2021 (4) TMI 1 - AT - Income Tax

Tribunal allows appeal, emphasizes evidence rights: Seized material, cross-examination crucial

Shri D.S. Suresh Versus Assistant Commissioner of Income Tax, Circle 1 (3) (1), Bangalore.

The Tribunal upheld the reopening of the assessment under Section 147 but set aside the additions made based on unsubstantiated diary jottings. The ... Reopening of assessment u/s 147 - whether seized material relied on by the ld. AR for reopening of assessment does not show that any chargeable income to tax had escaped assessment and there is no nexus with the conclusion reached by the AO? - HELD THAT:- There is a search in the case of RNSIL u/s. 132 of the Act and unearthing of incriminating material on 16.2.2012 on the basis of information supplied by the DCIT, Central Circle 2(3), Bangalore, the Assessing Officer come to a conclusion that there was an escapement of income in the hands of the assessee and issued Notice u/s. 148 - The reasons were germane to the prima facie reached by the Assessing Officer for any chargeable income to tax has escaped assessment by reason of non-disclosing the above payments recorded any seized material by the assessee in his books of accounts. The material that was considered by the AO for reopening of the assessment may not show conclusively that there was escapement of income. The statement available at the time of reopening of assessment, the Assessing Officer reached conclusion that there is escapement of income in the hands of the assessee. It is well settled that at the time of issuing Notice u/s. 148 of the Act, the Assessing Officer is only required to reach a tentative or prima facie belief regarding escapement of income and that requirement is satisfied in the present case. The argument advanced by the assessee's counsel is that the name of the assessee is not specifically mentioned in the seized document seized during the search action and also date of payment is not mentioned therein and who has paid has also not mentioned, therefore, material gathered by the Investigation Wing cannot be the information for the purpose of reopening of the assessment. In our opinion the recorded reasons for reopening of assessment have nexus with the formation of A.O. belief that income chargeable to tax had escaped assessment. The required nexus also can be established by the statement of searched party recorded u/s. 132(4) of the Act. Being so, in our opinion, the Assessing Officer righly reopened the assessment for these assessment years and the ground relating to reopening of assessment in these two assessment years under consideration is upheld. Addition basis of seized material which is in the form of diary jottings in the hand writing of the Vice President (Finance), RNSIL which was retrieved from the computer maintained by RNSIL - HELD THAT:- The documents relied on by the Assessing Officer for making addition in these assessment years was dumb document and lead nowhere since these diary jottings are not supported by any corroborative material or evidence to show that the information made by lower authorities is correct. Further unsigned document in the form of diary jottings cannot be relied upon for making or sustaining the addition. In the present case, more so, the Managing Director of RNSIL made a categoric statement in his letter that no payments were made to the assessee in the F.Y. 2008-09 to F.Y. 2010-11. Further even if the Assessing Officer wants to rely on the diary jottings to make an assessment or relying on the statement of any third party, the same is required to be furnished to the assessee and if the assessee wants to cross examine any of the parties whose statements were relied on by the Assessing Officer, the same is to be provided to the assessee In the present case, the assessee is having grievance for not furnishing the seized material to the assessee and there was no question of providing an opportunity of cross examining of the parties whose statements are relied on by the Assessing Officer while completing the assessment. We are not in a position to uphold the addition sustained by the CIT(Appeals). The circumstances surrounding the case are not strong enough to justify the rejection of the assessee's plea of asking the copies of seized material and providing an opportunity of cross examination of the parties concerned. In view of above, we set aside the order of the lower authorities and allow the ground taken by the assessee in their appeals for both the assessment years under consideration. Issues Involved:1. Reopening of the assessment under Section 147.2. Addition made on account of receipt of money from RNS Infrastructure Limited.3. Levy of interest under Sections 234A, 234B, and 234C of the Income Tax Act.Issue-wise Detailed Analysis:1. Reopening of the Assessment under Section 147:The first issue concerns whether the conditions precedent for reopening the assessment under Section 147 were met. The assessee argued that the reasons recorded did not show that income had escaped assessment and lacked a nexus with the conclusion reached by the Assessing Officer. The assessee highlighted that the seized material did not contain the name of the assessee or specific details of the payment.The Department contended that the search in RNS Infrastructure Limited (RNSIL) revealed unaccounted cash payments to various parties, including the assessee. The digital evidence was retrieved using specialized forensic software and showed payments to the assessee. The Assessing Officer issued a notice under Section 148 based on this evidence, forming a prima facie belief of income escapement.The Tribunal held that the reasons recorded for reopening the assessment had a nexus with the formation of the Assessing Officer's belief that income chargeable to tax had escaped assessment. The Tribunal upheld the reopening of the assessment, stating that the Assessing Officer only needed a prima facie belief of income escapement at the time of issuing the notice under Section 148.2. Addition Made on Account of Receipt of Money from RNS Infrastructure Limited:The second issue involved the addition of Rs. 10 lakhs in Assessment Year 2009-10 and Rs. 49 lakhs in Assessment Year 2011-12 based on diary jottings found during the search in RNSIL. The assessee argued that these jottings were unsubstantiated and unsupported by corroborative material. The assessee also presented a letter from RNSIL's Managing Director stating no payments were made to the assessee during the relevant financial years.The Department maintained that the seized digital evidence and diary jottings conclusively established the payments. The forensic lab report authenticated the digital evidence, and the data was corroborated by various independent sources. The Department also referred to the Settlement Commission's findings, which upheld the evidentiary value of the seized documents.The Tribunal found that the diary jottings did not specify the date of payment or the person who made the payment, making it impossible to conclusively link the payments to the relevant assessment years. The Tribunal held that unsubstantiated diary jottings could not be considered conclusive evidence of undisclosed income. The Tribunal also noted that unsigned documents and statements from third parties relied upon by the Assessing Officer were not furnished to the assessee, denying the assessee the opportunity for cross-examination. Consequently, the Tribunal set aside the additions made by the lower authorities.3. Levy of Interest under Sections 234A, 234B, and 234C:The last issue involved the levy of interest under Sections 234A, 234B, and 234C of the Income Tax Act. The Tribunal did not provide a detailed analysis of this issue in the judgment, as the primary focus was on the reopening of the assessment and the additions made based on seized material.Conclusion:The Tribunal upheld the reopening of the assessment under Section 147 but set aside the additions made based on unsubstantiated diary jottings. The appeals of the assessee were partly allowed, and the Tribunal emphasized the necessity of providing the assessee with seized material and the opportunity for cross-examination when relying on third-party statements.