AO cannot make Income Additions Solely based on Retracted Statement of Third-Parties: ITAT [Read Order]

The Chennai bench of the Income Tax Appellate Tribunal ( ITAT ) held that the Assessing Officer ( AO ) cannot make income additions solely based on the retracted statement of third parties. It was viewed that once the assessee has denied payments made by him, then he cannot be expected to prove the negative.

The AO found that the assessee had earned capital gains on sale of certain properties. One such property located in Chennai was sold to S. Selvakumari for Rs.16 Crores. However, under search action under section 32 of the act, R. Sabapathy group, a small notebook was found from Saravana Store Jewellery, which showed cash loans received by R. Sabapathy of Rs.25 Crores for purpose of investment in immoveable properties.

As per the statement, R. Sabapathy deposed that cash loans were taken by him to pay for the purchase of immoveable properties at Perambur, which was actually purchased for his sister Selvakumari for consideration of Rs.21 Crores and he paid Rs.5 Crores in cash over and above the registered value to the assessee (Saravanan of Saravana Bhavan Hotels group). Since the assessee declared sale consideration of Rs.16 Crores only, the proceeded to add the differential of Rs.5 Crores to the income of assessee.

The two member Bench of Aby T. Varkey (Judicial Member) and Manoj Kumar Aggarwal (Accountant Member) held that addition could not be made on mere presumption and suspicion. The AO has to bring cogent positive evidences to sustain addition based on third party statement / material.

The Bench found that the AO retracted the statement of R. Sabapathy within a span of three months and R. Sabapathy stated that loan of Rs.17 Crores was received from Rakesh whereas the balance of Rs.8 Crores was out of sale of excess stock.

The tribunal found that AO failed to conduct any independent enquiry relating to the value of the property purchased or did not refer the same to the valuation officer and merely relied on the statement given by the seller, the same would be fatal to additions.

The Income Tax Tribunal viewed that the impugned additions are merely unsubstantiated additions which could not be sustained in law. The ITAT deleted the additions confirmed by the Commissioner of Income Tax (Appeals) and allowed the Assessee’s appeal.

Shri Rajagopal Saravanan

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