2015 (1) TMI 58 - AT - Income Tax

Assessment framed u/s 158BC r.w 158BD retraction of statement - Documentary evidences not properly examined Held that - it is settled principle of natural justice that if statement of any person is relied against any person, the copy of such statement should be furnished to the person against whom such statement is required to be used - The affected also should be afforded an opportunity to cross examine the person making such statement - Since no enquiry with such other persons they have retracted their earlier statement and having also filed the affidavit in this regard, the assessee was not required to prove anything further - The AO cannot rely upon statement of his witnesses after the same retracted. The AO has not proved that the affidavits filed by these persons are incorrect - Thus, after the retraction of the statements by these persons no evidence remains with the AO to hold that the transactions by the assessee with these three persons is not genuine and the assessee has also paid unaccounted commission - the present assessments are made u/s. 158BC - The undisclosed income can be computed only on the basis of material found as a result of search and such other enquiry relating to such material - During the course of search, no material is found which suggests that the assessee has incurred unaccounted expenditure by way of commission for so called sales transactions - Thus, no part can be included in the computation as undisclosed income for the block period - after going through the orders passed by the Revenue Authorities along with the documentary evidence filed by the parties, the documentary evidence filed by both the parties requires thorough examination at the level of the AO afresh under the law thus, the matter is remitted back to the AO for fresh adjudication after considering the documentary evidence, as per law Decided in favour of assessee.

Issues Involved:
1. Validity of assessment framed under section 158BD read with section 158BC of the I.T. Act.
2. Adequacy of evidence for assuming "undisclosed income."
3. Compliance with mandatory requirements for making an order of assessment.
4. Provision of fair and meaningful opportunity to the assessee.
5. Computation of undisclosed income based on evidence found during the search.
6. Issuance and service of notice under section 158BD.
7. Formation of opinion and recording of satisfaction by the AO.
8. Legality of the addition of Rs. 25,12,076/- under section 69 of the I.T. Act.
9. Justification for the charge of interest under section 158BFA.
10. Confirmation of penalty under section 158BFA(2) of the I.T. Act.

Detailed Analysis:

1. Validity of Assessment under Section 158BD read with Section 158BC:
The assessee contended that the assessment framed by invoking section 158BD read with section 158BC was without jurisdiction as there was no evidence found during the search to assume "undisclosed income." The Tribunal noted that the addition was made based on the statement of the appellant dated 19.10.2000, not on any material found during the search. The Tribunal emphasized that undisclosed income could only be computed based on material found during the search, as per the case law cited by the assessee.

2. Adequacy of Evidence for Assuming "Undisclosed Income":
The Tribunal observed that the addition in dispute was unsustainable as it was not based on any evidence found during the search. The reliance on statements made in the case of M/s Sanjay Traders and others, without any material evidence, was deemed insufficient to warrant such an addition.

3. Compliance with Mandatory Requirements for Making an Order of Assessment:
The assessee argued that the assessment order was passed without satisfying the mandatory requirements of Chapter XIVB of the I.T. Act. The Tribunal found that the assessment was made in a highly arbitrary manner, without fulfilling the preconditions for making an order of assessment.

4. Provision of Fair and Meaningful Opportunity to the Assessee:
The Tribunal noted that the assessment was made without providing the assessee a fair, proper, and meaningful opportunity. The assumption of undisclosed income was based on irrelevant and unfounded considerations.

5. Computation of Undisclosed Income Based on Evidence Found During the Search:
The Tribunal reiterated that undisclosed income must be computed based on evidence found during the search or requisition of books of account or documents. The addition made was not based on such evidence, rendering it unsustainable.

6. Issuance and Service of Notice under Section 158BD:
The assessee contended that no notice under section 158BD was issued before framing the impugned assessment. The Tribunal found that the finding recorded regarding the issuance and service of notice was unsupported by any evidence on record.

7. Formation of Opinion and Recording of Satisfaction by the AO:
The Tribunal observed that there was no indication that the AO could have formed an opinion and arrived at satisfaction that the assessee had not disclosed its income. The assumption that satisfaction was recorded in writing, despite repeated requests, was not substantiated by any evidence.

8. Legality of the Addition of Rs. 25,12,076/- under Section 69 of the I.T. Act:
The Tribunal found that the addition of Rs. 25,12,076/- under section 69, being alleged commission income, was not legally tenable. The findings recorded that the appellant admitted to earning commission were deemed insufficient to warrant such an addition.

9. Justification for the Charge of Interest under Section 158BFA:
The Tribunal held that the charge of interest under section 158BFA was consequential and not warranted on the facts of the case.

10. Confirmation of Penalty under Section 158BFA(2):
The Tribunal noted that since the assessment order was set aside, the penalty imposed under section 158BFA(2) became infructuous and did not survive. However, the AO was at liberty to initiate penalty proceedings in the set-aside assessment proceedings, as per law.

Conclusion:
The Tribunal set aside the assessment order to the AO for a fresh examination of the documentary evidence and to decide the issue in dispute afresh, providing adequate opportunity to the assessee. The penalty imposed under section 158BFA(2) was dismissed as infructuous. The appeals were allowed for statistical purposes and dismissed respectively.

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