2018 (6) TMI 838 - AT - Income Tax

Reopening of assessment - reason to believe - unexplained investment - Held that - For reopening assessment, AO is required to form a prima facie belief that income chargeable to tax has escaped assessment. In the instant case, the AO has got the information from the CBI, the other investigating agency, that certain investment was made by the assessee through Shri Navneet Kumar Singhania, local cash carrier in the Jagati Publications and this investment was not declared by the assessee in the returned income. Therefore, the information received by the AO is sufficient to form a belief that income chargeable to tax has escaped assessment. Thus, we confirm the order of the CIT(A) upholding the validity of the reopening of the assessment. Entire addition is on the basis of the statements of the assessee and Shri. Navneet Kumar Singhania recorded by the CBI. Before the AO, assessee has specifically denied such statements recorded by the CBI and has sought cross-examination of Shri. Navneet Kumar Singhania which were not afforded to the assessee. It was also not made clear to us by the Revenue authorities as to whether on account of statements recorded by the CBI, any criminal proceedings were initiated against the assessee and Shri. Navneet Kumar Singhania under any other Act and what was the result thereof. Except such statements, the AO has not brought anything on record to establish that assessee had made such investment in Jagati Publications through Shri. Navneet Kumar Singhania and the same was not declared in its return of income. In the light of these facts, we are of the considered opinion that addition cannot be made in the hands of the assessee in the absence of the relevant evidence - decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening of assessment under section 147 of the Income Tax Act.
2. Addition of ?60 crores as unexplained income.
3. Interest chargeable under sections 234B and 234C of the Income Tax Act.

Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147:
The appellant challenged the reopening of the assessment on the grounds that the mandatory conditions for assumption of jurisdiction under section 148 of the Income Tax Act were not complied with. The appellant argued that the proceedings were initiated based on information from the Central Bureau of Investigation (CBI) without independent application of mind by the Assessing Officer (AO), amounting to "borrowed satisfaction." Additionally, the appellant contended that the sanction required under section 151 of the Act was not obtained from the Commissioner of Income Tax before issuing the notice under section 148.

The Tribunal examined the orders of the lower authorities and found that the AO had received information from the CBI regarding the appellant’s involvement in providing ?60 crores for investment in Jagati Publications Pvt. Ltd. The AO reopened the assessment based on this information. The CIT(A) confirmed the reopening, stating that the AO had sufficient material to form a prima facie belief that income had escaped assessment. The Tribunal upheld this view, citing the Supreme Court's decision in Rajesh Jhaveri Stock Brokers P. Ltd., which clarified that the expression "reason to believe" does not require final ascertainment of facts but rather a prima facie belief based on relevant material.

2. Addition of ?60 Crores as Unexplained Income:
The appellant contested the addition of ?60 crores, arguing that the amount was not provided to Shri Navneet Kumar Singhania for investment in Jagati Publications. The appellant also claimed that the statement recorded by the CBI was not confronted to him, and no corroborative evidence was collected by the AO. The appellant further stated that he was neither a shareholder nor a director in the companies that invested in Jagati Publications.

The Tribunal noted that the sole basis for the addition was the statement recorded by the CBI, which is not admissible as evidence under Section 25 of the Indian Evidence Act, 1982. The Tribunal emphasized that the AO did not conduct any independent investigation or collect corroborative evidence to support the addition. The Tribunal referred to various judicial pronouncements, including the case of ITO vs. Balram Jakhar, where it was held that reopening based on a CBI report without corroborative evidence is not permissible. The Tribunal concluded that the addition of ?60 crores could not be sustained solely based on the CBI's statement, especially when the appellant was not allowed to cross-examine the witnesses.

3. Interest Chargeable under Sections 234B and 234C:
The appellant denied liability for interest under sections 234B and 234C of the Act. The Tribunal noted that this issue is consequential in nature and does not require independent adjudication.

Conclusion:
The Tribunal upheld the validity of the reopening of the assessment under section 147, confirming that the AO had sufficient material to form a prima facie belief that income had escaped assessment. However, the Tribunal deleted the addition of ?60 crores, stating that the addition was based solely on inadmissible statements recorded by the CBI without any corroborative evidence. The issue of interest under sections 234B and 234C was deemed consequential and not independently adjudicated. The appeal of the assessee was allowed.