2025 (6) TMI 708 - AT - Income Tax

Addition u/s 69A - unexplained money - assessee has deposited cash during demonetization period in his bank accounts and the assessment orders were passed ex-parte - HELD THAT -Contention of Ld. AR that during survey certain loose papers and documents were impounded including sale and purchase bills and admittedly the copy of the same was not provided to the assessee even after so many requests. It was also demonstrated before the Bench that the assessee also raised grievance before CP Gram in this regard. Even till the date of hearing before us the assessee was not provided documents as desired by him. Accordingly we find force in the contentions of assessee that in the absence of copy of impounded papers/documents it was not possible for the assessee to prove his statements recorded by the Survey Party u/s 131 of the IT Act. However we also find that even if such documents were not provided to the assessee he could have appeared before the AO and replied on the basis of material available with him. CIT(A)/NFAC has dismissed the appeal merely on the reasoning that the assessee did not cooperate during assessment proceedings but while doing so he did not consider the fact that the impounded material was not provided to the assessee. It was also the contention of Ld. AR of the assessee that if the sales bills issued by Pranav Lunkad were accepted as correct then the sale recorded in the books of the assessee on the basis of above purchase bills must also be treated as correct therefore only the NP should have been added in the hands of the assessee. We deem it appropriate to set-aside the order passed by Ld. CIT(A)/NFAC and remand the matter back to the file of the AO to pass assessment order afresh (de novo) after providing reasonable opportunity of hearing to the assessee - Appeal filed by the assessee is partly allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in these appeals include:

• Whether the assessment order passed ex-parte by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) (CIT(A)) violated the principles of natural justice, particularly in light of the assessee not being provided copies of impounded material seized during survey proceedings and not being given an opportunity to cross-examine key witnesses whose statements were relied upon.
• Whether the addition of Rs. 1,89,02,000/- as unexplained cash deposits during the demonetization period under section 69A of the Income Tax Act, 1961, was justified in the absence of satisfactory explanation of the source and nature of the cash deposits by the assessee.
• Whether the assessee's claim that the cash deposits represented accommodation entries from a third party (Pravin Lunkad) and corresponding RTGS payments to Nav Maharashtra Chakan Oil Mill Pvt. Ltd., supported by statements recorded during survey, were properly considered and whether the AO and CIT(A) erred in ignoring such explanations without supporting evidence.
• Whether the CIT(A) erred in confirming the addition without verifying the impounded cash book and related documents seized during survey, which could have substantiated the assessee's claims.
• Whether the AO and CIT(A) properly applied the legal framework under section 69A in the context of the facts, including the requirement of explanation as to the nature and source of the deposits and the treatment of accommodation entries under settled principles of law.
• Whether the procedural and substantive rights of the assessee were violated by denial of access to impounded material and lack of opportunity to cross-examine adverse witnesses, thereby affecting the fairness of the assessment proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Violation of Natural Justice due to Ex-Parte Assessment and Denial of Copies of Impounded Material

Relevant Legal Framework and Precedents: The principles of natural justice require that an assessee be given a fair opportunity to present his case, including access to documents and evidence relied upon by the revenue, and the opportunity to cross-examine witnesses whose statements are used against him. The Income Tax Act provisions regarding survey (section 133A) and assessment (section 144) must be read in conjunction with these principles.

Court's Interpretation and Reasoning: The Tribunal noted that the assessment order was passed ex-parte by the AO due to the assessee's non-cooperation, and the CIT(A) confirmed the order without providing further hearing opportunities. The assessee repeatedly requested copies of impounded documents (sales and purchase bills, cash books, computer data) seized during survey but was not provided these despite multiple requests and grievances filed with CP Gram.

Key Evidence and Findings: The assessee furnished written submissions but was denied access to impounded material, which was essential to substantiate his statements recorded under section 131 during survey. The AO relied on the statement of a third party (Pravin Lunkad) without providing the assessee an opportunity to cross-examine him.

