2020 (2) TMI 772 - AT - Income Tax

Reopening of assessment u/s 147 OR assessment u/s 153C - addition u/s 68 - addition based on statement of accommodation entry providers - HELD THAT - It is important that the documents found during the course of search from 1/3 person or any other material should belong to the assessee (pertinent to the assessee after amendment) and the AO must be satisfied that such books of accounts et cetera have a bearing on the determination of the total income of such other person. If 1 of the condition fails, the provisions of section 153C cannot be applied. Therefore, the material available with the assessing officer would be a tangible material based on which the proceedings u/s 147 of the income tax act, if it stands the test of the provisions of that section, can be initiated. Thus, it is not necessary that if books of accounts of these assessee are found during the course of search on third person, necessarily the case of the assessee must be completed by invoking the provisions of section 153C of the act. Merely because regular books, of other persons are found with searched persons assumption of jurisdiction by AO of Other persons may be justified but since these are generally the regular books of account on the basis of which returns are prepared, there cannot be any undisclosed income arising from them. In view of expression, books of account/documents/assets seized have a bearing on the determination of total income appearing in section 153C(1), proceedings u/s. 153C will not be valid. In view of this, we are of the opinion that assessing officer did not have any jurisdiction to invoke the provisions of section 153C of the income tax act and therefore it has not been rightly invoked by him. Thus, action of AO for reopening of the assessment u/s 147 of the act is upheld. Validity of reopening of assessment - reopening has been challenged as proceedings u/s 147 is solely on the basis of the unverified, on rectified, unsubstantiated and unconfirmed statement of Mr Malu - HELD THAT - AO merely on the basis of the statement of the entry operators, who did not name the share deposit as 1 of the companies operated by them, the inspector report saying that share deposit and did not exist by inquiring at the incorrect address and failure to give cross-examination of those entry operators, which are the only statement against the assessee, the addition made by the learned assessing officer cannot be sustained. Honourable Supreme Court in M/S ANDAMAN TIMBER INDUSTRIES VERSUS COMMISSIONER OF CENTRAL EXCISE,KOLKATA-II 2015 (10) TMI 442 - SUPREME COURT has held that when except the statement of the 3rd party is the only evidence available with the revenue authorities, addition cannot be made on that solitary evidence without granting the cross-examination of such 3rd party to the assessee when asked for. In the present case the assessee asked for cross-examination before the assessing officer and as well as before the learned CIT A, the assessee did not give the cross-examination of those accommodation entry providers. Further, the copies of the statement given by the assessing officer during the course of remand proceedings, none of the statement of the entry provider implicated the company, which deposited the share capital with the assessee. Addition made by the learned assessing officer and sustained by the learned CIT A cannot be upheld. We direct the learned AO to delete the addition.

Issues Involved:
1. Violation of principles of natural justice.
2. Validity of assessment under section 147/148.
3. Sustaining additions under section 68.
4. Applicability of section 153C.
5. Levy of interest under sections 234A, 234B, and 234C.

Issue-wise Detailed Analysis:

1. Violation of Principles of Natural Justice:
The appellants argued that the CIT(A) and AO violated the principles of natural justice by not providing the opportunity for cross-examination of the persons whose statements were relied upon. The Tribunal noted that the appellants had specifically requested cross-examination, but the AO expressed his inability to provide it. The Tribunal cited the Supreme Court's decision in Andaman Timber Industries, emphasizing that the addition based solely on third-party statements without cross-examination is not sustainable. Hence, the Tribunal found that the principles of natural justice were indeed violated.

2. Validity of Assessment under Section 147/148:
The appellants contended that the reopening of assessments under section 147/148 was invalid as no valid reasons were recorded by the AO. The Tribunal examined the reasons recorded for reopening and found that the AO had relied on statements and information gathered during the search and post-search investigations. However, the Tribunal observed that the AO did not independently verify the information and relied on unsubstantiated statements. The Tribunal held that the reopening of assessments was not justified due to the lack of independent application of mind by the AO.

3. Sustaining Additions under Section 68:
The Tribunal scrutinized the additions made under section 68 for unexplained share capital and share premium. The appellants had provided documentary evidence, including share application forms, confirmations, bank statements, and financial statements, to substantiate the transactions. The AO, however, dismissed these documents without proper verification. The Tribunal emphasized that the burden of proof shifts to the AO once the assessee provides prima facie evidence. Since the AO failed to disprove the evidence provided by the appellants, the Tribunal directed the deletion of the additions under section 68.

4. Applicability of Section 153C:
The appellants argued that the assessments should have been made under section 153C instead of section 147. The Tribunal examined the provisions of section 153C and noted that it applies when documents seized during a search belong to a person other than the one searched. The Tribunal found that the documents seized did not directly belong to the appellants but were related to the Kuber Group of Companies. The Tribunal held that the AO was correct in not invoking section 153C and upheld the use of section 147 for reopening the assessments.

5. Levy of Interest under Sections 234A, 234B, and 234C:
The appellants contended that the provisions of sections 234A, 234B, and 234C were not applicable. The Tribunal did not provide a detailed analysis on this issue, as it is consequential to the main issues discussed. The Tribunal's decision to delete the additions under section 68 would inherently affect the computation of interest under these sections.

Conclusion:
The Tribunal partly allowed the appeals, finding that the principles of natural justice were violated and the additions under section 68 were not justified. The Tribunal upheld the validity of reopening the assessments under section 147 but directed the deletion of the additions made by the AO. The decision emphasized the importance of independent verification by the AO and the necessity of providing cross-examination when requested by the assessee.

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