1997 (8) TMI 117 - AT - Income Tax

Tribunal Decision: Appeal Partly Allowed, Undisclosed Income Inclusions Upheld

TS. Kumarasamy. Versus Assistant Commissioner Of Income Tax.

The Tribunal partly allowed the appeal, deleting the addition of Rs. 1.68 crores but upheld the inclusion of Rs. 50 lakhs in the undisclosed income. The ... Account Books, Assessing Officer, Assessment Year, Income Returned, Set On, Undisclosed Income Issues Involved:1. Jurisdiction of the Assessing Officer under section 158BC.2. Addition of Rs. 1.68 crores as undisclosed income.3. Influence of the Commissioner of Income-tax on the Assessing Officer's assessment.4. Requirement of hearing before approval by the Commissioner.5. Application of mind by the Assessing Officer.6. Adequate opportunity to the assessee.7. Validity of the Rs. 50 lakhs offer as undisclosed income.Summary:Jurisdiction of the Assessing Officer under section 158BC:The assessee contended that the Assessing Officer had no jurisdiction to pass the impugned order u/s 158BC as there was no recovery of material demonstrating undisclosed income for the block period. The Tribunal found no evidence of undisclosed income (UDI) pursuant to the search operations conducted on 17-10-1995. The assessee's return filed on 7-10-1996 declared UDI of Rs. 1,06,92,950, including Rs. 50 lakhs as unexplained expenses based on his admission during the search.Addition of Rs. 1.68 crores as undisclosed income:The Assessing Officer added Rs. 1.68 crores representing 50% of the creditors as on 17-10-1995, presuming them to be bogus. The Tribunal held this addition as arbitrary and based on assumptions without proper enquiry. It was noted that the Assessing Officer should have acted diligently and conducted enquiries earlier rather than waiting till the last date of limitation. The addition was deemed illegal and unsustainable in law.Influence of the Commissioner of Income-tax on the Assessing Officer's assessment:The Tribunal observed that the assessment was influenced by the directions of the Commissioner of Income-tax, Coimbatore, who had issued detailed instructions to the Assessing Officer on 29-10-1996. The Tribunal held that such interference in the quasi-judicial functioning of the Assessing Officer rendered the assessment illegal. However, the Tribunal refrained from annulling the entire assessment due to the assessee's own admission of UDI.Requirement of hearing before approval by the Commissioner:The assessee argued that the assessment for the block period cannot be passed without the previous approval of the Commissioner, and such approval was given without fair hearing. The Tribunal did not express a firm opinion on this aspect but noted that the Commissioner discussed the case with the assessee and his Chartered Accountant on 31-10-1996, which may not be deemed as a proper hearing.Application of mind by the Assessing Officer:The Tribunal found that the Assessing Officer did not apply his mind independently and acted under the influence of the Commissioner's directions. The hurried manner in which the assessment was completed on 31-10-1996 indicated a lack of proper application of mind.Adequate opportunity to the assessee:The assessee contended that no proper opportunity was given to convince the Assessing Officer about the absence of undisclosed income. The Tribunal noted that the Assessing Officer blamed the assessee for non-cooperation and late filing of returns, but this did not justify the arbitrary addition of Rs. 1.68 crores.Validity of the Rs. 50 lakhs offer as undisclosed income:The assessee retracted the offer of Rs. 50 lakhs as undisclosed income on 31-10-1996. The Tribunal held that the assessee's admission on 25-10-1995 before the ADI was voluntary and binding, and the retraction was not supported by credible evidence. Thus, the Rs. 50 lakhs was rightly included in the UDI.Conclusion:The Tribunal partly allowed the appeal, deleting the addition of Rs. 1.68 crores but upheld the inclusion of Rs. 50 lakhs in the UDI. The UDI was computed at Rs. 1,06,92,950 as returned by the assessee. The Tribunal emphasized the need for proper understanding and application of the provisions of Chapter XIV-B by the Revenue authorities in future assessments.