2024 (12) TMI 1604 - AT - Income Tax

Additions under Section 69C deleted due to uncorroborated evidence and violation of natural justice principles

ITAT Mumbai upheld the deletion of additions made under section 69C, holding that reliance on uncorroborated third-party statements and documents, ... Addition u/s 69C - uncorroborated entries found in the documents of third parties relied upon - reliance on statement recorded in search which were later retracted - no opportunity provided to cross examine the person who confirms transactions - HELD THAT:- We noticed that the assessing officer has placed reliance on the statement given by Shri Vijay Yewale and it is stated that the said person has retracted his statement later. Further, the document relied upon by the AO to make the addition was recovered from Shri Chetan Borawake, who was employee of some other concern and not M/s CCL, wherein the assessee is nonexecutive director. Thus, as noticed by CIT(A), the AO has relied upon third party statements and documents, but did not bring any other material to corroborate them, particularly when the assessee has denied those transactions. As noticed in the various case laws relied upon by Ld CIT(A), the AO could not have placed reliance on those third party statements and uncorroborated documents taken from third parties in order to make the additions in the hands of the assessee. Assessee has requested the AO to provide an opportunity of cross examining Shri Vijay Yewale and other persons, on whose statements the AO had placed reliance but AO did not provide the said opportunity - As held in the case of Andaman Timber Industries [2015 (10) TMI 442 - SUPREME COURT] there will be violation of natural justice, if the opportunity of cross examining the person on whose statement the authorities place reliance, is not given and consequently, the order would be a nullity. AO has violated the principles of natural justice in respect of the addition made in these two years by not providing opportunity of cross examination even after the said opportunity was asked by the assessee. Further, the AO has made the additions on the basis of uncorroborated third party evidence, which could not be the basis to make addition. In the course of search conducted in the hands of the assessee, no material relating to payment of alleged cash mentioned by the AO was found - Decided in favour of assessee. Additions based on whatsapp chat - CIT(A) deleted addition - HELD THAT:- We notice that the assessee has claimed that the date of whatsapp chat relating to Rs. 1.05 crores was 11.03.2021, while the AO has taken the date as 11.3.2020. Hence, there is confusion about the date of the alleged transaction relating to Rs. 1.05 crores. With regard to the amount of Rs. 1.00 crore, the whatsapp chat shows that Shri Shailendra Rathi has only requested Shri Nilesh Toshniwal to pay Rs. 1.00 crore to the angadia Shri Vinod, meaning thereby, there is no proof that the said transaction was completed. In that case, no addition of Rs. 1.00 crore was warranted. In any case, both the transactions were related to uncorroborated whatsapp chat, which have been denied by the assessee and the AO did not bring any material to corroborate the transactions. Accordingly, as per the various case laws relied upon by the CIT(A), the AO could not have made the addition of Rs. 2.05 crores - Decided in favour of assessee. ISSUES: Whether additions under section 69C of the Income Tax Act, 1961 can be made based on uncorroborated documents and statements recovered from third parties during search and seizure operations.Whether the presumption under sections 132(4A) and 292C of the Income Tax Act applies to a person not in possession of the seized documents or materials.Whether electronic evidence such as Excel sheets and WhatsApp chats must comply with the requirements of section 65B of the Indian Evidence Act to be admissible.Whether the Assessing Officer's failure to provide opportunity for cross-examination of witnesses whose statements were relied upon violates principles of natural justice.Whether suspicion or presumption can substitute for independent evidence in making additions under the Income Tax Act. RULINGS / HOLDINGS: Additions under section 69C cannot be sustained when based solely on uncorroborated third party documents or statements, as 'documents/material found from the premises of a third party or a statement of a third party cannot be relied upon to make additions in the hands of the assessee, unless such material or statement is corroborated by independent evidence linking such material to the assessee.'The presumption under sections 132(4A) and 292C applies only to the person from whose possession the documents or materials are seized and cannot be extended to others.Electronic evidence such as Excel sheets recovered from third parties must comply with section 65B of the Indian Evidence Act; mere recovery without proper certification and authentication renders such evidence unreliable.The Assessing Officer's failure to provide the assessee an opportunity to cross-examine witnesses whose statements formed the basis of additions constitutes a violation of natural justice, rendering the additions unsustainable.'Suspicion, however strong, cannot take the place of evidence' and 'raising presumption itself does not amount to proof,' thus additions cannot be made on mere suspicion or uncorroborated presumption. RATIONALE: The Court applied the statutory provisions of the Income Tax Act, 1961, particularly sections 69C (unexplained cash credits), 132 (search and seizure), 132(4A) (presumption as to documents seized), and 292C (presumption as to statements recorded), alongside the Indian Evidence Act, 1872 (section 65B regarding electronic evidence).The Court relied on established precedents emphasizing that additions based on third party evidence require independent corroboration linking the assessee to the alleged undisclosed income or expenditure, citing multiple judgments reinforcing this principle.The Court underscored the principle of natural justice, referencing the Supreme Court's ruling that denial of opportunity to cross-examine witnesses whose statements are relied upon invalidates the assessment order.The Court reiterated the legal maxim that suspicion or presumption cannot substitute for direct evidence, thereby safeguarding the assessee's right against arbitrary additions without substantive proof.No doctrinal shift was indicated; rather, the Court reaffirmed existing legal principles protecting taxpayers from additions based solely on uncorroborated third party material and emphasizing procedural fairness.