2017 (12) TMI 860 - AT - Income Tax

Validity of reopening of assessment u/s 147/148 - no mention in the reasons recorded that the assessee has failed to disclose fully and truly all material facts necessary for the assessment which has resulted into escapement of income - bar on the powers of the AO to issue notice u/s 148 instead of section 153C - period of limitation - incriminating material found In search - Held that - From the assessment order that after the initial assessment u/s 143(3) r.w.s. 153A the AO got the alleged incriminating material in the shape of diary and transactions recorded therein found and seized in the search and seizure operation in case of Rajendra Jain Group. Accordingly, the AO proceeded to reassess the income of the assessee u/s 147 of the Act. The entire decisions of the AO to reassess the income of the assessee is based on the seized material and statement of Shri Madan Mohan Gupta recorded u/s 132(4) of the Act for which the specific remedy is provided u/s 153C of the Act. Once the case of reassessment is made out by the AO which falls in the preview of specific provisions of section 153C of the Act, the AO cannot resort to invoke the provisions of Section 147/148 of the Act to assessee or reassess income of the assessee. The action of the AO to initiate the proceedings Under section 147/148 of the Act vitiates the entire reassessment proceedings and the assessment order. Once, the AO is satisfied that the documents seized belong to the persons other than the searched person, the Assessing Officer shall proceed against such other persons and issued notice u/s 153C and assessee or reassess income of such other persons in accordance with the provisions of section 153A of the Act. Therefore, it is mandatory for the AO to proceed u/s 153C if he is satisfied that the seized material reveals the income of such other persons to be assessed or reassessed. Also AO has not recorded in his satisfaction or believe that the income chargeable to tax has escaped assessment on account of failure of the assessee to disclose fully and truly all material facts necessary for assessment then the notice issued u/s 148 beyond the period of 4 years was without jurisdiction and is not sustainable. AO has failed to set out in the reasons recorded as to what facts the assessee has failed to disclose fully and truly then the reopening after 4 years is invalid being without jurisdiction - Decided in favour of assessee.

Issues Involved:
1. Validity of reopening of assessment under Section 147/148 of the Income Tax Act.
2. Legality of the CIT(A)'s power of enhancement.
3. Substantive addition of undisclosed investment made in cash under Section 68.
4. Procedural fairness in the assessment process.

Detailed Analysis:

1. Validity of Reopening of Assessment Under Section 147/148:
The primary issue was whether the reopening of the assessment under Section 147/148 was valid. The assessee argued that the reassessment should have been conducted under Section 153C, which is specific to cases involving seized material from a search on a third party. The Tribunal agreed, noting that Section 153C has an overriding effect on Sections 147/148 due to its non-obstante clause. The Tribunal cited multiple precedents where it was held that reassessment on the basis of seized material should be conducted under Section 153C. Therefore, the Tribunal concluded that the initiation of proceedings under Section 147/148 was illegal and void ab initio.

2. Legality of the CIT(A)'s Power of Enhancement:
The assessee challenged the CIT(A)'s power to enhance the assessment. The Tribunal found that the CIT(A) had erred in exercising this power. The enhancement was based on the same seized material and statements that were deemed insufficient for reopening under Section 147/148. The Tribunal held that the CIT(A) should not have directed further inquiries to an officer other than the assessing officer and should not have relied on remand reports from such officers.

3. Substantive Addition of Undisclosed Investment Made in Cash Under Section 68:
The CIT(A) made a substantive addition of ?16,72,19,309 as undisclosed investment in cash under Section 68, against the ?14,24,12,650 added by the AO on a protective basis. The Tribunal found several issues with this addition:
- The CIT(A) relied on statements from third parties without proper cross-examination.
- The statements were contradictory and lacked corroborative evidence.
- The alleged undisclosed investment was based on jumbled notings in a seized diary, which were not conclusively linked to the assessee.
- The Tribunal noted that the actual transaction involved the purchase of shares in M/s Shri Kalyan Buildmart Pvt. Ltd., not direct land transactions.

4. Procedural Fairness in the Assessment Process:
The assessee raised concerns about procedural fairness, including the right to cross-examine witnesses and the proper authority to conduct inquiries. The Tribunal found merit in these concerns, noting that the CIT(A) had directed inquiries to an officer other than the assessing officer and had relied on remand reports from such officers. The Tribunal emphasized that cross-examinations should be conducted before the adjudicating authority to ensure fairness.

Conclusion:
The Tribunal quashed the reassessment order, holding that the initiation of proceedings under Section 147/148 was illegal and void ab initio. The Tribunal also found that the CIT(A)'s enhancement of the assessment was improper and that the substantive addition of undisclosed investment was not supported by sufficient evidence. The Tribunal emphasized the need for procedural fairness in the assessment process. Consequently, the appeal of the assessee was allowed.

← Previous Next →