2015 (10) TMI 816 - AT - Income Tax

Validity of reopening of assessment - Held that - Information in the shape of communication made by DCIT, Central Circle 2(1) is specific and clear demonstrating the modus operandi of L.T. Shroff and Group. The name of B D Ashokbhai is available in the list resemble with the assessee and, therefore, Assessing Officer can reasonably harbour a belief that income belonging to the assessee has escaped from taxation. Therefore, he has rightly reopened the assessment and issued notice to both the assessees u/s. 148 of the income tax act. We do not find any merit in this fold of contention. Addition in the case of Ashokbhailal Chokshi, Assessment Year 1995-96, and in the case of M/s. Chokshi Bhailal Dahyabhai and Co. for Assessment Year 1995-96 and 1996-97 - Held that - Hon ble Supreme Court way back 1980 in the case of Kishanchand Chellaram vs. Commissioner of Income Tax reported in 1980 (9) TMI 3 - SUPREME Court dealing with an assessment year 1947-48 has observed that, if the opportunity to cross-examine the witness upon whose statement reliance is being placed was not granted, then, that statement recorded behind the back of assessee cannot be used in evidence. According to the department, it is possessing a diary which contains names of different individual/office/firms who had either deposited the money with LT Shroff or availed loan facility. Now, the evidence which we have extracted above nowhere gave a pointer towards the assessee in clinching way. We have reproduced the explanation of Kalpesh Takkar given in his assessment proceedings. We find that as far as assessee is concerned, it only say B.D. Abdullal Dhujibhai Manek Chowk. Against all the other concerns, their office telephone no. residence phone no. were being mentioned. There is no corroborative evidence apart from this explanation of L.T. Shroff. This is a diary written by a third person found at the premises of the third person. It was not written by assessee. The assessee repeatedly asked to bring the author and give him an opportunity to cross-examine. If that man is not traceable, then it does not mean that assessee would be deprived of his right to verify how his name has been mentioned in the alleged diary. When he has no alleged connection with L.T Shroff, the department ought to have collected some other corroborative evidences which can establish the nexus or link between the assessee and L. T Shroff. The evidence collected by the department is not worthy of credence, more particularly in view of the judgment of Hon ble Supreme Court in the case of CBI vs. V.C. Shukla & others reported in 1998 (3) TMI 675 - SUPREME COURT . There is no independent evidence on the record, therefore, we are of the view that addition with the help of this much information can not be made. We allow all the three appeals and delete the additions. - Decided in favour of assessee. Penalty u/s 271(1)(c) - Held that - Perusal of sub-clause III would indicate that in case it is proved that assessee has concealed particulars of income or furnished inaccurate particulars then, in addition to taxes, if any, payable by him, a sum which shall not be less than but which shall not exceed the three times of the amount of taxes sought to be evaded by reason of concealment of particulars of income will be payable by the assessee. In the present case, we have deleted the quantum addition, therefore, the charge against the assessee of evading the taxes on the addition no more survive. There cannot be any penalty which can be computed in the present case. As a result, this appeal is also allowed and penalty is deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 for reopening of the assessment.
2. Confirmation of additions made by the Assessing Officer.
3. Imposition of penalty under Section 271(1)(c) of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:
The appellants contended that the Assessing Officer erred in reopening the assessment by issuing a notice under Section 148 of the Income Tax Act. The core argument was that the Assessing Officer did not possess concrete information directly linking to the escapement of income, and the material available was only capable of raising suspicion. However, the Tribunal found that the information communicated by DCIT, Central Circle 2(1), was specific and clear, demonstrating the modus operandi of L.T. Shroff Group. The name B.D. Ashokbhai resembled the assessee, leading the Assessing Officer to reasonably believe that income chargeable to tax had escaped assessment. Therefore, the reopening of the assessment and issuance of the notice under Section 148 was deemed justified.

2. Confirmation of Additions Made by the Assessing Officer:
The Assessing Officer made additions based on a diary seized from the LT Shroff Group, which recorded payments made by various parties, including the assessee. The additions included Rs. 7,90,000/- for Assessment Year 1995-96 in the case of Ashokbhailal Chokshi, and Rs. 53,35,700/- and Rs. 14,80,000/- for Assessment Year 1995-96 and 1996-97, respectively, in the case of the firm. The Commissioner of Income Tax (Appeals) confirmed these additions, citing that the source of funds originated from the firm.

Upon appeal, the Tribunal scrutinized the evidence, including the diary entries and statements recorded during the search. The Tribunal noted that the assessee consistently denied any transactions with LT Shroff Group and requested cross-examination of the diary's author, which was not provided. The Tribunal emphasized that without the opportunity for cross-examination, the statements recorded behind the assessee's back could not be used as evidence, referencing the Supreme Court's ruling in Kishanchand Chellaram vs. Commissioner of Income Tax. The Tribunal also highlighted the lack of corroborative evidence linking the assessee to the transactions recorded in the diary. Consequently, the Tribunal concluded that the additions made by the Assessing Officer were not substantiated by credible evidence and deleted all the additions.

3. Imposition of Penalty Under Section 271(1)(c):
The Tribunal addressed the penalty imposed under Section 271(1)(c) of the Income Tax Act, which pertains to the concealment of income or furnishing inaccurate particulars of income. Given that the Tribunal had deleted the quantum additions, the basis for the penalty no longer existed. The Tribunal referred to the relevant provisions of Section 271(1)(c) and concluded that since the charge of evading taxes on the addition did not survive, no penalty could be computed. Therefore, the Tribunal allowed the appeal and deleted the penalty.

Conclusion:
The Tribunal found that the reopening of the assessment under Section 148 was justified. However, it deleted the additions made by the Assessing Officer due to the lack of credible evidence and the failure to provide the assessee an opportunity for cross-examination. Consequently, the penalty imposed under Section 271(1)(c) was also deleted. The order was pronounced in the open court on 12.6.2015.