2016 (7) TMI 1555 - AT - Income Tax

Validity of the assessment framed u/s 147 - Unexplained donation/capitation fees - HELD THAT - In this case the Assessing Officer has initiated the proceedings on the basis of the letter from DDIT(Inv.). The assessment has not been reopened just for the sake of verification of the payment of capitation fees but the Assessing Officer has stated that he has the reason to believe that the income to the tune of ₹ 23lac has escaped assessment for the assessment year 2007-08. It has been held by Hon'ble Supreme Court in the case of Income Tax Officer vs. Lakhmani Mewal Das 1976 (3) TMI 1 - SUPREME COURT that the court cannot look into the sufficiency of the reasons. The reasons for the formation of the belief for reopening of an assessment must have a rational connection or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular assessment year. Bonafide of the reasons can be looked into by this Tribunal. It is a case where, in our opinion, the reasons recorded are bonafide. In this case the assessee has asked the Assessing Officer which is apparent from para 8.1 of the assessment order to make available the person who has made the entries in the documents, which were seized from Santosh Medical College, Ghaziabad i.e. the third party and to produce the same to cross examine him. AO instead of providing the said party to the assessee for his cross examination, asked the assessee to bring a certificate from the college i.e. from that third party that no cash payment of ₹ 23,00,500/- was made by the assessee at the time of admission of his son. This action of AO clearly proves that the addition has been made by the Assessing Officer on the basis of the evidence found from the third party and as has been recorded by the third party. It is undisputed fact that the documents on the basis of which addition has been made in the case of the assessee were not found from the assessee. The entries are also not in the hand writing of the assessee in the documents found during the course of search at the third party. It is a case where the third party has mentioned the name of the assessee. Therefore, the third party are the evidence of the Revenue for making the addition in the hands of the assessee. The Revenue is bound to produce these witnesses when the assessee asked for his cross examination as in our opinion, the statement and the documents of the third party was the witness of the Revenue. No contrary decision was brought to our knowledge. Decidion of M/S ANDAMAN TIMBER INDUSTRIES LTD. 2005 (3) TMI 763 - SC ORDER is binding on us. Appeal of the assessee stands partly allowed.

Summary

Issues involved:
Validity of assessment framed u/s 147 read with section 143(3) of the Act, Sustenance of addition of ?23,00,500/- by the CIT(A)

Validity of assessment framed u/s 147 read with section 143(3) of the Act:
The appeal was filed against the order of CIT(A) relating to the assessment year 2007-08. The assessee contended that the reassessment proceedings initiated u/s 147 were invalid as there was no material showing income escapement. The Assessing Officer initiated proceedings based on information received from the Dy. Director of Income tax (Inv.) during a search action, indicating that income had escaped assessment. The Tribunal noted that the reasons for reopening must have a rational connection with the income escapement. The Tribunal found the reasons to be bonafide and dismissed the grounds taken by the assessee.

Sustenance of addition of ?23,00,500/- by the CIT(A):
The issue revolved around the addition of ?23,00,500/- by the CIT(A) based on cash payment mentioned in documents seized from a third party, Santosh Medical College. The assessee denied making any cash payment and requested to cross-examine the person who made the entries. Instead, the Assessing Officer asked for a certificate from the college, which the assessee failed to obtain. The Tribunal considered legal precedents, including a Supreme Court decision, emphasizing the right to cross-examine witnesses. The Tribunal found that the addition was solely based on third-party evidence without allowing the assessee to cross-examine, making it a violation of natural justice. Relying on the legal principle, the Tribunal set aside the CIT(A) order and deleted the addition of ?23,00,500/-. The appeal was partly allowed.

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