The Income Tax Appellate Tribunal (ITAT), Kolkata Bench ruled that Assessing Officer has to confront the assessee with the material collected behind the back of the assessee, if he chooses to use the material against the assessee and that he should provide the assessee an opportunity of cross- examination.
The assessee, Anita Singhania submitted that the search and seizure operation under section 132(1) of the Act was conducted on the assessee. He submitted that during the courses of search and seizure no incriminating material was found or seized. It was submitted that seized material is not incriminating material, as all the documents, information are forming part of official documents and regular books of accounts. He contended that none of this material that was found/seized during the course of search operation can be termed as incriminating material.
He referred to the statement recorded by the Assessing Officer from Shri Anil Kumar Khemka and submitted that the statement was recorded after the closure of search and seizure operation and that such post search action cannot form material found during search.
The Assessing Officer has not furnished to the assessee, copies of the statement recorded from various persons including Anil Kumar Khemka and hence this material cannot be used against the assessee as it is a material collected behind back to the assessee. He further submitted that no opportunity to cross-examine the person cited as witness by the Revenue was allowed and these statements of these persons were illegally used by the AO against the assessee.
The Assessing Officer has not made any independent enquiries or conducted any investigations, either with the seller of the shares or with the stock exchange. He submitted that the conclusions of the Assessing Officer are based on a borrowed investigation report of the investigation wing of the Department which was not confronted to the assessee.
The assessee submitted that the most important function of the AO of enquiry and investigation cannot be outsourced and that the report given by the Investigation Wing to them, at best is information and material based on which the AO has to make necessary and reasonable enquiries and collect evidence to support his conclusions.
The departmental representative, Mr. John Vincent Donkuper Langstieh, on the other hand opposed the contentions of the assessee. He submitted that the Assessing Officer has referred to the seized documents and argued that these are incriminating material. He submitted that even otherwise there is no requirement for the Assessing Officer to have incriminating material found and seized during the course of search, to enable him to make additions in an assessment which is not abated under section 153A of the Act.
The division bench of A.T. Varkey and J. Sudhakar Reddy held that it is well settled that the Assessing Officer has to confront the assessee with the material collected behind the back of the assessee, if he chooses to use the material against the assessee and that he should provide the assessee an opportunity of cross- examination. Not having done so makes the evidence in question bad in law.
The ITAT ruled that the assessee has furnished all the bills evidencing the purchase of shares, copies of contract notes of the brokers, copies of the bank accounts disclosing the transaction etc. The transactions that they have taken place through banking channels. Demat statements demonstrate that the transactions had taken place on the platform of NSE. STT has been paid on these transactions. This proves the genuineness of its transactions. The Assessing Officer has no evidence or adverse material to disprove these transactions. Additions cannot be made based on inferences.
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