2025 (10) TMI 1336 - AT - Income Tax

s.153C assessment of alleged property deal 'on-money' based only on seized pendrive and third-party statements quashed; addition deleted

In an assessment under s.153C, the dominant issue was whether an addition for alleged cash 'on-money' over the agreement value could be sustained solely ... Assessment u/s 153C - Addition of amount in cash over and above the agreement value - pendrive found from third party search operation - non providing opportunity of cross examination to the assessee - denial of principle pf natural justice - HELD THAT:- As relying on Rajesh Jain [2024 (11) TMI 1560 - ITAT MUMBAI] as held addition on the basis of evidence found in the premises of third party and also on the basis of deposition made by the employee of the third party. No corroborative material was brought on record to support the statement so given, which is mandatory when the assessee denies any such payment. AO also did not provide opportunity of cross examination to the assessee, even after the said request was made by the assessee. Under these set of facts, we are of the view that the impugned addition cannot be sustained. AO did not provide opportunity to cross examine the persons from Rubberwala group, on whose statements the AO had placed reliance upon. The Hon’ble Supreme Court has held in the case of Andaman Timber Industries vs. Commissioner of Central Excise [2015 (10) TMI 442 - SUPREME COURT] that not providing opportunity to cross examine is a serious flaw and it will make the order nullity, as it amounts to violation of principle of natural justice. As decided in own case assessee categorically denied having paid any amount in cash over and above the agreement value. The AO has neither confronted assessee with any of the material found during the search on Rubberwala group and even no evidence or seized document has been referred to where any name of the assessee has been explicitly mentioned on account of paying any 'on-money'. Although it has been claimed in the order of assessment that the assessee had paid on money, but again no such statement has been confronted, neither the seized material/documents /pendrive was confronted to the assessee nor the copy of statement of Key person was confronted. Therefore, in our view, the information if any found in the pendrive etc., cannot be considered as 'credible evidence', unless they have been corroborated with any other evidence. Since the assessee was not provided with the adverse material, if any, based on which notice u/s 153 of the Act, was issued, in our view, it hampers the primary and fundamental requirement of natural justice. As far as the information claimed in pendrive is concerned, the same was not found from the possession of the assessee but was found as per order of assessment, during the search and seizure conducted in the case of third party therefore, in the absence of corroborative evidence to establish that the contents of pendrive are correct and authenticated to the extent assessee paid 'on- money' in cash, no addition can be made and even otherwise during the entire reassessment proceedings the veracity and reliability of the data recorded in the pendrive was not checked or tested. Therefore, in such a scenario no addition is warranted in the case of assessee. In the case of CIT Vs. Odeon Builders Pvt. ltd. [2019 (8) TMI 1072 - SUPREME COURT] it was held that the ‘addition/disallowance made solely on third party information without subjecting it to further scrutiny and denying the opportunity of cross examination of the third party renders the addition/disallowance bad in law’. Assessee appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether an addition for alleged 'on-money'/unexplained investment could be sustained when it was based only on third-party electronic data and third-party statements obtained during a search on a different person, while the assessee denied any cash payment and no independent corroboration linking the assessee was brought on record. (ii) Whether the assessment and the resultant addition were vitiated for breach of principles of natural justice where the Revenue did not confront the assessee with the adverse seized material/electronic data and statements relied upon, and did not afford an opportunity of cross-examination of the persons whose statements were used against the assessee. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Sustainability of 'on-money' addition based on third-party pendrive/excel data and statements without corroboration Legal framework (as discussed/applied by the Court): The Tribunal assessed whether the material relied upon could constitute 'credible evidence' to support an addition for alleged cash payment, particularly when the data originated from a third party and the assessee denied the allegation. Interpretation and reasoning: The Tribunal found that the assessment was triggered by a search on a third-party group where a pendrive containing alleged cash-transaction details and statements of group personnel were recorded. However, the assessee categorically denied having paid any cash over and above the agreement value. The Tribunal noted that the Revenue neither identified any seized document explicitly mentioning the assessee as having paid 'on-money' nor established the reliability of the electronic data by corroborating it through independent evidence. It held that information said to be contained in the pendrive/electronic record, standing alone, could not be treated as credible evidence against the assessee in the absence of corroboration and verification/testing of its veracity and reliability during the proceedings. Conclusions: The Tribunal concluded that, on these facts, no addition was warranted because the third-party electronic data and statements were not corroborated by independent evidence directly linking the assessee to any cash payment. Issue (ii): Effect of non-supply of adverse material and denial of cross-examination (natural justice) Legal framework (as discussed/applied by the Court): The Tribunal applied the principle that when an authority proposes to use adverse material against an assessee, the assessee must be confronted with that material and given a fair opportunity to rebut it, including cross-examination where statements are relied upon. Interpretation and reasoning: The Tribunal recorded that the Revenue did not confront the assessee with the seized material/electronic data or provide copies of the statements of key persons relied upon. It also found that opportunity for cross-examination of those persons was not provided. The Tribunal treated these omissions as striking at the foundation of the addition, observing that failure to provide adverse material and failure to allow cross-examination amounted to breach of principles of natural justice. It further noted that even the statement extracts referred to did not indicate the assessee's name, strengthening the conclusion that reliance on such material, without confrontation and testing, could not sustain the addition. Conclusions: The Tribunal held that the addition could not be sustained due to breach of natural justice arising from non-supply of adverse material and denial of cross-examination, and directed deletion of the addition. Overall disposition based on the decided issues The Tribunal followed its co-ordinate bench decision on identical facts and held that the impugned 'on-money' addition lacked corroborated evidentiary support and was further vitiated by denial of natural justice. The addition was directed to be deleted and the assessee's appeal was allowed.