2017 (11) TMI 1375 - AT - Income Tax

Addition u/s. 69A - Reopening of assessment - CIT-A deleted the addition due to lack of enquiry conducted by AO - Held that - It was not appropriate for the learned CIT(A) to have deleted the additions by blaming the AO for not conducting proper enquiry and proceedings during assessment proceedings. However, at the same time we are in agreement with the contention of the assessee that the assessee cannot be prejudiced based on incriminating material seized from third parties at the back of the assessee unless the said relied upon incriminating material is confronted to the assessee and opportunity to rebut as well cross examination is provided to the assessee in view of the decision of Hon ble Supreme Court in the case of Andaman Timber Industries v. CCE(2015 (10) TMI 442 - SUPREME COURT) . Thus, the matter need to be set aside and restored to the file of the A.O wherein the A.O is directed to provide copies of seized material and others incriminating material relied upon by the Revenue before prejudicing the assessee and the assessee be granted opportunity to rebut the same/cross examine the third parties from whom such incriminating material was seized by the Revenue which revenue intend to rely to prejudice the assessee . - Decided in favour of revenue for statistical purposes.

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income-tax Act, 1961.
2. Addition of ?2,71,00,000/- under Section 69A of the Income-tax Act, 1961 based on evidence from search and seizure operations.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147:

The case revolves around the reopening of the assessment for the assessment year 2008-09 under Section 147 of the Income-tax Act, 1961. The assessee, a builder and developer, had filed its return of income on 30-09-2008. The assessment was reopened based on information received from the JCIT (OSD) regarding a search and seizure action conducted on 22.01.2009 in the case of Mr. Madan Kolambekar Group, which revealed unaccounted cash payments made by Jai Corp Group entities. The AO issued a notice under Section 148 on 24-09-2012. The reasons recorded for reopening included the discovery of various incriminating documents indicating unaccounted cash payments in land deals involving the assessee.

The assessee challenged the reopening before the CIT(A), which dismissed the challenge, thereby upholding the validity of the reopening under Section 147.

2. Addition of ?2,71,00,000/- under Section 69A:

The primary issue was the addition of ?2,71,00,000/- under Section 69A based on evidence obtained during search and seizure operations. The AO made this addition on the grounds that the assessee received unaccounted cash of ?2,71,00,000/- on 28.01.2008 from Mr. Madan Kolambekar for a land deal, which was not reflected in the assessee's books of accounts.

The AO's conclusion was based on:
- Evidence from the search and seizure operations conducted on Mr. Madan Kolambekar Group and Jai Corp Group.
- An appraisal report indicating unaccounted payments.
- The ward inspector's report estimating the land's value at ?20,000 to ?25,000 per square meter, significantly higher than the rate shown by the assessee.

The CIT(A) allowed the assessee's appeal on merits, stating that:
- The AO did not summon Mr. Madan Kolambekar or any representative from Jai Corp to verify the entries found in their books.
- The assessee was not given a chance to cross-examine these parties or rebut the information.
- No other verification or meaningful effort was made by the AO to corroborate the entries found in the third party's books.
- The addition was deemed arbitrary and unsustainable due to the lack of supporting documents or evidence.

Tribunal's Decision:

The Tribunal noted that:
- The powers of the CIT(A) are co-terminus with those of the AO, and the CIT(A) should have conducted necessary enquiries instead of merely blaming the AO.
- The assessee cannot be prejudiced based on incriminating material seized from third parties without being confronted with the material and given an opportunity to rebut and cross-examine the concerned parties.

In light of these observations, the Tribunal set aside the matter and restored it to the AO for de novo determination. The AO was directed to:
- Provide copies of the seized material and other incriminating evidence to the assessee.
- Allow the assessee an opportunity to rebut the evidence and cross-examine the third parties.
- Ensure the assessment is conducted in accordance with the principles of natural justice.

The appeal by the Revenue was allowed for statistical purposes, and the matter was remanded back to the AO for fresh adjudication based on the directions provided.

Order Pronounced:
The order was pronounced in the open court on 23.11.2017.