To elaborate, Section 142 of the Act provides for the procedure to be followed by the A.O. while making the requisite enquiries before concluding an assessment. Section 142(1) of the Act empowers the A.O. to call for information/material from the assessee. Section142 (2) empowers the A.O. to make such enquiry as may be necessary for the purpose of such assessment. Section 142 (3) mandates that the information/evidence collected pursuant to the enquiry conducted u/s 142(2), which is proposed to be utilized during the assessment, shall first be put to the assessee to provide him/her with an opportunity of being heard before the same is even utilized to make an addition/disallowance u/s 143(3). There is, thus, a specific procedure that must be followed by the A.O. while making an assessment under the Income Tax Act. Section 142 (3) uses the word ‘shall’, thus, rendering the same to be by no means discretionary upon the whims and fancies of the A.O.

7.11 Applying the law to the case at hand, it is evident that the Inspector Reports, that had been relied upon by the A.O., have been reproduced in length for the first time in the Assessment Orders only. The A.O.,by failing to confront the assessees with the evidence he had gathered u/s 142(2) Act, has, therefore, erroneously skipped the mandatory intermediary step prescribed u/s 142(3) of the Act. Thus, when the A.O. has directly gone on to pass the Assessment Orders u/s 147/143(3) of the Act to make the impugned additions u/s 68, the same is in direct violation of the procedure of enquiry prescribed in the Statute that inherently encompasses the Principle(s) of Natural Justice. We derive support to our line of reasoning from the decision of the coordinate Bench of the Hon’ble Kolkata Tribunal in M/s. SPML Infra Ltd. vs. DCIT, ITA No. 1228/Kol/2018 wherein it has been held as under:

“14. To conclude: We note that none of the statements were recorded by the assessing officer of the assessee company, and no opportunity for cross examination has been provided to the assessee company. The mandate of law to conduct enquiry by the Assessing Officer on due information coming to him to verify authenticity of information was not done as per section 142 of the Act.Therefore, mere receipt of unsubstantiated statement recorded by some other officer in some other proceedings more particularly having no bearing on the transaction with the assessee does not create any material evidence against the assessee. This is because section 142(2) mandates any such material adverse to the facts of assessee collected by AO u/s 142(1) has to be necessarily put to the assessee u/s 142(3) before utilizing the same for assessment so as to constitute as reliable material evidence through the process of assessment u/s 143(3) of the Act.”

It has not been disputed that the assessees have filed their original returns of income wherein all the particulars of the investments made by investor companies of Kolkata, Mumbai, Guwahati and Delhi have been disclosed before the Department. Further the assessees had also produced the copies of the Confirmations, Bank Statements and the Income Tax Returns of all the investor companies before the A.O. during the course of the reassessment proceedings. These documents form part of the Paper Book 1B, 2B and 3B filed in each of the Appeals by the assessees. It is also not in dispute that the A.O., while passing the Assessment Orders, did not raise any doubts with respect to the documentary C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO evidences submitted before him by the assessees. It is again not in dispute that all the investments (in the form of share capital and share premium) have been duly made via banking channels where the investor companies have shown sufficient balances in their bank accounts to make such an investment in the assessee companies. Further, upon a perusal of the bank statements brought on record by the assessees, it is also evident that no cash was found to have been deposited in the bank accounts of the investor companies. All the investor companies (in the case of all the three Assessees) are registered companies and are assessed to tax also, as is evident from the bank statements and/or the ITR Acknowledgments. Therefore, the identity, genuineness of the transaction and the creditworthiness of the investor companies have been proved by the assessees and they have successfully discharged the initial burden of proof that vested on them u/s 68 of the Act. The A.O. has nowhere, in the Assessment Orders, disputed this information/material submitted by the assessees and has merely sought to rely on the Reports prepared by the Inspectors.