Anish Rajkumar Parasrampuria Vs ITO (ITAT Mumbai)
Mumbai ITAT: Assessment Based on Third-Party Statements Quashed for Denial of Cross-Examination
The Mumbai ITAT quashed the reassessment and deleted the addition of ₹25 lakh under section 69, holding that an assessment founded substantially on third-party statements cannot be sustained when the assessee is denied the complete material relied upon and an opportunity to cross-examine those witnesses. The addition was made on the allegation that the assessee had advanced a cash loan to M/s Evergreen Enterprises, based on statements recorded during a search on that concern and certain seized documents.
The Tribunal found that the assessee was furnished only extracts of the statements, while the complete statements and seized material forming the basis of the addition were never supplied despite specific requests. Further, the persons whose statements were relied upon were never produced for cross-examination. The Tribunal also noted that none of the statements specifically referred to the assessee, and no independent corroborative evidence directly linked the assessee with the alleged cash transaction.
Relying on the Supreme Court’s decision in Andaman Timber Industries v. CCE, the Tribunal held that denial of cross-examination and failure to furnish the material relied upon constitute a serious violation of the principles of natural justice, rendering the assessment unsustainable. Since the addition rested primarily on untested third-party statements without independent corroboration, the reassessment order was quashed and the assessee’s appeal was allowed.
Cases Discussed
- Andaman Timber Industries v. Commissioner of Central Excise (SC), (2015) 62 taxmann.com 3
FULL TEXT OF THE ORDER OF ITAT MUMBAI
Present appeal filed by the assessee arises out of the order dated 08/12/2025 passed by Ld.CIT(A) -51, Mumbai [hereinafter referred to as “Ld.CIT(A)”] for A.Y. 2012-13, on the following revised grounds of appeal:-
“I. Reopening of Assessment is bad in law :
1. The learned CIT(A) erred in upholding the reopening of assessment based on information received from DDIT(Inv) without independently verifying the said information nor providing copy of the material/statement relied upon by the AO while recording the reasons for reopening, thereby violating the direction/guideline passed by the Supreme Court and Bombay High
2. The reopening u/s. 148 is bad law as same is based on seized material pursuant to search action u/s. 132 of the Act undertaken on third person and statement of third party.
II. Principal of Natural Justice Violated:
3. The CIT(A) failed to consider the fact that the statement recorded of Mr. Nilesh Bharani and his employees were never provided to the assessee for rebuttal nor the seized material nor opportunity to cross examination the alleged parties.
II. Addition of Rs. 25,000,00/- u/s 69 of the Act:
4. The CIT(A) NFAC has erred in upholding addition of Rs. 25,000,00/-treating the same as unexplained investment u/s 69 of the Act based on the alleged statement recorded and alleged seized material of third party, without appreciating that assessee had not entered into any such alleged cash transaction and therefore the addition is required to be deleted.
5. The ld CIT(A) failed to appreciate that the statement relied by the Assessing Officer of Shri Nilesh Bharani was later retracted by the Shri Nilesh Bharani therefore no credentials can be laid on the same without providing the cross examination.
6. The Appellant craves leave to add, amend, omit any of the aforesaid grounds of appeal as the occasion may arise or demand.”
2. Brief facts of the case are as under:-
The assessee filed the return of income for A.Y. 2012-13 on 27/07/2012 declaring a total income of Rs. 1,45,45,330/-. Subsequently, pursuant to information received from the Investigation Wing consequent to a search and survey action conducted on 11/10/2017 in the case of M/s. Evergreen Enterprises, wherein certain seized documents and statements recorded u/s132(4) allegedly indicated that the assessee had advanced a cash loan of Rs.25,00,000/- to Shri Nilesh Bharani, the assessment was reopened by issuance of notice u/s 148 on 30/03/2019. Thereafter, the Ld.AO completed the reassessment by treating the said amount of Rs.25,00,000/- as unexplained investment/advance and made an addition u/s.69 of the Act.
Aggrieved by the action of the Ld.AO, the assessee preferred an appeal before the Ld.CIT(A).
3. Before the Ld.CIT(A), the Ld. AR submitted that the assessee had specifically contended before the Ld.CIT(A) that, neither the statements recorded during the search proceedings nor seized material, on the basis of which the impugned addition was made, were furnished to the assessee. It was contended that the assessment was completed in violation of the principles of natural justice, as the assessee was denied an effective opportunity to rebut the material relied upon by the AO.
3.1. The Ld.AR further submitted that the impugned assessment order is unsustainable in law, as the Ld. AO had solely relied upon the information received from the Investigation Wing without supplying the complete incriminating material to the assessee. Consequently, the assessee was deprived of an adequate opportunity to controvert the allegations forming the basis of the addition. The Ld.AR also disputed the evidentiary value of the statements recorded u/s.132(4) of the Act, contending that no opportunity to cross-examine the persons whose statements had been relied upon by the Revenue was afforded to the assessee. It was, therefore, submitted that the addition made solely on the basis of such material is liable to be deleted. The Ld.CIT(A), after considering the submission rejected the legal grounds raised by assessee and affirmed the addition made by Ld.AO.
