2009 (3) TMI 86 - HC - Income Tax

Additions based on third-party seized documents overturned where no corroboration or cross-examination; remand directed for fresh enquiry

Additions founded solely on letters seized from a third party were challenged on the ground of unverifiable genuineness and absence of corroboration; the ... Additions on basis of materials seized from third party - genuineness and veracity of the materials (letters) seized from a third party - On the basis of the said three letters, AO held that in the assessment order, the consideration for the sale of the moveable assets were raised from Rs.1 crore to Rs.1.50 crore by the parties – CIT (A) rightly accepted the assessee’s alternative contention that even assuming the money had changed hands but, neither the assessee nor the Special Officer appointed by HC have received the same - No corroborative evidence was found in the hands of the Assessing Officer and, therefore, in our considered opinion, the Assessing Officer without issuing such summons to the person concerned or making him available for cross-examination on the basis of the said letter proceeded in the matter - Therefore, addition on that account was required to be considered in the hands of the beneficial owner but it appears that without any reason the Tribunal dismissed the said contention - assessee must get a chance to prove the facts - matter remanded to AO Issues Involved:1. Justification of the Tribunal in upholding the addition of Rs. 50 lacs based on materials seized from a third party.2. Obligation of the Assessing Officer to prove the genuineness and veracity of materials seized from a third party.3. Taxability of the said sum of Rs. 50 lacs and whether it should be assessed in the hands of the appellant or the then Chief Executive, D.R. Khatau.Issue-wise Detailed Analysis:Issue 1: Justification of the Tribunal in Upholding the Addition of Rs. 50 lacsThe Tribunal upheld the addition of Rs. 50 lacs based on three letters seized from a third party, which the appellant claimed were forged. The Assessing Officer presumed the seized letters to be genuine without summoning or examining the concerned parties, despite the appellant's specific request. The appellant argued that the signatures on the letters were not of its Chief Executive, D.R. Khatau, and provided an affidavit to support this claim. The Tribunal did not consider this affidavit and relied solely on the seized letters, which were not corroborated by any other evidence found during the search at the appellant's premises.Issue 2: Obligation of the Assessing Officer to Prove Genuineness and VeracityThe appellant contended that it was the duty of the Assessing Officer to issue summons and make further inquiries from M/s. Prasad Steel Traders and the Special Officer. The Tribunal and the Assessing Officer instead placed the burden on the appellant to produce the concerned persons for examination. The appellant cited several Supreme Court judgments, including Kishinchand Chellaram Vs. CIT and State of Kerala Vs. K.T. Shaduli Yusuff, emphasizing that materials collected from a third party must be disclosed to the assessee, who should be given the opportunity to cross-examine the concerned parties. The Tribunal's approach was deemed erroneous as it did not adhere to these principles.Issue 3: Taxability of Rs. 50 lacsThe Commissioner of Income Tax (Appeals) initially deleted the addition of Rs. 50 lacs, stating that the Assessing Officer was not justified in proceeding based on the three letters without examining the concerned parties. The Tribunal reversed this decision, but the appellant argued that the sum should be assessed in the hands of D.R. Khatau if at all, as neither the appellant nor the Special Officer received the amount. The Tribunal dismissed this contention without providing adequate reasons.Judgment:The High Court found that the Assessing Officer and the Tribunal erred in their approach by not summoning the concerned parties for cross-examination and relying solely on the disputed letters. The Court emphasized the necessity of cross-examination to establish the truth and held that the appellant must be given an opportunity to challenge the evidence. Consequently, the Court set aside the Tribunal's order and remanded the matter back to the Assessing Officer for fresh consideration, ensuring the appellant's right to cross-examine the concerned parties.Conclusion:The High Court answered all three questions in favor of the appellant, highlighting the procedural lapses by the Assessing Officer and the Tribunal. The matter was remanded for a fresh hearing, with specific instructions to allow the appellant to cross-examine the relevant parties to establish the genuineness of the seized letters.