2022 (1) TMI 675 - AT - Income Tax

Reopening of assessment u/s 147 - unaccounted investment in the land was based on the documents seized from the premises of 3rd party - Use of materials seized and the statement furnished by the third parties against the assessee - HELD THAT - The answer stands in affirmative. It is for the reason that the opportunity for the rebuttal to the assessee for the seized documents and the statements recorded under section 132(4) of the Act are sine qua non in order to meet the principles of natural justice. This requirement has to be complied with by the revenue even in a situation where the assessee does not demand for the seized materials/statements recorded under section 132(4) of the Act if revenue seeks to make the addition on the basis of such material and statement. It is for the simple reason that the documents which have been relied upon by the revenue for making the addition to the income of the assessee has to be provided to the assessee for the rebuttal - See VARSHABEN BHARATBHAI SHAH 1996 (2) TMI 107 - GUJARAT HIGH COURT . Since, the due process of providing the opportunity for the rebuttal of the assessee has not been done, the additions made in the assessment under section 143(3) read with section 147 of the Act are not sustainable. Assessment in the case of co-owners - Also there was the search proceedings with respect to the co-owner namely Kanchanbhai Baldevbhai under the provisions of section 132 of the Act. As a result of search proceedings, assessment order was framed under section 153A of the Act where addition was made on account of unaccounted investment in the land as discussed above which was subsequently deleted by the learned CIT (A) - we find that the issue on merit was not decided rather the appeal was decided on technical reason that there cannot be any addition with respect to the unabated assessment years until and unless there was found some document of incriminating nature. Admittedly, there was no document found from the premises of the co-owner in the course of search with respect to the impugned unaccounted investments. Further, the order of the learned CIT (A) was not maintainable before the ITAT for the simple reason that the tax effect in the dispute was less than ₹ 50 lacs. Issue in respect of the co-owner has reached to the finality that there was no addition made in his hand despite he was the co-owner in the deal of purchase of the land as discussed above. Thus to our understanding, there cannot be any addition in the hands of the assessee being the co-owner of the property purchased from the party namely Smt. Pareshben D Modi. Hence, we set aside the finding of the learned CIT (A) and direct the AO to delete the addition made - Decided in favour of assessee.

Summary

Issues Involved:
1. Justification of the addition of ?1,05,51,219/- by the AO as undisclosed income.
2. Failure of the CIT (A) to consider the assessee's contentions and supporting case laws.
3. Validity of reassessment proceedings under section 147 of the Income Tax Act.
4. Opportunity for cross-examination and rebuttal of statements and documents used for the addition.

Detailed Analysis:

1. Justification of the Addition of ?1,05,51,219/- by the AO:
The primary issue raised by the assessee is the addition of ?1,05,51,219/- as income from undisclosed sources related to unaccounted investments in land. The assessee, along with another individual, purchased land for ?6 Lacs, with the assessee's share being ?3 Lacs. However, during a search operation on the Himalaya Group, documents indicated that the actual transaction involved unaccounted cash of ?2,11,02,438/-. The AO added ?1,05,51,219/- (50% of ?2,11,02,438/-) to the assessee's income, based on statements from key persons of the Himalaya Group admitting receipt of unaccounted cash.

2. Failure of the CIT (A) to Consider Assessee's Contentions and Supporting Case Laws:
The assessee argued that the CIT (A) erred by not considering several contentions and binding judgments from higher courts. The CIT (A) confirmed the addition based on seized documents and statements from the Himalaya Group, without adequately addressing the assessee's arguments or providing reasons for rejecting them.

3. Validity of Reassessment Proceedings under Section 147:
The assessee challenged the validity of the reassessment proceedings, arguing that the proceedings were initiated without proper grounds. The CIT (A) dismissed this contention, stating that the assessee had not raised this issue in the grounds of appeal filed with Form No.35.

4. Opportunity for Cross-Examination and Rebuttal:
The assessee contended that the statements and documents used for the addition were not provided for rebuttal, violating principles of natural justice. The AO did not offer the assessee an opportunity to cross-examine the individuals whose statements were used to make the addition. The Tribunal emphasized the necessity of providing such an opportunity, citing the Gujarat High Court's judgment in Smt. Varshaben Bharatbhai Shah vs. Appropriate Authority, which underscores the importance of disclosing evidence to the affected party.

Tribunal's Findings:
1. On the Addition of ?1,05,51,219/-:
The Tribunal found that the addition was based on documents seized from a third party and statements from individuals not directly involved in the transaction with the assessee. The Tribunal noted that the land was sold by Smt. Pareshben D. Modi, the mother of the individuals whose statements were used, creating a close connection but not directly involving the assessee. The Tribunal held that the seized documents and statements could not be used against the assessee without providing an opportunity for rebuttal.

2. On the Validity of Reassessment Proceedings:
The Tribunal did not find sufficient grounds to invalidate the reassessment proceedings under section 147, as the issue was not properly raised in the original grounds of appeal.

3. On Opportunity for Cross-Examination and Rebuttal:
The Tribunal emphasized that the principles of natural justice require that the assessee be given an opportunity to rebut the evidence used against them. The failure to provide such an opportunity rendered the addition unsustainable.

4. On Consistency in Treatment of Co-Owners:
The Tribunal noted that no proceedings were initiated against the co-owner, who was also involved in the transaction. This inconsistency suggested selective treatment by the Revenue. The Tribunal highlighted that similar transactions should be treated consistently across different assessees.

5. On the Finality of Proceedings Against the Co-Owner:
The Tribunal observed that in the case of the co-owner, the addition was deleted by the CIT (A) on technical grounds, as no incriminating material was found during the search. This decision had reached finality, and thus, the Tribunal concluded that there should be no addition in the hands of the assessee either.

Conclusion:
The Tribunal set aside the findings of the CIT (A) and directed the AO to delete the addition of ?1,05,51,219/-. The appeal of the assessee was allowed, emphasizing the necessity of adhering to principles of natural justice and ensuring consistent treatment of similar transactions across different assessees.