2006 (9) TMI 215 - AT - Income Tax

Summary

Issues Involved:
1. Legality of reassessment proceedings u/s 147/148.
2. Recording of reasons for reassessment u/s 148(2).
3. Validity of sale transaction of VDIS jewellery.
4. Adverse view taken without confronting the appellant with evidence.
5. Charging of interest u/s 234A, B, and C.

Summary:

1. Legality of Reassessment Proceedings u/s 147/148:
The assessee contested the reassessment proceedings initiated by the AO, arguing that they were illegal and arbitrary. The Tribunal noted that the AO had sufficient reason to believe that income had escaped assessment based on the report of the Investigation Department, which indicated that the bank account through which the draft was received was benami. The Tribunal upheld the AO's jurisdiction to initiate reassessment proceedings under s. 147 by issuing notice under s. 148.

2. Recording of Reasons for Reassessment u/s 148(2):
The assessee argued that the reassessment was initiated without recording reasons u/s 148(2). The Tribunal found that the AO had sufficient reason to believe that income had escaped assessment, which was sufficient for issuing notice under s. 148. The Tribunal emphasized that at the time of initiating reassessment proceedings, the AO is not required to conclusively establish the actual escapement of income.

3. Validity of Sale Transaction of VDIS Jewellery:
The AO questioned the genuineness of the sale transaction of jewellery disclosed under VDIS, suspecting it to be a bogus transaction. The Tribunal found that the assessee had discharged the primary onus by providing documentary evidence of possession and sale of jewellery, and receipt of sale consideration through an account payee draft. The Tribunal held that once the primary onus is discharged, the burden shifts to the Department to prove otherwise. The Tribunal noted that the Department failed to bring on record any material evidence to disprove the genuineness of the sale transaction.

4. Adverse View Taken Without Confronting the Appellant with Evidence:
The assessee argued that the AO took an adverse view without confronting him with the evidence. The Tribunal agreed with the assessee, stating that the Department should have conducted further inquiries and allowed the assessee to cross-examine the witnesses. The Tribunal emphasized that adverse inference against the assessee without proper investigation and opportunity to cross-examine would be unlawful and against the principles of natural justice.

5. Charging of Interest u/s 234A, B, and C:
The assessee contested the charging of interest under s. 234A, B, and C. The Tribunal did not specifically address this issue in detail, as the primary focus was on the validity of the reassessment proceedings and the genuineness of the sale transaction.

Conclusion:
The Tribunal restored the matter back to the file of the AO with directions to bring on record sufficient material to disprove the initial burden discharged by the assessee regarding the sale transaction. The AO was directed to conduct inquiries, record statements, and allow the assessee to cross-examine witnesses. The appeal of the assessee was allowed in part, with specific directions for further investigation.