2025 (1) TMI 275 - AT - Income Tax

Third-party statements alone cannot justify Section 69A additions without cross-examination opportunity provided to assessee

Mr. Mahendra Tulsidas Thakker Versus Income Tax Officer, Int Tax Ward-4 (1) (1), Mumbai

ITAT Mumbai ruled in favor of the assessee regarding unexplained money under Section 69A. The tribunal held that third-party statements cannot be relied ... Unexplained money u/s 69A - reliance on third party statement - Whether the statement/document made by/received from third party can be relied on making the addition, without giving an opportunity to contradict the same and/or the opportunity to cross examine the person who gave the statement/document? - HELD THAT:- The statement/document made by/received from third party cannot be relied on making the addition, without giving an opportunity to contradict the same and/or the opportunity to cross examine the person who gave the statement/document. Thus, the question no. 1 is answered accordingly. Suo-moto disclosure made before the Settlement Commission made base for making the addition - As decided in Smt. Renu Sehgal [2019 (8) TMI 990 - ITAT JAIPUR] has ultimately held that addition made merely on the basis of suo-moto disclosure made by the Assessee before the ITSC, is not sustainable in the eyes of law. Therefore on the aforesaid analyzations and discussions, we are of the considered view that the suo-moto disclosure made before the Settlement Commission without corroborative material/evidence cannot be made base for making the addition. Hence the question no.2 is answered accordingly. In the present case admittedly except a letter filed before the DCIT, Central Circle-6(4)/Settlement Commission; there is no other corroborative material/documents for making and sustaining the addition in hand. Even otherwise, no opportunity was given by the AO or the Commissioner to the Assessee to cross examine the person who gave the statement/made disclosure/issued the letter as relied on for making the addition. Hence, the addition in hand is unsustainable, hence the same is deleted. Decided in favour of assessee. 1. ISSUES PRESENTED and CONSIDEREDThe legal judgment revolves around the following core issues:Whether the statement or document made by or received from a third party can be relied upon for making an addition to the income without providing the taxpayer an opportunity to contradict the same or to cross-examine the person who provided the statement or document.Whether a suo-moto disclosure made before the Settlement Commission, without corroborative material or evidence, can be used as the basis for making an addition to the income.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Reliance on Third-Party Statements/DocumentsRelevant legal framework and precedents: The judgment references the High Court of Rajasthan's decision in the case of Commissioner of Income Tax, Central, Jaipur vs. Smt. Sunita Dhadda, which dealt with similar issues of relying on third-party documents during a search operation. The decision was affirmed by the Supreme Court, establishing that without corroborative evidence and without providing an opportunity for cross-examination, such additions are unsustainable.Court's interpretation and reasoning: The tribunal emphasized that statements or documents from third parties should not be used against a taxpayer without giving them a chance to challenge the evidence or cross-examine the witnesses. This aligns with the principles of natural justice.Key evidence and findings: The tribunal found that the Assessing Officer (AO) relied on a letter from a third party without corroborative evidence and did not provide the taxpayer an opportunity for cross-examination.Application of law to facts: The tribunal applied the principles from the Sunita Dhadda case, finding that the addition based on third-party documents without corroborative evidence and without allowing cross-examination was unsustainable.Treatment of competing arguments: The tribunal considered the Revenue's argument that the letter indicated on-money payments but found it insufficient without corroborative evidence and procedural fairness.Conclusions: The tribunal concluded that the addition based on third-party statements/documents was unsustainable and deleted the addition.Issue 2: Use of Suo-Moto DisclosureRelevant legal framework and precedents: The tribunal referred to judgments from various courts, including the Gujarat High Court in the case of Maruti Fabrics, which held that disclosures made before the Settlement Commission cannot be used as evidence for additions without corroborative material.Court's interpretation and reasoning: The tribunal emphasized that disclosures before the Settlement Commission are meant for settlement purposes and cannot be used as standalone evidence for income additions.Key evidence and findings: The tribunal noted that the only evidence was a letter from the Settlement Commission, lacking corroborative material.Application of law to facts: The tribunal applied the legal principles from the Maruti Fabrics case, determining that the suo-moto disclosure without additional evidence could not justify the income addition.Treatment of competing arguments: The tribunal considered the Revenue's reliance on the disclosure but found it insufficient without corroborative evidence.Conclusions: The tribunal concluded that the addition based on the suo-moto disclosure was unsustainable and deleted the addition.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: 'The statement/document made by/received from third party cannot be relied on making the addition, without giving an opportunity to contradict the same and/or the opportunity to cross examine the person who gave the statement/document.'Core principles established: The judgment reinforces the principle that additions to income cannot be based solely on third-party statements or disclosures to the Settlement Commission without corroborative evidence and procedural fairness, including the opportunity for cross-examination.Final determinations on each issue: The tribunal allowed the appeal by the taxpayer, deleting the additions made based on third-party statements/documents and the suo-moto disclosure before the Settlement Commission.In conclusion, the tribunal's judgment underscores the importance of adhering to principles of natural justice and procedural fairness in tax assessments, particularly concerning reliance on third-party evidence and disclosures made for settlement purposes.