2021 (10) TMI 555 - AT - Income Tax

Reopening of assessment u/s 147 - Addition u/s 68 - Denial of natural justice - non-supply of the report of the enquiry to the assessee and not affording opportunity to the assessee to cross-examine the searched person - HELD THAT - We find no merit in making addition in the reassessment proceeding under Section 68 of the Act particularly for non-supply of the report of the enquiry to the assessee and not affording opportunity to the assessee to cross-examine the searched person which goes to the root of the matter. We do not find any basis in such proceeding and hence the same is hereby quashed. Consequently, the addition made therein is hereby deleted. Hence, assessee's appeal is, thus, allowed.

Summary

Issues Involved:
1. Validity of reopening of assessment under Section 147 of the Income Tax Act, 1961.
2. Non-supply of the statement of Praveen Kumar Jain to the assessee.
3. Denial of opportunity to cross-examine Praveen Kumar Jain.

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147:
The reopening of the assessment was based on information received from the DGIT (Investigation), Mumbai, regarding a search conducted on Praveen Kumar Jain, who was found to be providing accommodation entries, including bogus share application money. The assessee was alleged to have received ?20 lakh as share application money from bogus companies operated by Praveen Kumar Jain. The Assessing Officer (AO) recorded reasons to believe that income had escaped assessment due to the assessee’s failure to disclose fully and truly all material facts. However, the assessee contended that they had no connection with Praveen Kumar Jain and were not aware of the search or any statements made by him. The Tribunal found that the reasons recorded by the AO were not sufficient to justify reopening the assessment, as they were merely conclusions without a tangible link between the information and the formation of belief that income had escaped assessment.

2. Non-supply of the Statement of Praveen Kumar Jain:
The assessee repeatedly requested the details of the search and the statement of Praveen Kumar Jain, but these were not provided by the Revenue. The Tribunal noted that only an extract of Jain’s statement was claimed to be provided, which was insufficient. The assessee argued that without the statement, they could not effectively rebut the allegations. The Tribunal emphasized that the non-supply of the statement violated principles of natural justice and relied on precedents where similar issues led to the quashing of reassessment proceedings.

3. Denial of Opportunity to Cross-examine Praveen Kumar Jain:
The assessee requested an opportunity to cross-examine Praveen Kumar Jain to challenge the allegations. The Tribunal underscored that denying this opportunity amounted to a serious flaw, making the order nullity due to the violation of principles of natural justice. The Tribunal cited several judgments, including those from the Supreme Court and High Courts, supporting the necessity of cross-examination when statements are used as a basis for assessment. The Tribunal concluded that without cross-examination, the addition made by the AO could not be sustained.

Conclusion:
The Tribunal quashed the reassessment proceedings under Section 147 of the Income Tax Act for both assessment years 2010-11 and 2012-13. It held that the non-supply of Praveen Kumar Jain’s statement and the denial of the opportunity to cross-examine him violated principles of natural justice, making the reassessment proceedings invalid. Consequently, the additions made were deleted, and the appeals filed by the assessee were allowed.