2007 (8) TMI 7 - HC - Income Tax

Search & Seizure under section 132 - Mere guess work or an estimate cannot be an adequate substitute for a scientific investigation or carrying out some empirical study. Since the actual weight is not available, the alleged excess stock calculated by the Revenue needs to be deleted.

Summary

Issues:
1. Unexplained payment of commission
2. Excess stock of goods found during search

Issue 1: Unexplained payment of commission:
The case involved a group of assessees known as the Bansal Group, subjected to search and seizure operations under Section 132(1) of the Income Tax Act. The Assessing Officer alleged unexplained payments of commission based on statements by V.P. Jain. However, the Tribunal set aside the Commissioner of Income Tax (Appeals) orders, leading to the Revenue's appeal. The key contention was the applicability of Chapter XIV-B of the Act, which requires undisclosed income to be based on evidence found during the search. The court emphasized that post-search statements like those of V.P. Jain should have a direct nexus with recovery of incriminating material during the search to be admissible. Referring to legal precedents, the court held that undisclosed income must be unearthed as a result of the search, and statements like V.P. Jain's, not directly connected to the search, cannot be used for Chapter XIV-B proceedings. Consequently, the Revenue's appeal was dismissed.

Issue 2: Excess stock of goods found during search:
The second issue revolved around excess stock of goods discovered during the search of the assessee's premises. The search party estimated the stock visually without physically counting or weighing the goods. The assessee argued that the estimates were inadequate, as different bundles had varying weights. Both the Assessing Officer and the Commissioner of Income Tax (Appeals) made guesses regarding average bundle weights. The Tribunal agreed that empirical methods should have been used for accurate estimation instead of guesswork. It criticized the search party for taking shortcuts, emphasizing the importance of thorough investigations in determining liabilities. The court highlighted that mere signatures on the panchnama by the assessee's employees did not certify the accuracy of estimates. It concluded that the Revenue's calculation of excess stock based on estimates should be deleted, as a scientific approach should have been adopted. Given the impossibility of reevaluating the stock, no remand was required. Consequently, the Tribunal's decision to delete the alleged excess stock was upheld, and no substantial question of law was found to arise, resulting in the dismissal of the appeal.