2005 (6) TMI 208 - AT - Income Tax

Tribunal dismisses Revenue's appeal, deleting Rs. 17 lakhs from assessee's income due to lack of evidence.

The Tribunal dismissed the Revenue's appeals, confirming the CIT(A)'s order to delete the addition of Rs. 17 lakhs to the assessee's income. The Tribunal ... Income From Undisclosed Sources Issues Involved:1. Legality of the initiation of proceedings under Section 147/148 of the IT Act.2. Validity of the addition of Rs. 17,00,000 to the assessee's income based on entries found in Jain Hawala diaries.3. Relevance and admissibility of evidence collected by the CBI in criminal proceedings under the Prevention of Corruption Act.4. Opportunity for cross-examination of witnesses whose statements were recorded by the authorities.Issue-wise Detailed Analysis:1. Legality of the initiation of proceedings under Section 147/148 of the IT Act:The AO initiated proceedings under Section 147/148 based on the information that the assessee allegedly received Rs. 17 lakhs from Jain Brothers, as recorded in Jain Hawala diaries. The AO believed that the income had escaped assessment. The CIT(A) confirmed these findings. However, the Tribunal noted that once the prosecution against the assessee was dropped, the very foundation of initiating proceedings under Section 147 disappeared. The Tribunal stated, 'Once the prosecution against the assessee has gone, the very foundation of initiating the proceedings under s. 147 would disappear and would not exist.'2. Validity of the addition of Rs. 17,00,000 to the assessee's income based on entries found in Jain Hawala diaries:The AO added Rs. 17 lakhs to the assessee's income based on entries in Jain Hawala diaries, which were recovered from the residence of J.K. Jain. The AO concluded that the initials 'J.K.H.' in the diaries referred to the assessee. However, the Tribunal found that the addition was made on mere suspicion and without corroborative evidence. The Tribunal highlighted that the CIT(A) observed, 'the addition of Rs. 17 lakhs was made on the basis of entries found in the Jain diary found by the CBI in possession of the Jain Brothers.' The Tribunal also noted the absence of any recovery made at the instance or possession of the assessee.3. Relevance and admissibility of evidence collected by the CBI in criminal proceedings under the Prevention of Corruption Act:The AO relied on the CBI's charge-sheet and statements recorded by the CBI. The Tribunal noted that the assessee was discharged and acquitted by the Special Judge, New Delhi, and that the Delhi High Court and the Supreme Court had not considered the Jain diaries as legal evidence. The Tribunal stated, 'The Hon'ble Supreme Court also in the case of V.C. Shukla held that in the present case there is no evidence against the petitioner except diary, note book and loose sheet with regard to payment.'4. Opportunity for cross-examination of witnesses whose statements were recorded by the authorities:The assessee requested the opportunity to cross-examine witnesses whose statements were recorded by the authorities, but this opportunity was not provided. The Tribunal emphasized that material collected at the back of the assessee cannot be used against them without providing an opportunity for cross-examination. The Tribunal cited the Supreme Court's decision in Kishinchand Chellaram vs. CIT, stating, 'if any material is collected by the IT authorities at the back of the assessee then opportunity to controvert the same should have been given to the assessee.'Conclusion:The Tribunal dismissed the Revenue's appeals, confirming the CIT(A)'s order to delete the addition of Rs. 17 lakhs. The Tribunal found that the addition was based on suspicion without corroborative evidence and that the proceedings under Section 147/148 were not sustainable once the criminal prosecution was dropped. The Tribunal also emphasized the importance of providing the assessee with the opportunity to cross-examine witnesses. The wealth-tax appeal was also dismissed as it was consequential to the income-tax matter.