2015 (12) TMI 1909 - AT - Income Tax

Long term capital gain earned on sale of shares - Addition based on cash component in the sale of shares - Documents found during the survey relied upon - HELD THAT - The contents in the documents found during the survey do not support the case of the AO as pointed out by the CIT(A). If the factual finding of the Ld.CIT (A) has to be dislodged then the D.R. has to lead evidence to that effect. Documents have to be produced to demonstrate that the order of the CIT (A) is perverse. No revised return of income was produced before us despite adequate opportunity being given to revenue. When the CIT (A) records that the contents of the documents do not tally with the case made out by the AO as the cheques and amounts mentioned therein are not tallying with the actual transaction then no addition can be made based on these documents. Coming to the legal position on the evidentiary value of statements recorded during the survey the Hon ble Courts have held that these statements have no evidentiary value. Even otherwise the purchasers have filed affidavits which stand uncontroverted till date. The assessee produced all evidences in support of their claim. The A.O. could not dislodge their claim with evidence. In our opinion the A.O. could not prove that there was cash payment for the purchase of the shares. When an allegation is made by the Revenue that the assessee has earned certain income the burden is on the Revenue to prove the same. In the case on hand the facts and evidences demonstrate that the Revenue has not discharged this burden of proof that lay on it. Thus we have no other alternative but to uphold the factual finding as well as the order of the First Appellate Authority and dismiss this appeal of the Revenue. Reassessment order passed by non jurisdictional officer - ITO ward 34(4) furnished a copy of the reasons recorded to the assessee on 7.9.2007. ACIT Circle 34(1) New Delhi has admittedly not recorded that he had reasons to believe that income chargeable to tax of the assessee has escaped assessment. He continued reassessment proceedings initiated by the ITO Ward 34(4) of the Act without independently recording reasons for reeopening or issuing a fresh notice u/s 148 of the Act. There is no order u/s 127 of the Act transferring the jurisdiction of the ccase from ITO Ward 34(4) to ACIT Ward 34(1). Thus this order of reassessment passed by the ACIT u/s 34(1) of the Act is without jurisdiction and hence is bad in law. Non-issual of notice u/s 143(2) within the statutory period - AO records that the assessee in its letter dt. 10.9.2008 stated that the return of income filed by him earlier on 31.10.2006 should be treated as the return filed in response to a notice u/s 148 of the Act. Thus the date of receipt of this letter is the date of filing of the return of income in response to the notice issued u/s 148 of the Act. In such circumstances the notice u/s 143(2) of the Act should have been issued on or before 30.9.2009. However in this case notice u/s 143(2) of the Act was issued only on 4.12.2009. Thus applying the propositions laid down in the case of Hotel Blue Moon 2010 (2) TMI 1 - SUPREME COURT assessment has to be held as bad in law. Decided in favour of assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the addition of Rs. 15,127,450/- made by the Assessing Officer (AO) on account of long-term capital gain from the sale of shares was justified.
• Whether the documents found during the survey were authentic and could be used as evidence against the assessee.
• Whether the notice issued under Section 148 of the Income Tax Act for reassessment was valid and within jurisdiction.
• Whether the reassessment proceedings were valid in the absence of a proper transfer of jurisdiction and non-issuance of notice under Section 143(2) within the statutory period.

ISSUE-WISE DETAILED ANALYSIS

1. Addition of Rs. 15,127,450/- on account of long-term capital gain:

• Legal Framework and Precedents: The addition was based on the alleged cash component in the sale of shares, with reference to documents found during a survey under Section 133A of the Income Tax Act.
• Court's Interpretation and Reasoning: The Tribunal found that the AO's reliance on the documents and the statement of Mr. Jamil A Khan was not substantiated by evidence. The Tribunal noted that the affidavits filed by the buyers, which denied any cash payment, were not contested by the AO.
• Key Evidence and Findings: The Tribunal highlighted that the documents found during the survey did not bear the appellant's signature and the amounts mentioned did not match the actual transactions. Furthermore, the affidavits filed by the buyers confirmed that no cash payment was made.
• Application of Law to Facts: The Tribunal applied the principle that an affidavit stands unless disproved by cross-examination or contrary evidence. Since the AO failed to provide such evidence, the Tribunal upheld the CIT(A)'s decision to delete the addition.
• Treatment of Competing Arguments: The Tribunal considered the Revenue's argument about the revised return filed by Mr. Jamil A Khan but found no evidence of such a return being filed. The Tribunal also noted that the Revenue did not produce the revised return despite being given time to do so.
• Conclusions: The Tribunal concluded that the Revenue failed to discharge its burden of proof and upheld the CIT(A)'s order deleting the addition.

2. Validity of Notice under Section 148 and Reassessment Proceedings:

• Legal Framework and Precedents: The reassessment proceedings were challenged on the grounds of jurisdiction and procedural lapses, including the non-issuance of notice under Section 143(2) within the prescribed period.
• Court's Interpretation and Reasoning: The Tribunal found that the reassessment proceedings were initiated without proper jurisdiction as the ACIT, Circle 34(1) did not independently record reasons for reopening the assessment. The Tribunal relied on precedents that emphasized the need for valid jurisdiction and proper procedure in reassessment cases.
• Key Evidence and Findings: The Tribunal noted that the reassessment proceedings were continued by the ACIT without a transfer order under Section 127 and without issuing a fresh notice under Section 148.
• Application of Law to Facts: The Tribunal applied the principle that a valid jurisdiction is a prerequisite for reassessment proceedings. The absence of a proper transfer order and the failure to issue a notice under Section 143(2) within the statutory period rendered the reassessment proceedings invalid.
• Treatment of Competing Arguments: The Tribunal considered the Revenue's reliance on the CIT(A)'s order but found that the procedural lapses were not curable and rendered the reassessment proceedings void.
• Conclusions: The Tribunal quashed the reassessment proceedings due to lack of jurisdiction and procedural defects.

SIGNIFICANT HOLDINGS

• Core Principles Established: The Tribunal reinforced the principle that affidavits stand unless disproved by cross-examination or contrary evidence. It also emphasized the necessity of following proper jurisdictional and procedural requirements in reassessment proceedings.
• Final Determinations on Each Issue: The Tribunal dismissed the Revenue's appeal concerning the addition of Rs. 15,127,450/- and quashed the reassessment proceedings due to lack of jurisdiction and procedural defects.
• Verbatim Quotes of Crucial Legal Reasoning: The Tribunal noted, "The assessee produced all evidences in support of their claim. The A.O. could not dislodge their claim with evidence. In our opinion the A.O. could not prove that there was cash payment for the purchase of the shares."