2011 (1) TMI 774 - HC - Income Tax

Search and seizure - Unaccounted income - on the ground that since a criminal case was pending under the Prevention of Corruption Act, 1988, the income tax authorities had no jurisdiction to pass assessment orders - The Assessing Officer on the basis of the oral and documentary evidence led before it vide its order dated 30.03.1988 repelled the contentions raised by the assessee that the items in Group II & Group III belonged to his wife and treated it as income in the hands of the assessee S.K. Bahadur; CIT (Appeals) had confirmed the findings of the Assessing Officer; additions made in the income of the assessee were re-affirmed - In the instant case as well when the wealth tax return was filed on 30.10.1984 by Smt. Asha Bhatnagar, there was no conceivable reason to entertain even a suspicion or surmise that one month and four days later, the Anti-Corruption Branch would make a house search of the husband of the assessee - The questions and queries put to her all related to her savings in her name prior to the marriage period as also in the period thereafter Presumptions have been made; statement on oath of Smt. Asha Bhatnagar has been repelled cursorily although she had in detail explained the circumstances under which she had made her savings; her earning earned by tuition; amounts received by her in terms of the Will of her father in law enabling her to purchase the aforenoted properties as noted in Group II in her own name - The conclusions reached by the Tribunal should not be coloured by any irrelevant considerations or matters of prejudice and if there are any circumstances which required to be explained by the assessee, the assessee should be given an opportunity of doing so - Appeals are allowed

Summary

Issues Involved:
1. Jurisdiction of Income Tax Department during the pendency of a criminal trial under the Prevention of Corruption Act.
2. Determination of undisclosed income in the hands of the assessee.
3. Validity of the wealth tax returns filed by the assessee's wife.
4. Legitimacy of the assets and income attributed to the assessee's wife.

Issue-wise Detailed Analysis:

1. Jurisdiction of Income Tax Department:
The substantial question of law formulated was whether the Income Tax Department had jurisdiction to frame assessment under the Income Tax Act, 1961, during the pendency of a trial under the Prevention of Corruption Act. The court noted that the ITAT had not decided the case on merits and recalled the orders dated 02.07.2008, which were then heard on merits.

2. Determination of Undisclosed Income:
The Assessing Officer added certain incomes as unaccounted income of the appellant based on documents forwarded by the CBI. The appellant argued that the items in Group II and Group III belonged to his wife and should not be treated as his income. The ITAT upheld the findings of the Assessing Officer, which the appellant challenged as perverse for considering irrelevant facts.

3. Validity of Wealth Tax Returns:
The appellant's wife, Smt. Asha Bhatnagar, had filed her wealth tax return on 30.10.1984, prior to the CBI raid on 04.12.1984. The court held that these returns could not be suspect documents and could not be reopened, as they had been affirmed in appeal. The same property could not be assessed twice for tax, and the wealth tax returns filed by Asha Bhatnagar were considered final and unimpeachable.

4. Legitimacy of Assets and Income:
The court found that Smt. Asha Bhatnagar had independent sources of income, including prior marriage savings, income from tuitions, and substantial sums bequeathed by her father-in-law. Her wealth tax returns had detailed these assets, and she had paid wealth tax on them. The court noted that the Assessing Officer had cursorily and illegally ignored her statements and documentary evidence, including the Will of her father-in-law and affidavits from close relatives.

The court concluded that the Assessing Officer's findings were based on surmises and conjectures, and the ITAT's upholding of these findings was perverse. The court cited precedents where findings based on conjectures and surmises were deemed perverse and liable to be set aside. The court emphasized that the evidence showed Asha Bhatnagar's assets were legitimate and should not have been attributed to the appellant.

Conclusion:
The appeals were allowed, and the court set aside the ITAT's order, holding that the findings were based on suspicion, conjectures, and surmises, and were judicially unsustainable. The court reaffirmed the legitimacy of Asha Bhatnagar's wealth tax returns and her independent sources of income.