Application of Law to Facts: The Tribunal found merit in the assessee's contention that denial of impounded material and opportunity to cross-examine violated principles of natural justice and impaired the assessee's ability to defend the case. However, the Tribunal also observed that the assessee could have still appeared before the AO and responded based on available material.

Treatment of Competing Arguments: While the Revenue argued that the assessee failed to cooperate and did not provide satisfactory explanations, the Tribunal emphasized that the CIT(A) failed to consider the denial of impounded material and the resultant prejudice to the assessee. The Tribunal balanced the procedural lapses against the assessee's duty to cooperate.

Conclusions: The Tribunal concluded that the ex-parte assessment and confirmation by the CIT(A) were unjustified without providing the assessee adequate opportunity to defend, particularly by denying access to impounded material and cross-examination rights. Accordingly, the matter was remanded for fresh adjudication after providing these opportunities.

Issue 2: Justification of Addition of Rs. 1,89,02,000/- under Section 69A as Unexplained Cash Deposits

Relevant Legal Framework and Precedents: Section 69A of the Income Tax Act provides that unexplained money found in the possession of the assessee, not recorded in books of account, and for which the assessee fails to satisfactorily explain the nature and source, may be deemed income. The section requires three conditions: ownership of money, absence of recording in books, and unsatisfactory explanation of nature and source.

Court's Interpretation and Reasoning: The AO and CIT(A) found that the assessee deposited Rs. 1,89,02,000/- in cash during the demonetization period in old currency notes, which was abnormal and unexplained. The assessee failed to provide a satisfactory source or explanation for these deposits. The Tribunal noted the AO's detailed findings that such deposits were concentrated during demonetization, with no similar deposits before or after, and no credible source was furnished.

Key Evidence and Findings: The assessee's own statement during survey admitted that the cash was given by Pravin Lunkad and adjusted through bogus sales bills issued by Nav Maharashtra Chakan Oil Mill Pvt. Ltd. However, the assessee failed to substantiate this claim with documentary evidence or prove the genuineness of these transactions.

Application of Law to Facts: Since the deposits were not recorded in the books of account and the assessee did not satisfactorily explain the nature and source, the AO invoked section 69A to treat the deposits as deemed income. The Tribunal found that all three limbs of section 69A were satisfied.

Treatment of Competing Arguments: The assessee contended that the cash deposits were accommodation entries and that only commission should be added, not the entire amount. The CIT(A) and AO rejected this on the ground that the assessee failed to prove the accommodation entry claim or produce supporting evidence. The Tribunal did not delve into the merits of these contentions but noted the lack of evidence.

Conclusions: The addition under section 69A was prima facie justified based on the unexplained nature of the cash deposits. However, due to procedural irregularities and denial of impounded material, the Tribunal remanded the matter for fresh adjudication.

Issue 3: Reliance on Statements of Third Party Without Opportunity to Cross-Examine

Relevant Legal Framework and Precedents: The right to cross-examine witnesses whose statements are relied upon in adverse findings is a fundamental aspect of fair procedure under the Income Tax Act and principles of natural justice.

Court's Interpretation and Reasoning: The AO relied on the statement of Pravin Lunkad recorded under section 131 during survey, which implicated the assessee. However, the assessee was not given any opportunity to cross-examine Lunkad. The Tribunal recognized this as a significant procedural lapse.

Key Evidence and Findings: Both statements of the assessee and Lunkad were recorded, but the AO selectively relied on Lunkad's statement to draw adverse inference. The assessee challenged this selective reliance and lack of cross-examination opportunity.

Application of Law to Facts: The Tribunal found that denying the assessee the opportunity to cross-examine a key witness whose statement was used against him was a violation of natural justice and prejudicial to the assessee's defense.

Treatment of Competing Arguments: The Revenue did not provide justification for denial of cross-examination. The Tribunal sided with the assessee's procedural rights.

Conclusions: The Tribunal held that the assessment and appellate orders could not stand without remedying this procedural defect, reinforcing the need for fresh adjudication after affording such opportunity.

