2022 (12) TMI 495 - AT - Income Tax

Validity of the reopening of the assessment u/s 147 - cash payment against the purchase of the flat - whether the reasons to believe formed by the AO are within the provisions of law or the AO without having proper reasons to believe is trying to reassess the income in the garb of income escaping assessment? - HELD THAT - In the case on hand, the AO while recording the reasons has clearly recorded the fact that there was a search conducted at the premises of the builder Dharmdev Infrastructure Ltd wherefrom the information was received that such builder was found in receipt of on money from various customers. Therefore, such builder has also accepted to have received a sum of ₹85.45 crores as on money before the settlement commission. In the petition filed before the settlement commission, it was also disclosed a sum of Rs. 4 lakhs received from the assessee against the purchase of flat. Based on this information the proceedings under section 147 of the Act were initiated. In our considered view, such information was tangible material in the sense that it was received from the outside party and that too based on search and consequently disclosure was made before the settlement commission. Thus, to our mind there was sufficient material available with the AO to draw an inference that the income of the assessee has escaped assessment. At this juncture, the AO while initiating the proceedings under section 147 has to make a prima facie opinion about the escapement of income which must be based on some tangible material. As such the AO is not expected to draw a conclusion that the income of the assessee has escaped assessment while recording the reasons to believe. In holding so, we draw support and guidance from the judgement of Zaveri Company (P.) Ltd. 2021 (7) TMI 312 - GUJARAT HIGH COURT Thus we are of the view that there was no illegality in the initiation of the proceedings under section 147 of the Act and therefore the issue raised by the assessee on technical ground fails. Hence, the ground of appeal of the assessee is hereby dismissed. Addition of cash payment against the purchase of flat - Relevance of document found from the premises of 3rd party - whether document found from the premises of 3rd party and the disclosure made by such 3rd party before the settlement commission can be used against the assessee without affording the opportunity of cross-examination? - HELD THAT - As revealed that the opportunity of cross-examination was sine quo non before making any addition to the total income of the assessee based on the 3rd party information especially in the circumstances when the assessee time and again has demanded for such cross examination opportunity. Thus, in the absence of such cross-examination opportunity, to our understanding the addition is not sustainable despite the fact that there are material evidence available before the AO which are against the assessee - we set aside the finding of the learned CIT(A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed.

Summary

Issues Involved:
1. Validity of the reopening of the assessment under section 147 of the Income Tax Act.
2. Addition of Rs. 3.85 lakhs as unaccounted cash payment for the purchase of a flat.

Issue-wise Detailed Analysis:

1. Validity of the Reopening of the Assessment under Section 147 of the Income Tax Act:

The assessee challenged the reopening of the assessment under section 147 of the Act. The case involved a search operation at Dharmdev Infrastructure Ltd., where incriminating evidence was found, indicating receipt of on-money from various parties, including Rs. 4 lakhs from the assessee for a flat purchase. The AO initiated proceedings under section 147 based on this information, which was considered tangible material. The assessee contended that the reopening was invalid as there was no live link between the income admitted by Dharmdev Infrastructure Ltd. and the alleged cash payment by the assessee. The assessee also argued that the proceedings should have been initiated under section 153C instead of 147. However, the CIT-A upheld the AO's decision, stating that the incriminating documents and the admission by Dharmdev Infrastructure Ltd. were sufficient grounds for reopening the assessment. The Tribunal agreed, citing that the AO had sufficient material to believe that the income had escaped assessment, thus dismissing the assessee's appeal on this ground.

2. Addition of Rs. 3.85 Lakhs as Unaccounted Cash Payment for the Purchase of a Flat:

The AO added Rs. 3.85 lakhs to the assessee's income based on a ledger found during the search at Dharmdev Infrastructure Ltd., showing a total consideration of Rs. 22 lakhs for the flat, including Rs. 4 lakhs in cash, while the assessee had shown only Rs. 18.15 lakhs in the books. The CIT-A confirmed this addition, noting discrepancies in the sale deed and payments. The assessee argued that the addition was based solely on third-party documents and statements, without providing an opportunity for cross-examination. The Tribunal noted that the opportunity for cross-examination is a fundamental right and that the addition based on third-party information without such an opportunity violates principles of natural justice. The Tribunal cited relevant case law supporting the need for cross-examination and concluded that the addition was not sustainable. Consequently, the Tribunal directed the AO to delete the addition of Rs. 3.85 lakhs, allowing the assessee's appeal on this ground.

Conclusion:

The Tribunal upheld the validity of the reopening of the assessment under section 147 but directed the deletion of the addition of Rs. 3.85 lakhs due to the lack of opportunity for cross-examination, thereby partly allowing the assessee's appeal.