2022 (4) TMI 723 - AT - Income Tax

Reopening of assessment u/s 147 - Addition under section 69 of the Act as unexplained investment - market value of the flat as determined by a stamp duty valuation authority is much more than the documented payment and thus the same circumstantially corroborate that extra consideration over and above the agreement value would have been paid by the assessee - HELD THAT - It is evident that the statement recorded under section 131 of the Act is relied upon by the Revenue only partially, to suit its convenience. The Revenue has neither provided to the assessee nor brought on record agreement alleged to have value of ₹ 22,75,500. On the contrary, from the copy of agreement dated 25 October 2008 forming part of the paperbook, it is clear beyond doubt that agreement value was ₹ 41,00,000 instead of ₹ 22,75,500 as alleged by the AO. From the above, it is thus evident that there was no independent application of mind by the AO on the information received. Accordingly, we are of the view that the basis for initiating reassessment proceedings i.e. statement recorded under section 131 of the Act, is contrary to the facts on record and such a statement cannot be relied upon to initiate the reassessment proceedings. Therefore, in the present case, reassessment on the basis of wrong facts cannot be upheld. It is well established that the reasons recorded by the AO cannot be further be substituted or added or deleted - We are of the view that the reference to market value of the flat as determined by stamp duty valuation authority also cannot justify initiation of reassessment proceedings under section 147 of the Act, as the validity of reassessment has to be tested only on the basis of reasons recorded by the Assessing Officer before issuing notice under section 148 of the Act and those reasons cannot be further improved. As the AO, in the present case, has failed to provide opportunity of cross examination to the assessee, which is contrary to the principle of natural justice, on this basis also assessment framed under section 143(3) r/w 147 is liable to be set-aside.Order passed by the CIT(A) is set aside and AO is directed to delete the addition made under section 69 - Decided in favour of assessee.

Issues Involved:

1. Validity of reopening the assessment under section 147 of the Income Tax Act.
2. Non-disposal of the assessee's objections to the reopening of the assessment.
3. Addition of ?14,00,000 as unexplained investment.
4. Violation of natural justice by not providing an opportunity for cross-examination.
5. Discrepancy regarding the agreement value of the property.

Issue-Wise Detailed Analysis:

1. Validity of Reopening the Assessment Under Section 147:

The assessee challenged the reopening of the assessment by the Income Tax Officer (ITO) under section 147 of the Income Tax Act through a notice issued under section 148 dated 29 March 2016. The ITO initiated reassessment proceedings based on the statement of the Director of M/s Bhoomi Group, Mr. Akshay Doshi, which alleged that the assessee paid ?14,00,000 in cash as extra consideration for a flat. The Tribunal found that the reasons for reopening were based on incorrect facts, as the agreement value was ?41,00,000 and not ?22,75,500 as alleged by the AO. The Tribunal concluded that there was no independent application of mind by the AO on the information received, making the reassessment proceedings invalid.

2. Non-disposal of the Assessee's Objections:

The assessee submitted objections against the initiation of reassessment proceedings on 20 December 2016 and 23 December 2016, which were not disposed of by the AO. The Tribunal noted that the AO's failure to address these objections violated the procedure laid down by the Hon'ble Supreme Court in GKN Driveshaft (India) Ltd. v. ITO: 259 ITR 19. Although this ground was raised for the first time in the appeal, the Tribunal found that it further supported the invalidity of the reassessment proceedings.

3. Addition of ?14,00,000 as Unexplained Investment:

The AO added ?14,00,000 to the assessee's income as unexplained investment under section 69 of the Act, based on the alleged cash payment for the flat. The Tribunal observed that the AO's reliance on the statement of Mr. Akshay Doshi was partial and not supported by independent evidence. The Tribunal also noted that the market value of the flat determined by the stamp duty valuation authority could not justify the reassessment proceedings, as the reasons recorded by the AO could not be supplemented or improved later.

4. Violation of Natural Justice by Not Providing Opportunity for Cross-Examination:

The assessee was not provided an opportunity to cross-examine Mr. Akshay Doshi, whose statement was the basis for the reassessment proceedings. The Tribunal found this to be a violation of the principles of natural justice. Citing a similar case, Shri Abhishek Dhanotia v/s ITO, where reassessment was quashed due to the lack of cross-examination opportunity, the Tribunal held that the assessment framed under section 143(3) read with section 147 of the Act was liable to be set aside.

5. Discrepancy Regarding the Agreement Value of the Property:

The AO alleged that the agreement value of the flat was ?22,75,500, while the assessee contended that it was ?41,00,000. The Tribunal found that the agreement value was indeed ?41,00,000, as evidenced by the agreement dated 25 October 2008. The AO's incorrect assertion of the agreement value further undermined the basis for the reassessment proceedings.

Conclusion:

The Tribunal set aside the order passed by the CIT(A) and directed the AO to delete the addition of ?14,00,000 made under section 69 of the Act. The appeal by the assessee was allowed, and the reassessment proceedings were deemed invalid due to incorrect facts, procedural violations, and the denial of natural justice.

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