The Bengaluru bench of Income Tax Appellate Tribunal( ITAT ),in ‘Rathan BabuLal Lath v.DCIT-Bengaluru held that additions made merely on the basis of statements recorded by the CBI is not valid .At the same time the tribunal upheld the validity of reopening of assessment u/s 147 on the basis of such statements.
The Appellant (Assessee) Ratan Babulal lath, an individual filed his return of income for A.Y 2009-10 at total income of Rs.13,44,160/-. Later,The Appellant was interrogated by CBI in connection with providing accommodation entries to the companies of Shri. Y S Jagan Mohan Reddy and the noticed that the appellant has provided a sum of Rs.60 crores to Shri. Navneet Kumar Singhania which was deposited in the accounts of 2 companies viz., M/s. Sugam Commodeal Pvt. Ltd., and M/s. Chandelier Tracon Pvt. Ltd.It was ultimately invested as share capital into M/s. Jagati Publications Pvt. Ltd. In the statement recorded by the CBI the appellant deposed that he had supplied cash of Rs.60 crores through local cash carrier Shri. Navneet Kumar Singhania, whose statement was also recorded. The CBI forwarded the information collected to to the AO. On the basis of this information, the AO reopened the assessment under section 147 of the Act, by issuing notice under section 148 of the Act. In response to notice, the Assessee filed a letter stating that the original return filed should be treated as return in response to notice under section 148 of the Act. The appellant had requested for copies of reasons recorded which was supplied to the Assessee and on receipt of reasons, appellant filed objection before AO. The objection of the appellant was disposed off by the AO by draft order and thereafter the AO passed the assessment order dated 28.01.2016. In the final assessment order the AO has added a sum of Rs.60 crore as income of the appellant.
The CIT(A) dismissed the appeal of the appellants rejecting their contentions that the reopening of the assessment cannot be done on the basis of statement recorded by the CBI as the statement recorded by the police authorities are not admissible as evidence under the CRPC and the evidence Act.
The key issues framed by the ITAT in this case are the validity of the reopening of the assessment under section 147 of the Act and the addition of Rs.60 crores sustained by the CIT(A).
The ITAT w.r.t the validity of reopening of assessment u/s 147, held that, to form a belief that income has escaped assessment, the AO should have some cogent information on the basis of which such belief can be formed. At the time of forming such belief, the AO is not required to make any enquiry or investigations. On the basis of information received, he has to apply his mind with the material available before him and then form a belief that the income has escaped assessment. What is required is “reason to believe” but not the established fact of escapement of income. The final outcome of proceedings is not relevant at this stage. The only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. In the instant case, the AO got the information from the CBI that certain investment was made by the Assessee through Shri Navneet Kumar Singhania, local cash carrier in the Jagati Publications and this investment was not declared by the Assessee in the returned income. Therefore, the information received by the AO is sufficient to form a belief that income chargeable to tax has escaped assessment.
In the case of addition of Rs 60 crore the ITAT held that the sole basis for making an addition in the hands of the Assessee is a statement of the Assessee as well as Shri Navneet Kumar Singhania recorded by the CBI. The ITAT observed that the settled position of law is that the statements recorded by the CBI or police authorities/investigating authorities cannot be made the sole basis for making additions. Moreover, the statement recorded by the police authorities are not admissible as evidence as per provisions of Section 25 of Indian Evidence Act, 1982 and also in the light of judgment of the Supreme Court in the case of Zwinglee Ariel Vs. State of MP. The information or the evidence collected from the CBI can be used by the AO for forming a belief that income chargeable to tax has escaped assessment in the hands of the Assessee. But for making addition, some more efforts were to be required on the part of the AO. In the present case, AO did not bring any material on record to show that Assessee has made the investment in Jagati Publications Ltd., by acquiring its shares during the impugned assessment year. Also the AO did not examine the affair of all the three companies so that if it was found that substantial cash was introduced, that company could be put on notice to explain the source of fund. In case they fail to explain, the addition could have been made in their hands. No such steps were seem to be taken, the bench said.
The ITAT also cited various judicial pronouncements wherein it has been held that on the basis of the confessional statement during the course of search/survey, the addition cannot be sustained unless and until there is some corroborative evidence, if the Assessee has retracted from the statement.
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