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2020 (9) TMI 338 - AT - Income TaxValidity of initiation of proceedings u/s 148 - dropping of proceedings under section 153A in the assessee s case but the A.O. proceeded to issue notice under section 147 r.w.s 148 - As submitted reopening is based on borrowed satisfaction by entirely relying on unverified 3rd party information /material/statements which had already lost the evidentiary value on want of being material under section 142(3) of the Act and having no presumptive evidentiary value under section 292 C - HELD THAT - Reopening in the assessee s case by the A.O. was merely based on the borrowed satisfaction drawn from the cases of Shri Sanjay Singal, Smt. Aarti Singal, Shri Aniket Singal which was not sufficient for the purposes of sustaining any addition made u/s 147 r.w.s 148 . In the instant case the A.O. in the reasons recorded has mentioned that the search conducted on numerous entry operators and their beneficiaries revealed that the assessee had received huge amount of accommodation entries in the garb of exempt LTCG - if any action was required to be done on the basis of certain documents found from other persons during the course of search then the assessment could have been framed under section 153C of the Act but no such action was taken in assessee s case rather the action was taken indirectly under section 147 r.w.s 148 of the Act. As decided in in the case of CIT Vs. Kelvinator of India Ltd. 2002 (4) TMI 37 - DELHI HIGH COURT it is well settled principle of law that what cannot be done directly cannot be done indirectly If any material was found relating to the assessee during the course of search on third parties then the correct course of action would have been to proceed against the assessee under section 153C of the Act and there was no justification for the A.O. to initiate the proceedings under section 147 r.w.s 148 of the Act. So respectfully following the case SHRI ADARSH AGRAWAL VERSUS THE INCOME TAX OFFICER, WARD-61 (1) , NEW DELHI 2020 (1) TMI 620 - ITAT DELHI we are of the view that there was no justification on the part of the A.O. to initiate the reassessment proceedings under section 147 r.w.s 148 of the Act against the assessee. Accordingly the said order of the A.O. is set aside and quashed. - Decided in favour of assessee.
Issues Involved:
1. Validity of initiation of proceedings under section 148 of the Income Tax Act, 1961. 2. Addition of ?22,37,80,889/- under section 68 of the Act. 3. Treatment of transactions relating to purchase and sale of equity shares as ingenuine. 4. Addition of ?1,40,77,758/- on account of alleged commission expenses under section 69C of the Act. 5. Denial of opportunity to cross-examine persons whose statements were relied upon. Detailed Analysis: 1. Validity of Initiation of Proceedings under Section 148: The assessee challenged the validity of the initiation of proceedings under section 148 of the Income Tax Act, 1961. The facts revealed that a search and seizure operation was conducted on the Bhushan Power & Steel Group, leading to the discovery of incriminating documents indicating bogus Long Term Capital Gain (LTCG) entries. The Assessing Officer (A.O.) issued a notice under section 153A but later dropped the proceedings due to the absence of the assessee's name on the warrant of authorization. Subsequently, the A.O. issued a notice under section 148 based on information from the Investigation Wing, alleging that the assessee had received accommodation entries in the garb of exempt LTCG. The Tribunal found that the A.O. acted solely on the basis of information received from the Investigation Wing without independent verification, thus failing to form a "reason to believe" that income had escaped assessment. The Tribunal cited several case laws, including the Hon'ble Delhi High Court's judgment in Principal Commissioner of Income Tax Vs. G And G Pharma India Ltd., emphasizing that the basic jurisdictional requirement for reopening an assessment is the application of mind by the A.O. to the materials produced prior to reopening the assessment. 2. Addition of ?22,37,80,889/- under Section 68: The A.O. treated the LTCG claimed by the assessee as exempt as sham transactions and added ?22,37,80,889/- to the income of the assessee under section 68 of the Act. The Tribunal observed that the reopening of the assessment was based on borrowed satisfaction from the cases of other individuals in the Bhushan Power & Steel Group without any independent application of mind by the A.O. The Tribunal held that the action under section 147 was not justified as it was based solely on borrowed satisfaction and unsupported by independent verification. 3. Treatment of Transactions Relating to Purchase and Sale of Equity Shares as Ingenuine: The A.O. treated the transactions relating to the purchase and sale of equity shares as ingenuine based on the information received from the Investigation Wing. The Tribunal found that the A.O. had not conducted any independent verification of the transactions and relied entirely on third-party information. The Tribunal emphasized that the assessment should have been framed under section 153C if any material was found during the search on third parties, and the indirect action under section 147 was not justified. 4. Addition of ?1,40,77,758/- on Account of Alleged Commission Expenses under Section 69C: The A.O. made an addition of ?1,40,77,758/- on account of alleged commission expenses paid for arranging the LTCG entries. The Tribunal noted that the addition was based on the same borrowed satisfaction and unsupported by independent verification. The Tribunal held that the addition under section 69C was not sustainable as it was based on unverified third-party information. 5. Denial of Opportunity to Cross-Examine Persons Whose Statements Were Relied Upon: The assessee contended that the A.O. relied on statements of various persons without affording an opportunity to cross-examine them, thereby violating the principles of natural justice. The Tribunal agreed with the assessee's contention, noting that the denial of the opportunity to cross-examine violated the basic principles of natural justice. The Tribunal cited the ITAT Delhi Bench's decision in Shri Brij Bhushan Singal & Ors Vs. ACIT, which held that documents seized from third parties cannot be used for making additions without granting an opportunity of cross-examination. Conclusion: The Tribunal quashed the reassessment proceedings initiated under section 147 r.w.s 148 of the Act, holding that the A.O. acted on borrowed satisfaction without independent verification and denied the assessee the opportunity to cross-examine persons whose statements were relied upon. Consequently, the additions made by the A.O. were also quashed. The appeals for the assessment years 2011-12, 2012-13, and 2013-14 were allowed in favor of the assessee.
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