2016 (4) TMI 1341 - AT - Income Tax

Reopening of assessment - reasons recorded for re-opening of the assessment - unexplained investments - information received from ADIT (Investigation) in reference to the search conducted in the cases of Smt. Mohinder Kaur, legal heir of late Shri Taranjit Singh - Held that - AO has not applied his mind to the information received from ADIT (Investigation) and he was having no tangible material with him to form his belief that income chargeable to tax has escaped assessment. Rather, there was no material available with the AO to form his belief that income chargeable to tax has escaped assessment in the case of the assessee company. There was no reason to believe that income chargeable to tax has escaped assessment. The re-opening of the assessment has, thus, not been done validly in accordance with law. The re-opening of assessment is bad in law. Set aside the orders of authorities below and quash the re opening of the assessment under section 147/148. It is not a case of A.O. that despite sale of shares/investments, assessee still possessed and controlled the same shares/investments. AO did not record anywhere in the assessment order if these statements recorded by DDIT (Investigation) of the brokers have been supplied to the assessee for the comments of the assessee and whether assessee has been given any opportunity to cross-examine these brokers. In the absence of any evidence or material on record, it is difficult to believe that assessee has been given any opportunity to cross-examine the statements of these three brokers on behalf of the assessee. Therefore, when these brokers have confirmed selling the shares on behalf of the assessee company and giving sale consideration through banking channel to the assessee company and their statements are not adverse in nature against assessee, but in the absence of giving right of cross-examination of their statement, their statements cannot be read in evidence against the assessee on certain points which have been considered by AO to be adverse in nature. AO himself has mentioned in the assessment order that sale consideration and source of giving advance to M/s Taranjit Singh & Co., Chandigarh is the amount received through three brokers through banking channel, therefore, Assessing Officer cannot ask the assessee to prove source of the source. The Assessing Officer has also not brought any evidence on record that despite selling the investments through the brokers, assessee company was still having ownership and possession over the same investments held by the assessee company. These facts and material on record clearly suggest that assessee genuinely sold the investments/shares through three brokers and received the sale consideration through banking channel. Therefore, such consideration could not be treated as undisclosed unaccounted income of the assessee. - decided in favour of assessee.

Summary

Issues Involved:
1. Reopening of assessment under Section 148 of the Income Tax Act.
2. Addition made on a protective basis and then converted to a substantive basis.
3. Lack of reasonable opportunity provided to the appellant to defend its case.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 148:
The primary issue was whether the reopening of the assessment under Section 148 was justified. The appellant argued that the Assessing Officer (AO) did not have a valid reason to believe that income chargeable to tax had escaped assessment. The AO based the reopening on information received from the Additional Director of Income Tax (Investigation) that the appellant had given only an entry to M/s Taranjit Singh & Co., Chandigarh, and no actual deposits/investments were made. However, the Tribunal found that the AO did not apply his mind independently to the information received and did not have tangible material to form a belief that income had escaped assessment. The Tribunal referred to various judgments, including those of the Hon'ble Punjab & Haryana High Court and the Hon'ble Delhi High Court, to support the contention that mere information from another authority without independent verification does not constitute a valid reason to reopen an assessment. Consequently, the reopening of the assessment was quashed as bad in law.

2. Addition Made on a Protective Basis and Then Converted to a Substantive Basis:
The AO initially made an addition of ?2.10 Crores for the assessment year 1999-2000 and ?40 Lakhs for the assessment year 2000-01 on a protective basis, stating that the amount was introduced in the bank account of the appellant company by the directors from undisclosed sources. The CIT(A) later converted these protective additions into substantive additions. The Tribunal noted that the substantive addition was already made in the case of M/s Taranjit Singh & Co., Chandigarh, and the block assessment in that case had been quashed. The Tribunal emphasized that the AO had not provided any new evidence or material to justify the substantive addition in the appellant's case. It was also highlighted that the source of the deposits in the appellant's bank account was through cheques from three brokers, who had confirmed the transactions. Therefore, the Tribunal deleted the substantive additions made by the CIT(A).

3. Lack of Reasonable Opportunity Provided to the Appellant:
The appellant contended that it was not given a reasonable opportunity to defend its case and that irrelevant data was marshaled against it without proper confrontation. The Tribunal observed that the statements of the brokers, which were used against the appellant, were not provided to the appellant for cross-examination. Citing the Supreme Court's decision in Kishan Chand Chela Ram Vs CIT, the Tribunal held that statements not subjected to cross-examination cannot be used as evidence against the appellant. The Tribunal concluded that the appellant was denied a fair opportunity to present its case, further invalidating the additions made.

Conclusion:
The Tribunal allowed the appeals of the appellant for both assessment years 1999-2000 and 2000-01. It quashed the reopening of the assessments under Section 147/148 and deleted the substantive additions made by the CIT(A), thereby providing relief to the appellant. The Tribunal's decision was based on the lack of independent application of mind by the AO, the absence of tangible material to justify the reopening, and the denial of a reasonable opportunity to the appellant to defend its case.