2015 (10) TMI 2243 - AT - Income Tax

Validity of reassessment proceedings - Addition u/s.69A - Held that - There is no satisfaction of the AO that income has escaped assessment. Further, for the said ₹ 1 crore notice u/s.148 has been issued for A.Yrs. 2004-05 to 2006-07. Therefore, the AO is not sure for which assessment year the money has been deployed. Further, he is not saying that this is an income. Therefore, assumption of jurisdiction u/s.148 of the I.T. Act is not warranted. See CIT Vs. SFIL Stock Broking Ltd. 2010 (4) TMI 102 - DELHI HIGH COURT In the instant case the AO reopened the assessment by issuing notice u/s.148 on the ground that the documents seized during the search action by the income-tax department of Shri Sohanraj Mehta, C&F Agent of RMD Group indicate receipt of an amount of ₹ 1 crore by the assessee out of the unaccounted sale proceeds. Rejecting the various explanations given by the assessee the AO made addition u/s.69A in the hands of the assessee. However, the Ld.CIT(A) while upholding the addition of ₹ 1 crore u/s.69A of the I.T. Act in principle, directed the AO to assess the same in A.Y. 2005-06 since the seized documents show that the amount has been paid to the assessee on 09-07-2004. We find an identical issue had come up before the Tribunal in the case of Shri Vinit Ranawat Vs. ACIT vide 2015 (6) TMI 608 - ITAT PUNE wherein additions were made on the basis of seized documents found from the residence of Shri Sohanraj Mehta, C&F Agent of RMD Gutkha Group during the course of search and after considering the various submissions made by both the sides, the Tribunal deleted the addition concluding that the presumption u/s 132(4A) is available only in respect of the person from whom the paper is seized. It could not be applied against a third party and hence, no addition could be made on the basis of the evidence found with third party - Decided in favour of assessee. Revision u/s 263 - Held that - We find in the instant case the AO did not make any addition in the hands of the assessee in the impugned assessment year holding that he has already made the addition of ₹ 1 crore in A.Y. 2004-05. This was done by the AO despite the fact brought before him that the seized documents relates to A.Y. 2005-06 and not A.Y. 2004-05. Therefore, the AO in a clear application of mind and in a conscious manner made the addition in A.Y. 2004-05 and not in A.Y. 2005-06. Therefore, it cannot be said that there is no application of mind. Since the amount has already been taxed in A.Y. 2004-05, therefore, no prejudice can be said to have caused to the revenue. In any case we have already held in the preceding paragraphs while deciding the appeal for A.Y. 2004-05 that no addition is called for in the hands of the assessee on the basis of seized documents found during the course of search of Shri Sohanraj Mehta, C&F Agent of RMD Gutkha group either in A.Y. 2004-05 or A.Y. 2005-06. Therefore, the order of the CIT invoking jurisdiction u/s.263 cannot be sustained even on merit. - Decided in favour of assessee.

Issues Involved:
1. Validity of reassessment proceedings under section 148.
2. Principles of natural justice and opportunity of cross-examination.
3. Applicability of section 292C for documents not seized from the assessee's premises.
4. Addition of Rs. 1 crore under section 69A of the Income Tax Act.
5. Directions to assess the income of Rs. 1 crore under section 69A for A.Y. 2005-06.
6. Jurisdiction under section 263 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 148:
The assessee challenged the validity of the reassessment proceedings, arguing that the Assessing Officer (AO) did not have sufficient tangible material to form a reason to believe that income had escaped assessment. The AO had reopened the assessments based on documents seized from a third party, which allegedly indicated unaccounted transactions involving the assessee. However, the AO failed to establish a direct connection between the seized documents and the assessee's income. The Tribunal found that the AO's reasons for reopening were not substantiated by independent evidence and thus, the reassessment proceedings were invalid.

2. Principles of Natural Justice and Opportunity of Cross-examination:
The assessee contended that the AO did not provide an opportunity to cross-examine Shri Sohanraj Mehta, whose statement was used against the assessee. The Tribunal emphasized that the principles of natural justice require that the assessee be given an opportunity to cross-examine witnesses whose statements are relied upon for making additions. The Tribunal found that the AO's failure to provide this opportunity violated the principles of natural justice, rendering the assessment proceedings flawed.

3. Applicability of Section 292C for Documents Not Seized from the Assessee's Premises:
The assessee argued that the provisions of section 292C, which presume the correctness of documents found during a search, apply only to the person from whom the documents were seized. The Tribunal agreed, stating that the presumption under section 292C could not be extended to the assessee, especially when the documents were seized from a third party. The Tribunal held that the AO could not rely solely on these documents without corroborative evidence directly linking the assessee to the transactions.

4. Addition of Rs. 1 Crore under Section 69A of the Income Tax Act:
The AO had made an addition of Rs. 1 crore under section 69A, treating it as unexplained money based on the seized documents. The assessee argued that the documents were "dumb documents" with no corroborative evidence to prove that the amount was received by the assessee. The Tribunal found that the AO had not provided sufficient evidence to substantiate the addition and that the documents alone could not form the basis for such a significant addition. The Tribunal deleted the addition, stating that the AO's reliance on the seized documents without independent corroborative evidence was unjustified.

5. Directions to Assess the Income of Rs. 1 Crore under Section 69A for A.Y. 2005-06:
The CIT(A) had directed the AO to assess the Rs. 1 crore in A.Y. 2005-06 instead of A.Y. 2004-05, based on the date mentioned in the seized documents. The Tribunal, however, found that since the addition itself was not sustainable, the question of assessing the amount in a different assessment year did not arise. The Tribunal set aside the directions of the CIT(A), holding that no addition was warranted in either A.Y. 2004-05 or A.Y. 2005-06.

6. Jurisdiction under Section 263 of the Income Tax Act:
The CIT invoked jurisdiction under section 263, stating that the AO's order for A.Y. 2005-06 was erroneous and prejudicial to the interest of the revenue because the addition should have been made in that year. The Tribunal found that the AO had consciously decided to tax the amount in A.Y. 2004-05 and that this decision was within the AO's jurisdiction. Since the amount had already been taxed in the preceding year, there was no prejudice to the revenue. The Tribunal also noted that since it had already held that no addition was warranted, the invocation of section 263 by the CIT was not justified. The Tribunal set aside the order of the CIT under section 263.

Conclusion:
The Tribunal allowed the appeals filed by the assessee, setting aside the orders of the AO and CIT(A) regarding the addition of Rs. 1 crore under section 69A and the invocation of section 263. The Tribunal emphasized the need for independent corroborative evidence and adherence to the principles of natural justice in assessment proceedings.

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