2017 (4) TMI 524 - HC - Income Tax

Additions made in the block assessment - gold and diamonds found and seized during search - Held that - A tabulation of the additions have been circulated being cash introduced in capital account Capital and credits in the accounts of M/s.RRR Testing Net profit various credits and consequential interest payments and on-money paid on purchase of land. The provisions of s.158 BB require that undisclosed income is to be computed solely on the basis of evidence found as a result of search or requisition of books of accounts or other documents and such other materials or information as are available with the assessing officer and relatable to such evidence. On a query from the Bench the learned Standing counsel fairly states that the additions are based only on the returns of income filed by the wife as well as various other entities that were available with the department and are not relatable to seized material. The additions thus fail and have been rightly deleted by the Tribunal. The addition of an amount of Rs. 7, 68, 420/- arises from a difference in valuation viv-a-vis the assessee and the departmental valuer and is again not relatable to search material. In view of the aforesaid substantial questions No.(i) and (iii) extracted above are liable to be answered against the Revenue and in favour of the assessee. Additions made in the block assessment - no opportunity to cross-examine was granted - Held that - It is relevant to note that the present assessment emanates from a search where gold and diamonds have been found and seized. It is incumbent upon the assessee to tender an explanation about the same. The explanation tendered has to be credible and bonafide in the absence of which the burden placed on the assessee would not stand discharged. In view of the elements noted by us above being the unexplainable difference between the time of alleged receipt of gold from Ganga Jewellers and the date of accounting for the same as well as the retention of the gold with the assessee for more than 1 years till the time of return to M/s Ganga Jewellers and in the light of the fact that the assessee could not produce even basic documents such as receipt vouchers we believe that this burden has not been discharged. The Commissioner of Income tax Appeals has dealt with the matter in a proper manner setting out the facts and appreciating them in the right perspective taking note of the relevant factors pointed out in the earlier part of this order. We thus reverse the order of the tribunal on this account and restore the order of the Commissioner of Income tax (appeals) to the effect that the explanation tendered by the assesee is a mere after thought to explain the excess unaccounted jewellery found on the date of search. The explanations tendered by the assessee have been made several months after the time of search. This coupled with the fact that primary documents such as the entrustment slips have not been produced lead us to believe that the explanation tendered is a mere after thought. We also note the statement of the proprietor of Brijesh Enterprises who confirms that the transaction was not bonafide but an accommodation for commission. No opportunity has been sought to cross examine the proprietor and in any event this aspect of the matter is merely incidental and in addition to the overwhelming evidence already available to disprove the verision of events adduced by the assessee. The totality of circumstances support the conclusion that the assessee has failed to discharge the burden cast upon him to explain the diamonds in his possession. In any event the statements of Sri.Misrimal and Sri.Hemendra K.Jhaveri proprietor of M/s Brijesh enterprises are but one spoke in the entire wheel and the totality of the events that transpired have to be taken into consideration. Viewed in this light the conclusion of the Tribunal on this account is unsustainable. Substantial question number (ii) is thus answered against the assessee and in favour of the department.

Summary

Issues:
1. Challenge to Tribunal's order by Revenue for block period assessment.
2. Deletion of additions made in block assessment.
3. Cross-examination opportunity not granted.
4. Ignoring statements admitting undisclosed income.
5. Unaccounted gold and diamonds seized during search.
6. Explanation provided by assessee for seized gold and diamonds.
7. Failure to produce necessary documents and witnesses.
8. Tribunal's decision on cross-examination opportunity.
9. Assessment based on third-party statements.
10. Violation of natural justice principles.

Analysis:
1. The appeal challenges the Tribunal's order on the block period assessment from 1.4.1995 to 13.09.2001. The substantial questions of law raised relate to the additions made in the assessment and the deletion of these additions by the Tribunal. The Tribunal's decisions on the grounds of no material found during search, lack of cross-examination opportunity, and ignoring statements admitting undisclosed income are under scrutiny.

2. The Tribunal deleted additions based on returns filed by entities not related to seized material. The Tribunal found that the additions were not substantiated by evidence found during search and were rightly deleted. The Tribunal also addressed a valuation difference issue not related to search material, leading to the deletion of certain additions.

3. Regarding the seized gold and diamonds, the assessee provided explanations for the discrepancies. However, the failure to produce essential documents and witnesses raised doubts about the credibility of the explanations. The Tribunal's decision to delete additions based on lack of cross-examination opportunity was deemed unjustified.

4. The Tribunal's reliance on third-party statements for additions was contested. The Tribunal's decision to delete additions solely based on such statements without affording an opportunity for cross-examination was criticized. The sequence of events and lack of bonafide explanations led to the conclusion that the burden of proof was not discharged by the assessee.

5. The Court reversed the Tribunal's decision on the gold and diamonds issue, emphasizing the importance of credible explanations and the burden of proof on the assessee. The Court highlighted the need for proper verification and the consequences of failing to provide essential documents and witnesses.

6. The judgment referenced relevant legal precedents regarding natural justice principles and the requirement for providing statements to the assessee for rebuttal. The distinction was made between cases where cross-examination opportunities were sought and those where they were not. The totality of circumstances was considered in determining the sustainability of the Tribunal's decision.

7. In conclusion, the Court ruled in favor of the assessee on substantial questions (i) and (iii) related to the additions made in the block assessment. However, substantial question No. (ii) concerning the diamonds issue was decided in favor of the revenue due to the inadequacy of explanations and lack of bonafide transactions. The judgment emphasized the importance of credible explanations, proper documentation, and adherence to natural justice principles in tax assessments.