Issue 4: Treatment of Accommodation Entries and Related Additions

Relevant Legal Framework and Precedents: Accommodation entries are transactions without genuine commercial substance, often used to conceal unaccounted income. The settled principle is that the revenue may add the entire amount or commission depending on the facts and evidence.

Court's Interpretation and Reasoning: The assessee contended that the cash deposits and corresponding RTGS transfers were accommodation entries and that only commission should be added. The CIT(A) rejected this contention, holding that the assessee failed to prove the accommodation entry nature or produce evidence.

Key Evidence and Findings: No evidence was produced by the assessee to support the accommodation entry claim. The AO and CIT(A) treated the entire amount as unexplained income.

Application of Law to Facts: The Tribunal did not examine this issue on merits due to remand but noted that the assessee's failure to substantiate the claim was a significant factor.

Treatment of Competing Arguments: The assessee's reliance on case laws distinguishing the facts was not accepted by the CIT(A) or AO.

Conclusions: The issue remains open for fresh consideration on remand after providing the assessee access to impounded material and opportunity to present evidence.

Issue 5: Verification and Consideration of Impounded Cash Book and Related Documents

Relevant Legal Framework and Precedents: Documents seized during survey are critical evidence and must be provided to the assessee for effective defense. The assessment authority must consider all relevant material before making additions.

Court's Interpretation and Reasoning: The CIT(A) confirmed the addition without verifying or considering the impounded cash book and related purchase and sales bills seized during survey. The assessee contended that these documents supported the genuineness of transactions.

Key Evidence and Findings: The assessee's repeated requests for copies of impounded material were ignored, prejudicing the defense. The Tribunal acknowledged this procedural lapse.

Application of Law to Facts: The Tribunal held that the failure to provide impounded documents and consider them amounted to denial of fair opportunity and vitiated the assessment and appellate orders.

Treatment of Competing Arguments: The Revenue did not dispute the denial of copies but relied on the assessee's non-cooperation.

Conclusions: The matter was remanded for fresh adjudication after providing copies of impounded material to the assessee.

3. SIGNIFICANT HOLDINGS

"The scheme of Section 69A of the Income-tax Act, 1961, would show that in cases where the nature and source of acquisition of money, bullion, etc., owned by the assessee is not explained at all, or not satisfactorily explained, then, the value of such investments and money or value of articles not recorded in the books of accounts may be deemed to be the income of such assessee."

"For application of Section 69A of the Act, two conditions are required to be satisfied. They are: 1. Investment/expenditure are not recorded in the books of account of appellant. 2. The nature and source of acquisition of assets or expenditure are not explained or not explained satisfactorily."

"The expression 'nature and source' used in this section should be understood to mean requirement of identification of source and its genuineness. To explain 'Nature' it would require the appellant to explain what is the description of investment or expenditure, period and the manner in which it was done. To explain the source, it would require the appellant to explain the corpus or fund from where investment or expenditure has been met."

"The appellant was found to be owner of the Money; such Money was not recorded in the books of accounts; and its nature and source is not identifiable. All three limbs of Section 69A of the Act stand qualified in the case of the appellant."

"The assessment order passed ex-parte and confirmed by the CIT(A) without providing copies of impounded material and without affording opportunity to cross-examine witnesses whose statements were relied upon, is in gross violation of the principles of natural justice."

"In the interest of justice and without going into merits of the case, we deem it appropriate to set-aside the order passed by Ld. CIT(A)/NFAC and remand the matter back to the file of the Assessing Officer to pass assessment order afresh (de novo) after providing reasonable opportunity of hearing to the assessee as per fact & law and also after providing copies of impounded material seized during the survey proceedings."

"The assessee is hereby directed to respond to the notices issued by Ld. Assessing Officer and produce relevant documents/evidences, if any, in this regard without taking any adjournment under any pretext, otherwise Ld. Assessing Officer shall be at liberty to pass appropriate order as per law."

"Since both the orders of AO and CIT(A) have been set-aside and remanded, all other grounds raised by the assessee become infructuous and are not adjudicated separately."