2022 (7) TMI 800 - HC - Income Tax

Reopening under s.147 and assessment under s.153C invalid; s.69B additions and s.133A admissions insufficient, favouring assessee

HC held reopening under s.147 and assessment under s.153C was improper for patent non-application of mind, as no s.153C proceedings were initiated and AO ... Reopening of assessment u/s 147 OR assessment u/s 153C - HELD THAT:- In IBC Knowledge Park [2016 (5) TMI 372 - KARNATAKA HIGH COURT] this Court has held in Section 153C is pari materia with Section 158BD considered in Manish Maheshwari. AO in his order dated 24.12.2010 for assessment year 2005-06 has held that reasons formed to reopen the assessment on the basis of assessee's voluntary depositions and seized materials are in order and further that assessee's objection on that aspect has been rejected by his order dated June 7, 2010. Admittedly no proceedings were initiated u/s 153C of the Act. Thus, there is patent non-application of mind. It is relevant to note that the author of the diary Smt. Soumya Shetty had passed away prior to the date of search. It was argued on behalf of the Revenue that Shri. Ashok Kumar Chowta had offered tax on lump-sum income. AO has not recorded his satisfaction with regard to escapement of income. On the other hand, he has based Revenue's case entirely on the statement of assessee. Assessee has placed reliance on Pullangode Rubber Produce Co.Ltd.Vs. State of Kerala (1971 (9) TMI 64 - SUPREME COURT] and rightly urged that assessee's admission cannot be a conclusive evidence. Therefore, these two questions merit consideration and require to be answered in favour of the assessee and against the Revenue. Addition u/s 69B of the Act as unexplained investment - CIT (Appeals) has held that it was travesty of justice that the relevant entry has not been used in Shri. Ashok Chowta's case but it has been used in assessee's case who is a third party to the proceedings. ITAT while reversing the finding of CIT (Appeals) has relied upon the signature of assessee in the seized diary. Admittedly, the author of the diary had passed away. The addition has been made in the case of assessee based on the entries in the diary but the said entries have not been used in the case of Shri. Chowta. As recorded hereinabove, the Hon'ble Supreme Court in the case of Pullengode Rubber Produce Co.Ltd.'s case has held that admission is an important piece of evidence but it cannot be said to be conclusive. Shri. Chadrashekar also placed reliance on Commissioner of Income-tax vs. S.Khader Khan son (2007 (7) TMI 182 - MADRAS HIGH COURT] and contended that a statement recorded under Section 133A of the Act is not given any evidentiary value because the officer is not authorised to administer oath and to take any sworn statement. Therefore, in view of the fact that the author of the diary had passed away and relevant entry has not been used in the case of Shri. Chowta himself, reversing the findings of the CIT (A) by the ITAT is not sustainable. Hence, this question is also answered in favour of the Assessee and against the Revenue. Issues Involved:1. Validity of reopening assessment under Section 147 for assessment years 2005-06, 2006-07, and 2007-08.2. Whether mandatory conditions for reopening assessment under Section 147 were satisfied.3. Addition of unexplained investments under Section 69B for the assessment year 2007-08.Analysis:Issue 1: Validity of Reopening Assessment under Section 147The appellant challenged the validity of reopening the assessment under Section 147, arguing that the procedure under Section 153C should have been followed based on material found during a search. The appellant relied on legal precedents to support the contention that the proper procedure was not followed. The respondent argued that despite the lack of taxation of another individual involved, the appellant's admission justified the Assessing Officer's actions. The court examined the arguments and referred to relevant case law to conclude that there was a lack of proper application of mind in the assessment process. The court found that no proceedings were initiated under Section 153C, indicating a procedural flaw. The court also highlighted the lack of recorded satisfaction by the Assessing Officer regarding income escapement, emphasizing the importance of evidence beyond the appellant's admission. Ultimately, the court ruled in favor of the appellant on this issue.Issue 2: Mandatory Conditions for Reopening Assessment under Section 147The court analyzed the addition of unexplained investments under Section 69B for the assessment year 2007-08. The appellant argued that the addition was based on entries in a seized diary and lacked corroborating evidence. The respondent contended that the ITAT correctly reversed the CIT (Appeals) finding, emphasizing that the properties were acquired from a specific individual. The court reviewed the orders of the CIT (Appeals) and ITAT, noting discrepancies in the treatment of diary entries between different parties involved. Citing legal precedents, the court emphasized that an admission is significant but not conclusive evidence. The court also addressed the evidentiary value of statements recorded under Section 133A of the Act. Considering the lack of consistency in using diary entries as evidence, the court ruled in favor of the appellant on this issue.Conclusion:The court allowed the appeal and answered all questions in favor of the Assessee against the Revenue, highlighting procedural flaws and evidentiary inconsistencies in the assessment process.