2018 (9) TMI 1549 - AT - Income Tax

Reopening of assessment - Addition u/s 69 - documents being found from the premises of third party where neither the name of the assessee was mentioned nor any document was found - Held that - On the basis of report of the Investigation Wing of the Department that assessee has paid on money of ₹ 10,95,000/- towards purchase of flat bearing Flat No.1001 in Glendale Building through Cresenco Associates, a concern of Hiranandani group, the Assessing Officer reopened the assessment u/s 148 and thereafter made addition of the said amount to the total income of the assessee which has been upheld by the ld. CIT(A). The basis of addition made by AO is the contents of a pen drive which contained date-wise entry of receiving cash on various flats mentioning flats/shop-wise number. Neither the name of the buyers nor the amount of cash over and above the registered value of the flats paid by individual buyers are mentioned in the data contained in the pen drive. In the instant case the Assessing Officer has not given any opportunity to the assessee to cross-examine the witnesses on the basis of whose statements addition has been made. Under identical circumstances the Mumbai Bench of the Tribunal in the case of Shri Nikhil Vinod Aggarwal (2017 (10) TMI 1374 - ITAT MUMBAI)has deleted the addition wherein on the basis of the same pen drive the addition was made by the Assessing Officer which was deleted by the CIT(A) and on appeal by the Revenue, the Tribunal dismissed the ground raised by the Revenue - Decided in favour of assessee.

Issues Involved:

1. Validity of reassessment proceedings under Section 147-151 of the Income Tax Act, 1961.
2. Legality of the addition of ?10,95,000 as unexplained income under Section 68 of the Income Tax Act, 1961.
3. Violation of principles of natural justice due to denial of cross-examination of witnesses.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings:

The assessee challenged the reassessment proceedings initiated under Section 147-151 of the Income Tax Act, 1961, arguing that the reassessment was based on information received from the Investigation Wing without independent application of mind by the Assessing Officer (AO). The assessee cited several judicial precedents, including *PCIT vs. RMG Polyvinyl (I) Ltd.* and *PCIT vs. Meenakshi Overseas (P.) Ltd.*, asserting that reassessment based solely on such information is invalid. Furthermore, the assessee contended that the Joint Commissioner of Income Tax approved the notice under Section 151(2) in a mechanical manner without independent application of mind, rendering the reassessment invalid. This argument was supported by decisions in *United Electrical Co. (P.) Ltd. vs. CIT* and *ITO vs. M/s Observer Investment Finance Pvt. Ltd.*

2. Legality of the Addition:

The AO made an addition of ?10,95,000 to the assessee's income based on the information from a pen drive seized during a search operation on the Hiranandani Group. The pen drive contained entries of 'on money' payments by flat buyers, including the assessee. The AO relied on statements from the promoters of the Hiranandani Group, who admitted to receiving 'on money'. The CIT(A) upheld the addition, noting that the pen drive contained date-wise information of 'on money' received and that the property booked by the assessee was mentioned therein. However, the assessee argued that no material evidence directly linked her to the payment of 'on money' and that the name of the assessee did not appear in the pen drive data. The Tribunal found that the pen drive data lacked specific details such as the date and mode of receipt of 'on money', and the identity of the payer and receiver. The Tribunal referred to similar cases, such as *Anil Jaggi vs. ACIT* and *Shri Nikhil Vinod Aggarwal vs. ITO*, where additions based on the same pen drive were deleted due to lack of conclusive evidence.

3. Violation of Principles of Natural Justice:

The assessee argued that the AO violated the principles of natural justice by not allowing her to cross-examine the witnesses whose statements formed the basis of the addition. The Tribunal agreed, citing the decision of the Hon'ble Supreme Court in *Andaman Timber Industries vs. CCE*, which held that denial of the opportunity to cross-examine witnesses constitutes a violation of natural justice. The Tribunal noted that the AO did not provide the assessee with the adverse material or statements relied upon for the addition, nor was the assessee allowed to cross-examine the concerned persons. This lack of opportunity to rebut the evidence was deemed a serious flaw, rendering the addition unsustainable.

Conclusion:

The Tribunal concluded that the reassessment proceedings were invalid due to lack of independent application of mind by the AO and mechanical approval by the Joint Commissioner. The addition of ?10,95,000 was also deemed unsustainable due to insufficient and inconclusive evidence from the pen drive and violation of natural justice principles. Consequently, the Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition, allowing the appeal filed by the assessee.

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