2016 (5) TMI 1588 - AT - Income Tax

Reopening of assessment u/s 147 - Eligible material for reopening proceedings - assessee had incurred expenditure on Roka and Engagement functions of her daughter out of his unexplained income and income has escaped assessment for the period relevant to the assessment year 2005-06 - HELD THAT - Assessee had made complaint to the SSP of Police Ludhiana regarding Roka and Engagement functions solemnized on 29.8.2004 and expenditure of Rs.7 lacs was incurred on these functions. This observation is factually incorrect and it cannot be said that the Assessing Officer has formed a prima-facie belief that income has escaped assessment. In the instant case notice was issued to the assessee on ground that he had made the complaint to the SSP of Police which is factually incorrect. In fact the assessee did not make any complaint to the SSP Ludhiana. Secondly the Assessing Officer has mentioned in the reasons recorded that information was received from DDIT (Investigation)-III Ludhiana that the assessee and his daughter Ms.Sarika Jain had spent approximately Rs.37 lacs on her engagement and marriage ceremony. It is brought to our notice that no addition has been made in the hands of Ms.Sarika Jain. On the contrary Smt.Sarika Jain alleged in her complaint made with the Police that the assessee had spent an amount of Rs.7 lacs at the time of Roka and Engagement functions. It is also observed that in this case the information was provided by DDIT (Investigation)-III Ludhiana on the basis of Police Report wherein the daughter of the assessee alleged that a huge amount has been spent on marriage and Roka ceremony. The complaint was made by Ms.Sarika Jain against her husband and in-laws. Shri S.K. Maingi learned counsel for the assessee submitted that the said complaint was made by Ms.Sarika Jain in order to fetch money from her husband and in-laws. This contention of the learned counsel for the assessee has some force which can not be ignored. Division Bench of this Tribunal in the case of Shri Subhash Chander Goel 2016 (2) TMI 78 - ITAT CHANDIGARH relating to assessment year 2006-07 held that statement recorded by the police officer under section 161 of CrPc 1983 is neither given on oath nor it is tested by cross examination and therefore such a statement cannot be treated as substantive evidence to reopen the assessment proceedings. In the instant case the Assessing Officer had not examined and corroborated the information received from DDIT (Investigation)-III Ludhiana before recording his satisfaction of the escaped income and initiating the re-assessment proceedings. In my opinion the Assessing Officer has thus acted on the basis of suspicion and he has also not applied his mind before recording the reasons for reopening of the assessment. statement made by Ms.Sarika Jain under section 161 of CrPc cannot be treated as relevant material for reopening proceedings under section 147 of the Act. Thus reopening of the assessment was not valid under the law - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening of assessment under Section 147 of the Income Tax Act, 1961.
2. Adequacy of reasons recorded for reopening the assessment.
3. Use of statements made under Section 161 of CrPC as evidence for reopening assessment.

Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147 of the Income Tax Act, 1961:
The core issue in this appeal is the legality of the reopening of the assessment for the assessment year 2005-06. The assessee filed a return of income on 25.07.2005, which was processed under Section 143(1) of the Act. The Assessing Officer (AO) later issued a notice under Section 148 of the Act on 31.03.2010, citing reasons that the assessee incurred unexplained expenditures on his daughter’s Roka and Engagement functions, leading to income escaping assessment. The Tribunal analyzed whether the AO had valid grounds and adhered to the legal requirements for reopening the assessment.

2. Adequacy of Reasons Recorded for Reopening the Assessment:
The Tribunal scrutinized the reasons recorded by the AO for reopening the assessment. The AO's reasons were based on information from the Deputy Director of Income Tax (Investigation) and a complaint made by the assessee's daughter to the police, alleging significant expenditures on her engagement and marriage. The Tribunal noted that the AO incorrectly stated that the complaint was made by the assessee, whereas it was actually made by his daughter. The Tribunal emphasized that there must be material for belief and a nexus between the material and the belief. The AO's reasons must show the application of mind, which was found lacking in this case. The Tribunal referenced the legal position that the reasons to believe must be stronger than mere suspicion and must be based on objective material.

3. Use of Statements Made under Section 161 of CrPC as Evidence for Reopening Assessment:
The Tribunal examined the reliance on the statement made by the assessee’s daughter under Section 161 of the CrPC, which was recorded by the police. The Tribunal held that such statements are neither given under oath nor tested by cross-examination and, therefore, cannot be treated as substantive evidence for reopening assessment proceedings. The Tribunal highlighted that the AO acted on suspicion without corroborating the information received from the Investigation Wing, which is insufficient for forming a belief that income has escaped assessment.

Conclusion:
The Tribunal concluded that the reopening of the assessment was not valid under the law. The reasons recorded by the AO were factually incorrect and lacked the necessary application of mind. The Tribunal quashed the reassessment order and allowed the appeal of the assessee. The Tribunal did not comment on the merits of the case due to the quashing of the reassessment order.

Order Pronouncement:
The appeal of the assessee was allowed, and the order was pronounced in the open court on 19th May 2016.