2024 (3) TMI 1071 - AT - Income Tax

Reopening of assessment u/s 147 - AO initiated reassessment proceedings based on the information received from Investigation Wing that the Assessee was involved in making cash payment - HELD THAT - Information on basis of which AO had initiated proceedings u/s 147 of the Act was certain and it could be construed to be sufficient and relevant material on basis of which a reasonable person could have formed a belief that income had escaped assessment. Thus, there was reason to believe that income of the assessee company to the extent of Rs. 6.61 Crores had escaped assessment on account of failure on the part of the assessee to disclose fully and truly all the material facts/particulars of its income necessary for its assessment. Therefore, the reassessment proceedings initiated by the Assessing Officer were within jurisdiction and valid in the eyes of law in as much as reasons recorded by the Assessing Officer satisfied the requirement of section 147 It is well settled law that, for an assessment to be re-opened what is required that the AO should have reason to believe that the income of assessee had escaped assessment and the said belief should be an honest and reasonable person based on reasonable grounds. The correctness of the materials/reason to believe is not a matter to be looked into at the initial state. Therefore, we find no merit in the ground No.1 of the assessee. Ground No.1 of the assessee is dismissed. Addition u/s 69 - addition based on the estimation of the cost of acquisition of the property - cash component of Rs. 5.41 Crores was paid over and above the registered value - addition based on statement of witness - HELD THAT - In the present case, the addition has been made by the AO ignoring the documentary evidence in the form of registered sale deed which being a best evidence for finding the actual sale value and in the absence of any other material to show the transactions involved in cash outside the sale consideration mentioned in the sale deed and in the absence of any corroborative documentary or credible oral evidence, the AO should not have made addition. The entire addition made by the AO based on the statements of the witnesses which have been retracted thereafter and no opportunity of cross examination was granted by the AO and in the absence of any corroborative material on record, the AO could not have made any addition and the Ld. CIT(A) should have deleted the addition. Thus, in our considered opinion the CIT(A) committed error in upholding the addition made by the AO - Ground No. 2 of the Assessee allowed.

Summary

The issues involved in the judgment are:

1. Reopening of the case u/s 147 r.w.s 148 of the Income Tax Act, 1961.
2. Estimation of the cost of acquisition of the property and the addition made u/s 69 of the Income Tax Act, 1961.

Issue 1: Reopening of the Case u/s 147 r.w.s 148

The Assessee challenged the reopening of the case, arguing it was "absolutely bad in law." The Ld. Departmental Representative countered that the reassessment was based on information from the Investigation Wing indicating cash payments in a property transaction. The Tribunal found that the Assessing Officer (AO) had "reason to believe" that income had escaped assessment based on sufficient and relevant material, thus satisfying the requirements of section 147 of the Act. The Assessee's objections, including a writ petition, were dismissed, and Ground No. 1 of the Assessee was dismissed.

Issue 2: Estimation of Cost of Acquisition and Addition u/s 69

The Assessee argued that the estimation of the property's cost at Rs. 28,49,38,823/- was "absolutely bad in law and facts," asserting the property was purchased for Rs. 1,20,00,000/-. The AO's addition of Rs. 27,29,38,823/- was based on statements from individuals involved in the transaction, which were later retracted. The Tribunal noted that these retracted statements, claimed to be made under duress, could not be considered valid evidence. The Tribunal also criticized the AO for denying the Assessee's request for cross-examination of the witnesses, which violated principles of natural justice. It was held that the addition could not be made solely on retracted statements without corroborative material. Consequently, the Tribunal deleted the addition made by the AO, allowing Ground No. 2 of the Assessee.

In conclusion, the appeal filed by the Assessee was partly allowed.

Order pronounced in open Court on 21st March, 2024.