2008 (3) TMI 685 - AT - Income Tax

Tribunal Affirms Decision: Insufficient Evidence for Additional Payment, Revenue's Appeals Dismissed Over Natural Justice Concerns.

Income-tax Officer, VII (2), Ludhiana Versus Dr. R.L. Narang

The Tribunal upheld the CIT(A)'s decision to delete the addition made by the Assessing Officer, finding insufficient evidence to prove the assessee paid ... Unexplained investment - addition made on the basis of statements of third parties - no opportunity given to controvert the evidence utilized in the assessment which was in the shape of statement - Onus to Prove - failed to allow cross examination - HELD THAT:- Even if the explanation of the assessee is not found to be satisfactory, the ITO has discretion to treat or not to treat such investment as assessee’s income. For this proposition reliance can be placed in the case of CIT v. Smt. P.K. Noorjahan [1997 (1) TMI 6 - SUPREME COURT] and CIT v. Moghul Durbar [1995 (2) TMI 34 - ANDHRA PRADESH HIGH COURT]. It is clear from the reading to section 69 that before the amount of unexplained investment, is included in the total income of the assessee, he is entitled to an-opportunity to explain T.C.N. Menon v. ITO [1973 (7) TMI 17 - KERALA HIGH COURT]. The assessee’s income is to be assessed by the Assessing Officer on the basis of material which is required to be considered for the purposes of assessment and ordinarily not on the basis of statement of a third party, unless there is a material to corroborate that statement is available on record. The mere fact that somebody made a statement by itself cannot be treated as having resulted in an irrebuttable presumption against the assessee. The burden of showing that the assessee had disclosed income is on the revenue and that burden cannot be said to be the charged by merely referring to the statement of a third party in connection with the transaction, therefore, such statement cannot be made the sole foundation that the assessee deliberately suppressed his income. Even otherwise, if the explanation of the assessee is not acceptable, the onus shifts to the revenue to prove the same with corroborating material. Identical ratio was laid down by the Hon’ble Madras High Court in the case of CIT v. N. Swamy [1998 (9) TMI 27 - MADRAS HIGH COURT]. No specific infirmity has been pinpointed by the revenue in the impugned order, nor any adverse material has been brought on record by the Assessing Officer to substantiate its contention that the assessee paid any underhand money except the money which has been shown in the sale deed, therefore, in the light of the facts and the cases relied upon, we have no option but to uphold the impugned order. In the result both these appeals of the revenue are dismissed. Issues Involved:1. Whether the CIT(A) erred in deleting the addition made by the Assessing Officer based on the statement of Shri Gulzar Singh.2. Whether the assessee was denied the opportunity to cross-examine Shri Gulzar Singh.3. Whether the statement of Shri Gulzar Singh and other evidence were sufficient to justify the addition.4. Whether the assessment could be reopened under section 148 based on the statement of Shri Gulzar Singh.5. Whether the registration of sale deeds is conclusive evidence of the sale consideration.Issue-wise Detailed Analysis:1. Deletion of Addition Based on Shri Gulzar Singh's Statement:The revenue challenged the CIT(A)'s decision to delete the addition based on the statement of Shri Gulzar Singh, who claimed that the consideration for the land was higher than what was recorded in the sale deeds. The CIT(A) found that the Assessing Officer did not grant the assessee an opportunity to cross-examine Shri Gulzar Singh and relied on the decision of the Punjab and Haryana High Court in Hira Lal Ram Dayal v. CIT, which held that a registered sale deed is conclusive evidence of sale consideration. The Tribunal upheld the CIT(A)'s decision, stating that the evidence provided by the assessee, including sale deeds and comparable sales, was not sufficiently rebutted by the revenue.2. Opportunity to Cross-Examine Shri Gulzar Singh:The assessee contended that they requested to cross-examine Shri Gulzar Singh, but the Assessing Officer did not provide this opportunity. The Tribunal noted that there was no record of the assessee demanding cross-examination, but emphasized that the principle of natural justice requires such an opportunity. The Tribunal found that the Assessing Officer's reliance on Shri Gulzar Singh's statement without allowing cross-examination was a violation of natural justice, supporting the CIT(A)'s decision to delete the addition.3. Sufficiency of Evidence for Addition:The Assessing Officer relied on Shri Gulzar Singh's statement and other sale instances to justify the addition. However, the Tribunal found that the evidence was not conclusive, especially given the denial by the assessee and the comparable sales provided. The Tribunal emphasized that the burden of proof was on the revenue to establish that the assessee paid more than what was recorded in the sale deeds. The Tribunal concluded that the revenue failed to provide sufficient evidence to support the addition.4. Reopening of Assessment under Section 148:The original assessment was completed under section 143(1)(a) and later reopened based on Shri Gulzar Singh's statement. The Tribunal noted that the reopening was based on prima facie evidence suggesting that the consideration paid was higher than recorded. However, the Tribunal found that the evidence was not sufficient to justify the addition, thus supporting the CIT(A)'s decision to delete the addition.5. Registration of Sale Deeds as Conclusive Evidence:The CIT(A) and the Tribunal relied on the decision in Hira Lal Ram Dayal v. CIT, which held that a registered sale deed is conclusive evidence of the sale consideration. The Tribunal noted that while the prevalent market value can raise suspicion, it alone cannot be the basis for an addition under section 69. The Tribunal emphasized that the revenue must provide concrete evidence to prove that the consideration was understated, which was not done in this case.Conclusion:The Tribunal upheld the CIT(A)'s decision to delete the addition, finding that the revenue failed to provide sufficient evidence to prove that the assessee paid more than what was recorded in the sale deeds. The Tribunal emphasized the importance of natural justice and the need for concrete evidence to support any addition. The appeals of the revenue were dismissed.