“third party information”
The decision most relied on for third party information is Andaman Timber Industries v. CCE (281 CTR 241), cited in 1,335 judgments on BharatTax.
Leading authorities on third party information
An assessee must be given an opportunity to cross-examine third parties whose statements are relied upon for adverse findings. Failure to provide this opportunity is a serious flaw rendering the order a nullity.
The genuineness of share transactions, particularly those generating long-term capital gains, cannot be rejected solely based on general investigation reports, third-party statements, or a mere increase in share price, when the assessee provides comprehensive documentary evidence, without the Revenue bringing substantial evidence to the contrary.
If the Assessing Officer relies on adverse evidence or witness testimony, including statements recorded under Section 132(4), the assessee must be provided an opportunity to cross-examine the witness or source of the evidence, upholding principles of natural justice. An assessment made without such an opportunity may be considered invalid.
A live link of third-party information can form the basis for reopening an assessment under Section 148, provided it contains material facts necessary for assessment. The Assessing Officer must demonstrate a "reason to believe" that income has escaped assessment, which can be satisfied by such information even if it pertains to other assessees or relates to accommodation entries.
The Assessing Officer is justified in initiating reassessment proceedings under Section 147 based on specific, tangible information received, even if an assessment under Section 143(1) or 143(3) was previously done. At the initial stage, "reason to believe" only requires relevant material to form a reasonable belief that income has escaped assessment, not established proof of escapement.
The Assessing Officer cannot make additions to income based solely on loose papers, scribbled figures, or entries in seized material without independent corroborative evidence, proof of actual money transfer, or statements from concerned parties. Suspicion, however strong, is not a sufficient basis for additions under income tax law.
The case clarifies the concept of a "fiduciary relationship," emphasizing its foundation in trust, confidence, integrity, and the obligation to act primarily for the benefit of another. It also notes the fiduciary's duty to act in confidence and not disclose information to third parties.
The validity of reassessment proceedings initiated under Sections 147/148 against legal representatives of a deceased assessee requires a demonstrable 'reason to believe' that income escaped assessment, often based on third-party information such as alleged accommodation entries.
