2025 (8) TMI 538 - AT - Income Tax

ITAT Upholds Addition of Undisclosed Cash for Land, Allows Setoff Under IDS 2016, Rejects Natural Justice Claim

The ITAT upheld the CIT(A)'s decision confirming the addition of undisclosed cash payments for land purchase not recorded in the assessee's books, ... Reopening of assessment u/s 147 - Addition u/s 69 - cash payments towards purchase of land which were not recorded in the books of accounts - assessee’s plea that the data was uncorroborated, and its request for cross-examination of the person who prepared the ledger, were also denied - AO rejected the assessee’s explanation that the ledger was a third-party document not maintained by it and was allegedly prepared for educational purposes - assessee argued addition on ground of violation of principles of natural justice on account of denial of opportunity to cross-examine the searched person. HELD THAT:- CIT(A)’s findings, are based on a sound appreciation of facts and settled law. The ledger was corroborated by admitted cheque entries and it was coming from the record that the corresponding cash entries were also related to the land transaction. The explanation that it was prepared for educational use is wholly unconvincing. The burden of proof shifted to the assessee to prove that the corresponding entries relating to cash transactions did not belong to the assessee, which the assessee failed to rebut with credible evidence. The credible material both physical and digital recovered during search action, duly corroborated with the books of accounts of the assessee as well as bank statements, which established that the transaction recorded in the seized material was relating to the purchase of land by the assessee and that the said transaction covered both cheque and cash payments. We, therefore, do not find any infirmity in the order of the CIT(A) in upholding that the assessee made cash payments towards purchase of land which were not recorded in the books of accounts. Cross-objection of the assessee regarding violation of principles of natural justice by denial of opportunity to cross-examine the concerned CFO of Sambhaav-Nila Group from whose possession the alleged seized material was recovered - It is pertinent to mention here that the assessee was duly supplied with the seized material and was confronted with the specific entries, which included the cheque and alleged cash payments. The assessee was given due opportunity to rebut the aforesaid entries before both the lower authorities. The cheque entries mentioned in the seized documents as well as tally data duly matched with the accounts of the assessee as well as bank statement of the assessee. The ledger was not a testimonial statement but a contemporaneous electronic record retrieved from the system of a person associated with the transaction. The AO did not rely upon any confessional statement or affidavit in isolation. The assessee has not demonstrated, either before the AO, CIT(A), or this Tribunal, as to how the absence of cross-examination of the CFO or author of the ledger caused any prejudice to its defence. There is no specific factual claim or inference of prejudice, other than a bald plea that cross-examination was denied. As decided in Swati Bajaj [2022 (6) TMI 670 - CALCUTTA HIGH COURT] has extensively dealt with the issue of whether denial of cross-examination per se renders the assessment invalid. After reviewing multiple precedents including State Bank of Patiala v. S.K. Sharma [1996 (3) TMI 526 - SUPREME COURT], SBI vs. M.J. James [2021 (11) TMI 1078 - SUPREME COURT] and State of U.P. vs. Sudhir Kumar Singh [2020 (10) TMI 746 - SUPREME COURT] the Hon’ble High Court held that natural justice is not a rigid, inflexible rule, that and a breach of the audi alteram partem principle does not automatically render an order invalid unless prejudice is demonstrated as a matter of fact. That if the assessee has been given access to the material relied upon and has been given an opportunity to explain or rebut it—either orally or in writing—then the requirement of fair hearing stands satisfied, especially where the burden to prove the transaction lies on the assessee. Action of the CIT(A) in deleting the impugned addition by accepting the alternate plea of the assessee for telescoping the cash payments against the undisclosed income declared under IDS, 2016 - There is no asset recorded in the books of accounts of the assessee which represent the aforesaid income declared by the assessee in the IDS-2016. The CIT(A) is a higher officer and an Appellate Authority over the AO. It has been time and again held that the powers of the Appellate Commissioner are co-terminous with that of the AO. The documents relied upon by the CIT(A) in the shape of IDS declaration Form and acknowledgement are not such type of documents, which require any further or deep investigation by the Assessing Officer. The said documents are, in fact, a part of the official record of the Income Tax Department. Therefore, the plea of the Department that the AO was not given opportunity to rebut of the same, is misconceived. The principle of avoiding double taxation of the same amount is firmly embedded in the scheme of IDS and supported by binding CBDT circulars. Therefore, the CIT(A) was justified in deleting the addition on this ground. We, therefore, do not find any merit in the appeal of the Revenue and the same is, accordingly, dismissed. ISSUES: Validity of reopening assessment under section 147 read with section 148 of the Income Tax Act, 1961 based on seized ledger recovered during search under section 132.Admissibility and evidentiary value of seized electronic ledger entries (Tally data) reflecting cash and cheque payments for land purchase.Whether unexplained cash payments recorded in seized material constitute unexplained investment under section 69 of the Income Tax Act.Whether denial of opportunity to cross-examine the person in possession of seized material violates principles of natural justice and affects validity of assessment.Whether addition under section 69 can be deleted on account of prior declaration and taxation of the undisclosed income under the Income Declaration Scheme (IDS), 2016.RULINGS / HOLDINGS: Reopening of assessment under section 147 read with section 148 was valid as the Assessing Officer had 'reasonable belief' supported by tangible, verifiable and corroborated material recovered during search, justifying the reopening.The seized electronic ledger (Tally data) containing detailed narration of cheque and cash payments bearing the assessee's name and matching bank statements and registered sale deed was held to have substantial evidentiary value and was not a casual or generic document nor prepared for educational purposes.The unexplained cash payments of Rs.5.30 crore recorded in the seized ledger but not reflected in the assessee's books constituted unexplained investment under section 69 and were correctly added to income by the Assessing Officer.Denial of opportunity to cross-examine the CFO or author of the ledger did not violate principles of natural justice as the assessee was supplied with the seized material, given opportunity to rebut the entries, and failed to demonstrate any specific prejudice caused by such denial.The addition under section 69 was deleted by the Commissioner of Income Tax (Appeals) on the ground that the assessee had already declared and paid tax on the undisclosed income under IDS, 2016, and taxing the same amount again would result in double taxation, contrary to binding CBDT Circular No. 27/2016 dated 14.07.2016.RATIONALE: The Court applied the statutory framework under sections 132 (search and seizure), 143(3), 147, 148, and 151 of the Income Tax Act, 1961, and section 69 relating to unexplained investments.The reopening was upheld based on the Assessing Officer's recorded reasons and sanction, supported by tangible evidence recovered from a party connected to the transaction, consistent with settled law on reasonable belief for reopening assessments.The evidentiary weight of electronic data retrieved during search was affirmed, rejecting the assessee's claim that the ledger was for educational purposes, following principles that contemporaneous electronic records bearing direct links to the assessee's transactions are admissible and reliable.The Court relied on precedent and authoritative rulings, including the principle that denial of cross-examination does not automatically vitiate proceedings absent demonstrated prejudice, as elaborated in the Calcutta High Court decision on natural justice and audi alteram partem principles.The deletion of addition was grounded on the binding CBDT Circular No. 27/2016, which prohibits reopening or reassessment of income declared and taxed under IDS to avoid double taxation, reflecting a doctrinal adherence to the principle against double jeopardy in tax assessments.The appellate authority's power to admit official records such as IDS declaration forms, even if not produced before the Assessing Officer, was recognized as co-terminous with the AO's powers, and such documents do not require further investigation to be relied upon.