2008 (1) TMI 372 - HC - Income Tax

Court emphasizes need for proper assessment procedures, dismisses appeal based on inadequate evidence

The court dismissed the appeal, emphasizing that the Assessing Officer should have considered the revised returns filed by the assessee rather than ... Search – one of the partners send a letter to dept. stating that partners are willing to voluntarily offer an additional income subject to deduction u/s 80HHC - solely relying upon that letter, AO passed an assessment order rejecting the revised return filed by the assessee – held that it was duty of AO to scrutinize the revised return – claim u/s 80HHC could be rejected only if AO found any irregularity in revised return – said letter can’t be treated as return filed or statement u/s 132(4) Issues:1. Challenge to order passed by Income-tax Appellate Tribunal.2. Validity of rejection of revised returns by Assessing Officer.3. Consideration of letter dated January 25, 1995, as part of the assessment.4. Application of sections 28 and 58 of the Indian Evidence Act.Issue 1: Challenge to order passed by Income-tax Appellate Tribunal:The Revenue challenged the order passed by the Income-tax Appellate Tribunal, Bangalore Bench, which reversed the findings of the Assessing Officer and the Commissioner of Income-tax (Appeals). The Tribunal directed the Assessing Officer to consider a statement made under section 132(4) of the Income-tax Act, where the respondent-assessee agreed to offer additional income subject to deduction under section 80HHC. The Revenue filed the present appeal against this decision.Issue 2: Validity of rejection of revised returns by Assessing Officer:The Assessing Officer rejected the revised returns filed by the assessee based solely on a letter dated January 25, 1995, where a partner of the firm disclosed additional income. The Commissioner of Income-tax (Appeals) upheld this rejection. However, the Tribunal found that the Assessing Officer should have considered the revised returns filed by the assessee before passing an order of assessment. The failure to scrutinize the revised returns properly led to the Tribunal allowing the appeal in part.Issue 3: Consideration of letter dated January 25, 1995, as part of the assessment:The main contention revolved around whether the letter dated January 25, 1995, could be treated as part of the statement recorded under section 132(4) of the Income-tax Act. The court determined that the letter was not recorded on oath during the search and seizure process, making it ineligible to be used against the assessee in the assessment proceedings. The letter did not constitute a proper return under the Income-tax Act and did not unconditionally disclose income, leading to the Assessing Officer's failure to follow due process in assessing the income.Issue 4: Application of sections 28 and 58 of the Indian Evidence Act:The Revenue attempted to invoke sections 28 and 58 of the Indian Evidence Act to argue for the admissibility of the letter as an admission of undisclosed income. However, the court found that these sections were not applicable in this case as the matter did not pertain to criminal proceedings. The letter, being conditional and not constituting a proper return, could not be considered as an admission by the assessee. The court emphasized the importance of scrutinizing the revised return rather than relying on the letter for assessment purposes.In conclusion, the court dismissed the appeal, holding that the Assessing Officer should have considered the revised returns filed by the assessee instead of solely relying on the letter dated January 25, 1995. The court found that the letter did not meet the criteria to be treated as part of the statement under section 132(4) of the Income-tax Act and did not constitute an admission of undisclosed income. The application of sections 28 and 58 of the Indian Evidence Act was deemed inappropriate in this context.