ITAT Chandigarh Strikes Down Reassessment: JAO Powerless Under Faceless Regime, Third-Party Digital Data Cannot Support Section 69 Addition
Overview of the Tribunal's Decision
The Income Tax Appellate Tribunal, Chandigarh Bench, delivered a significant ruling in the matter of Abhimanyu Gupta Vs DCIT, allowing the appeal filed by the assessee and completely overturning the reassessment proceedings. The Tribunal's judgment addressed two fundamental issues: the jurisdictional validity of notices issued by the Jurisdictional Assessing Officer after the introduction of the faceless assessment framework, and the evidentiary value of third-party digital records in sustaining additions under Section 69 of the Income Tax Act, 1961.
The Tribunal conclusively held that once the faceless assessment mechanism came into operation through Section 151A and corresponding CBDT notifications, the Jurisdictional AO ceased to possess authority to issue notices under Section 148. Furthermore, the Tribunal determined that when evidence emerges from search operations conducted at third-party premises, the appropriate legal route involves proceedings under Section 153C rather than Section 147/148, rendering the entire reassessment legally void from its inception.
On substantive grounds as well, the addition of ₹50 lakh allegedly representing undisclosed cash payment for property acquisition under Section 69 was struck down. The Tribunal observed that the revenue's case relied entirely upon digital excel spreadsheets and testimonies obtained from third parties, without any corroborating documentary evidence, payment receipts, or provision for cross-examination of witnesses.
Factual Matrix of the Case
Original Return Filing and Reassessment Initiation
The assessee, an individual taxpayer, had originally submitted his income tax return for Assessment Year 2018-19, declaring a total income of Rs.6,46,83,775/-. The assessment proceedings initially concluded without any dispute. However, subsequently, the Assessing Officer initiated reassessment proceedings under Section 147 of the Income Tax Act, 1961, triggered by information forwarded from the Investigation Wing.
This information stemmed from a search operation conducted under Section 132 at the premises of the Homeland Group of companies. During this search, the Investigation Wing reportedly discovered certain digital documents, specifically excel spreadsheets, which allegedly indicated that the assessee had acquired Flat No. T-3/51 in the "Homeland Heights" project and had purportedly made cash payments of Rs.50,00,000/- over and above the amounts paid through cheques and RTGS transactions that were reflected in registered sale documents.
Basis of the Revenue's Case
The Assessing Officer's case primarily rested upon statements recorded from certain employees of the builder during the search proceedings. These statements purportedly revealed a systematic modus operandi wherein the builder received sale consideration partly through legitimate banking channels and partly in unaccounted cash. The Assessing Officer relied predominantly upon the seized excel sheet and these third-party statements to conclude that the assessee had made unaccounted cash payment amounting to Rs.50,00,000/-.
Assessee's Response and Denials
The assessee categorically denied making any cash payment beyond the amounts documented in registered sale deeds and banking records. The assessee repeatedly requested complete disclosure of all back-end material and sought an effective opportunity for cross-examination of the persons whose statements formed the basis of the allegations. Although the Assessing Officer provided partial material, no direct evidence such as cash receipts, written confirmations from the builder, or any admission by the assessee was placed on record.
Assessment Order
Notwithstanding the assessee's submissions and denials, the Assessing Officer rejected the explanations provided and proceeded to make an addition of Rs.50,00,000/- treating it as unexplained investment under Section 69 of the Act. The assessment was completed under Section 147 read with Section 144B of the Income Tax Act, 1961.
Proceedings Before the First Appellate Authority
The assessee challenged the assessment order before the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi. Before the first appellate authority, the assessee contended that the entire addition was founded upon mere conjectures, third-party statements, and "dumb documents" seized from third parties, without providing any opportunity for cross-examination of the witnesses whose statements were being used against the assessee.
The assessee argued that such proceedings violated the principles of natural justice and that the burden of proof had not been discharged by the revenue authorities. However, the Commissioner of Income Tax (Appeals) upheld the findings of the Assessing Officer. The appellate authority observed that the denial by the assessee was not supported by clinching evidence to refute the findings regarding the alleged cash component. The Commissioner concurred that while the property was registered at a value paid through banking channels, the cash payment of Rs. 50,00,000/- represented undisclosed income that had escaped assessment.
Grounds of Appeal Before ITAT
Aggrieved by the order of the Commissioner of Income Tax (Appeals), the assessee preferred an appeal before the Income Tax Appellate Tribunal, Chandigarh Bench. The appeal raised multiple substantive and procedural grounds challenging both the validity of the reassessment proceedings and the merits of the addition made under Section 69.
Jurisdictional Challenges
The primary jurisdictional ground raised was that the Jurisdictional Assessing Officer was not empowered to issue notice under Section 148 of the Income Tax Act, 1961 after the new regime of faceless assessment was brought into force. The assessee relied upon the judgment of the Punjab & Haryana High Court in Jasjit Singh V/s Union of India and Others reported in [2024] 165 com 114 (Punjab & Haryana) to contend that the reassessment order passed and upheld by the Commissioner pursuant to an invalid notice dated 31.03.2022 was illegal, arbitrary and unjustified.
Another jurisdictional objection raised was that the initiation of proceedings under Section 147/148A was made without satisfying the statutory pre-conditions required for initiation of such proceedings. It was further contended that the proceedings were mechanical and without any application of mind, much less independent application of mind, rendering the notice issued under Section 148 invalid and the assumption under Section 147 without jurisdiction.
A crucial legal argument advanced was that the proceedings ought to have been initiated under Section 153C rather than under Section 148, since the evidence relied upon was found from the premises of the searched person and not from the assessee's premises. The assessee contended that the issuance of notice under Section 148 as against Section 153C was illegal, arbitrary and unjustified.