2024 (8) TMI 1536 - AT - Income Tax

Revenue's appeal dismissed as section 153C applies when documents seized from third party premises contain assessee information

ITAT Pune dismissed Revenue's appeal regarding validity of reassessment proceedings under section 147 versus section 153A. The tribunal held that since ... Validity of re-assessment proceedings u/s 147 v/s assessment u/s 153A - information received from the DCIT, Central Circle – 1, Pune according to which details emerged during the statement recorded u/s 132(4) of Shri Sachin Nahar and during search and post search enquiries by the Investigation wing and also during the course of enquiries conducted during search proceedings by the Central Circle – 1(1), Pune that the assessee has received cash loan HELD THAT:- Certain documents were seized from the premises of Shri Sachin Nahar which contained information relating to the present assessee. Therefore, the provisions of section 153C are applicable as according to the said section, it is applicable if any information contained in the seized document relates to the assessee. In view of the detailed reasoning given by the CIT(A) / NFAC based on various decisions, we uphold the order of the Ld. CIT(A) / NFAC that the reopening of the assessment u/s 147 was not valid and the proper course of action that should have been taken by the Assessing Officer was u/s 153C as the provisions of section 153C of the Act are clearly applicable to the facts of the case. We, therefore, uphold the order of the CIT(A) / NFAC on the issue of validity of re-assessment proceedings. The first issue raised by the Revenue is accordingly dismissed. Addition made on the basis of the statement recorded u/s 132(4) and no other evidence whatsoever was available with the Assessing Officer except this statement. - As find from the reasons recorded as well as the assessment order that the assessee, according to the AO, has taken loan from Shri Sachin Nahar which is a liability. However, AO has treated the same as income u/s 69A of the Act. Once the AO himself has accepted that the assessee has taken loan through Shri Sachin Nahar, although the assessee denies to have taken any such loan, the provisions of section 69A could not have been invoked. Further, as mentioned earlier, neither during the course of assessment proceedings nor during the course of appellate proceedings, the AO has brought on record any evidence based on which the assessment has been made except the statement of Shri Sachin Nahar recorded u/s 132(4). We have already mentioned in the preceding paragraphs that the addition cannot be made merely on the basis of the statement recorded u/s 132(4) of the Act as the presumption u/s 132(4A) of the Act is available only in respect of the person from whom the paper is seized. It cannot be applied against the third party and hence, no addition could be made on the basis of evidence found with the third party. CIT(A) / NFAC on this issue, we do not find any infirmity in his order deleting the addition on merit. Accordingly, the order of the CIT(A) / NFAC on this issue is also upheld. Thus, the appeal filed by the Revenue is dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment are:Whether the reopening of the assessment under section 147 of the Income Tax Act, 1961, was valid, or whether the proceedings should have been initiated under section 153C.Whether the addition of Rs. 6,20,00,000/- under section 69A for unexplained money was justified based on the statement of a third party, Shri Sachin Nahar, without corroborative evidence.Whether the procedural aspects, such as the denial of cross-examination and failure to provide seized documents, impacted the validity of the assessment.2. ISSUE-WISE DETAILED ANALYSISValidity of Reopening under Section 147 vs. Section 153CThe legal framework involves sections 147 and 153C of the Income Tax Act. Section 147 allows for reassessment if income has escaped assessment, while section 153C pertains to assessments based on documents seized during searches related to another person.The Court noted that the information leading to the reopening involved documents seized from a third party, Shri Sachin Nahar, which related to the assessee. The CIT(A) / NFAC held that the proper course should have been under section 153C, as the documents seized pertained to the assessee, thereby making section 153C applicable.The Tribunal upheld the CIT(A) / NFAC's decision, emphasizing that section 153C was indeed applicable due to the nature of the documents and information obtained during the search.Addition under Section 69A for Unexplained MoneyThe legal framework involves section 69A, which deals with unexplained money found in possession of the assessee. The Assessing Officer made an addition based on the statement of Shri Sachin Nahar recorded under section 132(4) during a search, which alleged that the assessee received a cash loan of Rs. 6,20,00,000/-.The CIT(A) / NFAC found that the addition was not sustainable as it was based solely on a third-party statement without corroborative evidence. The Tribunal agreed, noting that the presumption under section 132(4A) applies only to the person from whom documents are seized and not against third parties. The Tribunal cited various precedents supporting the need for corroborative evidence beyond third-party statements.Procedural Aspects: Denial of Cross-Examination and Document AccessThe assessee argued that the denial of cross-examination of Shri Sachin Nahar and the failure to provide seized documents violated principles of natural justice. The CIT(A) / NFAC noted these procedural lapses and found them significant in deciding against the addition.The Tribunal upheld this view, emphasizing the importance of procedural fairness and the need for the Assessing Officer to provide access to evidence and allow cross-examination, especially when the addition is based on third-party statements.3. SIGNIFICANT HOLDINGSThe Tribunal upheld the CIT(A) / NFAC's decision on both the legal and factual grounds:The reopening of the assessment under section 147 was invalid, and the proceedings should have been initiated under section 153C due to the nature of the documents seized.The addition of Rs. 6,20,00,000/- under section 69A was not justified as it was based solely on the statement of a third party without corroborative evidence. The Court emphasized that the presumption under section 132(4A) is not applicable against third parties.The procedural lapses, including denial of cross-examination and failure to provide relevant documents, were significant and contributed to the decision to invalidate the addition.The Tribunal dismissed the Revenue's appeal and the assessee's cross-objections, affirming the CIT(A) / NFAC's order to quash the reassessment proceedings and delete the addition.