2018 (6) TMI 1449 - AT - Income Tax

Reopening of assessment - rubber stamp reasons based on borrowed satisfaction and are without independent application of mind - addition u/s 68 - non production of Director of shareholder company - Held that - Mere non production of Director of share holder company ipso facto cannot justify straight adverse inference u/s 68 dehors detailed documentary evidences filed and therefore, delete the additions. - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction under Section 147/148 of the Income Tax Act.
2. Validity of additions under Section 68 of the Income Tax Act.
3. Restoration of returned income.
4. Violation of principles of natural justice.

Detailed Analysis:

1. Jurisdiction under Section 147/148 of the Income Tax Act:
The Assessee challenged the assumption of jurisdiction under Section 148, arguing that it was in violation of mandatory jurisdictional conditions. The Tribunal found that the facts were similar to a previously decided case (Moti Adhesives P. Ltd.), where the reopening under Section 148 was deemed invalid due to the lack of credible material and failure to confront the assessee with the back material. The Tribunal emphasized that the Assessing Officer (AO) must discharge the crucial burden under Section 148 to bring home the material that income has escaped assessment. The failure to provide the statement of the searched person and offer their cross-examination to the assessee was a serious flaw that nullified the entire proceedings.

2. Validity of Additions under Section 68 of the Income Tax Act:
The primary issue was whether the AO could draw an adverse inference under Section 68 merely because the director of the shareholder company did not appear in person. The Tribunal held that once the assessee provides all relevant documents to establish the burden under Section 68, non-production of the director cannot be a justified ground for adverse inference. The Tribunal noted that the AO must dispassionately consider the evidence provided and not rely solely on the investigation wing's report. The Tribunal cited multiple judicial precedents, including decisions from the Delhi High Court and the Supreme Court, which emphasized that the burden under Section 68 shifts once the assessee provides credible evidence. The Tribunal concluded that the AO had failed to discharge the secondary burden and that the additions were unjustified.

3. Restoration of Returned Income:
The Assessee argued that the returned income should be restored as the additions made by the AO were unlawful. The Tribunal, agreeing with the assessee, found that the AO had not brought any credible material to counter the evidence provided by the assessee. The Tribunal noted that the AO's reliance on the non-production of the director was insufficient and that the detailed documentary evidence provided by the assessee remained uncontroverted. Consequently, the Tribunal ordered the deletion of the additions and the restoration of the returned income.

4. Violation of Principles of Natural Justice:
The Assessee contended that the AO's order was in violation of the principles of natural justice. The Tribunal found that the AO had not provided the assessee with an opportunity to cross-examine the persons whose statements were used against them. This lack of opportunity to confront and cross-examine the evidence was a serious violation that went to the root of the matter, rendering the proceedings invalid. The Tribunal cited various judicial precedents that underscored the importance of adhering to the principles of natural justice.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the reopening under Section 148 was invalid, the additions under Section 68 were unjustified, the returned income should be restored, and the proceedings were in violation of the principles of natural justice. The Tribunal's decision was based on a thorough examination of the facts, legal principles, and relevant judicial precedents.