2017 (6) TMI 331 - AT - Income Tax

Reopening of assessment - prayer of the Id AR that the department having collected the material at the back of the assessee and made the addition - Held that - Simply because the assessee did not ask for the material in possession of the Assessing Officer and did not object to the initiation of proceedings u/s 147 at the assessment stage, cannot be a reason to conclude that the assessee has waived its rights for all times to come. It is well settled that the jurisdictional issue being a foundational issue has to be justified whenever it is challenged by the affected party. The law does not contemplate that the foundational fact and challenge thereto can be said to be waived in the peculiar facts of the present case. The assessee is within his rights to challenge the jurisdiction before the CIT(A). The challenge having been posed has to be addressed by the tax authorities. Accordingly, the impugned order is set aside and the issue is restored back to the file of the Id. CIT(A) with a direction to confront the assessee within the material relied upon and decide the jurisdictional issue which the assessee has raised and thereafter to proceed to decide the issue on merits if so warranted. - Appeal of the assessee is allowed for statistical purposes only.

Issues:
1. Jurisdictional challenge regarding material gathered behind the assessee's back without providing a copy or explanation opportunity.
2. Validity of the addition of ?48.00 lacs as accommodation entry in the hands of the assessee.
3. Compliance with procedural requirements and rights of the assessee during assessment proceedings.

Jurisdictional Challenge:
The appeal was filed by the assessee against the order of the CIT(A) pertaining to the 2009-10 assessment year, specifically challenging the use of material gathered behind the assessee's back without providing a copy or an opportunity to explain. The material in question was collected during a search/survey conducted at the premises of certain individuals. The CIT(A) dismissed the objections raised by the assessee, stating that the appellant had waived the right to object to the initiation of proceedings and did not specifically require the material in possession of the Assessing Officer. The ITAT, however, held that the assessee had not waived its rights by not objecting to the initiation of proceedings under section 147 of the Income Tax Act, emphasizing that the jurisdictional issue must be justified whenever challenged. The ITAT set aside the CIT(A)'s finding and directed the CIT(A) to confront the assessee with the material relied upon and decide the jurisdictional issue before proceeding to decide on the merits.

Validity of Addition:
The addition of ?48.00 lacs as an accommodation entry in the hands of the assessee was the subject of dispute. The Assessing Officer had raised this addition after the assessee failed to provide a convincing explanation for the premium on shares sold by a two-month-old company. The CIT(A) upheld the addition based on the material gathered during the search/survey conducted at the premises of certain individuals providing accommodation entries. The ITAT did not delve into the merits of the addition but focused on the procedural aspects, directing the CIT(A) to first address the jurisdictional challenge raised by the assessee before deciding on the merits of the addition.

Compliance with Procedural Requirements:
During the proceedings, the assessee argued that the material collected behind their back should not have been used for the addition. The ITAT noted that the procedural violation could be addressed by determining the stage at which the lapse occurred. It emphasized that the assessee's failure to request the material in possession of the Assessing Officer or object to the initiation of proceedings under section 147 of the Act did not amount to a waiver of rights. The ITAT highlighted that the jurisdictional issue must be addressed whenever challenged, and the assessee had the right to challenge it before the CIT(A). Therefore, the ITAT set aside the CIT(A)'s order and directed a reevaluation of the jurisdictional issue before proceeding with the assessment on merits.

In conclusion, the ITAT allowed the appeal of the assessee for statistical purposes only, emphasizing the importance of addressing jurisdictional challenges and procedural rights during assessment proceedings.

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