2016 (5) TMI 1585 - AT - Income Tax

Tribunal overturns Rs. 15 lakh addition, stresses right to cross-examine witnesses for fair trial

The Tribunal allowed the appeal, deleted the Rs. 15 lakh addition as unexplained cash credit, emphasizing the importance of providing the right to ... Addition based on income surrendered - addition on the basis of statement recorded of Mr. DN Taneja wherein he surrendered the said amount on company’s account to buy peace of mind - Addition based on third party - assessee’s submissions that addition cannot be made on the basis of the statement recorded of third party and without providing opportunity of cross examination of the witness to the assessee - HELD THAT:- Addition was made by the AO on the basis of statement recorded on 7.1.2009 of Mr. DN Taneja wherein he surrendered the said amount on company’s account to buy peace of mind, in doing so, he ignored the basic fact that Sh. DN Taneja had no locus standi with respect to the assessee company, as he was never a Director nor a share holder in the assessee company and thus no reliance could have been placed on such general statement and as such, the reasons recorded by the AO were merely based on suspicion, surmises and conjectures and are hence not sustainable in the eyes of law. We find considerable cogency in the Ld. Counsel of the assessee’s submissions that addition cannot be made on the basis of the statement recorded of third party and without providing opportunity of cross examination of the witness to the assessee, in view of the Hon’ble Delhi High Court decision in the case of CIT vs. Pradeep Kumar Gupta & Anr. [2006 (11) TMI 184 - DELHI HIGH COURT] We are of the considered opinion that the addition made on the basis of the statement in the present case is not sustainable in the eyes of law, because the right of cross examination to the assessee was not provided, hence, we delete the addition made by the AO and confirmed by the Ld. CIT(A) and allow the Appeal of the Assessee. Issues Involved:1. Sustaining an assessment under section 143(3)/147 of the Act at an income of Rs. 15,00,000/-.2. Initiation of proceedings under section 147 of the Act.3. Basis of initiation of proceedings under section 147 on information from DIT (investigation).4. Addition of Rs. 15,00,000/- as unexplained cash credit under section 68 of the Act.5. Double taxation of the same sum.6. Reliance on the statement made by Sh. D.N. Taneja.7. Reliance on the general statement of Sh. S.K. Gupta.8. Lack of fair and proper opportunity of being heard.9. Levy of interest under section 234B of the Act.Issue-wise Detailed Analysis:1. Sustaining an assessment under section 143(3)/147 of the Act at an income of Rs. 15,00,000/-:The Tribunal noted that the original return of income was filed declaring a loss of Rs. 14,660/-. The notice under section 148 was issued and served on the assessee after recording reasons for reopening the assessment and obtaining approval from the competent authority. The assessee responded to the notice, and objections filed against the notice were disposed of by the AO. The AO treated Rs. 15 lakhs received from M/s Passion Chits Pvt. Ltd. as income from undisclosed sources and made an addition under section 68 of the Act, which was upheld by the CIT(A).2. Initiation of proceedings under section 147 of the Act:The Tribunal found that the reassessment proceedings were initiated based on the statement of Sh. DN Taneja, who admitted giving accommodation entries to the assessee company. The Tribunal observed that the reasons recorded by the AO were based on suspicion and conjectures, making the initiation of proceedings under section 147 unsustainable.3. Basis of initiation of proceedings under section 147 on information from DIT (investigation):The Tribunal held that the initiation of proceedings under section 147 based on information from DIT (investigation) without independent application of mind by the AO was not justified. The Tribunal emphasized that the reasons recorded were mere reasons to suspect and were used to make fishing and roving enquiries.4. Addition of Rs. 15,00,000/- as unexplained cash credit under section 68 of the Act:The Tribunal noted that the addition was made based on the statement of Sh. DN Taneja, who had no locus standi with respect to the assessee company. The Tribunal found that the statement was general in nature and could not be relied upon without providing the assessee an opportunity for cross-examination. The Tribunal deleted the addition of Rs. 15 lakhs made by the AO and confirmed by the CIT(A).5. Double taxation of the same sum:The Tribunal did not specifically address the issue of double taxation in detail. However, by deleting the addition of Rs. 15 lakhs, the Tribunal implicitly resolved the issue of potential double taxation.6. Reliance on the statement made by Sh. D.N. Taneja:The Tribunal found that the statement of Sh. DN Taneja, who was neither a director nor a shareholder in the assessee company, could not be relied upon. The Tribunal emphasized that the addition could not be made based on such a statement without providing the assessee the right to cross-examine the witness.7. Reliance on the general statement of Sh. S.K. Gupta:The Tribunal observed that the statement of Sh. S.K. Gupta was general in nature and did not specifically mention giving accommodation entries to the assessee company. The Tribunal held that the addition based on such a statement was not justified and was based on irrelevant considerations, conjectures, and surmises.8. Lack of fair and proper opportunity of being heard:The Tribunal found that the assessee was not given a fair and proper opportunity to cross-examine the witnesses, which violated the principles of natural justice. The Tribunal cited the Hon'ble Supreme Court decision in the case of Andaman Timber Industries vs. Commissioner of Central Excise, emphasizing the importance of cross-examination in ensuring a fair trial.9. Levy of interest under section 234B of the Act:The Tribunal did not specifically address the issue of levy of interest under section 234B. However, by allowing the appeal and deleting the addition, the issue of interest under section 234B became moot.Conclusion:The Tribunal allowed the appeal filed by the assessee, deleted the addition of Rs. 15 lakhs made by the AO, and emphasized the importance of providing the right to cross-examine witnesses to ensure a fair trial. The Tribunal's decision was based on the principles of natural justice and the precedents set by the Hon'ble Supreme Court and Hon'ble Delhi High Court.