Reassessment Based on Uncorroborated Third-Party Excel Sheets Quashed for Jurisdictional Defects

Reassessment Based on Uncorroborated Third-Party Excel Sheets Quashed for Jurisdictional Defects

1. Core Issue: Validity of Reopening and Reliance on Digital “Dumb” Documents

The dispute centered on an addition of ₹55,02,640 under Section 69A. The Assessing Officer (AO) reopened the assessment based on an Excel sheet found during a search on a third party (M/s Futuristic Metal Trading Pvt. Ltd.). The sheet allegedly listed cash payments made by the assessee for scrap purchases.

2. Legal Ruling: Jurisdictional and Procedural Flaws

I. Violation of Section 147 Proviso (Reopening Beyond 4 Years)

The original assessment was completed under Section 143(3). Reopening occurred after four years.

• The Ruling: Under the proviso to Section 147, the AO must prove that the assessee failed to disclose “fully and truly” all material facts.

• The Finding: The AO failed to specify which facts were suppressed. A mechanical reopening based on external information, without alleging failure on the part of the assessee, is legally barred.

II. JAO vs. FAO: Jurisdictional Error

The notice under Section 148 was issued by the Jurisdictional Assessing Officer (JAO) instead of the Faceless Assessing Officer (FAO).

• The Ruling: Per Section 151A and CBDT Notifications dated 29.03.2022, reassessment notices must be issued through the faceless automated allocation system.

• The Finding: Issuance by the JAO after March 2022 is a fundamental jurisdictional defect that renders the assessment void ab initio.

III. Reliance on Uncorroborated Third-Party Data

The addition was based solely on a “Cash & CH Report” Excel sheet from a third party.

• The Ruling: Digital data from a third party is a “dumb document” unless corroborated.

• The Finding: No statement was recorded from the Excel sheet’s author, no cash trail was found, and the assessee was denied cross-examination. This violates the principles of natural justice as per the Supreme Court in Andaman Timber Industries.

3. Decision on Merits: Books of Account and Stock Records

The Tribunal found the addition unsustainable on facts:

• Accepted Trading Results: The assessee maintained audited books, quantitative stock records, and VAT compliance, all of which were accepted.

• Nexus of Sales: The AO accepted the sales but dubbed the corresponding purchases as “unexplained.” The Tribunal held that if sales are accepted and books are not rejected under Section 145, additions for bogus purchases cannot be made.

• Evidence Admissibility: The electronic evidence (Excel sheet) lacked a certificate under Section 65B of the Indian Evidence Act, making it inadmissible.

4. Summary of the Final Order

The ITAT allowed the appeal, quashing the reassessment and deleting the addition.

• Reassessment: Quashed (Jurisdictional grounds).

• Addition: Deleted (On merits).

• Section 143(2) Notice: Held valid (as CBDT instructions relied upon were administrative, not statutory under Section 119).

Key Takeaways for Taxpayers

1. Check Issuing Authority: Notices from your local JAO post-March 2022 are highly contestable.

2. Demand Cross-Examination: If the AO relies on a third party’s statement or digital record, you have a constitutional right to cross-examine that party.

3. Audit Trail: Maintaining robust stock registers and proving the nexus between purchases and sales is the best defense against “accommodation entry” allegations.