2024 (7) TMI 570 - AT - Income Tax

Validity of reopening of assessment u/s 147 - statement recorded in the course of survey relied upon - admission as additional income by one of the directors supported by statement u/s 131 - payments appearing in laptop were confronted to director and addition made cash appearing in the laptop as it belongs to the assessee-company - HELD THAT - As abundantly clear from the judgment of Hon ble, Madras High Court in the case of M/S A. Thangavel Nadar Stores 2019 (3) TMI 1402 - MADRAS HIGH COURT that a statement recorded in the course of survey cannot be used to reopen the assessment, unless it is supported by tangible material. The materials collected and the statement obtained u/s 133A of the Act would not automatically bind upon the assessee. In the assessee s case as per the statement the director of the company the payments appearing in laptop were confronted to her (Director) and as per her statement, the amount appearing in the laptop are not recorded in the books of accounts. The survey team of the Income Tax department did not find any corroborative evidence or any tangible material that cash appearing in the laptop was belongs to the assessee-company, and assessee-company had actually received the cash, in fact, during the assessment proceedings, the director has denied, having received such cash. Therefore, reasons recorded by the assessing officer fails. Therefore,we note that to initiate reopening of the assessment, the assessing officer must have 'reason to believe that income chargeable to tax has escaped assessment. Such reason to believe must be based on some material coming to the possession of the AO which may trigger reason to suspect. It must be kept in mind that the reason to believe must have a rational connection with or relevant bearing on the formation of the belief, i.e, there must be the direct nexus or link between the material and the formation of such belief. Since in the instant case, the issues/ cheque amount, for which the Assessing Officer has reopened the assessment had already been disclosed by the assessee in the books of accounts. AO having not carried out the scrutiny assessment within the prescribed statutory limit, cannot be given another innings, for no fault of the assessee, and therefore we are of the considered opinion that reason to believe which is the jurisdictional precondition to reopen the assessment as required by the law has not met in the reasons recorded in the instant case and therefore the action of the AO to reopen the assessment is null in the eyes of law and hence we are inclined to quash the initiation of reassessment proceedings being ab-initio void. Reasons recorded by the AO, as set out earlier, were not sufficient reasons for reopening the assessment proceedings. We, therefore, quash the reassessment proceedings. Decided in favour of assessee.

Summary

Issues Involved:
1. Reopening of assessment under Section 147 and issuance of notice under Section 148 for AY 2010-11 and AY 2011-12.
2. Addition of Rs. 20,00,000/- based on "On Money Receipts".
3. Addition of Rs. 17,75,000/- as unsecured loan.
4. Disallowance under Section 40(a)(ia) of the Act for Rs. 12,01,024/- in respect of labor payment.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147 and Issuance of Notice under Section 148:
The assessee challenged the reopening of assessments for AY 2010-11 and AY 2011-12 based on a survey conducted in FY 2013-14. The survey led to the discovery of customer-wise payment details, including unaccounted cash receipts. The Assessing Officer (AO) recorded reasons for reopening based on statements made by the Director, Smt. Parul J. Shah, during the survey, admitting unaccounted cash receipts. However, the tribunal noted that the statement alone, without corroborative evidence, does not constitute tangible material to justify reopening. The tribunal relied on the judgment of the Hon'ble Madras High Court in the case of M/s. A. Thangavel Nadar Stores, which held that statements made during a survey cannot form the sole basis for reopening assessments. Consequently, the tribunal quashed the reassessment proceedings for both AY 2010-11 and AY 2011-12.

2. Addition of Rs. 20,00,000/- Based on "On Money Receipts":
The AO added Rs. 20,00,000/- to the assessee's income, based on the Director's admission of unaccounted cash receipts during the survey. The tribunal observed that the addition was made solely based on the statement without any corroborative evidence. The tribunal emphasized that the statement taken during the survey lacks evidentiary value unless supported by tangible material. Therefore, the tribunal held that the addition of Rs. 20,00,000/- was not justified and should be deleted.

3. Addition of Rs. 17,75,000/- as Unsecured Loan:
The AO made an addition of Rs. 17,75,000/- as unaccounted income under Section 68, stating that the assessee failed to explain the source of the unsecured loan. The tribunal noted that while the assessee provided income tax returns of the lender, the lender's financial position did not support the creditworthiness to offer such a loan. However, since the reassessment proceedings were quashed, the tribunal did not delve into the merits of this addition.

4. Disallowance under Section 40(a)(ia) of the Act for Rs. 12,01,024/- in Respect of Labor Payment:
The AO disallowed Rs. 12,01,024/- under Section 40(a)(ia) for labor payments to M/s Natraj Construction, claiming the payment was not claimed as an expense in FY 2010-11. The tribunal did not address this issue in detail as the reassessment proceedings were quashed, rendering the disallowance academic and infructuous.

Conclusion:
The tribunal quashed the reassessment proceedings for AY 2010-11 and AY 2011-12 due to the lack of tangible material to justify reopening based on statements made during a survey. Consequently, the additions made by the AO were rendered academic and infructuous. Both appeals filed by the assessee were allowed.