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2023 (9) TMI 1527 - AT - Income TaxValidity of reopening of assessment u/s 147 - Initiation as based on information contained in the search material found during the search of a third party - borrowed satisfaction v/s independent application of mind - assessee contended that the Assessing Officer had wrongly relied on third party information without application of his own mind and without verifying the facts from the record before issuing the notice - HELD THAT - We find that CIT (Appeals) has erred in upholding the AO reliance on a third party opinion without application of his own mind, without verifying the facts from the record before issuing the notice u/s 148. Since there was no incriminating material, the initiation, completion and consequential upholding of the re-assessment proceedings is not sustainable in law. The reasons recorded for the formation of belief of escapement of income chargeable to income tax are based solely on the Investigation Wing s report and the statement of Shri Himanshu Verma. The report of the Investigation Wing only suggested to the Assessing Officer to examine the details and to only thereafter determine whether there could be any justification for initiating the reassessment proceedings. The statement of Shri Himanshu Verma does not implicate the assessee in any manner. We find that the information received from Income Tax Officer, Ward 1(5) Chandigarh was denied by the Assissing Officer from being confronted to the assessee and not providing the copy of statement of Shri Himanshu Verma to assessee is in violation of the principles of natural justice as well as the provisions of section 142(3) of the Income Tax Act. Therefore, such information and statement of Shri Himanshu Verma cannot be used against assessee for making addition. CIT (Appeals) erroneously upheld the re-opening, which was based on wrong and irrelevant facts recorded under the reasons recorded for the formation of belief of escapement of income chargeable to income tax for reopening by the AO. We find that reopening of assessment under section 147 is based on wrong and irrelevant facts and the reopening is held to be bad. In view of above, we find that application of section153A / 153(C) in place of section 147 of the Act need not be looked into when the facts are found to be wrong and non-existent. AO has not applied his mind to the nature of the transaction done by the Assessee company with Sh. Himanshu Verma and his group Companies, as he has not mentioned anything about the nature of the transaciton made, in the reasons recorded by the Assessing Officer - Decided in favour of assessee. Re-opening of the completed assessment after four years of such completion of original assessment u/s 143(3) - HELD THAT - We hold that there is no failure on the part of assessee company to disclose all material facts during the original assessment completed under secion 143(3) of the Act. The issue of the alleged advances from customers amounting Rs. 3.90 crore was examined by the Assessing Officer in the original assessment proceedings. The statement of Shri Himanshu Verma was available with the Income Tax Department on 29.03.2012, whereas the assessment was completed on 15.09.2014. In the reasons recorded for the formation of belief of escapement of income chargeable to income tax for reopening, the Assessing Officer has failed to demonstrate the failure on the part of assessee during the assessment proceedings, and also the satisfaction required under the proviso to section 147 was missing. As such, the benefit of the extended period of six years is not available to the Assessing Officer. Validity of PCIT approval granted for issuance of notice u/s 148 - HELD THAT - The record nowhere shows any numerous bank accounts owned by Shri Triloki Nath Singla or by Shri Sahil Singla to have been unearthed in the search and post-search investigation. It stands firmly established on record that there was only one bank account involved, which was with the State Bank of India and which had been duly disclosed before the Assessing Officer in the original assessment proceedings and the same had been duly taken into consideration by the AO while passing the original assessment order dated 15.09.2014 under scrutiny proceedings. Department has remained unable to counter this factual position, as submitted by the assessee and which position stands established on record. Thus, the assessee is correct in contending that the AO had mentioned wrong facts before DCIT while seeking his approval and that the PCIT, without application of mind and without verifying the facts from the assessment record, just issued the approval by merely reiterating those very facts in the approval itself. Therefore, Ground is found to be carrying merit and, accordingly, this Ground is accepted. Violation of the principles of natural justice - no cross-examination of the searched person, whose statement was relied on by the AO to make additions, was allowed to the assessee - HELD THAT - It is seen that the assessee's request for cross-examination wherein it has been pointed out to the Assessing Officer that no information had been provided to the assessee. Another letter was sent and the Assessing Officer was requested for the information under the Income Tax Officer, Ward 1(5) letter. These objections were disposed of by the AO i.e., after a period of almost four months and the assessee was denied cross- examination, stating that the desired information of enquiry and statement of Shri Himanshu Verma could not be provided. The assessee, further, vide letter again requested the Assessing Officer to provide to it the statement and cross-examination of Shri Himanshu Verma, but the same was not provided. Thus, evidently, it is wrong to state that the assessee had made its request only at the fag end of the year - we hold that the learned Commissioner of Income Tax (Appeals) has erred in upholding the Assessing Officer's order, despite the fact that neither the information received from the office of Income Tax Officer, Ward 1(5), Chandigarh was provided to the assessee, nor the statement of Shri Himanshu Verma was provided, nor cross-examination of Shri Himanshu Verma was ever allowed to the assessee, inspite of the fact that the assessee had all through been requesting for such cross-examination / statement / information. Accordingly, Ground is accepted. Addition u/s 68 - AO had gone only by the report received and had not made the necessary further enquiries, like any enquiry into the bank accounts, or the other particulars available with him, but he rather based his entire findings on the report. This could not be considered as primary material. It was held that the assessee company had discharged the onus initially cast upon it by providing the basic details, which were not suitably enquired into by the AO. Assessee appeal allowed.
