2018 (10) TMI 1724 - AT - Income Tax

Validity of the assessment made u/s 147 - protective assessments - undisclosed cash - HELD THAT - The report of the ACB though is a relevant material evidence however since the said report is only a report and not a decision as the same is subjected to scrutiny of the court of law in the trial which is yet to be conducted and therefore until and unless the fate of the report of the ACB is decided by the court of law the said report cannot be the sole basis of the assessment framed by the AO - report of the Investigation Wing has not brought any new fact but it is just reproduction of the facts as recorded by the ACB in the search memo. Thus the report of the ACB has to be tested the scrutiny of the court of law in the trial and therefore the said report can be relevant material but cannot be a sole basis for assessment. AO has not conducted a proper enquiry in this matter as no independent examination or investigation was carried out by the AO prior to the completion of the reassessment. Hence we set aside this matter to the record of the AO for denovo assessment after conducting a proper enquiry and investigation and allowing a proper opportunity of hearing to the assessee.

Issues Involved:
1. Validity of the assessment made under section 147 of the IT Act, 1961.
2. Confirmation of the addition of Rs. 1,21,60,335/- as unexplained income under section 69 of the IT Act.
3. Confirmation of protective addition in the hands of the persons who claimed ownership of the cash.

Detailed Analysis:

1. Validity of the Assessment under Section 147:

The assessee contested the reopening of the assessment under section 147/148 of the IT Act, arguing that the Assessing Officer (AO) relied solely on information from ADIT/JCIT without conducting independent verification or inquiry. The AO's reasons for reopening were inconsistent with the actual facts, and the reopening was based on borrowed satisfaction from higher authorities, which is illegal and bad in law. The assessee cited the Supreme Court's decision in CIT vs. Greenworld Corporation and other jurisdictional High Court cases to support this contention.

The Revenue argued that the reopening was based on tangible material, including the ACB's search and the Investigation Wing's findings, which provided a reasonable belief that income had escaped assessment.

The Tribunal found that the AO had reasonable grounds to believe that income had escaped assessment, given the substantial cash found at premises linked to the assessee. The Tribunal upheld the CIT (A)'s decision, confirming the validity of the reopening under section 147/148.

2. Confirmation of Addition as Unexplained Income:

The assessee argued that the addition was based solely on the ACB's report without any material evidence proving the cash belonged to the assessee. The cash was explained by the individuals from whose premises it was seized, and the AO accepted these explanations in their assessments. The assessee's brother-in-law's partnership firm accounted for the cash in its books, which the AO accepted. The assessee contended that the AO's reliance on the Investigation Wing's report without independent inquiry rendered the addition unsustainable.

The Revenue maintained that the cash was found in bags and suitcases opened using codes provided by the assessee, indicating the cash belonged to the assessee. The CIT (A) had examined the issue and found the cash to be the assessee's undisclosed income.

The Tribunal noted that the AO relied solely on the Investigation Wing's report and did not conduct an independent inquiry. The Tribunal emphasized that while the ACB's report was relevant, it could not be the sole basis for assessment without scrutiny by a court of law. The Tribunal set aside the matter to the AO for a de novo assessment, requiring proper inquiry and investigation.

3. Confirmation of Protective Addition:

The AO made protective assessments for the amounts found with other individuals. Since these protective assessments were consequential to the substantive assessment in the assessee's case, the Tribunal set aside these assessments to the AO on the same terms as the substantive assessment.

Conclusion:

The Tribunal upheld the validity of the reopening under section 147/148 but set aside the addition of Rs. 1,21,60,335/- as unexplained income for a de novo assessment, requiring proper inquiry and investigation. The protective assessments were also set aside for reassessment. The appeals were allowed for statistical purposes.

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