2020 (4) TMI 256 - AT - Income Tax

Tribunal remands tax assessments for reconsideration

The Tribunal set aside the assessments for AY 2008-09 and AY 2009-10, remanding the cases to the AO for reconsideration and re-adjudication. The Tribunal ... Reopening of assessment on receipt of third party information - intimation under section 143(1) is not an assessment - reliance on statements recorded during search and seizure - right to cross examine witness whose statement is relied upon - remand for providing statement and opportunity to cross examineReopening of assessment on receipt of third party information - intimation under section 143(1) is not an assessment - Validity of reopening the assessments under section 148 in both A.Y. 2008-09 and A.Y. 2009-10 - HELD THAT: - The Tribunal held that the AO was entitled to reopen the assessments after receiving a report from DGIT (Inv.) Mumbai that the assessee's name appeared as a beneficiary of accommodation entries. Since the original filings had been processed only under intimation u/s 143(1) and not examined under section 143(3), there was no completed assessment or opinion formed that would preclude reopening. On these facts the information forwarded by the investigation wing constituted a valid trigger for issuance of notice u/s 148 and the validity of reopening was upheld. [Paras 10]Reopening under section 148 for both assessment years upheld.Reliance on statements recorded during search and seizure - right to cross examine witness whose statement is relied upon - remand for providing statement and opportunity to cross examine - Whether additions based on alleged bogus purchases could be sustained without furnishing the statements relied upon and without affording the assessee opportunity to cross examine - HELD THAT: - The Tribunal found that the assessments and additions were materially premised on statements recorded from proprietors of the searched concerns during search and seizure, and those statements were used both to reopen and to disbelieve the invoices placed on record. It is a settled principle of natural justice that where an adverse conclusion is founded on a third party's statement, the assessee must be given a copy of that statement and an opportunity to cross examine the maker to enable effective rebuttal. The CIT(A)'s refusal to permit cross examination was unsustainable because the AO had in fact recorded and relied upon such statements. In consequence, the Tribunal remanded the matters to the AO with directions to furnish the statement(s) in which the assessee is named and to allow cross examination of the declarants; if the AO cannot provide the statement or afford cross examination, the additions cannot be sustained. The Tribunal also directed reconsideration of the evidence that the assessee had sold the purchased stock and had received payment through banking channels, noting that such factors may be relevant to genuineness. [Paras 10, 11, 12]Assessments set aside and remanded to the AO to supply the relied upon statement(s) and to afford the assessee opportunity to cross examine; if not possible, additions shall not be sustained.Final Conclusion: Reopening under section 148 for A.Y. 2008-09 and A.Y. 2009-10 upheld, but the orders sustaining additions based on statements recorded during search are set aside and remanded to the AO for supply of the relied upon statements and for allowing the assessee to cross examine the declarants; if the AO cannot provide the statements or permit cross examination, the additions shall not be sustained. Appeals allowed for statistical purposes. Issues Involved:1. Validity of reopening the assessment under Section 148 of the Income Tax Act.2. Addition made on account of bogus purchases.3. Opportunity to cross-examine the witnesses.Detailed Analysis:1. Validity of Reopening the Assessment under Section 148:The assessee firm engaged in the business of diamonds and jewellery filed its returns for AY 2008-09 and AY 2009-10. The returns were processed under Section 143(1) of the Income Tax Act. Subsequently, the Assessing Officer (AO) received information from DGIT (Inv.), Mumbai, indicating that the assessee firm was a beneficiary of accommodation entries from non-genuine diamond concerns. Based on this information, the AO issued a notice under Section 148 to reopen the assessment. The CIT (A) upheld the validity of the reopening, stating that the issuance of intimation under Section 143(1) does not constitute an assessment, and the receipt of information from DGIT (Inv.) Mumbai was a valid reason for reopening the assessment. The Tribunal agreed with this view, rejecting the grounds against the validity of the reassessment proceedings.2. Addition Made on Account of Bogus Purchases:The AO disbelieved the purchase bills issued by M/s Krishna Diam and added the entire sum of Rs. 14,06,860/- to the assessee's income, citing that the parties involved admitted to issuing accommodation entries without real business activities. The CIT (A) upheld this addition, noting that the assessee failed to prove the physical receipt of goods or any travel to Surat for taking delivery. Payments through banking channels were also deemed insufficient to prove the genuineness of the transactions. The assessee argued that it provided all necessary evidence, including purchase bills, sales bills, VAT returns, and bank statements, to substantiate the genuineness of the purchases. However, the Tribunal found that the assessee was not given an opportunity to cross-examine the suppliers, whose statements were relied upon to make the addition.3. Opportunity to Cross-Examine the Witnesses:The assessee requested an opportunity to cross-examine the parties who allegedly provided accommodation entries. The CIT (A) denied this request, stating that the burden of proof lies on the assessee. The Tribunal disagreed with this finding, emphasizing the principles of natural justice, which require that the assessee should be given an opportunity to cross-examine a person whose statement is relied upon for making additions. The Tribunal noted that the statements recorded during the search were the basis for the additions and that the assessee should be provided with these statements or allowed to cross-examine the parties. The Tribunal remanded the issue to the AO with directions to provide the assessee with the statements and an opportunity to cross-examine the parties. If the AO fails to provide this opportunity, the additions cannot be sustained.Conclusion:The Tribunal set aside the assessments for both AY 2008-09 and AY 2009-10 and remanded the cases to the AO for reconsideration and re-adjudication, emphasizing the need to provide the assessee with an opportunity to cross-examine the parties involved. The appeals were treated as allowed for statistical purposes.