2023 (11) TMI 1349 - AT - Income Tax

ITAT Delhi quashes reopening of assessment lacking seized material to support undisclosed income addition based on search statement

ITAT Delhi held that reopening of assessment was unjustified where addition was made solely based on statement recorded during search without supporting ... Reopening of assessments - Addition made on the basis of statement recorded during the search - appellant company through its director had surrendered such sum as its own undisclosed income - HELD THAT:- There has to be any finding or direction in the order of the Tribunal then only the case can be reopened. From the reading of order of the Tribunal which is reproduced in paragraphs, it is seen that there is neither any finding nor any direction of the Tribunal regarding undisclosed income of the appellant company. There is no finding or direction of the Tribunal allowing the AO to bring to tax the amount in any manner whatsoever. In the case of the individuals it is the finding of the Tribunal that no addition can be made if there is no supporting seized material to substantiate the addition. The same rule applies in the case of the appellant company. In the case of the appellant company also, addition has been made only on the basis of statement without any supporting seized material. In both the reasons recorded for re-opening and in the assessment order there is no reference to any seized material that can substantiate the addition made by the AO. We totally concur with the decision of the AO was not justified in reopening and adding the amount as undisclosed income in the hands of the assessee. Decided against revenue. The legal judgment pertains to an appeal filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] concerning the addition of Rs. 7 Crores to the income of an assessee based on a statement recorded during a search operation. The judgment involves several key issues and analyses related to the interpretation of statements, the applicability of legal provisions, and the assessment of income based on seized materials.Issues Presented and Considered:The core legal issues considered in this judgment include:Whether the addition of Rs. 7 Crores to the assessee's income, based solely on a statement recorded during a search, is justified without corroborating evidence.The interpretation of the statement made by Shri Pawan Kumar Bansal during the search and its implications for the assessee company and its directors.The applicability of Section 150 of the Income Tax Act regarding the reopening of assessments based on findings or directions from appellate authorities.The validity of the reassessment proceedings initiated by the Assessing Officer (AO) under Section 148 read with Section 150 of the Act.Issue-wise Detailed Analysis:1. Addition Based on Statement Recorded During Search:Legal Framework and Precedents: The Revenue relied on the judgment of the Delhi High Court in Bhagirath Aggarwal vs. CIT, which held that an addition based on a statement recorded during a search cannot be deleted without proving the statement incorrect.Court's Interpretation and Reasoning: The Tribunal examined whether the statement made by Shri Pawan Kumar Bansal, the CEO of the assessee company, constituted reliable evidence for the addition. The Tribunal emphasized that statements must be considered in their entirety and corroborated by seized material.Key Evidence and Findings: The Tribunal found contradictions in the statements of Shri Pawan Kumar Bansal and noted the absence of corroborative evidence supporting the Rs. 7 Crores addition. The statement was deemed unreliable without supporting seized material.Application of Law to Facts: The Tribunal upheld the CIT(A)'s decision to restrict the addition to the amount substantiated by seized material, as the statement alone was insufficient for the entire addition.Treatment of Competing Arguments: The Tribunal considered the Revenue's argument but concluded that the lack of supporting evidence rendered the statement insufficient for the addition.Conclusions: The Tribunal concurred with the CIT(A) that the addition should be based on seized material, not merely on the statement.2. Reopening of Assessment under Section 150:Legal Framework and Precedents: Section 150 allows reopening an assessment if there is a finding or direction from an appellate authority. However, the reopening must be based on a specific direction or finding.Court's Interpretation and Reasoning: The Tribunal analyzed whether the Tribunal's order in the cases of Mr. Bansal and Mr. Gupta constituted a direction or finding to reopen the assessment of the appellant company.Key Evidence and Findings: The Tribunal found no specific finding or direction in its prior order to justify reopening the appellant company's assessment.Application of Law to Facts: The Tribunal determined that the AO's interpretation of the Tribunal's order as a 'direction' was incorrect, as there was no explicit finding regarding undisclosed income of the appellant company.Treatment of Competing Arguments: The Tribunal rejected the AO's argument for reopening based on the Tribunal's prior order, as it lacked a specific finding or direction.Conclusions: The Tribunal concluded that the reopening of the assessment was unjustified, as there was no direction or finding in the prior order to support it.Significant Holdings:The Tribunal upheld the CIT(A)'s decision to restrict the addition to the amount substantiated by seized material, emphasizing that a statement alone is insufficient for an addition without corroborative evidence.The Tribunal found no specific direction or finding in its prior order to justify reopening the appellant company's assessment under Section 150.The Tribunal dismissed the Revenue's appeal, affirming that the addition of Rs. 7 Crores based solely on the statement was not sustainable without supporting evidence.Core Principles Established:A statement recorded during a search must be corroborated by seized material to justify an addition to income.Reopening an assessment under Section 150 requires a specific finding or direction from an appellate authority.The Tribunal's prior order must contain explicit directions or findings to justify reopening an assessment.The Tribunal's judgment emphasizes the importance of corroborative evidence in tax assessments and clarifies the conditions under which assessments can be reopened based on appellate orders.