TaxTMI 
TaxTMI 
2026 (10) TMI 611
X X X X Extracts X X X X
X X X X Extracts X X X X
....ional Grounds) 2. That the Learned CIT(A) has erred in upholding the validity of reassessment proceedings initiated under Section 147 of the Income-tax Act, 1961, which are bad in law, without jurisdiction and liable to be quashed. 3. That the Learned CIT(A) has failed to appreciate that the reassessment proceedings have been initiated on the basis of borrowed satisfaction and mere information received from third-party sources without any independent application of mind by the Assessing Officer. 4. That the Learned CIT(A) has erred in law in holding that there existed "reason to believe" for reopening of assessment, whereas the same was based merely on suspicion, conjectures and unverified third-party information, without any tangible material linking the Appellant to alleged escapement of income. 5. That the Learned CIT(A) has failed to appreciate that complete reasons recorded for reopening were not supplied to the Appellant in a timely and proper manner, thereby vitiating the reassessment proceedings. 6. That the Learned CIT(A) has erred in law and on facts in upholding the reassessment proceedings without appreciating that the same a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rits. Our attention has been drawn to the recorded reasons and various other documents to assail the jurisdiction of Ld. AO as well as quantum addition on merits. Reference has been made to various judicial decisions to support various grounds, the copies of which have been placed on record. The Ld. CIT-DR also advanced argument supporting the findings of Ld. AO. The written submissions / brief synopsis has also been filed during the course of hearing before us. Having heard rival submissions and upon perusal of case records including judicial decisions as cited before us, our adjudication would be as under. Assessment Proceedings 3.1 The assessee being resident corporate assessee is stated to be engaged in manufacturing, trading and export of hosiery goods. The name of the assessee company has undergone change from M/s Kaursain Exports Pvt. Ltd. to M/s Milando Fashions Limited. The assessee filed its regular return of income on 25.09.2012 at Rs. 68.84 Lacs which was scrutinized u/s 143(3) on 26.03.2015 at Rs. 69.01 Lacs. However, the case was reopened and notice u/s 148 was issued by Ld. AO on 30.03.2019 which was beyond four years from the end of relevant assessment year. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... escapement of income which was alleged to be on account of failure on the part of the assessee to disclose fully and truly all the material facts necessary for his assessment for this year. 3.3 In response to notice u/s 148, the assessee filed return of income on 26.04.2019. The copy of reasons was provided to the assessee. Notice u/s 143(2) and 142(1) was issued thereafter calling for requisite details from the assessee. The assessee refuted the allegation of Ld. AO on the ground that the assessee was dealing in export of hosiery goods and received export consideration in US$ which form part of export sales proceeds. The copy of bank statement reflecting id of such foreign remittances was furnished. The assessee also furnished details of export invoices against which the payments were received. It was stated that entire foreign remittance was received in the bank account and the same was nothing but realization of export sales made in normal / routine course of business. However, Ld. AO maintained that the assessee failed to provide any justification of the alleged transaction with Tarlochan Singh @ Tochi and his brother. 3.4 In response to show-cause notice dated 26.12.201....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rlochan Singh mentioned receiving money from 'some person' of the assessee, he failed to mention precise identity of such person. Reliance on such vague statement of thirdparty was not tenable in law. No opportunity of cross-examination was ever afforded to the assessee. 4.2 Reference was made to the decision of Hon'ble Apex Court in CBI v. V.C. Shukla 1998 Taxmann.com 2155 (SC) holding that loose sheets or diaries, not being books of account regularly kept in the course of business, are not admissible evidence. The Court observed that entries made by one person in such documents, unless corroborated by independent evidence, cannot fasten liability on another. Similarly, in the case of Common Cause (A Registered Society) v. Union of India [2017] 77 Taxmann.com 245/245 Taxman 214/394 ITR 220 (SC), it was held that uncorroborated records would have no evidentiary value. Reference was also made to various decisions of Tribunal dealing with identical issue. It was contended that in the present case, the additions were made merely on the basis of loose papers and statement of a third-party which lack requisite credibility and thus, the same was not tenable. 4.3 The assessee furthe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rial, recorded independent satisfaction and clearly brought out the nature of information, the nexus between seized diary entries & assessee's bank credits and failure of the assessee to disclose these facts during original assessment. Thus, this was not a case of borrowed satisfaction or reopening based on mere suspicion rather it was based on live, tangible material directly linked to the assessee. Since reopening was beyond four years, Ld. AO specifically recorded failure on the part of the assessee to fully and truly disclose material facts, which is clearly borne out from records. The contention that reasons were not supplied in time was also not acceptable because the assessee participated in reassessment proceedings, filed replies, never demonstrated what prejudice was caused due to alleged delay. The reassessment was, therefore, held to be legally valid and jurisdictionally sound. 4.5 On merits, the impugned addition was made on the basis of the seized diary of hawala operator, the statement of Shri Tarlochan Singh @ Tochi, matching TT numbers in assessee's bank account, correlation of dates, amounts & foreign remittances, admission that coded entries "KO" referred to Ka....
