Assessment Made Purely Based On Assumption & Unverified Statement Of Third Party, Is Bad In Law: Mumbai ITAT

The ITAT also held that the addition cannot be made without bringing proper material on record or bringing on record the proper joint statement from the builder as well as the assessee, wherein assessee should be one of the parties should concede that they have made the on-money.

The Bench of Amit Shukla (Judicial Member) and S. Rifaur Rahman (Accountant Member) observed that “the assessee is or will never in a position to bring any builder before the tax authorities, it is the duty of the tax authorities if they want to rely on statement to arrange for the cross examination and opportunity to be extended to the assessee. Apart from the above statement of the builder and whatever they have declared in their assessment was with the authorities, this information was never available with the Assessing Officer in this case, hence, there is no evidences available in the hands of the Tax Authorities against the assessee except the statement of the builder.” (Para 18)

As per the brief facts of the case, the AO received information from the DCIT, that assessee had paid ₹.11,33,000/- in cash to the Developer's firm for the purchase of the FLAT, while the agreement value of the said property is ₹.87,74,000/-. Accordingly, AO issued notice u/s 148 after taking approval u/s. 151(1) from the competent authority. In response to the notice, assessee has filed the return of income. Further, several notices were issued and the assessee filed his reply on ITBA portal and submitted that assessee denies any payment of on money to the builder and asked for cross examination as well as submitted that the testimony of a witness is not legal evidence unless it is subjected to cross examination, also a statutory right. The requisite was provided to the assessee.

Further, the assessee was given an opportunity to produce the builder for verification before the undersigned. However, he did not produce the builder for verification before the under signed. Hence onus on the assessee remains un-discharged. The AO observed that the assessee had paid ₹.11,33,000/- in cash to the developer's firm which was not disclosed in his books of account. Hence, the AO by relying on various case law completed the assessment by treating the payment of ₹.11,33,000/- as unexplained investment.

The CIT(A) dismissed the assessee's appeal after considering the detailed submission of the assessee.

The Bench noted that the builder has accepted that they have received on-money from the various projects conducted by them and he has disclosed the name of all the flat owners.

The Bench further noted that the Tax Authorities proceeded to make the addition based on the declaration of receipt of on-money in the hands of the Flat Owners.

The Bench observed that no cross-examination opportunity was given to the assessee.

The Bench further observed that no such opportunity was granted to the assessee and only the statement recorded were supplied to the assessee and in fact, it was asked the assessee to bring the builder before the AO.

The Bench observed that the AO merely relying on the statement of the builder.

Therefore, ITAT partly allowed the assessee's appeal.

Counsel for Appellant/ Assessee: Nikhil Natekar

Counsel for Respondent/ Revenue: Anam Benish

Case Title: Kundal Raghubir Bhandari verses ITO (Intl. Tax)

Case Number: ITA NO. 3646/MUM/2023

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