2017 (12) TMI 870 - AT - Income Tax

Reopening of assessment - reopening on the basis of the letter received by him from ACIT, Circle 2(3), Hyderabad - undisclosed investment - Held that - AO has not brought on record, any evidence as to how and when the assessee has made payment of any cash for the purchase of the villa. The AO has unilaterally apportioned the alleged cash payment equally amongst the three A.Ys. Such a procedure is not envisaged under the law. The AO is required to bring on record, the quantum of investment and the mode of investment made during the relevant previous year before making any addition to the returned income of the assessee. No such evidence has been brought on record by the AO The reasons recorded should be self-explanatory and should not keep the assessee guessing as the reasons provide the link between the conclusions and the evidence. The AO, in the event of challenge to the reasons, must be able to justify based on the material available on record and he must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that A.Y, so as to establish the vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the AO cannot be supplemented by filing an affidavit or making an oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches the Court, on the strength of the affidavit or oral submissions advanced . Thus, the re-assessment proceedings in the case before us are not sustainable. - Decided against revenue.

Issues Involved:

1. Validity of the assessment made under Section 147.
2. Deletion of addition towards unexplained investments.
3. Reopening of assessment based on information from another Assessing Officer.
4. Use of judicial confession as evidence.
5. Requirement of tangible material for reopening the assessment.
6. Opportunity to cross-examine witnesses.

Detailed Analysis:

1. Validity of the assessment made under Section 147:
The Revenue challenged the CIT(A)'s decision that the assessment made under Section 147 was void. The CIT(A) held that the AO did not have any material to corroborate that "on money" was paid by the assessee towards the purchase of the villa, leading to the conclusion that the income of ?3,39,00,000 had escaped assessment. The CIT(A) emphasized that quantification of the income which has escaped assessment is essential under Section 149, and without evidence of the date of payment, the relevant previous year could not be ascertained.

2. Deletion of addition towards unexplained investments:
The AO added ?84,75,000 to the assessee's income for each of the A.Ys 2007-08, 2009-10, and 2010-11, attributing it to unexplained investments. The CIT(A) deleted these additions, observing that there was no evidence that ?3,39,00,000 had escaped assessment. The CIT(A) noted that the AO relied solely on a statement made by Mr. Tummala Ranga Rao without providing an opportunity for the assessee to cross-examine him.

3. Reopening of assessment based on information from another Assessing Officer:
The AO reopened the assessment based on a letter from the ACIT, Circle 2(3), Hyderabad, which mentioned that the assessee had made an investment of ?3,39,00,000 towards the purchase of a villa. The CIT(A) found that the reopening was based on borrowed satisfaction and not on any tangible material in the possession of the AO. The AO did not independently verify the information or gather corroborative evidence.

4. Use of judicial confession as evidence:
The AO relied on the judicial confession of Mr. Tummala Ranga Rao, who admitted to collecting cash over and above the registered sale consideration. The CIT(A) held that the AO should have allowed the assessee to cross-examine Mr. Rao, as the statement was a crucial piece of evidence for making the addition. The CIT(A) observed that the AO's reliance on the confession without cross-examination was not justified.

5. Requirement of tangible material for reopening the assessment:
The CIT(A) emphasized the need for tangible material to corroborate the AO's belief that income had escaped assessment. The AO's reasons for reopening the assessment were based on presumptions and possibilities rather than concrete evidence. The CIT(A) highlighted that the AO must have material evidence to support the reopening, especially when it is done after four years.

6. Opportunity to cross-examine witnesses:
The CIT(A) noted that the AO did not provide the assessee with an opportunity to cross-examine Mr. Tummala Ranga Rao, whose statement was used to justify the reopening and the addition. The CIT(A) held that denying the assessee this opportunity was a violation of the principles of natural justice.

Conclusion:
The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeals for all three assessment years. The Tribunal agreed with the CIT(A) that the reopening of the assessment was not based on tangible material and that the AO failed to provide the assessee with an opportunity to cross-examine the witness. The Tribunal also found no evidence to support the addition of ?84,75,000 as unexplained investment for each assessment year.

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