2019 (3) TMI 1841 - AT - Income Tax

Appeal allowed due to lack of cross-examination, diary contents insufficient, natural justice principles violated.

Morning Glory Infra Ltd. Versus Dy. CIT Central Circle II Kanpur

The Tribunal allowed the appeal, holding that the addition of Rs. 64 crores as unaccounted income was unjustified due to the lack of opportunity for ... On-money in cash - unaccounted income - Incriminating document found and impounded in the business premises of Shri Anoop Asthana, the broker - HELD THAT:- Material forming the basis of the addition presently under consideration is the very same as that on which the completed assessments under section 153C for those earlier years were reopened, but no addition was made. As regards receipts the same had been found from the possession of Shri Anoop Asthana, the broker. So far as regards the two receipts dated 05.04.2014 and 28.04.2014, the related sale deeds were executed and final registration in favour of the customers was executed on 19.06.2018 and 31.05.2018, respectively. The receipt no.1030 dated 31.05.2013 related to assessment year 2014-15, but no addition was made in the said assessment year. In relation to the said receipts, Shri Sanjeev Kumar Jhunjhunwala had been extensively examined by the Authorised Officer during the course of survey and he had given name-wise details of the persons to whom the receipts in question had been issued by the appellant company. His statement was recorded on 27.06.2014, in continuation to the statement recorded on 26.06.2014. As declared an income of ₹ 9 crores stated to have been earned by him from commodity trading till that date. During the course of regular assessment proceedings, he was extensively examined on 01.09.2016 by issue of summons under section 131(1). In response to Question Nos.14, 15 and 16, he stated that he had done trading in commodity, and looking to the market conditions prevailing at that time, it was not improbable to have earned income of this volume. Further, in response to Question No.18, he was required to submit documentary evidences in support of income declared by him. In response to Question No.21, he gave complete details supported by documentary evidences relating to commodity trading. In response to Question No.22, he gave complete information about income declared and income tax, wealth tax payments made by him on such income/wealth. In response to Question No.23, he gave complete information, name-wise, of the booking receipts as had been impounded during the course of survey at the office premises of Shri Anoop Asthana, and in the end, he categorically stated that it would not be proper to draw adverse inference in relation to income from commodity trading. One cannot but come to the inexorable conclusion that the order under appeal suffers from the vice of not taking into consideration the assessee’s contention, which contention also does not stand rebutted, that it was not provided with any opportunity of crossexamining Shri Anoop Asthana. We hold that -the case of the assessee has been prejudiced for want of providing him opportunity of cross-examination of Shri Anoop Asthana, whose unilateral statement recorded exparte qua the assessee has been made the sole basis of the addition, thereby violating the principles of natural justice; and (ii) the other material, i.e., three pages of the diary found in the search do not establish any case for addition in the hands of the assessee in the year under consideration, as none of these documents relate to the year under consideration, one of them does not contain any date/year and the other two pertain to earlier years, in which, no addition based on these documents was made. Grievance sought to be raised by the assessee is justified. Issues Involved:1. Addition of Rs. 64 crores as unaccounted income.2. Reliance on the statement of a third party and contents of a diary.3. Violation of principles of natural justice.4. Double taxation of Rs. 9 crores.5. Charging interest under sections 234B and 234D of the Income-tax Act.Detailed Analysis:1. Addition of Rs. 64 crores as unaccounted income:The CIT(A) upheld the addition of Rs. 64 crores made by the Assessing Officer, alleging it was received by the appellant as on-money in cash, not accounted for in the regular books, against the sale/booking of flats in the Emerald Garden Project. The Assessing Officer based this addition on a diary found during a survey at the premises of a property broker, Mr. Anoop Asthana, which purportedly contained details related to the Emerald Garden Project.2. Reliance on the statement of a third party and contents of a diary:The CIT(A) and the Assessing Officer relied heavily on the statement of Mr. Anoop Asthana and the contents of the diary impounded from his premises. The diary allegedly contained entries of white and black money transactions related to the Emerald Garden Project. The appellant argued that the diary's contents were unreliable and unauthentic, and no incriminating material was found during the simultaneous survey at the appellant's premises. The appellant also contended that the diary was found at a third party's premises and not from the appellant, making it an unreliable basis for such a significant addition.3. Violation of principles of natural justice:The appellant argued that the addition was made on the basis of ex-parte material, violating the principles of natural justice. The appellant was not provided with a copy of Mr. Anoop Asthana's statement nor given an opportunity to cross-examine him. The Tribunal emphasized that merely confronting the statement recorded at the back of the assessee, without providing an opportunity for cross-examination, violates the natural justice principle of audi alterem partem. This view is supported by various judicial precedents, including Kishinchand Chellaram vs. CIT and Andaman Timber Industries vs. CCE.4. Double taxation of Rs. 9 crores:The CIT(A) held that the surrender of Rs. 9 crores by the Managing Director of the appellant, Shri Sanjeev Kumar Jhunjhunwala, was unsubstantiated and based on flimsy grounds, allegedly confirming the modus operandi used by the appellant company. The appellant contended that this amount was already assessed as income in the hands of the Managing Director, leading to double taxation.5. Charging interest under sections 234B and 234D of the Income-tax Act:The appellant contested the charging and computation of interest under sections 234B and 234D of the Income-tax Act. However, the Tribunal's decision primarily focused on the addition of Rs. 64 crores and the principles of natural justice.Conclusion:The Tribunal held that the case of the assessee was prejudiced for want of providing an opportunity to cross-examine Mr. Anoop Asthana, whose unilateral statement was the sole basis for the addition. The Tribunal also found that the three pages of the diary did not establish any case for addition in the hands of the assessee for the year under consideration. Consequently, the addition made was deleted, and the appeal was allowed.