SODHANI FINANCIAL CONSULTANT PVT.LTD.,JAIPUR vs. ITO, JAIPUR
What did the Tribunal hold?
The Tribunal held that the assessee does not waive their right to confront material simply by not asking for it or objecting to reassessment proceedings initially. Procedural violations can be addressed at the assessment stage.
What were the facts?
The assessee's return was selected for scrutiny following a search at related premises. The Assessing Officer (AO) proposed an addition of Rs. 48 lacs for accommodation entries, relying on material not fully disclosed to the assessee. The assessee argued this violated principles of natural justice.
What were the issues?
Whether the AO erred by relying on material gathered behind the assessee's back without providing an opportunity to explain, and if the assessee waived this right by not objecting earlier.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JAIPUR
Before: SMT, DIVA SINGH
PER: DIVA SINGH, J.M. The present appeal has been filed by the assessee assailing the correctness of the order dated 08/12/2015 of Id. CIT(A)-I, Jaipur pertaining to 2009-10 assessment year on various grounds. The parties were heard only in respect of ground No.4, which reads as under:-
"4 Learned Income Tax Officer has erred in using a large chunk of material gathered behind back of the assessee without providing its copy to the assessee and without allowing it an opportunity to submit his explanation thereon rendering his assessment order to a nullity."
Relevant facts of the case are that, as a result of search/survey U/s 132/133A of the Income Tax Act, 1961 (in short the Act) conducted at the residential and business premises of Shri Surender Kumar Jain and his brother Shri Virendra Jain, the assessee's return was picked up for scrutiny. After issuing of notice U/s 147 of the Act. The assessee was show caused why the addition of Rs. 48.00 lacs should not be made in the hands of the assessee as accommodation entry. The assessee having failed to convince the Assessing Officer why shares
were sold on a premium in the month of February, 2009 by a company only two
months old challenged the addition before the CIT(A). The challenge was posed
on various grounds before the CIT(A) including the grounds that the material
relied upon to make the addition was never confronted to the assessee. The
said objections were dismissed by the CIT(A) holding as under:-
(v) The assessment proceedings further continued on 22.12.2014 and 26.12.2014 but the appellant never asked the AO in specific terms the material in the possession of the AO including the statements of Shri V. K. Jain and Shri S. K. Jain recorded by the investigation wing at Delhi.
(vi) The above facts clearly revealed that the appellant had waived his right before the AO itself by not objecting to the initiation of proceedings u/s 147 of the Act and not specifically requiring the material in possession of the AO for taking action against the appellant. Therefore, with this acquiescent on the part of the appellant, the appellant now cannot agitate that the information gathered behind his back was not confronted to it and no opportunity was given to it to explain its case. It is crystal clear from the reasons receded by the AO, as reproduced above, that during the course of search action in Shri S K Jain and Shri V K Jain at Delhi, it was established that they were providing accommodation entries through a number of entities controlled by them and were issuing cheques for share capital in lieu of cash. Further, the AO recorded that on the basis of seized material, it was found that the appellant had received accommodation entries amounting to Rs. 48 Lac from the concerns controlled by Shri S KJain and Shri V K Jain for which he bad given the details to the appellant as mentioned earlier.
(vii) The appellant, therefore, cannot be allowed to raise the contention that the material gathered at its back was not confronted to it and no opportunity was accorded to it by the AO as the gist of the material has already been communicated to it in the form of reasons recorded for reopening the case u/s 147 of the Act and the appellant had neverrequired the material collected by AO. In fact, the appellant never raised any objection about the initiation of proceedings u/s 147 of the Act."
The Id AR submitted that since the material utilized has been collected
at its back, the addition may be deleted. Though, the Id. Sr.DR heavily relied
upon the impugned order, however, was unable to support its case as to how
and why the material collected at the back of the assessee should not have
been confronted.
I have heard the rival submissions and perused the material available on
the record. I find that the prayer of the Id AR that the department having
collected the material at the back of the assessee and relying upon the same
has committed such an error, which warrants that the addition be deleted,
cannot be accepted. The procedural violation is capable of being addressed by
addressing the stage at which the lapse has occurred. Accordingly, setting aside
the aforesaid finding of the CIT(A), I am of the view that simply because the
assessee did not ask for the material in possession of the Assessing Officer and
did not object to the initiation of proceedings u/s 147 of the Act, at the assessment
stage, cannot be a reason to conclude that the assessee has waived its rights for
all times to come. It is well settled that the jurisdictional issue being a foundational
issue has to be justified whenever it is challenged by the affected party. The law
does not contemplate that the foundational fact and challenge thereto can be said
to be waived in the peculiar facts of the present case. The assessee is within his
rights to challenge the jurisdiction before the CIT(A). The challenge having been
posed has to be addressed by the tax authorities. Accordingly, the impugned
order is set aside and the issue is restored back to the file of the Id. CIT(A) with a
direction to confront the assessee within the material relied upon and decide the
jurisdictional issue which the assessee has raised and thereafter to proceed to
decide the issue on merits if so warranted. The said order was pronounced in the
open court at the time of hearing in the presence of the parties.
In the result, the appeal of the assessee is allowed for statistical purposes only. Order pronounced in the open court n 07 April,2017.
Sd/- (Diva Singh) Judicial Member Dated:- 7th April, 2017, *Ranjan/Poonam (CHD) Copy of the order forwarded to; 1. Appellant- Sodhani Financial Consultant Pvt, Ltd., Jaipur. 2. The Respondent- The I.T.O., Ward-3(5), Jaipur. 3. The CIT 4. the CIT (A) 5. DR, ITAT, Jaipur 6. Guard File (ITA No. 191/JP/2016)
By order;
Asstt. Registrar
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