ITAT Mumbai rules that Section 69A addition cannot rest solely on third-party search statements

Background and Context

The dispute in ITO Vs Kala Eswaran Iyr came up before the ITAT Mumbai on a narrow but critical issue: whether an addition of ₹20,00,130 under Section 69A read with Section 115BBE can survive when it is grounded only on information from the Investigation Wing and the searched-party’s statement, without any independent corroboration or opportunity for cross-examination to the assessee.

The assessee, an individual practising as an anaesthetist, had already disclosed income of ₹48,87,520 in the return. However, based on a search conducted under Section 132 in the case of an alleged accommodation entry operator, the Assessing Officer (AO) alleged that the assessee was one of the beneficiaries of such entries and made the impugned addition.

The Commissioner of Income-tax (Appeals) [CIT(A)] deleted the addition. The Revenue challenged this deletion before the ITAT Mumbai, but the Tribunal upheld the CIT(A)’s order and dismissed the appeal.

This decision reiterates settled legal principles on the evidentiary value of third-party statements, the burden of proof under Section 69A, and the assessee’s right to cross-examination when an adverse statement is used against him.

Core Controversy

The central legal issue was:

Whether an addition of ₹20,00,130 under Section 69A r.w.s. 115BBE, made purely on the basis of Investigation Wing material and a third-party statement recorded during search, can be sustained in the absence of corroborative evidence and without affording cross-examination to the assessee.

Key Facts in Brief

Profile of the Assessee

  • The assessee is an individual engaged in medical practice as an anaesthetist.
  • A return of income was filed declaring total income of ₹48,87,520 for the relevant assessment year.
  • The return was selected for complete scrutiny on the basis of information received from the Investigation Wing, Ahmedabad.

Trigger: Search on Alleged Entry Provider

  1. A search and seizure action under Section 132 was carried out in the case of Shri Sanjay Govindram Aggarwal @ Sanjay Tiberwal, alleged to be involved in providing accommodation entries.
  2. During the course of search, documents (including Annexure-A) were found and a statement of the searched person was recorded under oath.
  3. The Investigation Wing forwarded information to the AO alleging that certain persons, including the assessee, had obtained accommodation entries through concerns controlled by Shri Sanjay Govindram Aggarwal @ Sanjay Tiberwal.

Basis of Addition by AO

  • The AO relied heavily on:
    • Annexure-A seized in the search, and
    • The statement of Shri Sanjay Govindram Aggarwal @ Sanjay Tiberwal.
  • It was alleged that the assessee was a beneficiary of accommodation entries amounting to ₹20,00,130.
  • On this basis, the AO treated the amount as unexplained money under Section 69A and subjected it to tax under Section 115BBE.

Assessee’s Defence Before AO

The assessee consistently denied any connection with the alleged transactions:

  • Asserted that no dealings whatsoever had taken place with Shri Sanjay Aggarwal/Tiberwal or his entities.
  • Pointed out that Annexure-A mentioned the name “Kala Enterprises”, not the assessee, and there was no material to show any linkage between the assessee and that concern.
  • Emphasised that:
    • No date of any alleged transaction was specified,
    • No place or mode of dealing was indicated,
    • No bank account details or credit entries showing inflow of the alleged sum were provided.

The assessee also filed an affidavit categorically denying any receipt of accommodation entries. This affidavit was never rebutted or disproved by the AO.

Despite these objections, the AO proceeded to complete the assessment by adding ₹20,00,130 under Section 69A, solely relying on the Investigation Wing inputs and the searched party’s statement.

Findings and Reasoning of CIT(A)

The CIT(A), National Faceless Appeal Centre, Delhi, examined the entire assessment record and annulled the addition. The main findings were: