ITO Vs K. Mart (ITAT Ahmedabad)
Conclusion: Additions under Section 69A could not be sustained without concrete evidence and due process and AO had not brought any tangible evidence to prove the alleged cash loan.
Held: Revenue had challenged CIT(A)’s decision to delete the addition, which was made based on information from a survey conducted on Pravin S. Shah, proprietor of Manibhadra, who was allegedly involved in providing cash loans through hundis. AO had reopened the assessment under Section 147 and passed an ex-parte order under Section 144, treating the alleged cash loan as unexplained money under Section 69A. However, assessee denied any such transaction and argued that the AO did not furnish any documentary proof or allow cross-examination. CIT(A) had observed that the addition was made solely on third-party information without any independent verification. Assessee, a small business with a turnover of Rs. 36.30 lakhs, argued that it had no commercial need for a Rs. 2.65 crore cash loan. CIT(A) held that the AO failed to establish ownership or possession of the alleged unexplained money, a prerequisite for invoking Section 69A. CIT (A) also noted that the AO did not provide the assessee with copies of alleged hundis or the statement of Shri Pravin S. Shah, violating principles of natural justice. Before Tribunal, Revenue contended that CIT(A) erred in deleting the addition without giving the AO an opportunity to verify the assessee’s reply. Revenue argued that assessee’s response was filed late and should have been treated as additional evidence under Rule 46A. However, assessee countered that the reply was filed before the assessment was finalized and thus could not be considered additional evidence. It was held by Tribunal with the CIT(A)’s findings, that AO had not brought any tangible evidence to prove the alleged cash loan. Tribunal noted that third-party documents could not be used against an assessee without corroboration and cross-examination, as held by the Gujarat High Court in Kaushik Nanubhai Majithia. Tribunal also referred to CBDT Circular No. 20, which clarified that Section 69A required clear proof of ownership of unexplained money. Since AO failed to meet these legal requirements and proceeded on mere suspicion, Tribunal dismissed the Revenue’s appeal.
