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2025 Supreme(Online)(ITAT) 4500
INCOME TAX APPELLATE TRIBUNAL (CHENNAI BENCH)
Manu Kumar Giri, J, S. R. Raghunatha, ACJ
Deputy Commissioner of Income Tax – Appellant
Versus
Subbian Muruganatham – Respondent
Income Tax Appeal/ITA Nos.3298/Chny/2024
For the Appellants/Petitioners: Ms.Gouthami Manivasagam, JCIT
For the Respondents: Mr. R.Venkata Raman, C.A.
The addition of unexplained investment lacks credible evidence without independent verification and violates natural justice by denying the opportunity for cross-examination.
Headnote:(A) Income Tax Act, 1961 - Section 69 - Unexplained investment - Addition of Rs.1,00,00,000/- made by the AO on the basis of third-party statements without supporting evidence and without affording opportunity to cross-examine - Findings reveal that the addition lacks credible evidence and is unsustainable due to procedural deficiencies. (Paras 8, 18, 20-24)
(B) Natural Justice - Denial of cross-examination of third-party witness whose statement is crucial to the assessment process undermines procedural fairness and evidentiary value of claims. (Paras 23)
Facts of the case:
The Revenue appealed against the CIT(A) order that deleted a significant addition based on alleged unaudited cash loans purportedly made by the appellant. Investigation relied on unverified promissory notes showing signatures that were contested.
Findings of Court:
The CIT(A) correctly observed procedural flaws and lack of tangible evidence connecting the appellant to the cash loan, ultimately leading to the deletion of the addition made by AO.
Issues: Core issue was the validity of adding unexplained investments based solely on third-party claims without corroboration.
Ratio Decidendi: The court affirmed the principle that third-party statements alone cannot be grounds for assessment without evidence, emphasizing adherence to natural justice.
Result: The addition of Rs.1,00,00,000/- made by the AO was deleted, favoring the appellant.
| Table of Content |
|---|
| 1. the assessee's return and allegations against the cash loans. (Para 3 , 4 , 5 , 6) |
| 2. legal precedents on third-party statements without evidence. (Para 10 , 12 , 14 , 24) |
| 3. issues with the authenticity of evidence and cross-examination denied. (Para 18 , 20 , 22 , 23) |
आदेश/ORDER
PER MANU KUMAR GIRI (Judicial Member)
This appeal is preferred by the Revenue against the order dated 06.11.2024 passed by the ld. Commissioner of Income Tax (Appeals)–19, Chennai [‘CIT(A)’ in short], arising out of the assessment order dated 23.03.2022 passed u/s.147 of the Income Tax Act, 1961 (‘Act’ in short) by the Assistant Commissioner of Income Tax, Central Circle–2(3), Chennai (‘AO’ in short), in relation to the assessment for the Assessment Year (‘AY’ in short) 2017- 18.
2. The Revenue has raised the following grounds of appeal:
1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law.
2. The Ld. CIT(A) erred in deleting the addition of Rs.1,00,00,000/- to the total income on account of unexplained investment u/s 69 of the Act without appreciating that the said advance was part of Statement of Fact (SOF) of Sri Seetharaman, (Director of M/s. Visvas Promoters Pvt.Ltd) before the Income Tax Settlement Commissioner & therefore true as per the mandates of SOF thereon.
3. The Ld. CIT(A) erred in not appreciating that the said promissory notes bears names and addresses of witnesses and the repayment confirmation bears signature of the assessee in Tamil and is notarized by B Vijaysankar (Advocate) thereby making it a document admissible as evidence in a court of law under the Civil Procedure Code 1908.
4. The Ld. CIT(A) erred in observing that no opportunity of cross examination was provided to the assessee to cross examine Sri. Seetharaman when the assessee himself had never sought an opportunity to cross examine Sri.Seetharaman during the assessment proceedings.
5. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of Ld CIT(Appeals) may be set aside and that of Assessing Officer may be restored.
3. Sans unnecessary details, the brief facts of the case are that the assessee is an individual, filed his return of income for the AY 2017-18 on 08.08.2017, declaring an income of Rs.4,04,050/-. Subsequently, the AO received information indicating that the assessee had allegedly advanced a cash loan of Rs.1,00,00,000/- to one Shri Seetharaman. Based on this information, the AO reopened the assessment by issuing a notice u/s.148 of the Act on 30.03.2021.In response, the assessee filed a return of income on 09.04.2021, declaring the same income as originally returned. Thereafter, a notice u/s.143(2) of the Act was issued on 13.01.2022, followed by a notice u/s.142(1) of the Act on 12.02.2022.
4. That based on the alleged cash loan transaction, the AO issued a show cause notice to the assessee, seeking an explanation as to why the amount of Rs.1,00,00,000/- should not be treated as the assessee’s income, considering it was not disclosed in the return of income for the impugned assessment year. In response, the assessee categorically denied having advanced any such loan to Shri Seetharaman. The assessee submitted that his primary sources of income were limited to rent and interest income and that he did not possess the financial capacity to extend such a substantial amount. However, the AO was not convinced and rejected the assessee's explanation. The AO noted that Shri Seetharaman had submitted ‘six promissory notes’ before the Income Tax Settlement Commission, purportedly evidencing the receipt of a cash loan of Rs.1,00,00,000/- from the assessee during the period from 01.08.2016 to 01.11.2016. These promissory notes allegedly having the signature of the assessee on the reverse side of the documents.In view of this evidence, the AO found the assessee’s explanation to be unconvincing and proceeded to trea
