2016 (5) TMI 852 - AT - Income Tax

Tribunal partially allows appeal due to procedural lapse in Income Tax Act Section 69

The Tribunal allowed the assessee's appeal, partly deleting the addition of Rs. 76,00,000 under Section 69 of the Income Tax Act, 1961, due to the ... Addition on account of undisclosed income u/s 69 - CIT(A) has not provided any opportunity to the assessee before using coterminous power given under the law to him - Held that:- Recently, the Hon'ble Supreme Court in the case of Andaman Timber Industry Vs. Commissioner of Central Excise [2015 (10) TMI 442 - SUPREME COURT] has held that not allowing the assessee to cross examine the witnesses by adjudicating the authority, though the statement of those witnesses were made the basis of impugned order is a serious flaw, which makes the order nullity, inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. This to be borne in mind that the order of the CCE was based upon the statement given by two witnesses. - Decided in favour of assessee. Issues Involved:1. Legitimacy of initiating action under Section 147 of the Income Tax Act, 1961.2. Confirmation of addition of Rs. 76,00,000 as undisclosed income under Section 69.3. Addition of Rs. 76,000 as commission for obtaining the alleged entry of Rs. 76,00,000.Detailed Analysis:1. Legitimacy of Initiating Action Under Section 147:The first ground of appeal contended that the CIT(A) erred in upholding the action of the AO in initiating proceedings under Section 147 of the Income Tax Act, 1961, without proper investigation or enquiries. The assessee argued that the action was based on assumptions and presumptions and that they were not given the opportunity to cross-examine the persons from whom the material was collected. However, this ground was not pressed by the assessee's representative and was consequently dismissed.2. Confirmation of Addition of Rs. 76,00,000 as Undisclosed Income Under Section 69:The second ground of appeal challenged the addition of Rs. 76,00,000 as undisclosed income under Section 69. The assessee, involved in the toll collection business, filed a return declaring Rs. 16,500 for A.Y. 2003-04. A search operation at the residence of Shri Gajendra Porwal revealed that Rs. 76,00,000 was deposited in the bank account of M/s Abhaya Investment Pvt. Ltd. Shri Gajendra Porwal admitted that these deposits were made on behalf of debtors, including the assessee. Consequently, reasons under Section 147 were recorded, and notice under Section 148 was issued.The AO scrutinized the case and observed that the assessee had deposited Rs. 50,00,000 and Rs. 26,00,000 in the bank and subsequently withdrew the same amount for business purposes. The assessee claimed to have taken a loan of Rs. 76,00,000 from M/s Abhaya Investment Pvt. Ltd., which was repaid through demand drafts. The AO, however, held that the deposits were unexplained and added Rs. 76,00,000 to the assessee's income under Section 69.The CIT(A) confirmed the addition, noting that the assessee failed to discharge the initial onus of proving the genuineness of the cash credit. The CIT(A) also observed that the assessee was not allowed to cross-examine Shri Gajendra Porwal, which was a significant procedural lapse.3. Addition of Rs. 76,000 as Commission for Obtaining the Alleged Entry of Rs. 76,00,000:The third ground of appeal pertained to the addition of Rs. 76,000 as commission paid for obtaining the alleged entry of Rs. 76,00,000. This ground was also not pressed by the assessee's representative and was dismissed.Tribunal's Decision:The Tribunal considered the rival contentions and noted that the AO's addition was primarily based on the statement of Shri Gajendra Porwal, who admitted to providing accommodation entries. The CIT(A) confirmed the addition without allowing the assessee to cross-examine Shri Gajendra Porwal, which was against the principles of natural justice.The Tribunal referred to the decision of the Coordinate Bench in similar cases where additions were deleted due to the lack of cross-examination of Shri Gajendra Porwal. The Tribunal also cited the Supreme Court's decision in Andaman Timber Industry Vs. Commissioner of Central Excise, which emphasized that not allowing cross-examination of witnesses whose statements formed the basis of the order amounted to a violation of natural justice.Conclusion:The Tribunal allowed the assessee's appeal, partly deleting the addition of Rs. 76,00,000 under Section 69 of the Income Tax Act, 1961, due to the procedural lapse of not allowing cross-examination. The order was pronounced in the open court on 08/04/2016.