Assessment based on Third-Party Evidence cannot be Confirmed If Evidence not Provided to Searched Person: ITAT [Read Order]

The Cochin Bench of the Income Tax Appellate Tribunal (ITAT) recently granted relief to an Assessee, holding that an assessment based on third-party evidence cannot be sustained if such evidence is not made available to the assessee against whom proceedings are being undertaken on the basis of the third-party evidence.

The decision came in an appeal filed by Manalparambil Aboobacker, who contested the decision of the National Faceless Appeal Centre, Delhi  ( CIT(A) ) which sustained an assessment made against the appellant on the basis of documents recovered during a search and seizure operation conducted on the Malabar Group of concerns.

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The Appellant had filed their returns of income for the Assessment Year (A.Y.) 2013-14 declaring an income of ₹2,17,980. However, after a search and seizure operation was conducted against the Malabar Group of concerns, the Assessing Officer (AO) alleged that Aboobacker had received undisclosed income from the group in the form of returns on investments.

The AO relied on a second set of books of accounts maintained in virtual format by third parties to arrive at this conclusion. Subsequently, the AO AO issued a notice under Section 153C of the Income Tax Act, 1961, initiating proceedings against Aboobacker.

In response to the notice, Aboobacker filed a return reiterating the same income as originally declared. However, the AO proceeded with the assessment and passed an order under Section 143(3) read with Section 147 of the Income Tax Act, increasing the total income to ₹5,35,980 by adding ₹3,18,000 as alleged undisclosed income.

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The taxpayer contested this addition before the ( CIT(A) ), arguing that there was no direct evidence linking him to the alleged undisclosed income. Despite these contentions, the CIT(A) upheld the assessment, prompting Aboobacker to approach the ITAT.

The Appellant, represented by V.P. Narayanan asserted that the assessment was made without adverting to the statement of facts and grounds of appeal raised by the appellant, and prayed that the matter be remanded to the file of the CIT(A).

Meanwhile, Departmental Representative Suresh Sivanandan raised no serious objections.

A two-member bench comprising Accountant Member Inturi Rama Rao and Judicial Member Soundararajan K observed that neither the assessment order nor the ruling of the CIT(A) laid reference to the satisfaction recorded by the AO of the searched party, a critical requirement under Section 153C.

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Additionally, ITAT noted that the assessment order did not clarify whether the taxpayer’s name appeared in the seized documents or whether the evidence was ever shown to him. The Tribunal found that the CIT(A) had summarily upheld the addition without reviewing the seized material or addressing the taxpayer’s concerns.

Matters being so, ITAT set aside the impugned assessment and remanded the matter to the CIT(A) for fresh adjudication after affording reasonable opportunity of hearing to the appellant.

To Read the full text of the Order CLICK HERE

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