Addition under section 69B based on third-party statements without cross-examination violates natural justice principles

ITAT Raipur held that addition under section 69B based on third-party statements without allowing cross-examination violated principles of natural justice. The assessee was confronted with adverse statements, rebutted them as factually incorrect, and requested cross-examination of witnesses including the prime witness. AO rejected these requests as delaying tactics and made the addition. The tribunal found that denying reasonable opportunity to substantiate contentions through cross-examination was against settled legal principles, particularly for unexplained investment additions. The matter was remanded to AO for fresh adjudication with proper opportunity of being heard. Appeal partly allowed for statistical purposes.

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Issues:
Appeal against addition u/s 69B without proper opportunity for cross-examination and defense before Ld. CIT(A).

Analysis:
The appellant filed an appeal against the order passed by the Commissioner of Income Tax (Appeals) regarding the addition of Rs. 45,00,000 made by the Assessing Officer under section 69B without affording proper opportunity for defense. The appellant contended that the Ld. CIT(A) erred in confirming the addition without allowing the appellant to present arguments. The appellant also raised concerns about not being provided the opportunity to cross-examine the third party witnesses whose statements were relied upon for the addition.

The Ld. CIT(A) dismissed the appeal filed by the assessee after considering the submissions and conditions of the appellant. The Ld. CIT(A) observed discrepancies in the power of attorney and statements recorded by the Assessing Officer. The Ld. CIT(A) highlighted the importance of certain questions and the involvement of legal heirs in the property transaction. The Ld. CIT(A) confirmed the findings of the AO, emphasizing that the appellant failed to provide substantial evidence to alter the factual position of the case.

The appellant, aggrieved by the decision of the Ld. CIT(A), appealed before the ITAT. The appellant argued that proper opportunity was not granted during the appellate proceedings, and the addition under section 69B was made without allowing cross-examination of relevant third parties. The Ld. AR emphasized that the affidavits submitted were disregarded as afterthoughts without further inquiry or cross-examination of the concerned persons. The Ld. AR requested the quashing of the Ld. CIT(A)'s order and the vacation of the proposed addition.

After considering the submissions and the available material, the ITAT observed that the assessee was not given a fair opportunity to defend against the addition under section 69B. The ITAT noted that the appellant's requests for cross-examination of witnesses were not considered appropriate by the AO. Consequently, the ITAT decided to restore the issue back to the AO for fresh adjudication, emphasizing the importance of providing a reasonable opportunity for the assessee to present its case.

In conclusion, the ITAT partly allowed the appeal for statistical purposes, directing the issue of addition under section 69B to be reconsidered by the AO with proper opportunity for the assessee to be heard. Other grounds raised in the appeal were deemed infructuous and dismissed.

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