X X X X Extracts X X X X
X X X X Extracts X X X X
....export sales as made by the assessee stood accepted therein. The reasons to reopen the case were recorded beyond four years. The reasons expressly originate from information received from ACIT, Central Circle-2, Ludhiana which, in turn, is based on FEMA search at the premise of Shri Tarlochan Singh. In response to the said notice, the assessee furnished its audited accounts, purchase / sales details, list of debtors / creditors, overseas party details, export proceeds and bank remittance reconciliation. The records also contain bill-wise export proceeds / shipping bill particulars and bill wise foreign remittance mapping. The export sales were made in the ordinary course of assessee's business. which were duly recorded in the books and offered to tax. All the sales proceeds have been received through banking channels only. The assessee furnished date-wise comprehensive list of payment received, exchange rate, invoice mapping, shipping details, etc. The assessee has furnished plethora of documents to substantiate the export sales which include copies of relevant VAT returns containing sales and purchase details, bill-wise details of commission deducted by the commission agent along ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or foreign remittances allegedly correspond with entries found in third-party material, cannot, by itself, establish that the assessee paid cash for obtaining such remittances. The corresponding foreign remittances, as explained by the assessee, were against export sales made in the ordinary course of its business. The crucial link between the alleged cash payment and the assessee has not been independently established by Ld. AO. 6. We also find that the assessee was not afforded an effective opportunity to cross-examine Shri Tarlochan Singh, whose statement has been relied upon against the assessee. The principles of natural justice require that where a third-party statement constitutes a material basis for an adverse finding, the assessee must ordinarily be afforded an effective opportunity to test such evidence by way of cross-examination, particularly when the assessee disputes the contents and veracity of the statement. However, it is also clear from the orders of lower authorities that no opportunity of cross-examination of Shri Tarlochan Singh has ever been provided to the assessee. The denial of such an opportunity of cross-examination is in clear violation of principle ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... business receipts as unexplained expenditure merely on the basis of an uncorroborated third-party statement. At this juncture, it is also relevant that Sec.69C is attracted only where an assessee has incurred expenditure and offers no explanation about the source of such expenditure or the explanation offered is not satisfactory. The essential foundational fact of incurring the expenditure by the assessee must, therefore, be established before the deeming provision can be invoked. In the present case, the Revenue has failed to establish, by independent and reliable evidence, that the assessee actually incurred the alleged cash expenditure. In fact, the evidentiary material relied upon by the Revenue does not establish a complete and unbroken nexus between the assessee, Shri Tarlochan Singh, the alleged cash payment and the foreign remittances. The addition has essentially been sustained on the basis of third-party material without adequate independent corroboration and without affording cross-examination of the person whose statement has been relied upon. In these circumstances, we are of the considered view that the assessee's explanation, supported by contemporaneous books o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hout any meaningful independent verification of the underlying material, without examining the assessee's books of account or export records and without establishing, at the stage of recording reasons, any direct nexus between the assessee and the alleged cash payments. It is settled position of law that the power to reopen an assessment cannot be exercised merely on the basis of borrowed satisfaction. The Ld. AO himself must apply his independent mind to the information / material in his possession and arrive at a reasoned belief that income chargeable to tax has escaped assessment. Mere reproduction or adoption of information received from another authority, without independent examination of the material and without establishing the live nexus between such material and the assessee, cannot, by itself, satisfy the jurisdictional requirement of Section 147. Upon perusal of recorded reasons in the present case, we are of the considered opinion that the reasons recorded do not demonstrate any independent verification by Ld. AO as to whether the alleged cash payments were, in fact, made by the assessee. There is no independent material in the recorded reasons establishing that th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... borrowed satisfaction as put forth by Ld. AR. 12. We further note that the assessee's original assessment had already been completed u/s 143(3). The assessee's export business, sales and business results were duly disclosed in its return of income and books of account. The material now relied upon by the Ld. AO relates to alleged foreign remittances which, according to the assessee, represented realization of export sales. Therefore, in the absence of any specific material demonstrating that the assessee had failed to disclose fully and truly all material facts necessary for the original assessment, the mandatory condition contained in the first proviso to section 147 remains unsatisfied in the present case. The recorded reasons merely state that the assessee failed to disclose the alleged transactions. However, such a general assertion cannot substitute the statutory requirement of demonstrating the precise material facts which were not disclosed by the assessee and which, because of such failure, resulted in escapement of income. The reasons must establish a live nexus between the alleged failure and the escapement of income. 13. In our considered view, the materia....