| Question And Answer | |
|---|---|
| Subject: | REASSESSMENT PROCEDING U/S 148 OF THE IT ACT |
| Category: | Income-Tax |
| Querist: | PAWAN KUMAR DADHICH |
| Answered by: | Law Intern |
| Tags: | Reassessment |
| Date: | February 20, 2025 |
Sir in my client case IT dept got an information during a search conducted at the premises of the supplier from whom my client used to purchase goods that my client had made a payment of Rs. 863000/_ to the supplier in cash for payment of goods, hence to verify the same case of my client re opened and now has alleged that why this as much amount of cash payment shhould be added in income u/s 69C of IT Act. however during reassessment proceding my client had furnished all the bills and copy of a/c of supplier alongwith bank a/c statement in which no such cash payment of goods is being found by the AO, SO MY QUERIES- Weather only on the information of third party reopening was valid? if not pl provide me some case Laws to agitate the reasons.
secondly whether the AO can treat it under the given circumstances as unexplained expenditure u/s 69C while AO having not found anything wrong from the examination of books of my client. if no pl provide me some case Laws also to support my argument.
Reopening an assessment under Section 147 of the Income Tax Act requires the Assessing Officer (AO) to have “reason to believe” that income chargeable to tax has escaped assessment. This belief must be based on tangible material and not mere suspicion or unverified third-party information. In your client’s case, the IT Department relied on information obtained during a search at the supplier’s premises, alleging a cash payment of Rs. 8,63,000 by your client. The validity of this reopening hinges on whether the AO independently verified this information and established a “live link” between it and the alleged escapement of income.
It is well settled that mere third-party information is insufficient: The AO cannot mechanically reopen an assessment based solely on information from a third party (e.g., during a search at the supplier’s premises) without independent application of mind or corroborative evidence linking it to the assessee’s income. The Supreme Court in CIT v. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC) emphasized that reopening requires fresh tangible material, and a mere change of opinion or unverified information does not suffice.
On the facts of this case, the IT Department reopened your client’s case based on information from the supplier’s search, alleging a cash payment. However, if the AO did not independently verify this information (e.g., through bank records, supplier’s books, or other evidence) beyond the third-party source, the reopening may lack a valid basis.
Since your client provided bills, supplier account copies, and bank statements showing no such cash payment, the AO’s reliance on unverified third-party information without further substantiation weakens the “reason to believe.”
As regards section 69C, it can be argued that the AO has not proven that your client incurred any cash expenditure of Rs. 8,63,000, as required under Section 69C. Your client’s books and bank statements show no such payment, and the AO found no discrepancies.
The allegation stems from unverified third-party information, which lacks evidentiary value without corroboration or cross-examination.
Invoking Section 69C is unjustified when the AO’s own examination of your client’s records during reassessment revealed no evidence of unexplained expenditure.
As regards the case laws, you may refer to the following:
– Kothari Metals v. ITO (2015) 377 ITR 581 (Karnataka HC): Reassessment based on a third-party statement was held invalid because the assessee was not given an opportunity to cross-examine the third party, violating principles of natural justice.
– Subhash Chander Goel v. ITO (2016) 156 ITD 808 (Chandigarh Trib.): A statement recorded by a police officer (akin to a third-party source) was not considered substantive evidence for reopening unless tested by cross-examination or supported by tangible material.
– CIT v. Kamdhenu Steel & Alloys Ltd. (2012) 248 CTR 33 (Delhi HC): Reopening based solely on information from the Investigation Wing, without the AO applying his own mind or gathering corroborative evidence, was quashed.
– Bhatia Diamonds Pvt. Ltd. v. ITO (ITAT Delhi): Addition under Section 69C based on a third-party statement, without cross-examination, was struck down.
– Bausch and Lomb India Pvt. Ltd. v. Assessment Unit (Delhi HC, W.P.(C) 5768/2024, May 2024): The Delhi High Court held that additions under Section 69C based solely on third-party information (from CBIC) without identifying specific expenditure or giving the assessee an opportunity to explain were unsustainable. The matter was remanded for fresh consideration.
– Bhatia Diamonds Pvt. Ltd. v. ITO (ITAT Delhi): Addition under Section 69C was deleted because it relied on a third-party statement without cross-examination or evidence from the assessee’s books.
– CIT v. Bhagwati Developers Pvt. Ltd. (2003) 261 ITR 658 (Cal.): The Calcutta High Court ruled that the AO must conclusively establish the existence of expenditure before invoking Section 69C; mere assumptions are insufficient.
– Agson Global Pvt. Ltd. v. ACIT (ITAT Delhi): Additions under Section 69C were disallowed in the absence of incriminating material from the assessee’s records, despite third-party allegations.