No Addition can Sustain Unless Opportunity of Cross Examination given to Assessee when Addition Based on Third Party Statement: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has recently, while deciding few appeals filed before it, held that no addition can sustain unless an opportunity of cross examination is given to the assesse when such an addition has been made by the department on account of third-party statement.

The aforesaid observation was made by the Tribunal when appeals were preferred before it by the Revenue, as against three separate orders, each dated 19/04/2022, passed by the National Faceless Appeal Centre (NFAC), Delhi, for assessment year 2010- 11, 2011-12 and 2012- 13 respectively.

The brief facts of the case were that the assessee, an individual having proprietary concern i.e., M/S Aatash Investments, was engaged in the business of trading in equity and derivatives and advisory services with respect to capital market and investment.  And for the year under consideration i.e. the assessment year 2010 -11, the assessee had filed a regular return of income on 28/09/2010, declaring income of ₹20,18000, with the assessment under section 143(3) being completed on 28.12.2012, by assessing total income at ₹20,74,000/.

Subsequently, the assessment was reopened by way of a notice under section 148 of the Income Tax Act, on 29/03/2017, by the Assessing Officer, based on the information received from two sources for reopening of the said assessment.

Firstly, it was on the basis of  certain incriminating documents found in the course of search action under section 132 of the Income Tax Act, carried out at the premises of M/s Bhoomi Group, wherein one of the printouts of these incriminating documents evidencing cash receipts and loan to various parties ,found from the laptop of one Ms Vasumati Modi,  showed the name of the assessee as recipient of cash loans , being recorded there.

Further, with Shri Akshay J Doshi, the director of M/S Bhoomi Group of companies, accepting the cash transactions recorded in the incriminating documents found from his premises, the Assessing Officer opinioned this cash loan received by the assessee from M/S Bhoomi group, as undisclosed income of the assessee.

Secondly, information was received from the non- filter management system of the Income Tax Department that Shri Kalpesh Shah had purchased shares worth Rs 1,54,97,097/ for the period from 18.2.2010 – 23.3.2010, in cash market transactions through Bombay Stock Exchange and that no return of Income was filed. And it was based on both these aforesaid information that the assessing officer had recorded reason to believe that income had escaped assessment.

With the objections raised by the assessee against the said notice under section 148 of the Income Tax Act being disposed of by the Assessing Officer, during the reassessment proceeding, the assessee was asked to explain the source of the alleged cash loan received of Rs 1,50,00,000/- by him, from M/s Bhoomi Group as well as the repayment of 15,75,000. However, the assessee denied any of such transaction or purchase or sale of property or any other transaction with M/S Bhoomi Group, and further, after going through the statement of Mr Akash Doshi, submitted that he nowhere had stated Mr. Kalpesh Shah to be the assessee.

Also, with the assesssee further submitting that the printout taken from the laptop during the course of the search at the Bhoomi Group nowhere reflects Kalpesh Shah or Kalpesh Bhai referred in the said printout to be the assessee only, he asked for cross examination of Mr Akshay Doshi.

 However, on being summoned by the Assessing Officer, Mr.Akshay Doshi  did not appear before him for providing cross examination to the assessee. And subsequently, the Assessing Officer rejected the contention of the assessee , and based on the information in the printout from the laptop , held  the alleged cash  loan of  Rs 1,50,00,000 received by the assesssee as unexplained cash credit in terms of  section 68 of the Income Tax Act, in view of the material available  on record, surrounding circumstances, human conduct and preponderance of probability in the nature of incriminating information / evidences available with him, along with the addition of the alleged interest payment of Rs 15,75,000, made under section 69C of the Income Tax Act.

However,on further appeal, the CIT (A), having relied upon the decisions of the Supreme Court in the case of CBI v. VC Shukla, as well as the decision of the ITAT in the case of Abhay K Bharmgouda Patil v.  ACIT, on the issue that addition cannot be sustained without providing opportunity to the assessee for cross- examination of the person based on whose statement the addition was made, deleted the said addition made on account of unexplained cash loan and unexplained interest expenditure, leaving the Revenue aggrieved to prefer the present appeal before the Mumbai ITAT.

Hearing the opposing contentions of the Revenue as represented by Mrs. Usha Gaikwad, DR, and that of the assessee as represented by Mr. K Gopal and Mr. Om Kandalkar, the advocates for the assessee, the ITAT Bench consisting of Kavitha Rajagopal, the Judicial Member and Om Prakash Kant, the Accountant Member, observed as follows :

“We do not find any error in the order of the Ld. FAA on the issue in dispute and accordingly we uphold the same”

“The facts and circumstances and the grounds raised in other two assessment years i.e., 2011- 21 and 2012-13, are identical to the assessment year 2011- 12, and the only difference is the amount of cash loan and interest payment, which is₹   2,34,00,000 and ₹27,00,000/- in assessment year 2011-12, and ₹ 2, 30,47,000/ and  ₹ 45,000/- in assessment year 2012-13 respectively”, the ITAT Bench added.

“Therefore, following our finding in assessment year 2010 -11, the grounds raised in assessment year 2011 -12 and 2012-13 are decided mutasis mutandis”, dismissing the Revenue’s appeals, the Mumbai ITAT concluded.

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