2023 (6) TMI 718 - AT - Income Tax

Revenue appeal dismissed, CIT(A) order upheld deleting Rs. 1,69,50,000 addition. Tribunal stresses evidence, fairness.

The Dy. CIT, Anand Circle Versus Shri Saurabh Kumar M Gupta,

The Dy. CIT, Anand Circle Versus Shri Saurabh Kumar M Gupta, - TMI Issues Involved:1. Legality of the reopening of assessment under section 148 of the Income Tax Act.2. Validity of the addition of Rs. 1,69,50,000/- as unexplained investment under section 69 of the Income Tax Act.3. Denial of the opportunity to cross-examine third-party witness Shri Chirag H. Patel.4. Non-supply of seized materials and statements relied upon by the Assessing Officer (AO).Detailed Analysis:1. Legality of the Reopening of Assessment:The assessee's case was reopened under section 148 based on materials seized from the office of Mr. Chirag H. Patel, indicating an undisclosed income of Rs. 1,69,50,000/-. The assessee argued that the reopening was unjustified as the materials were neither confronted to him nor were they in his handwriting or signed by him. The Commissioner of Income Tax (Appeals) [CIT(A)] found that the AO did not conduct any enquiry to substantiate the 'reasons to believe' and relied solely on third-party statements and documents not pertaining to the assessee.2. Validity of the Addition under Section 69:The AO added Rs. 1,69,50,000/- as unexplained investment under section 69 based on the statement of Mr. Chirag H. Patel and some documents seized during the search. The CIT(A) deleted the addition, noting that the AO failed to provide any corroborative evidence or conduct any field enquiry. The AO also did not supply the relevant seized materials to the assessee, which was necessary for the assessee to defend his case. The CIT(A) emphasized that the AO's reliance on third-party statements without corroborative evidence was insufficient for such a significant addition.3. Denial of Opportunity to Cross-Examine:The assessee repeatedly requested to cross-examine Mr. Chirag H. Patel, which the AO did not facilitate. The CIT(A) held that the denial of cross-examination violated the principles of natural justice. The CIT(A) cited several judicial precedents, including decisions from the Gujarat High Court and the Supreme Court, which held that additions based on third-party statements without cross-examination are not sustainable.4. Non-Supply of Seized Materials and Statements:The AO did not provide the assessee with the seized materials or the statements of Mr. Chirag H. Patel, despite multiple requests. The CIT(A) found that this non-supply of documents severely hampered the assessee's ability to defend himself. The CIT(A) noted that the AO's failure to supply these documents and the lack of corroborative evidence rendered the addition unsustainable.Conclusion:The appeal by the Revenue was dismissed. The CIT(A)'s order to delete the addition of Rs. 1,69,50,000/- was upheld. The Tribunal emphasized the importance of providing the assessee with the necessary documents and the opportunity to cross-examine witnesses, as well as the need for corroborative evidence when making significant additions based on third-party statements. The Tribunal cited various judicial precedents to support its decision, affirming that the AO's actions were contrary to the principles of natural justice and established legal standards.