2020 (9) TMI 1247 - AT - Income Tax

Tribunal quashes assessment order, citing invalid reopening; uncorroborated statements deemed unsubstantiated.

The Tribunal quashed the assessment order, ruling the reopening under Section 147 invalid as Section 153C should have been applied. The addition of Rs. ... Validity of Reopening of assessment u/s 147 v/s assessment u/s 153C - reliance on material/information was gathered during the course of search - HELD THAT:- Reopening of the assessment is contrary to the ratio decided in ARUN KUMAR KAPOOR [2012 (6) TMI 403 - ITAT AMRITSAR],M/S. SAURASHTRA COLOR TONES PVT. LTD [2020 (4) TMI 289 - ITAT DELHI] and G. KOTESWARA RAO AND OTHERS [2015 (12) TMI 1280 - ITAT VISAKHAPATNAM] wherein held when incriminating documents were found during the course of search, the same have been used in the case of the assessee-company. The proper course the A.O. should have adopted is to proceed against the assessee-company under section 153C of the I.T. Act instead of recording reasons for reopening of the assessment under section 147/148 Moreover, the Revenue has not brought to my notice any other binding precedents to take a contrary view. Second objection of the assessee that the assessee was not provided cross examination - It is not in dispute that the information was gathered at the premises of the 3rd party addition is based upon the statement of the 3rd party. This fact is not rebutted by the revenue, therefore, in my considered view the assessee ought to have been provided opportunity of cross examination. The Assessing Officer purely based his finding on the statement made by third party and data recovered from third party - not providing opportunity of cross examination is ex-facie contrary to the principles of natural justice, therefore, on this ground also assessment so framed is against settled principles of law. In view of the above, hereby quash the assessment order being contrary to judicial pronouncements. The AO is directed to delete the impugned addition. Appeal filed by the assessee is allowed. Issues Involved:1. Legality of the reopening of the case under Section 147 of the Income Tax Act.2. Sustaining the addition of Rs. 16,00,000 based on the statement of a third party.3. Denial of the opportunity for cross-examination of the third party.4. Non-provision of documents, statements, and assessment orders related to the third party.5. Levy of interest under Sections 234A, 234B, and 234C.Issue-wise Detailed Analysis:1. Legality of the Reopening of the Case under Section 147 of the Income Tax Act:The appellant contested the reopening of the assessment under Section 147, arguing that the material used to reopen the assessment was gathered during a search, and thus, Section 153C should apply instead. The Tribunal referred to the provision of Section 153C, which starts with a non obstante clause, overriding the applicability of Sections 139, 147, 148, 149, 151, and 153. The Tribunal cited the CBDT Circular No. 7 of 2003 and various judicial precedents, including the Hon'ble Supreme Court's decision in Manish Maheshwari v. ACIT, to support the argument that the assessment should have been made under Section 153C and not under Section 147. The Tribunal concluded that the reopening of the assessment under Section 147 was invalid, as the proper procedure under Section 153C was not followed.2. Sustaining the Addition of Rs. 16,00,000 Based on the Statement of a Third Party:The appellant argued that the addition of Rs. 16,00,000 was based solely on the statement of a third party, Mr. Akshay Doshi, without any corroborative evidence. The Tribunal noted that the statement of a third party, by itself, cannot be the sole basis for making an addition unless corroborated by other evidence. The Tribunal emphasized that the burden of proof lies with the Revenue to establish that the assessee had indeed made the undisclosed investment. The Tribunal found that the Assessing Officer (AO) did not bring any positive and cogent material on record to substantiate the addition and relied on conjectures and surmises.3. Denial of the Opportunity for Cross-Examination of the Third Party:The appellant contended that they were not provided the opportunity to cross-examine Mr. Akshay Doshi, whose statement was used as the basis for the addition. The Tribunal held that not providing the opportunity for cross-examination was a violation of the principles of natural justice. The Tribunal cited various judicial precedents, emphasizing that statements recorded behind the back of the assessee and relied upon for making an addition have no evidentiary value unless the assessee is given an opportunity to cross-examine the person making the statement.4. Non-Provision of Documents, Statements, and Assessment Orders Related to the Third Party:The appellant argued that they were not provided with the documents, statements, and assessment orders related to M/s. Bhoomi Elegant and Mr. Akshay Doshi, which were used as the basis for making the addition. The Tribunal noted that the AO did not provide these documents to the appellant, which was a violation of the principles of natural justice. The Tribunal emphasized that the appellant should have been given access to these documents to verify the assertions made by the third party.5. Levy of Interest under Sections 234A, 234B, and 234C:The appellant also contested the levy of interest under Sections 234A, 234B, and 234C. However, the Tribunal did not specifically address this issue in detail, as the primary focus was on the legality of the reopening of the assessment and the addition made based on the third party's statement.Conclusion:The Tribunal quashed the assessment order, holding that the reopening of the assessment under Section 147 was invalid, as the proper procedure under Section 153C was not followed. The Tribunal also found that the addition of Rs. 16,00,000 was based on the uncorroborated statement of a third party and that the appellant was not provided the opportunity for cross-examination, which was a violation of the principles of natural justice. The AO was directed to delete the impugned addition, and the appeal filed by the assessee was allowed.