2017 (3) TMI 186 - AT - Income Tax

Reassessment u/s 147 quashed for denying statement, cross-examination and not disposing objections; matter remanded for de novo consideration

ITAT (Mumbai) held that the reassessment initiated u/s 147, based on information alleging accommodation entries through a paper company, was procedurally ... Reopening of assessment on the basis of fresh and tangible incriminating material - burden of proof on assessee to establish genuineness of claimed expenditure - evidentiary value and admissibility of statements recorded under section 131 - principles of natural justice - right to be confronted and to cross examine adverse third party statements - de novo adjudication on merits after remand with opportunity to produce evidenceReopening of assessment on the basis of fresh and tangible incriminating material - principles of natural justice - right to be confronted and to cross examine adverse third party statements - Validity of reopening the concluded assessment for AY 2008-09 under section 147/148 and related procedural compliance - HELD THAT: - The Tribunal observed that the AO initiated reassessment within four years on information received from the Investigation Wing that a third party had described M/s Akon Management Consultancy Pvt. Ltd. as an accommodation entry provider and that the assessee's director had, in a statement under section 131, indicated inability to substantiate the transaction. However, the AO did not furnish the third party's statement to the assessee, nor did he dispose of the objections to reopening. In view of these procedural deficiencies and the need to afford the assessee an opportunity in accordance with principles of natural justice, the Tribunal did not finally uphold or strike down the reopening on merits but set aside the matter and restored it to the file of the AO for de novo determination. The AO was directed to dispose of the assessee's objections to reopening, to supply material relied upon (including the third party statement if to be relied upon), and to afford the assessee opportunity of being heard before concluding any reassessment. [Paras 9]Reopening set aside and remitted to the AO for fresh consideration after disposing objections and providing the assessee full opportunity to meet the material relied upon.Burden of proof on assessee to establish genuineness of claimed expenditure - evidentiary value and admissibility of statements recorded under section 131 - de novo adjudication on merits after remand with opportunity to produce evidence - Merits of the disallowance of the expenditure of Rs. 58,62,940 paid to M/s Akon Management Consultancy Pvt. Ltd. - HELD THAT: - The Tribunal found that the AO had disallowed the expenditure relying on investigative material and a statement of the assessee's director recorded under section 131, while the assessee had produced contracts, invoices and bank payments in support of the claim. Noting that the assessee had not been furnished with the third party statement nor allowed to cross examine that witness, and that the AO had not adequately confronted or evaluated the documentary evidence, the Tribunal declined to adjudicate the addition on merits. The matter was remitted to the AO for fresh adjudication on merits: the AO must provide the third party statement to the assessee and permit cross examination if the statement is to be used, and the assessee must be allowed to file and have considered cogent evidence and explanations to establish actual rendering of services and genuineness of the transactions. [Paras 9]Addition set aside and remitted to the AO for de novo determination on merits with directions to furnish relied material and to allow the assessee to rebut and adduce evidence.Final Conclusion: The Tribunal allowed the Revenue appeal and the assessee's cross objection for statistical purposes and remitted both the question of validity of reopening and the merits of the disallowance of the claimed expenditure for AY 2008-09 to the AO for fresh consideration in accordance with law, ensuring disposal of objections and observance of principles of natural justice. Issues Involved:1. Legality of the reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961.2. Deletion of the addition of Rs. 58,62,940/- made to the income of the assessee for transactions with Akon Management Consultancy Private Limited.Issue-wise Detailed Analysis:1. Legality of the Reassessment Proceedings Initiated Under Section 147 of the Income Tax Act, 1961:The assessee company challenged the reassessment proceedings initiated by the Assistant Commissioner of Income-tax under Section 147 of the Income Tax Act, 1961. The primary contention was that the necessary preconditions for initiating reassessment proceedings were not complied with. The assessee argued that the reassessment was bad in law due to the lack of communication of the reasons for reopening the assessment and the reliance on statements not confronted to the assessee.The learned Commissioner of Income Tax (Appeals) [CIT(A)] observed that new information had come to the knowledge of the Assessing Officer (AO) from the Investigation Wing of the Income Tax Department, indicating that some expenditure claimed by the assessee was not genuine. The CIT(A) relied on the decision of the Hon’ble Supreme Court in ITO v. Selected Dalurbandh Coal Company Pvt. Ltd., which held that at the stage of issuing a notice under Section 148, the only question was whether there was relevant material on which a reasonable person could have formed the requisite belief that income had escaped assessment. The CIT(A) upheld the initiation of the reassessment proceedings as valid.However, the tribunal noted that the AO did not dispose of the objections raised by the assessee regarding the reopening of the assessment. The tribunal set aside the issue of the challenge to the reopening of the concluded assessment and restored it to the file of the AO for de-novo determination. The AO was directed to dispose of the objections raised by the assessee and provide sufficient opportunity to the assessee to be heard in accordance with the principles of natural justice.2. Deletion of the Addition of Rs. 58,62,940/- Made to the Income of the Assessee for Transactions with Akon Management Consultancy Private Limited:The AO had disallowed the expenditure of Rs. 58,62,940/- claimed by the assessee towards consultancy services from Akon Management Consultancy Private Limited, treating it as unexplained expenditure. This disallowance was based on information received from the Investigation Wing that Akon Management Consultancy Private Limited was a paper entity providing accommodation entries. The AO relied on the statement of Shri Rajendra Bhimrajka, who controlled Akon Management Consultancy Private Limited, and the statement of the assessee's director, Shri Sharat Chandra Satpathy, who admitted his inability to substantiate the transactions.The assessee contended that the transactions were genuine and supported by documentary evidence, including contracts, invoices, and payments made through account payee cheques. The CIT(A) observed that the assessee had co-related the rendering of services by Akon Management Consultancy Private Limited with various consultancies given by the assessee to its clients. The CIT(A) noted that the AO did not have contrary evidence to disprove the assessee's contention and that the statement of Shri Rajendra Bhimrajka was not provided to the assessee, nor was cross-examination allowed. The CIT(A) held that there was a gross breach of principles of natural justice and deleted the disallowance of Rs. 58,62,940/-.The tribunal, however, noted that the genuineness of the transactions could not be adequately demonstrated by the assessee. The tribunal set aside the matter of the additions made on merits by the AO and restored it to the file of the AO for de-novo determination. The AO was directed to provide the statement of Shri Rajendra Bhimrajka to the assessee and allow cross-examination if the statement was to be used against the assessee. The assessee was directed to submit cogent evidence and explanations to prove the actual rendering of services by Akon Management Consultancy Private Limited.Conclusion:The tribunal allowed the appeal filed by the Revenue for statistical purposes and the cross-objection filed by the assessee for statistical purposes. The matters were set aside and restored to the file of the AO for de-novo determination in accordance with the principles of natural justice.