2019 (1) TMI 2061 - AT - Income Tax

ITAT deletes Rs. 42 lakh on-money addition citing natural justice violation and lack of corroborative evidence

ITAT Mumbai deleted addition of Rs. 42 lakh alleged as on-money payment for flat purchase. The addition was based on pen drive seized from Hiranandani ... Addition of on–money in cash towards purchase of a flat lies in a search and seizure operation conducted in case of Hiranandani Group and related persons - allegation of denial of natural justice - incriminating materials are in the form of pen drive found and seized from the residence of one of the employees of Hiranandani Group and a statement recorded u/s 132(4) from Director and Promoter of the Group, wherein, the details of on–money paid by buyers / prospective buyers are mentioned and in the statement recorded u/s 132(4) has admitted receipt of on–money in cash towards sale of flats / shops. HELD THAT:- On a perusal of the remand report it is very much clear that the AO has completely avoided the issue and there is no mention whether the assessee was provided with all the adverse material and if, not so, whether he has provided them to the assessee as per the directions of Commissioner (Appeals). Thus, the addition made on account of on–money payment in cash is without complying with the primary and fundamental requirement of rules of natural justice. Assessment order reveals that the AO has heavily relied upon the statement recorded from Shri Niranjan Hiranandani, for making the disputed addition, however, AO has not provided the full text of such statement recorded and has also not allowed the assessee an opportunity to cross–examine Shri Niranjan Hiranandani, and other persons whose statements were relied upon. This, is in gross violation of rules of natural justice and against the basic principle of law. Addition made cannot be sustained. Addition on account of on–money is the information contained in the pen drive found during the search and seizure operation and the statement recorded u/s 132(4) - The said pen drive was not found from the possession of the assessee but in course of search and seizure operation conducted in case of a third party. Therefore, in absence of further corroborative evidence to establish that the contents of the pen drive are correct and authentic to the extent that the assessee paid on–money in cash, no addition can be made u/s 69B of the Act. Also in the statement recorded u/s 132(4) of the Act, Shi Niranjan Hirandani has not made any reference to the assessee, therefore, in absence of any other corroborative evidence to establish that assessee has paid on–money in cash, no addition can be made. As in absence of any corroborative evidence brought on record to conclusively prove that the assessee has paid on–money of Rs. 42 lakh in cash to M/s. Crescendo Associates towards purchase of flat, delete the addition made by the AO. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment include:The validity of the assessment order and the jurisdictional challenges raised by the assessee.The merits of the addition of Rs. 42 lakh as unexplained investment under section 69B of the Income Tax Act, 1961.Whether the addition was justified based on the evidence, including a statement recorded under section 132(4) and information from a pen drive seized during a search operation.The assessee's right to natural justice, specifically the opportunity to cross-examine witnesses and access all adverse materials used against them.ISSUE-WISE DETAILED ANALYSIS1. Validity of the Assessment Order and Jurisdictional ChallengesThe assessee challenged the validity of the assessment order on jurisdictional grounds. However, the court did not delve into these issues in detail as the primary focus was on the merits of the addition under section 69B. The court noted that these issues were of academic interest and did not require adjudication given the decision on the substantive issue.2. Addition of Rs. 42 lakh as Unexplained Investment under Section 69BRelevant Legal Framework and Precedents: Section 69B of the Income Tax Act pertains to unexplained investments, where the value of investments exceeds the amount recorded in the books of account, and the assessee cannot satisfactorily explain the excess.Court's Interpretation and Reasoning: The court scrutinized the evidence used to justify the addition, primarily focusing on the statement recorded under section 132(4) and the information from a pen drive seized during a search operation. The court emphasized the need for corroborative evidence to substantiate the claim of unexplained investment.Key Evidence and Findings: The evidence comprised a statement from Shri Niranjan Hiranandani, a director of the Hiranandani Group, admitting to receiving on-money, and information from a pen drive indicating such transactions. The assessee contended that these pieces of evidence were insufficient and lacked direct corroboration linking the assessee to the payment of on-money.Application of Law to Facts: The court applied the principles of natural justice, highlighting the assessee's right to access all adverse materials and cross-examine witnesses. The court found that these rights were not adequately upheld, as the assessee was not provided with the full statement of Shri Niranjan Hiranandani nor allowed to cross-examine him.Treatment of Competing Arguments: The court considered the arguments from both sides. The assessee argued that the evidence was insufficient and that procedural fairness was not observed. The revenue argued that the evidence from the search operation justified the addition. The court sided with the assessee, emphasizing the lack of corroborative evidence and procedural deficiencies.Conclusions: The court concluded that the addition of Rs. 42 lakh as unexplained investment was unsustainable due to the lack of corroborative evidence and the violation of principles of natural justice.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: 'It is well settled proposition of law that if the Assessing Officer intends to utilize any adverse material for deciding an issue against the assessee he is required to not only confront such adverse materials to the assessee but also offer him a reasonable opportunity to rebut / contradict the contents of the adverse material.'Core Principles Established: The judgment reinforces the necessity of corroborative evidence to substantiate claims of unexplained investment and the importance of adhering to principles of natural justice, including the right to access adverse materials and cross-examine witnesses.Final Determinations on Each Issue: The court deleted the addition of Rs. 42 lakh made by the Assessing Officer, citing insufficient evidence and procedural unfairness. The jurisdictional challenges were deemed academic and not adjudicated upon.