1988 (7) TMI 411 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the acquisition proceedings initiated against the assessee.
2. Legitimacy of the protective addition of Rs. 85,250 under Section 69B of the Income-tax Act.
3. Evaluation of the fair market value of the property sold by Smt. Razia Begum.
4. Examination of the procedural conduct of the Income-tax Officer during the investigation.
5. Consideration of the enhancement request by the Inspecting Assistant Commissioner (IAC).
6. Jurisdiction and authority of the Commissioner of Income-tax (Appeals) [CIT (A)] to set aside the assessment order.

Detailed Analysis:

1. Validity of the acquisition proceedings initiated against the assessee:
The Tribunal noted that acquisition proceedings were initiated against the assessee and his brothers, with the property being valued thrice by the valuation cell. The first valuation report determined the value at Rs. 4.53 lakhs, the second at Rs. 11.85 lakhs, and the third revised the value to Rs. 4.60 lakhs. The Tribunal previously held that the acquisition proceedings were invalid due to non-compliance with Section 269D(2) of the Income-tax Act.

2. Legitimacy of the protective addition of Rs. 85,250 under Section 69B of the Income-tax Act:
The Income-tax Officer initially proposed to treat the undeclared consideration as the income of the assessee and his brothers but concluded that the fair market value did not exceed Rs. 4.56 lakhs. However, as a protective measure, he added 11% of Rs. 7.75 lakhs, amounting to Rs. 85,250, under Section 69B. The CIT (A) upheld the objection that such a protective addition was not legally valid, and the Tribunal concurred, stating that protective additions of this nature are void ab initio and cannot be cured by subsequent proceedings.

3. Evaluation of the fair market value of the property sold by Smt. Razia Begum:
The Tribunal examined the various valuation reports and the circumstances under which they were obtained. The first valuation report valued the property at Rs. 4.53 lakhs, the second at Rs. 11.85 lakhs (influenced by an affidavit from Smt. Razia Begum), and the third revised the value to Rs. 4.60 lakhs. The Income-tax Officer, after thorough investigation, concluded that the fair market value did not exceed Rs. 4.56 lakhs. The Tribunal upheld this conclusion, noting that the department had not brought any material to impeach the findings.

4. Examination of the procedural conduct of the Income-tax Officer during the investigation:
The CIT (A) criticized the Income-tax Officer for not examining Smt. Razia Begum and for conducting the investigation in a "topsy-turvy fashion." However, the Tribunal found that the Income-tax Officer had conducted a thorough investigation, including issuing summons to Smt. Razia Begum, examining relevant witnesses, and considering various valuation reports. The Tribunal held that the procedural conduct of the Income-tax Officer was proper and legitimate.

5. Consideration of the enhancement request by the Inspecting Assistant Commissioner (IAC):
The IAC requested an enhancement based on several grounds, including the sale of adjacent property by Dr. Zahir Ahmed for Rs. 12 lakhs and affidavits filed by Smt. Razia Begum. The CIT (A) found that the authenticity of the documents relied upon by the IAC was not established and held that the request for enhancement was premature. The Tribunal agreed, noting that the scribblings and other documents were not relevant to the assessment of the assessee and that the CIT (A) was not justified in directing a fresh investigation.

6. Jurisdiction and authority of the Commissioner of Income-tax (Appeals) [CIT (A)] to set aside the assessment order:
The CIT (A) set aside the order of the Income-tax Officer, directing a fresh investigation. The Tribunal held that while the CIT (A) has the authority to order a fresh enquiry, this power must be exercised judicially in appropriate circumstances. The Tribunal found that the order passed by the Income-tax Officer was fair and reasonable and that no case was made out by the revenue to warrant setting aside the order. Therefore, the Tribunal set aside the order of the CIT (A) and deleted the protective addition of Rs. 85,250.

Conclusion:
The Tribunal allowed the appeal, setting aside the order of the CIT (A) and deleting the protective addition of Rs. 85,250. The assessment as framed by the Income-tax Officer, sans the protective addition, was upheld. The Tribunal emphasized that protective additions of this nature are void ab initio and that the procedural conduct of the Income-tax Officer was proper and legitimate.