2017 (5) TMI 1643 - AT - Income Tax

Reopening of assessment u/s 148 - search conducted upon the Mukesh Choksi group statement of Mukesh Choksi was recorded and in his statement he has admitted that he was providing accommodation entries to those who were interested to earn capital gain - Held that - There is no finding with regard to the supply of statement of Mukesh Choksi to the assessee. Moreover nothing is available on record wherevfrom it could be inferred that assessee was ever allowed to cross-examine Mr. Mukesh Choksi. It is settled position of law that statement or the evidence which is being relied upon by the AO for making the addition in the hands of assessee the same should be confronted to the assessee and the assessee should be allowed to cross-examine the witness in this regard. From a careful perusal of the orders of lower authorities it is quite evident that statement of Mr. Mukesh Choksi was relied on for making the addition but assessee was never allowed to cross-examine him. AO was not justified in making addition in the hands of assessee without allowing the assessee to cross-examine Mr. Mukesh Choksi whose statement was relied upon for making the above additions. Accordingly set aside the order of CIT(Appeals) and restore the matter to the file of AO with a direction to first confront the statement of Mr. Mukesh Choksi to the assessee and allow him to cross-examine Mr. Mukesh Choksi to dig out the truth in this regard. - decided in favour of assessee for statistical purposes.

Issues involved:
1. Validity of assessment order passed by the Assessing Officer and confirmed by the Commissioner of Income Tax (Appeals).
2. Legality of re-opening of assessment under section 148 of the Act.
3. Compliance with legal formalities under section 147 of the Act.
4. Violation of principles of natural justice and fair play in the absence of cross-examination.
5. Treatment of sale consideration received on sale of shares as 'Income from other sources'.
6. Taxation of entire sale consideration as income under the head 'other sources'.
7. Denial of liability to pay interest.

Analysis:
1. The appellant challenged the assessment order passed by the Assessing Officer and confirmed by the Commissioner of Income Tax (Appeals) on various grounds, including errors in passing the order, absence of legal formalities, violation of natural justice, and contrary to binding legal precedents. The appellant contended that the order should be quashed due to these reasons.

2. The appellant argued that the re-opening of assessment under section 148 of the Act was invalid as the conditions precedent for issuing notice were absent. The appellant claimed that the order resulting from such re-opening is bad in law and should be quashed.

3. The appellant raised concerns regarding the compliance with legal formalities under section 147 of the Act. It was contended that the impugned order was passed without fulfilling the necessary legal requirements, rendering it bad in law and necessitating its quashing.

4. The appellant alleged a gross violation of the principles of natural justice and fair play, especially due to the absence of cross-examination of relevant persons by the Assessing Officer. It was argued that such a violation makes the order entirely bad in law and should be canceled.

5. The issue of treating a sum of sale consideration received on the sale of shares as 'Income from other sources' was contested. The appellant claimed that the authorities erred in this treatment, which lacked legal support and was contrary to facts and evidence available, hence should be rejected.

6. The appellant further disputed the taxation of the entire sale consideration as income under the head 'other sources,' emphasizing that Long term capital gain on the sale of shares was exempt under section 10(38) of the Act. Allegations of fraudulent transactions and accommodation entries were refuted, and the appellant's innocence as an investor was asserted.

7. The Tribunal examined the orders of the lower authorities and found that the Assessing Officer had made additions based on the statement of a third party without allowing the appellant to cross-examine the said party. The Tribunal held that such actions were unjustified and directed the Assessing Officer to allow the appellant to cross-examine the concerned party before making any additions.

In conclusion, the Tribunal allowed the appeal for statistical purposes, setting aside the order of the Commissioner of Income Tax (Appeals) and directing the Assessing Officer to follow due process before making any additions based on third-party statements.

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