2020 (1) TMI 558 - AT - Income Tax

Reopening of assessment - Validity of notice u/s 148 - proceeding u/s 153C initiated against the Assessee has been ordered to be dropped - HELD THAT - We noticed that there was no new material with the AO to initiate the proceeding u/s 148. When the proceeding u/s 153C has been initiated and subsequently dropped, thereafter on the similar grounds the provisions u/s 147/148 is not liable to be invoked. Assessee took the alternate plea that the notice u/s 147/148 was issued after the expiry of 4 years and no sanction was taken, therefore, the order is not liable to be sustainable in the eyes of law. There is no need to go to the alternate ground because it is a matter of record that the proceeding u/s 153C of the Act was initiated against the assessee and on the same day the proceeding was dropped and notice u/s 148 was issued which was unjustifiable. Assessment order is not liable to be sustainable in the eyes of law, hence, we set aside the same. - Decided in favour of the assessee.

Summary

Issues Involved:
1. Validity of Notice under Section 148.
2. Addition based on diary entries of a third party.
3. Addition based on information from Australian Tax authorities.
4. Lack of opportunity to cross-examine the third party.
5. Jurisdiction over foreign transactions.
6. Sanction for issuing notice under Section 148 beyond four years.

Issue-wise Detailed Analysis:

Issue 1: Validity of Notice under Section 148
The assessee challenged the validity of the notice issued under Section 148, arguing that the proceedings under Section 153C had already been initiated and subsequently dropped due to non-satisfaction. The Tribunal observed that when proceedings under Section 153C are applicable, they exclude the application of Section 147/148. The Tribunal cited the case of ITO Vs. Arun Kumar Kapoor, emphasizing that the provisions of Section 153C supersede those of Section 147 and 148 in search cases. The Tribunal concluded that the initiation of proceedings under Section 148 after dropping Section 153C proceedings was unjustifiable, rendering the assessment order unsustainable.

Issue 2: Addition based on Diary Entries of a Third Party
The assessee contested the addition of ?2,37,00,000 based on entries found in a diary at the premises of a third party, arguing that no search under Section 132 had taken place on the assessee. The Tribunal noted that the abbreviation 'MT' in the diary referred to the assessee and that transactions were identified as cash payments not recorded in the books. However, since the primary issue regarding the validity of the notice under Section 148 was resolved in favor of the assessee, this issue was rendered academic and did not require further adjudication.

Issue 3: Addition based on Information from Australian Tax Authorities
The assessee disputed the addition of ?3,02,17,593 based on information from the Australian Tax Office, which indicated funds received through the Hawala system. The Tribunal highlighted that the information received was not substantiated with evidence and that the assessee was not provided an opportunity to cross-examine the sources of the information. As with the previous issue, the resolution of the primary issue on the validity of the notice under Section 148 made further adjudication on this issue unnecessary.

Issue 4: Lack of Opportunity to Cross-Examine the Third Party
The assessee argued that they were not provided a copy of the entire diary or an opportunity to cross-examine the third party (since deceased) whose diary entries were used for the addition. The Tribunal acknowledged this procedural lapse but did not delve deeper into this issue due to the resolution of the primary issue regarding the notice under Section 148.

Issue 5: Jurisdiction over Foreign Transactions
The assessee contended that the transactions in question involved the appellant's son and were outside the jurisdiction of the Indian Income Tax Act. The Tribunal noted that the transactions were claimed to be loans to the appellant's son, who was outside India, and hence not taxable under the Indian jurisdiction. However, this issue was also rendered academic due to the primary issue's resolution.

Issue 6: Sanction for Issuing Notice under Section 148 Beyond Four Years
The assessee raised an additional ground that no sanction was taken from the Joint Commissioner of Income Tax before issuing the notice under Section 148, as required when issued beyond four years. The Tribunal did not need to address this issue in detail due to the invalidation of the notice under Section 148 based on the primary issue.

Conclusion:
The Tribunal found the notice under Section 148 invalid due to the prior initiation and subsequent dropping of proceedings under Section 153C. Consequently, the assessment order was set aside, and the appeal was allowed in favor of the assessee. The resolution of the primary issue rendered the adjudication of other issues academic and unnecessary. The order was pronounced on 09/01/2020.