Retracted Statement Of Person Without Any Nexus With Taxpayer Can't Form Basis For Addition U/s 69A: Mumbai ITAT

The Bench of the ITAT comprising of Narender Kumar Choudhry (Judicial Member) and Padmavathy S. (Accountant Member) observed that, “we have failed to understand that how the name as mentioned in the said diary, as 'NENSIBHI ELLA' can be attributed to the Assessee's name. Further, how the coded amount of Rs.32,500 can be construed as Rs.3,25,000,00/-. Further, how the Assessee is connected with the said narration of entries written in diary. Further, as per Assessee's claim, the mobile number noted in said diary is even otherwise do not belong to the Assessee and the Assessing Officer also failed to verify the owner of the said number to connect with the Assessee.” (Para 10)

As per the brief facts of the case, the assessee filing its return of income u/s 139(1) which was processed u/s 143(1). Subsequently, on the information received from the DDIT-Tax Investigation Wing that during a search action completed u/s 132 carried out in a certain firm, it was found that assessee has lent cash loan from the said firm and no scrutiny assessment was completed for the same, the AO formed the reason to believe that income chargeable to tax as indicated above had escaped assessment within the meaning of section 147, as the assessee has failed to disclose fully and truly all material facts in the year under consideration by furnishing his return of income. The AO consequently issued the notice u/s 148. During the assessment proceedings, the assessee filed reconciliation of income and TDS statement, audited balance-sheet of the proprietorship, bank account statements, etc. Further, the assessee also stated that we did not lend any cash loan. The AO ultimately, on the basis of statement of the person representing the said firm, and without giving any opportunity of cross examination to the assessee and by considering the aforesaid entries in the diary seized during the course of search, made the addition of u/s 69A. Further, the AO also added an amount on account of alleged interest paid @12% p.a. on the loan amount.

The CIT(A) not only affirmed the reopening of the case u/s 147/148 but also affirmed the additions made by AO.

The Bench noted that it is very much clear from the impugned order that the same is an un-reasonable order and passed in cryptic manner, therefore, on this aspect itself, the impugned order is liable to be set aside.

The Bench observed that the AO made the additions mainly on the ground that the person representing the said firm, in his statement recorded u/s 132(4) has admitted that he was in the business of lending / borrowing money in cash (unaccounted and undisclosed business).

The Bench further observed that in the course of search, a diary has been seized wherein inter-alia entries have been recorded and the assessee's name is also appearing in the same diary in coded word.

The Bench also observed that it is an admitted fact that the AO has not entertained the assessee's request for cross examination of the person representing the said firm and also it is a fact that he subsequently retracted his statement. Therefore, his statement made earlier become doubtful as claimed by the assessee and cannot be relied as substantive evidence.

Therefore, on finding that entries made in the diary is not at all substantive material, the ITAT allowed the assessee's appeal.

Counsel for Appellant/Taxpayer: Sanjay R Parikh

Counsel for Respondent/ Revenue: None

Case Title: Mayur Kanjibhai Shah verses Income Tax Officer

Case Number: I.T.A. No.3243/Mum/2023

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