2011 (10) TMI 699 - AT - Income Tax

Reopening of assessment - reasons to believe - Held that - There is no live link between the reasons recorded by the AO and the addition made and also in the absence of any tangible material to show that the transactions of 8200 shares of Rashel Agro Tech. Limited amounting to ₹ 3,89,050/- are not genuine, we are of the view that the assessment completed by the AO is bad in law, the same is, therefore, quashed.

Issues Involved:
1. Validity of the reopening of the assessment under Sections 147/148 of the Income Tax Act.
2. Sustenance of the addition of Rs. 3,89,050/- as unexplained income under Section 68.
3. Disallowance of exemption under Section 54F.
4. Denial of opportunity to cross-examine the person whose statement was relied upon by the AO/CIT(A).

Issue-wise Detailed Analysis:

1. Validity of the Reopening of the Assessment under Sections 147/148:

The assessee challenged the reopening of the assessment under Sections 147/148, arguing that the reasons recorded by the AO were not valid. The AO had based the reopening on information received from the DDIT (Inv.) stating that the assessee had taken short/long term capital gain of Rs. 3,23,559/- through sham share transactions. However, the AO did not make any addition of Rs. 3,23,559/- but instead added Rs. 3,89,050/- on the sale of 8200 shares of Rashel Agro Tech. Limited. The tribunal found that there was no live link between the reasons recorded by the AO and the addition made. Citing the Supreme Court's decision in CIT V/s Kelvinator of India Ltd. and the Gujarat High Court's decision in Aayojan Developers V/s ITO, the tribunal held that the assessment completed by the AO was bad in law and quashed the proceedings under Section 148.

2. Sustenance of the Addition of Rs. 3,89,050/- as Unexplained Income under Section 68:

The AO had treated the amount of Rs. 3,89,050/- as unexplained income under Section 68 based on the statement of Mr. Mukesh Choksi, who admitted to issuing bogus bills for share transactions. The assessee contended that their transactions were genuine, supported by documentary evidence such as brokers' bills, share transfer letters, and bank statements. The tribunal noted that the AO relied on a statement pertaining to a different financial year (FY 2001-02) than the one under consideration (FY 2000-01). Furthermore, the tribunal found that the AO did not provide any tangible material to show that the transactions were not genuine. As a result, the tribunal quashed the addition made by the AO.

3. Disallowance of Exemption under Section 54F:

This issue was not specifically addressed in the detailed judgment provided. Since the proceedings under Section 148 were quashed, the tribunal did not consider it necessary to decide on the merits of this issue.

4. Denial of Opportunity to Cross-Examine the Person Whose Statement was Relied Upon by the AO/CIT(A):

The assessee requested the opportunity to cross-examine Mr. Mukesh Choksi, whose statement was relied upon by the AO. The tribunal noted that the assessee had raised this issue in their submissions, and the AO did not provide this opportunity. However, since the tribunal quashed the proceedings under Section 148, it did not further address this issue on its merits.

Conclusion:

The tribunal quashed the assessment proceedings under Section 148 due to the lack of a live link between the reasons recorded by the AO and the addition made. Consequently, the other grounds taken by the assessee were not considered necessary to decide. The appeal was partly allowed to the extent of quashing the proceedings under Section 148.

← Previous Next →