2014 (12) TMI 293 - AT - Income Tax

Tribunal invalidates tax additions lacking evidence, fails to provide cross-examination opportunity.

Hari Shankar Khemka Versus ITO, Ward-29(1), New Delhi

The Tribunal upheld the assumption of jurisdiction under Section 147 of the Income Tax Act but deleted the additions made under Section 69 for Assessment ... Validity of reopening of assessment u/s 147 – Held that:- CIT(A) was rightly of the view that upon receipt of a letter from DCIT Central Circle 19 New Delhi, the AO had bonafide reasons to re-open the assessment by issue of a notice u/s 148 - the loan transactions were worked out and in the absence of these appearing in the returned income, there was reason to believe that income had escaped assessment and therefore action u/s 147 was inevitable - prima facie there was some material on the basis of which the assessment could be re-opened - as decided in Raymond Woolen Mills Ltd v ITO [1997 (12) TMI 12 - SUPREME Court], the ‘correctness or sufficiency of the material' is not a thing to he considered at the stage of re-opening the assessment – Decided against assessee. Addition u/s 69 – Documents found from third party can be made the basis of addition or not - Held that:- The AO has made the additions – the documents cannot be made a sole basis to make additions in the hands of the assessee - These papers are found from third party - There is no nexus established of such papers with the assessee - mere resemblance of name in a loose, unsigned hand written sheet found and seized from a third party, having no connection with the assessee, cannot be the basis to fasten a burden on the assessee, so as to explain the source of such purported investment - the AO was duty bound to provide opportunity of cross-examination of the witness who have alleged that there was investment by the assessee - there is nothing which implicates the assessee. -The only nexus as emanating from the said statement is restricted to an oblique reference to one “Hari Sanker Khemka, narayana, in the statement of Shri Ram Avtar Gupta, accountant of BM Group - There is nothing to establish that the person is the assessee, who during the assessment proceedings have denied that he is not the person referred by Ram Avatar Gupta - the assessee is not from Narayana, but from cloth market Delhi – Decided in favour of assessee. Issues Involved:1. Assumption of jurisdiction under Section 147 of the Income Tax Act.2. Additions made under Section 69 of the Income Tax Act for Assessment Years 2001-02 and 2002-03.Issue-wise Detailed Analysis:1. Assumption of Jurisdiction under Section 147 of the Income Tax Act:The appellant challenged the assumption of jurisdiction under Section 147 of the Income Tax Act, claiming it was illegal and lacked judicial application of mind. The ld CIT(A) dismissed this ground, stating that sufficient material existed, including statements from various individuals and seized documents, suggesting income escapement. The ld CIT(A) emphasized that the existence of reasons, not their sufficiency, is material for initiating proceedings under Section 147. The Tribunal upheld this view, noting that the appellant had not challenged the previous finding of the ld CIT(A) on this matter, and thus, the issue was settled and not in dispute. The Tribunal concluded that the grounds raised by the appellant were misconceived and dismissed them.2. Additions Made under Section 69 of the Income Tax Act:The AO made additions of Rs. 28 lakhs for AY 2001-02 and Rs. 41 lakhs for AY 2002-03 based on seized documents and statements from a search operation on Shri Brij Mohan Gupta's group, which was involved in hundi business. The ld CIT(A) upheld these additions, citing various pieces of evidence, including statements of individuals involved and decoded entries from seized documents. The ld CIT(A) noted that the appellant's name appeared in the seized documents, and the failure to produce a deceased person (Shri Brij Mohan Gupta) for cross-examination was not a valid ground for challenging the evidence.Before the Tribunal, the appellant argued that the additions were not based on any concrete evidence and that denying the right to cross-examine witnesses vitiated the additions. The Tribunal found that the documents relied upon by the AO were not sufficient to make the additions, as they were found from a third party and had no established nexus with the appellant. The Tribunal highlighted that the AO failed to provide an opportunity for cross-examination, as directed in the previous Tribunal order. The Tribunal concluded that the additions were based on surmises and conjectures and, therefore, deleted them.Conclusion:The Tribunal upheld the assumption of jurisdiction under Section 147 but deleted the additions made under Section 69 due to lack of concrete evidence and failure to provide an opportunity for cross-examination. The appeal was partly allowed.