed the impugned order and therefore the same is liable to be dismissed being infructuous. Consequently, the same is dismissed being infructuous.
In the result, the appeal filed by the Revenue Department stands dismissed, whereas the cross objection filed by the Assessee stands dismissed as infructuous.
Order pronounced in the open court on 29.11.2024.