Issues Involved:
1. Reliance on third-party information without verification. 2. Violation of principles of natural justice. 3. Reopening of assessment based on wrong and irrelevant facts. 4. Applicability of Section 153A/153C vs. Section 147. 5. Approval for reopening under Section 151. 6. Addition of Rs. 2.48 crore under Section 68. Detailed Analysis: 1. Reliance on Third-Party Information Without Verification: The assessee argued that the Assessing Officer (AO) relied on third-party information without verifying facts from the record before issuing a notice under Section 148. The AO's action was based on information received from the Investigation Wing about accommodation entries provided by the Himanshu Group. The Tribunal found that the AO did not apply his own mind and relied solely on the Investigation Wing's report and the statement of Shri Himanshu Verma. The Tribunal held that the AO's satisfaction was borrowed and not based on independent verification, thus invalidating the reassessment proceedings. 2. Violation of Principles of Natural Justice: The assessee contended that the AO did not provide the statement of Shri Himanshu Verma or allow cross-examination, which violated the principles of natural justice. The Tribunal agreed, noting that the AO refused to provide the requested information and statement, which was essential for the assessee to rebut the allegations. The Tribunal emphasized that the right to cross-examine is fundamental to the principles of natural justice and the AO's failure to provide this opportunity rendered the assessment proceedings invalid. 3. Reopening of Assessment Based on Wrong and Irrelevant Facts: The Tribunal found that the AO's reasons for reopening the assessment were based on wrong and irrelevant facts. The AO incorrectly linked the assessee with the Punjab Sand Mining Auction group and alleged undisclosed bank accounts and transactions. The Tribunal noted that the AO's observations were not supported by evidence and were based on assumptions and conjectures. Consequently, the Tribunal held that the reopening of the assessment was invalid due to reliance on incorrect and irrelevant facts. 4. Applicability of Section 153A/153C vs. Section 147: The assessee argued that the reassessment should have been conducted under Section 153A/153C, not Section 147, as the information was obtained during a search on a third party. The Tribunal noted that since the reopening itself was invalid due to reliance on wrong and irrelevant facts, the issue of the applicability of Section 153A/153C did not require separate adjudication. 5. Approval for Reopening Under Section 151: The assessee claimed that the Principal Commissioner of Income Tax (PCIT) granted approval for reopening without application of mind. The Tribunal found that the PCIT's approval was based on the AO's incorrect and irrelevant facts. The Tribunal held that the PCIT failed to verify the facts from the assessment record and merely reiterated the AO's observations, which were incorrect. Therefore, the approval for reopening was invalid. 6. Addition of Rs. 2.48 Crore Under Section 68: The Department appealed against the deletion of the addition of Rs. 2.48 crore made under Section 68. The AO had added this amount, alleging that M/s TJR Properties Pvt. Ltd. was a shell company. The Tribunal found that the credits received from M/s TJR Properties Pvt. Ltd. were explained and that the AO had already assessed the credits in the hands of M/s TJR Properties Pvt. Ltd. The Tribunal held that the addition in the hands of the assessee would result in double taxation and was unjustified. Consequently, the Tribunal dismissed the Department's appeal. Conclusion: The Tribunal allowed the assessee's appeal on grounds of reliance on third-party information without verification, violation of principles of natural justice, and reopening based on wrong and irrelevant facts. The Tribunal also invalidated the approval for reopening under Section 151 and dismissed the Department's appeal regarding the addition of Rs. 2.48 crore under Section 68.
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