2021 (4) TMI 55 - AT - Income Tax

Reopening of assessment u/s 147 - Search and seizure proceedings - addition only on the basis of diary noting, statement of VP (Finance), RNSIL, and data retrieved by using forensic tools from seized computer server (data was deleted and the same was retrieved by using forensic tools) - HELD THAT - There is no nexus between any payment made by RNSIL to that of the assessee. There is no mentioned anywhere that the assessee was the recipient of the payment, the alleged quantum of payment, the date, the month or the year of the alleged payment. There were two sets of reasons for reopening the assessment, one with ₹ 15 lakh and another with ₹ 5 lakh. In the impugned assessment order, the AO had stated that there is reason to believe that the amount of ₹ 1 crore chargeable to tax for assessment year 2009-2010 have escaped assessment, while the impugned order relates to the assessment year 2011-2012. All these facts point to a situation that the addition has been made merely on surmises, conjectures and without any valid evidences. On identical facts arising out of the same search case, the Tribunal in the case of D.S. Suresh v. ACIT 2021 (4) TMI 1 - ITAT BANGALORE had held that the addition of ₹ 10 lakh for assessment year 2009-2010 and ₹ 49 for the assessment year 2011-2012 is to be deleted. Tribunal held that there is no material / evidence for making such addition - thus we deleted the addition. - Decided in favour of assessee.

Summary

Issues:
Validity of reopening of assessment, Addition of ?5,00,000, Compliance with legal requirements for electronic records, Nexus between payment and assessee, Reliance on diary notings, Cross-examination of witnesses.

Validity of Reopening of Assessment:
The appeal challenged the CIT(A)'s order confirming the addition of ?5,00,000 by the Assessing Officer (A.O.) during reassessment. The A.O. reopened the assessment based on incriminating materials seized during a search at M/s.RNS Infrastructure Limited's office, alleging systemic unaccounted payments, including to the assessee. The CIT(A) directed the A.O. to provide documents and allow cross-examination, which revealed contradictions in the statement of VP (Finance), RNSIL. However, the CIT(A) upheld the addition, citing typographical errors and circumstantial evidence.

Addition of ?5,00,000:
The A.O. made the addition based on diary notings, VP (Finance), RNSIL's statement, and retrieved data. The assessee argued lack of nexus between the payment and themselves, questioning the validity of electronic records and compliance with legal requirements. The VP (Finance) denied making any payment to the assessee, retracting his earlier statement under duress. The Tribunal found no concrete evidence linking the payment to the assessee, citing a similar case precedent where additions were deleted due to lack of substantiated evidence.

Compliance with Legal Requirements for Electronic Records:
The assessee contended that electronic records should comply with Indian Evidence Act provisions, emphasizing the need for proper authentication. The Tribunal highlighted the Supreme Court's precedent on electronic evidence admissibility, stressing the importance of meeting statutory requirements for electronic records under the Indian Evidence Act.

Nexus Between Payment and Assessee:
The Tribunal noted the absence of specific details linking the alleged payment to the assessee, highlighting contradictions in the A.O.'s reasons for reopening assessments for different years. The lack of concrete evidence connecting the payment to the assessee raised doubts about the validity of the addition.

Reliance on Diary Notings and Cross-Examination of Witnesses:
The Tribunal emphasized the unreliability of diary notings without corroborative evidence and the necessity of providing the assessee with seized materials for cross-examination. The failure to substantiate claims with concrete evidence and the denial of cross-examination rights weakened the basis for the addition.

In conclusion, the Tribunal allowed the appeal, deleting the ?5,00,000 addition due to insufficient evidence linking the payment to the assessee, inconsistencies in statements, and lack of compliance with legal requirements for electronic records. The judgment highlighted the importance of concrete evidence, proper authentication of electronic records, and the right to cross-examine witnesses in ensuring a fair assessment process.