ITAT Pune Remands Assessment for Denial of Cross-Examination Rights in Section 69C Addition Case
Overview of the Appellate Proceedings
The Income Tax Appellate Tribunal's Pune Bench (Single Member Bench) examined an appeal brought forward by Preeti Milan Sankhala challenging the order dated 26.02.2025 issued by the National Faceless Appeal Centre (NFAC), Delhi. The disputed matter pertained to Assessment Year 2017-18, wherein the assessee contested an addition of ₹15 lakh made by the tax authorities under Section 69C of the Income Tax Act, 1961, alleging unexplained investment in the acquisition of residential property.
The original assessment order dated 24.05.2023 was passed under Section 147 read with Section 144B of the Act. The controversy emerged from information gathered during survey operations conducted under Section 133A in the case of M/s. Acropolis Purple Developers, wherein statements were recorded under Section 131 from Mr. Subahukriti Shah, a partner in the builder firm.
Facts Leading to the Disputed Addition
The assessee filed her return declaring income of ₹4,16,560 for the relevant assessment year. Subsequently, tax authorities received intelligence suggesting that M/s. Acropolis Purple Developers had allegedly collected unaccounted cash payments from property purchasers exceeding the documented sale agreement values.
According to the information obtained from the builder's partner during survey proceedings, the total consideration for the flat in question was stated to be ₹1.50 crore as per the registered agreement, with an additional alleged on-money component of ₹60 lakh purportedly received in cash. Since the assessee was one among four co-purchasers holding a 1/4th ownership share, the Assessing Officer computed her proportionate share of the alleged unaccounted payment at ₹15 lakh.
Based exclusively on the third-party statement and materials discovered during the survey operation at the builder's premises, the Assessing Officer proceeded to make an addition under Section 69C of the Income Tax Act, 1961, treating the amount as unexplained expenditure. Consequently, the total assessed income was computed at ₹19,16,560 as against the returned income of ₹4,16,560.
Contentions Raised by the Assessee
The assessee challenged the addition on multiple fronts, raising both procedural and substantive objections before the appellate authorities:
Procedural and Natural Justice Violations
Denial of Cross-Examination Rights: The assessee forcefully contended that no opportunity was granted to cross-examine Mr. Subahukriti Shah, whose statement formed the sole basis for the addition. This constituted a fundamental breach of natural justice principles.
Non-Supply of Relied-Upon Documents: The tax authorities failed to provide copies of the third-party statement or the materials seized during survey proceedings that were used to substantiate the addition.
Absence of Document Identification Number: The notice issued under Section 148 dated 29.07.2022 did not contain any Document Identification Number (DIN), thereby violating CBDT Circular No. 19/2019 dated 14.08.2019.
Jurisdictional and Legal Challenges
The assessee raised substantial legal grounds questioning the validity of the assessment proceedings:
Non-Compliance with Section 144B: The Assessing Officer allegedly failed to adhere to the mandatory procedural framework established under Section 144B of the Act relating to faceless assessments.
Jurisdictional Defects under Section 151A: The Joint Assessing Officer's assumption of jurisdiction to issue the notice under Section 148 was challenged as being inconsistent with the provisions of Section 151A of the Act, the Finance Act, 2021, the National Faceless Assessment Scheme, the Faceless Jurisdiction of Income Tax Authorities Scheme, 2022, and the Income Escaping Assessment Scheme, 2022.
Invalid Approval under Section 151: The assessee disputed whether proper approval as mandated under Section 151 of the Act was obtained before issuing the notice for reopening the assessment.
Merits-Based Objections
Beyond procedural challenges, the assessee contested the addition on substantive grounds:
Misapplication of Section 69C: The assessee argued that Section 69C pertains to unexplained expenditure, whereas the disputed transaction involved investment in property, not expenditure. The correct provision, if any addition was warranted, should have been Section 69 or Section 69B relating to unexplained investments.
Documentary Evidence of Payments: The assessee submitted that all payments toward the property purchase were made through demand drafts, which were duly reflected in bank statements. No cash payments were made by the assessee, contradicting the allegation of on-money payment.
Discriminatory Treatment: It was pointed out that among the four co-owners of the property, only the assessee faced an addition, while no similar action was taken against the other three co-purchasers, indicating arbitrary and discriminatory treatment.