2022 (10) TMI 414 - AT - Income Tax

Reopening of assessment u/s 147 - unexplained deposit - HELD THAT - We find the gross violation of the natural justice during completion of the assessment order. The ld. AO without the reasons to believe and proper verification has passed the order u/s 148 of the Act. Considering the above submission, the notice u/s 148 is violation of legal statute and liable to be quashed. We note that the impugned addition was made by the AO purely on suspicion and there was no effective material available on record to justify the same. The assessee cannot be kept in the dark. Adverse statements or materials cannot be kept away from his eyes. If the AO intends to use it to draw adverse inference/finding, the assessee should be provided the adverse material/statements in order to rebut/cross examine the provider/maker of the adverse material. Failure to do so is a serious flaw which renders the assessment a nullity. The addition was made purely on conjecture. The impugned addition is therefore being set aside and is hence deleted. This ground stands allowed.

Summary

Issues:
1. Validity of notice u/s 148 of the Income Tax Act, 1961.
2. Addition of unexplained deposit in the bank account.
3. Denial of natural justice during assessment proceedings.

Issue 1: Validity of notice u/s 148 of the Income Tax Act, 1961

The case involved two assessees who appealed against the orders passed by the Ld. Commissioner of Income Tax (Appeals). The assessment was reopened under section 147 of the Act due to cash deposits in the bank account. The assessees contended that the deposits were from the sale of land and had provided supporting documents. The assessee challenged the notice u/s 148, arguing that the sanction by the Pr. CIT was mechanical, violating section 151 of the Act. The ITAT examined the evidence, including the agreement of sale and bank statements, and found that the deposits were related to the land sale. The ITAT concluded that the notice u/s 148 was issued without proper verification and set it aside, ruling in favor of the assessee.

Issue 2: Addition of unexplained deposit in the bank account

The AO added the deposited amount as unexplained income without verifying the facts provided by the assessee. The ITAT found that the assessee had proven the source of the deposits through agreements and exchanges related to the sale of agricultural land. The ITAT emphasized that technical defects in the agreement should not lead to the rejection of the deposit source. The tribunal noted that the AO made the addition based on suspicion without concrete evidence, rendering the assessment flawed. Consequently, the ITAT deleted the addition, ruling in favor of the assessee.

Issue 3: Denial of natural justice during assessment proceedings

During the assessment, the AO recorded statements of individuals without providing all statements to the assessee, denying a fair opportunity for cross-verification. The ITAT observed a violation of natural justice and referenced a Supreme Court judgment emphasizing the importance of providing adverse material to the assessee for rebuttal. The tribunal concluded that the AO's failure to provide relevant statements to the assessee rendered the assessment null and void. Consequently, the ITAT allowed the appeals, emphasizing the importance of due process and fair assessment practices.

This detailed analysis of the judgment highlights the key legal issues addressed by the ITAT in the case, providing a comprehensive overview of the decision and its implications for the parties involved.