2024 (1) TMI 1414 - AT - Income Tax

Reassessment under Section 147 valid but additions based on unverified loose sheets and fabricated documents deleted

M/s Raj Sons Versus Deputy Commissioner Of Income Tax, Hisar Circle, Hisar

ITAT Delhi upheld reassessment proceedings u/s 147 based on complaint regarding undisclosed rental/banquet charges, finding AO had valid reasons to ... Validity of Reassessment proceedings - proceedings u/s 147 based on some information from undisclosed sources/unknown persons - case was reopened for the reason that the assessee received rental/booking banquet charges - HED THAT:- In the instant case the AO had some material to investigate the matter. This material was received through a complaint as the assessee himself accepted this fact. To verify the information the Assessing Officer reopened the case. A.O has the reason to believe that some income has escaped income on which basis he reopened the assessment. Thus, the reopening proceedings cannot be treated as invalid. The grounds raised by the assessee are decided against the assessee. Unaccounted receipts from the banquet hall/marriage palace, based on loose sheets of paper - as argued loose sheets were neither confronted to the appellant and nor cross examination was allowed of the complainant - In the given case from the information available on record, first the writing of the register is different and the order of registration is different except having few common bookings. Therefore, the sanctity of the copy of the register submitted before the AO is not correct and genuine. Merely relying on such documents, the AO could not initiate the proceedings for making rowing enquiry. AO relied on the loose sheets and documents were not provided to the assessee firm. The l.d. Assessing Officer has relied the fabricated papers which was not in the hand writing of the manager of the banquet hall. Complainant Sh. Dharmender Goyal was not the employee of the assessee but supervised the work in the absence of the assessee partner. The assessee has provided the details of the booking register, books of accounts, receipt vouchers bank statement, etc. which duly reconciles with the gross receipts offered for tax. The ld. Assessing officer should have made the enquiry on those parties who have booked the marriage hall for the marriage purpose, but has not been done. AO merely recorded passing reference to the investments and expenditures incurred by one of the partners which does not have any bearing on the assessment of the partnership firm. Therefore, those passing comments are uncalled for. While considering the above information, we are inclined to decide the issue in favour of the assessee 1. ISSUES PRESENTED and CONSIDEREDThe legal judgment presented involves the following core legal questions:Whether the initiation of reassessment proceedings under Section 147 of the Income Tax Act, 1961, by the Assessing Officer (AO) was valid and within jurisdiction.Whether the addition of Rs. 78,90,000/- to the assessee's income based on alleged unaccounted receipts from a banquet hall/marriage palace was justified.Whether the reliance on loose sheets of paper as evidence for the addition was legally tenable.Whether the assessee was denied the opportunity to cross-examine the complainant or challenge the evidence used against them.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of Reassessment ProceedingsRelevant Legal Framework and Precedents: The reassessment proceedings were initiated under Section 147 of the Income Tax Act, which requires the AO to have a 'reason to believe' that income has escaped assessment. The case references include precedents like Raymond Woollen Mills Ltd. Vs Income Tax Officer, which emphasize the need for prima facie material to justify reopening a case.Court's Interpretation and Reasoning: The Tribunal examined whether the AO had sufficient material to form a belief that income had escaped assessment. The AO's reason was based on disproportionate rental/booking charges compared to the declared income.Key Evidence and Findings: The AO relied on information from a complaint suggesting higher receipts than declared. However, the Tribunal noted that the AO did not verify the genuineness of the evidence before reopening the assessment.Application of Law to Facts: The Tribunal found that the AO had some material to investigate, but the lack of verification rendered the reopening questionable.Treatment of Competing Arguments: The assessee argued that the AO's actions were based on conjecture without tangible evidence. The Tribunal acknowledged this but upheld the reopening as procedurally valid, leaving substantive issues open for investigation.Conclusions: The Tribunal concluded that while the reopening was procedurally valid, the AO's failure to verify evidence before reopening was a significant oversight.Issue 2: Justification of Income AdditionRelevant Legal Framework and Precedents: The addition was based on alleged unaccounted receipts, with the AO relying on loose sheets of paper as evidence. The legal question involved the evidentiary value of such documents.Court's Interpretation and Reasoning: The Tribunal scrutinized the AO's reliance on loose sheets, emphasizing the need for corroborative evidence and the opportunity for cross-examination.Key Evidence and Findings: The Tribunal found discrepancies between the booking register and the loose sheets, questioning the authenticity of the latter.Application of Law to Facts: The Tribunal highlighted that the AO failed to provide the assessee with the documents or allow cross-examination, undermining the fairness of the assessment.Treatment of Competing Arguments: The assessee contended that the documents were fabricated and unreliable. The Tribunal agreed, noting the lack of independent verification by the AO.Conclusions: The Tribunal concluded that the addition was based on presumptions and conjectures, lacking substantive evidence, and thus should be deleted.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: 'We have only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage.'Core Principles Established: The necessity for tangible, verified evidence before initiating reassessment proceedings and the importance of procedural fairness, including the right to cross-examine and challenge evidence.Final Determinations on Each Issue: The Tribunal upheld the procedural validity of the reassessment but found the substantive addition to be unjustified and based on unreliable evidence, leading to its deletion.In summary, the Tribunal allowed the appeal, emphasizing the need for verified evidence and procedural fairness in tax assessments.