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2025 (1) TMI 1172 - AT - Income TaxReopening of assessment - Unexplained investment - additions on account of on-money paid by the assessee to the builder for allotment of the residential unit - action taken by the AO of relying on the pen drive and some documents seized during search and seizure operation u/s 132 from third party - HELD THAT - Throughout the proceedings the assessee categorically denied having paid any amount in cash over and above the agreement value. AO has neither confronted assessee with any of the material found during the search on Kamla Group and even no evidence or seized document has been referred to where any name of the assessee has been explicitly mentioned of paying on-money. Although it has been claimed in the order of assessment that summons u/s 131 of the Act were issued to gather further details but again no such statement has been confronted neither the seized material /documents /pendrive was confronted to the assessee nor the copy of statement of Nilesh Gavade or Mahendra Rawal was confronted. Therefore information if any found in the pendrive etc. cannot be considered as credible evidence unless they have been corroborated with any other evidence. In my humble opinion since the assessee was not provided with the adverse material if any based on which notice u/s 148 of the Act was issued it hampers the primary and fundamental requirement of natural justice. Information claimed in pendrive - The same was not found from the possession of the assessee but was found as per order of assessment during search and seizure conducted in the case of third party therefore in the absence of corroborative evidence to establish that the contents of pendrive are correct and authenticated to the extent assessee paid on-money in cash. No addition can be made and even otherwise during the entire reassessment proceedings the veracity and reliability of the data recorded in the pendrive was not checked or tested. Therefore in such a scenario no addition is warranted in the case of assessee - Decided in favour of assessee.
The present appeal before the Appellate Tribunal ITAT Mumbai involves the assessee challenging the order passed by the Learned Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre, Delhi, which confirmed the additions made by the Assessing Officer (AO) under section 143(3) read with section 147 of the Income Tax Act, 1961. The core issue revolves around the alleged unexplained investment or 'on-money' payment made by the assessee for the purchase of a residential unit, which the assessee denies.
Issues Presented and Considered The primary issues considered in this appeal are:
Issue-Wise Detailed Analysis 1. Addition as Unexplained Investment The AO made an addition of Rs. 32,28,750/- on account of 'on-money' allegedly paid by the assessee for the purchase of a residential unit. The CIT(A) upheld this addition. The assessee contended that the price paid was above the market value and there was no occasion for any cash payment. The Tribunal noted that the AO did not independently verify the information received from the Investigation Wing and failed to provide any corroborative evidence. 2. Reliance on Pen Drive and Statements The AO relied on data from a pen drive and statements recorded during a search on the Kamala Group. The assessee argued that they were not confronted with this evidence, nor given a chance to cross-examine the individuals whose statements were recorded. The Tribunal emphasized that evidence from a third party's possession, like the pen drive, must be corroborated with other evidence to be credible. The lack of confrontation and cross-examination opportunity was seen as a violation of natural justice. 3. Validity of Reassessment Proceedings The reassessment was initiated based on information received post the issuance of notice under section 148. The Tribunal found that the AO did not have a "reason to believe" before issuing the notice, rendering the proceedings invalid. The Tribunal highlighted the necessity of a live link between the material and the belief of escaped income, which was absent in this case. 4. Natural Justice and Burden of Proof The Tribunal noted that the principles of natural justice were compromised as the assessee was not provided with the adverse material or given a chance to cross-examine witnesses. The burden of proof, as per the Indian Evidence Act, lies on the party asserting a fact. Here, the AO failed to discharge this burden adequately. Significant Holdings The Tribunal concluded that the AO's actions were not supported by credible evidence and failed to uphold the principles of natural justice. The lack of corroboration for the data in the pen drive and the absence of a valid "reason to believe" before reopening the assessment were critical in the Tribunal's decision. The Tribunal directed the AO to delete the additions, allowing the appeal in favor of the assessee. Core Principles Established
In conclusion, the Tribunal's decision underscores the importance of adhering to procedural fairness and the necessity of credible evidence in tax assessments, reinforcing the taxpayer's right to a fair hearing.
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