2024 (1) TMI 411 - AT - Income Tax

Validity of Reopening of assessment u/s 147 - Addition u/s 68 - assessee had failed to discharge its onus of establishing genuineness of creditworthiness of the parties - HELD THAT - While here is a case where Ld. AO intends to make an addition u/s 68 of the Act, for any sum found credited in the books, by rebutting the explanation given by the assessee u/s 68 of the Act, on the basis of incriminating material found in the search of another person who has also been subject to assessment u/s 153A. We are of considered opinion that the assessment of the any assessee, whose explanation u/s 68 is being discredited on the basis of incriminating evidence found elsewhere alone, then the assessment of such other person should be u/s 153C as other person , and not u/s 147. In the case in hand a thorough examination of the reasons for reopening and the manner in which the ld. AO has relied the incriminating evidences and materials allegedly recovered in the hands of S.K. Jain and the intermediary that only go to show that Ld. AO has fallen in error in invoking powers of Section 147/148 in the absence of reasons of satisfaction being drawn u/s 153C by the Assessing Officer of the searched person. CIT(A) has fallen in error is not examining the assessment order to see as to how the AO exclusively and extensively relied only the alleged incriminating material found in the case of S.K. Jain Group of Companies to make addition under 147/148. Appeal of assessee allowed.

Issues Involved:
1. Validity of reopening the assessment under Section 148.
2. Applicability of Section 153C instead of Sections 147 and 148.
3. Mechanical sanction for reopening the assessment.
4. Validity of notice under Section 148.
5. Addition of Rs. 66,00,000/- as unexplained credit under Section 68.
6. Addition based on material seized during the search without cross-examination.
7. Addition of Rs. 1,18,800/- as unexplained commission.

Summary:

Issue 1: Validity of Reopening the Assessment under Section 148
The appellant argued that the reopening of the assessment under Section 148 was invalid as it was based merely on information supplied by the Investigation Wing without fulfilling the necessary conditions. The Tribunal concluded that the reopening was invalid because it relied on incriminating material found in the search of another person, which should have been assessed under Section 153C.

Issue 2: Applicability of Section 153C Instead of Sections 147 and 148
The appellant contended that the assessment should have been initiated under Section 153C, not Sections 147 and 148, as it was based on incriminating material found during the search of a third party. The Tribunal agreed, stating that the assessment should be under Section 153C when the addition is based on incriminating evidence found elsewhere.

Issue 3: Mechanical Sanction for Reopening the Assessment
The appellant argued that the sanction for reopening the assessment was granted mechanically without proper application of mind. The Tribunal did not specifically address this issue separately but implied that the entire process of reopening was flawed.

Issue 4: Validity of Notice under Section 148
The appellant claimed that the notice under Section 148 was not validly served. However, this ground was not pressed during the arguments, and the Tribunal did not specifically address it.

Issue 5: Addition of Rs. 66,00,000/- as Unexplained Credit under Section 68
The appellant challenged the addition of Rs. 66,00,000/- as unexplained credit. The Tribunal found that the AO's reliance on the Investigation Wing's information and the incriminating material from the search of S.K. Jain Group was misplaced, leading to the conclusion that the assessment should have been under Section 153C.

Issue 6: Addition Based on Material Seized During the Search Without Cross-Examination
The appellant argued that the addition was made without providing copies of the recorded statements or allowing cross-examination, violating the principles of natural justice. The Tribunal agreed that the assessment based on such material should have been under Section 153C.

Issue 7: Addition of Rs. 1,18,800/- as Unexplained Commission
The appellant contested the addition of Rs. 1,18,800/- as unexplained commission. The Tribunal did not specifically address this issue separately but implied that the entire assessment process was flawed.

Conclusion:
The Tribunal concluded that the reopening of the assessment under Sections 147/148 was invalid as it should have been under Section 153C. Consequently, the assessment order was declared void ab initio, and the appeal was allowed in favor of the assessee. The impugned assessment was set aside.

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