Opportunity of Hearing must before addition for Unexplained Eviction Expenses

Shadawal Enterprises Vs CIT (ITAT Mumbai)

Addition of unexplained expenses on failure to establish evidence for eviction of encroacher should be made after providing opportunity of hearing to assessee

Conclusion: Shri Ganesh Vithal Indore was the appropriate person to establish his possession over the encroached property/land by submitting the relevant documents and/or other direct or indirect evidence, thus for the just decision of the case and for real adjudication of the issue, it would be appropriate to remand the instant issue to the file of AO for decision afresh by summoning Shri Ganesh Vithal Indore and in case he will not appear then by taking appropriate measures as prescribed under the law and also by giving one more opportunity to assessee to corroborate its stand qua encroached land and to establish the transaction as genuine, with direct-indirect or circumstantial evidence etc.. accordingly addition as unexplained expenses should be made.

Held: Search and survey operation under Section 133A was conducted in the business premises of assessee, wherein a statement of Shri Rajaram Ganpat Vichare, partner of assessee-firm was recorded, in which a voluntary declaration of Rs. 1,10,06,000/- as per the discrepancies detected was made based on provisional income and expenditure account. Assessee-firm has debited total amount of Rs. 3,30,66,526/- and therefore, assessee was asked to furnish complete details of the purchases along with ledger confirmations, bank details and income tax details of the parties. AO summoned one of the party Ganesh Vithal Indore, however, inspite of the service of summons under Section 131, Shri Ganesh Vithal neither appeared nor filed any details/reply, and therefore the AO by taking into consideration the facts “that assessee failed to establish/bring to have made any efforts for eviction of encroacher, installation of electricity and water connection on the said land, reporting of encroachment with the Government authorities, permission for construction, photographs of encroachment and activities of the encroachers and possession of encroachers in any form”, doubted the said transaction of Rs. 1,30,00,000/- allegedly paid to Shri Ganesh Vithal Indore for vacating the alleged encroached land and therefore, the addition had also been affirmed by the Commissioner. It was held that as per the details furnished by assessee before the AO, Shri Ganesh Vithal Indore has shown the said amount of Rs. 1,30,00,000/- as deemed consideration under section 50C, therefore, Shri Ganesh Vithal Indore was also the appropriate person to establish his possession over the encroached property/land by submitting the relevant documents and/or other direct or indirect evidence, thus for the just decision of the case and for real adjudication of the issue and to unearth the real controversy, it would be appropriate to remand the instant issue to the file of AO for decision afresh by summoning Shri Ganesh Vithal Indore and in case he will not appear then by taking appropriate measures as prescribed under the law and also by giving one more opportunity to assessee to corroborate its stand qua encroached land and to establish the transaction as genuine, with direct-indirect or circumstantial evidence etc.. Hence, the issue in hand stood remanded to the file of AO for de-novo decision. Hence, considering peculiar facts and circumstances in totality as grounds raised remained un-adjudicated and the Assessee candidly accepted its mistake, the issue should be remanded qua addition on account of opening stock and adhoc disallowance of labor charges and purchase expenses, to the file of the Commissioner but subject to deposit of Rs. 11,000/- in the account of the Revenue/Department within 30 days of this order.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

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