2012 (8) TMI 19 - AT - Income Tax

Receipt of gift from 76 persons - unexplained gift versus genuine gift - opportunity to prove genuineness - held that - It is trite law that Evidence Act is not strictly applicable to the income tax proceedings as the proceedings being quasi judicial proceedings as opposed to judicial proceedings the A.O. no doubt is not fettered by technical rules of evidence, however like any other judicial proceedings even in the income tax proceedings the issues are decided on the basis of evidences. - It is a fundamental principle of natural justice that no material should be relied upon against a party without giving him an opportunity of explaining the same. The right to know the materials on which the AO is going to take a decision in the remand proceedings is a part of the right to defend oneself. The AO, therefore, while taking action by virtue of the powers vested in him and before making an adverse order in pursuance of such power is obliged to provide to the affected person a reasonable opportunity of being heard. Such requirement underscores a point that the order is not dependent on the sweet will of the concerned authority. It will have to be according to law. It is justiciable. Rules of natural justice are not embodied rules. They are only means to an end and not an end in themselves. Their aim is to secure justice or to prevent miscarriage of justice. It is, therefore, not possible, to make an exhaustive catalogues of such rules. Fairness has to be ensured, whatever be the rule. If fairness is shown by the decision-maker to the man proceeded against, the form and features of the rule is not of much relevance. No arguments based on legal propositions have been advanced by the Sr. D.R. addressing the fact that where there are contradictory statements by 4 out of the 21 witnesses as to which statement should be relied upon and why, similarly how and why the statements of 21 witnesses should be given a blanket application to the remaining 55 witnesses has been left unaddressed in a zeal to canvass the confirmation of the addition sustained. The expression natural justice is not capable of static or precise definition. It cannot be imprisoned in the strait-jacket of cast-iron formula. All it means fairness in action. The principles will vary with varying situations of statutory bodies and rules prescribed by the Act under which they function. They yield to and change with the exigencies of different situations and do not apply in the same manner to situations which are not alike. They are neither cast in a rigid mould nor can they be put in a legal strait-jacket formula. They are not immutable, but flexible. Matter remanded back to AO with direction.

Summary

Issues Involved:
1. Addition of Rs. 1,90,00,000/- as unexplained gifts under Section 68 of the IT Act.
2. Deletion of Rs. 80,00,000/- addition made by the AO for rejection of books of accounts under Section 145(3) of the IT Act.

Issue-wise Detailed Analysis:

1. Addition of Rs. 1,90,00,000/- as Unexplained Gifts under Section 68 of the IT Act:

Background:
The assessee disclosed an income of Rs. 46,70,500/- for the A.Y. 2004-05. The AO noticed a capital addition of Rs. 1,90,00,000/- claimed as gifts from 76 persons and required the assessee to substantiate the genuineness of these gifts. The AO found the explanations unsatisfactory and treated the gifts as unexplained cash credits, leading to an addition of Rs. 1,10,00,000/- after considering a trading addition of Rs. 80,00,000/-.

Assessee's Arguments:
- The assessee argued that the AO did not provide a fair opportunity to produce the donors and that the statements of the donors were recorded behind their back.
- The assessee contended that the gifts were genuine and supported by gift deeds, bank details, and tax returns of the donors.
- The assessee requested that the issue be restored to the AO to provide an opportunity to produce all 76 donors.

Tribunal's Findings:
- The Tribunal noted that the AO's actions were hasty, especially considering the short notice given to the assessee to produce the donors.
- The Tribunal observed that the AO did not consider the additional evidence submitted by the assessee and that the remand proceedings were not conducted fairly.
- The Tribunal emphasized the principles of natural justice, stating that the assessee should be given a reasonable opportunity to present their case.
- The Tribunal directed the AO to re-examine the issue, allowing the assessee to produce all 76 donors and to pass a speaking order in accordance with the law.

Conclusion:
The Tribunal restored the issue to the AO, directing a fresh examination with a reasonable opportunity for the assessee to produce the donors.

2. Deletion of Rs. 80,00,000/- Addition Made by the AO for Rejection of Books of Accounts under Section 145(3) of the IT Act:

Background:
The AO rejected the books of accounts of the assessee under Section 145(3) of the IT Act, citing discrepancies and unverifiable transactions. Consequently, a trading addition of Rs. 80,00,000/- was made.

Assessee's Arguments:
- The assessee argued that the rejection of books was unjustified as all necessary documents and evidence were provided.
- The assessee contended that the change in business model (from owning trucks to hiring trucks) and other factors explained the discrepancies noted by the AO.

Tribunal's Findings:
- The Tribunal noted that the CIT(A) had deleted the addition, accepting the assessee's explanations regarding the change in business model and other factors.
- The Tribunal observed that the AO did not provide specific reasons to rebut the assessee's claims and that the lump sum addition lacked a proper basis.

Conclusion:
The Tribunal restored the issue to the AO, directing a fresh examination and a speaking order in accordance with the law, ensuring a reasonable opportunity for the assessee to present their case.

Summary:
The Tribunal restored both issues to the AO for a fresh examination, emphasizing the need for a reasonable opportunity for the assessee to present their case and the principles of natural justice. The AO is directed to pass a speaking order after considering all relevant evidence and providing a fair hearing to the assessee.