Aggrieved, by the order passed by Ld.CIT(A), assessee is in appeal before this Tribunal.
4. Before us, the Ld.AR placed reliance on the decision of the Hon’ble Supreme Court in Andaman Timber Industries v. Commissioner of Central Excise reported in (2015) 62 com 3. It was submitted that the Hon’ble Supreme Court has categorically held that where the adjudicating authority relies upon the statements of witnesses while passing an order adverse to the assessee, denial of an opportunity to cross-examine such witnesses amounts to a violation of the principles of natural justice. The Hon’ble Supreme Court observed that not allowing the assessee to cross-examine the witnesses, whose statements formed the basis of the impugned order, is a serious flaw which renders the order a nullity, as it results in violation of the principles of natural justice and causes prejudice to the assessee. Accordingly, it was contended that the addition made solely on the basis of such statements, without affording an opportunity of cross-examination, is unsustainable in law.
4.1. The Ld. DR, on the other hand, submitted that the subsequent retraction of the statement of Shri Nilesh Bharani does not, by itself, render the original statement inadmissible or devoid of evidentiary value. It was contended that a statement recorded on oath during the course of search proceedings u/s 132(4) of the Act continues to possess evidentiary value, particularly when it is voluntary and finds corroboration from other material available on record. The Ld.DR further submitted that the original statement is duly supported by the seized documents, including diary notings, ledger entries and other incriminating material recovered during the course of the search. It was argued that when the statement is corroborated by independent evidence, a subsequent retraction cannot dilute its evidentiary worth.
4.2. The Ld.DR also contended that the burden lies upon the assessee to establish that the retraction is genuine and not merely a self-serving attempt to evade the consequences of the disclosures made during the search proceedings. It was, therefore, submitted that the Ld.AO was fully justified in placing reliance on the statement of Shri Nilesh Bharani, read in conjunction with the corroborative material found during the search, while making the impugned addition.
We have perused the submissions advanced by both sides in light of the record placed before us.
5. It is noted that the addition of Rs. 25,00,000/- has been made on the allegation that the assessee had advanced a cash loan to M/s. Evergreen Enterprises. The foundation of the impugned addition is the statements recorded from the employees of M/s. Evergreen Enterprises, including the statement of Shri Nilesh Bharani, partner of the said concern, as well as the documents seized during the course of the search and survey proceedings conducted in the case of M/s. Evergreen Enterprises.
5.1. It is noted that the assessee was not furnished with the complete statements recorded during the course of the search proceedings and was supplied only with certain extracts reproduced in the assessment order. It is further noted that neither the statements of the employees nor that of Shri Nilesh Bharani, partner of M/s. Evergreen Enterprises, specifically referred to the name of the assessee.
5.2. On a perusal of the records, it is observed that the assessee specifically requested the Ld.AO during the assessment proceedings, as well as the Ld.CIT(A) during the appellate proceedings, to furnish the complete statements and the material relied upon for making the impugned addition. However, the complete material forming the basis of the addition was never supplied to the Further, no opportunity to cross-examine the persons whose statements constituted the foundation of the addition was afforded to the assessee.
5.3. In our considered view, the above action is in clear violation of the principles laid down by the Hon’ble Supreme Court in Andaman Timber Industries v. CCE (supra). Failure to furnish the material relied upon and denial of an effective opportunity to cross-examine the witnesses whose statements have been made the basis of the addition constitute a breach of the cardinal principle of natural justice, namely, audi alteram partem. Such denial has caused serious prejudice to the assessee and vitiates the assessment proceedings to that
5.4. We also find that the perversity in the impugned assessment order is inherent, inasmuch as the addition has been founded substantially on the statements recorded from third parties, who were never produced for cross-examination despite the assessee having specifically sought such an opportunity. The settled position of law is that where an adjudicating authority seeks to rely upon third-party statements to fasten tax liability, the affected party must be afforded an effective opportunity to test the veracity of such statements by way of cross-examination. Such an opportunity forms an integral facet of the principles of natural justice.
5.5. It is further observed that, except for the statements and certain extracts relied upon by the Ld. AO, no independent documentary evidence has been brought on record to establish that the assessee had, in fact, advanced a cash loan of Rs. 25,00,000/- to M/s. Evergreen Enterprises. The complete seized material was not furnished to the assessee, nor has any independent corroborative evidence directly linking the assessee with the alleged transaction been placed before us. In such circumstances, the very foundation of the impugned addition stands vitiated.
5.6. Having regard to the peculiar facts and circumstances of the present case, we are of the considered opinion that the assessment has been completed in violation of the principles of natural The denial of the complete material relied upon by the Revenue, coupled with the denial of an opportunity to cross-examine the persons whose statements constitute the sole basis of the addition, has caused serious prejudice to the assessee and has rendered the impugned assessment order unsustainable in law.
We clarify that the above conclusion has been arrived at in the peculiar facts and circumstances of the present case, where the addition is founded primarily on third-party statements without affording the assessee the safeguards mandated under law.
Accordingly, the impugned assessment order is quashed and the grounds raised by assessee are allowed.
In the result, the appeal filed by the assessee stands allowed.
Order pronounced in the open court on 31/07/2026.
