ITAT Mumbai Deletes Section 69 Additions: Retracted Statement, Denied Cross-Examination, and Wrong Sanctioning Authority Prove Fatal
Background and Overview
The Mumbai Bench of the Income Tax Appellate Tribunal recently delivered a significant ruling in Navin Shamji Vira Vs DCIT (ITAT Mumbai), addressing two core issues that arise frequently in reassessment proceedings — the sanctity of principles of natural justice when third-party statements are used against an assessee, and the mandatory requirement of obtaining approval from the correct authority under Section 151 before initiating reassessment after a specified period.
The Tribunal allowed appeals filed by the assessee for Assessment Years 2014-15 and 2017-18, directing deletion of additions made under Section 69 of the Income Tax Act, 1961, while also independently quashing the reassessment for AY 2017-18 on the ground of jurisdictional infirmity arising from approval granted by an authority not competent under Section 151(ii) of the Act.
Factual Matrix
The assessee, a resident individual, had originally filed his returns of income under Section 139(1) of the Income Tax Act, 1961 for both the assessment years in question. His cases were subsequently reopened under Section 147 of the Act, triggered by materials unearthed during a search and seizure operation conducted under Section 132 of the Act in the case of M/s. Evergreen Enterprises and its partner, Mr. Nilesh Bharani.
During the course of the search operation, incriminating documents were discovered that allegedly pointed to unsecured cash loans having been availed by Mr. Nilesh Bharani from several individuals, including the assessee. Statements were recorded under Section 132(4) from Mr. Nilesh Bharani, Mr. Ashwin Rathod, and Mrs. Vibha Sachin Rawate — the latter two being described as employees of M/s. Evergreen Enterprises. These persons, in their recorded statements, acknowledged receipt of cash loans from various parties.
On the strength of the above material, the Assessing Officer concluded that the assessee had advanced:
- ₹55,00,000/- as cash loan in AY 2014-15
- ₹56,00,000/- as cash loan in AY 2017-18
Accordingly, both amounts were added to the assessee's income under Section 69 of the Income Tax Act, 1961, on the premise that the source of such cash advances remained unexplained.
Assessee's Position Before the Authorities
Throughout the assessment proceedings, the assessee maintained a consistent and categorical denial. His position, articulated across multiple responses to notices issued under Section 148A(b), Section 142(1), and Section 143(2), was that he had never advanced any cash loan — whether to M/s. Evergreen Enterprises or to Mr. Nilesh Bharani individually.