AO Can't Make Additions Solely Based On Retracted Statement Of Third-Parties If Assessee Has Claimed Opposite: Chennai ITAT
Referring to the decision of Madars High Court in case of P.V. Kalyanasundaram (155 Taxman 454), the Chennai ITAT held that once the assessee had denied payments made by it, then he cannot be expected to prove the negative. Going further, the Bench held that the AO cannot make additions solely based on retracted statement of third-parties, if assessee had claimed otherwise. The...
Referring to the decision of Madars High Court in case of P.V. Kalyanasundaram (155 Taxman 454), the Chennai ITAT held that once the assessee had denied payments made by it, then he cannot be expected to prove the negative.
Going further, the Bench held that the AO cannot make additions solely based on retracted statement of third-parties, if assessee had claimed otherwise.
The Bench of Aby T. Varkey (Judicial Member) and Manoj Kumar Aggarwal (Accountant Member) observed that “no addition could be made on mere presumption and suspicion. The AO has to bring on record cogent positive evidences to sustain addition based on third party statement / material”.
Facts of the case:
The AO transpired that the assessee had earned capital gains on sale of certain properties. One such property located at Chennai was sold to S. Selvakumari for Rs.16 Crores. However, pursuant to search action u/s 132 on R. Sabapathy group, a small notebook was found from Saravana Store Jewellery, which showed cash loans received by R. Sabapathy of Rs.25 Crores for purpose of investment in immoveable properties. In his statement, R. Sabapathy deposed that cash loans were taken by him to pay for the purchase of immoveable properties at Perambur, which was actually purchased for his sister Selvakumari for consideration of Rs.21 Crores and he paid Rs.5 Crores in cash over and above the registered value to the assessee (Saravanan of Saravana Bhavan Hotels group). Since the assessee declared sale consideration of Rs.16 Crores only, the proceeded to add the differential of Rs.5 Crores to the income of assessee.
Observations of the Tribunal:
The Bench noted that the statement of R. Sabapathy upon which the AO relied, was retracted within a span of three months and R. Sabapathy stated that loan of Rs.17 Crores was received from Rakesh whereas the balance of Rs.8 Crores was out of sale of excess stock.
The Bench therefore found that R. Sabapathy has taken contrary stand and his statement could not be held to be credible one, since Julian stated that loan of Rs.25 Crores was taken in 2021, so all the dates are pertaining to the year 2021 only.
First of all, the Bench noted that payment of Rs.5 Crores was made in December, 2020 as on-money, as per R. Sabapathy, whereas, no exercise is shown to have been carried out by the AO to establish that the market value of the impugned property was much more.
The Bench reiterated that where AO did not conduct any independent enquiry relating to the value of the property purchased or did not refer the same to the valuation officer and merely relied on the statement given by the seller, the same would be fatal to additions.
In the absence of such a finding, the impugned additions are merely unsubstantiated additions which could not be sustained in law, added the Bench.
Therefore, the ITAT deleted the additions confirmed by the CIT(A) and allowed Assessee's appeal.
Counsel for Appellant/ Assessee: T.N. Seetharaman
Counsel for Respondent/ Revenue: P. Sajit Kumar
Case Title: Shri Rajagopal Saravanan verses ACIT
Case Number: ITA No.119/Chny/2024
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