2017 (12) TMI 1334 - AT - Income Tax

Addition of FD seized from bank premises - Held that - In view of the factum of FDRs being encashed and the amount being deposited on assessee s behalf in the personal deposit account of the Commissioner of Income Tax on 05.11.2002, we find no merit in the stand of learned Authorized Representative for the assessee. The assessee had admitted that the said FDRs belonged to him and thereafter on maturity, the same were encashed and were deposited in Personal Deposit (PD) account on the request of assessee. In view thereof, we find no merit in the plea of assessee in this regard and uphold the addition of ₹ 2 lakhs being the amount of FDRs held in different names and the addition of interest thereon of ₹ 29,760/-. Addition made on account of FDRs in fictitious names in the bank register which was earmarked allegedly in the name of assessee - Held that - This is a case of block assessment under section 158BC of the Act, wherein the said letter was found in the possession of the Co-operative Bank, in which, undoubtedly, the assessee was Director; but the documents cannot be passed on and the entries in the said documents be the basis for making addition in the hands of assessee from whose possession, no such document was found. Accordingly, we hold so. The learned Authorized Representative for the assessee had repeatedly stated that he was looking after Raviwar Peth branch and he was the Director of said branch and not of Yerwada branch, cannot be accepted as basis for deleting addition in the hands of assessee, since the assessee is Director of Co-operative Bank. However, in the absence of any physical FDRs being found from the possession of assessee or even from the bank which indicates that the same relate to the assessee, there is no merit in making the aforesaid addition in the hands of assessee and the same is directed to be deleted. Even in respect of the notings in FDR register, the statement recorded has not been provided to assessee nor cross-examination allowed. The Assessing Officer shall accordingly delete the addition.

Issues Involved:
1. Timeliness of the order communicated to the appellant.
2. Addition of ?2,00,000/- for alleged investment in unexplained FDs.
3. Addition of ?29,760/- for interest on said FDs.
4. Addition of ?17,40,197/- for alleged investment in fictitious FDs.
5. Violation of rules of natural justice in the assessment order.

Detailed Analysis:

1. Timeliness of the Order Communicated to the Appellant:
The appellant raised the issue that the order communicated and received after 31st December 2011 should be held as non-effective and beyond the time limitation. However, this ground of appeal was not pressed by the assessee and hence, dismissed as not pressed.

2. Addition of ?2,00,000/- for Alleged Investment in Unexplained FDs:
The issue centered on the addition of ?2,00,000/- based on FDRs discovered during a search at M/s. Agrasen Urban Co-op. Bank Ltd. The assessee initially denied ownership of the FDRs but later, in a letter dated 30.10.2002, confirmed that the FDRs belonged to him and agreed to pay the taxes. The FDRs were encashed and the amount along with interest was deposited in the personal deposit account of the Commissioner of Income Tax. The Tribunal upheld the addition, finding no merit in the assessee's subsequent denial.

3. Addition of ?29,760/- for Interest on Said FDs:
Alongside the principal amount of ?2,00,000/-, the interest of ?29,760/- earned on these FDRs was also added to the assessee's income. The Tribunal upheld this addition as well, consistent with the decision on the principal amount.

4. Addition of ?17,40,197/- for Alleged Investment in Fictitious FDs:
This issue involved FDRs allegedly in fictitious names but earmarked for the assessee based on entries in the bank’s FDR register. The Tribunal noted that no physical FDRs were found during the search of either the bank or the assessee’s premises. The addition was based on statements from bank employees, which the assessee was not allowed to cross-examine. The Tribunal found that the onus was on the bank to explain the source of the FDRs, and in the absence of physical evidence or corroborative statements, the addition could not be justified. The Tribunal directed the deletion of the addition of ?17,40,197/-.

5. Violation of Rules of Natural Justice in the Assessment Order:
The assessee claimed that the assessment order was passed in violation of the rules of natural justice, particularly the right to cross-examine witnesses. The Tribunal found merit in this claim regarding the addition of ?17,40,197/- since the assessee was not given the opportunity to cross-examine the bank employees whose statements were used against him. This contributed to the decision to delete the addition.

Conclusion:
The appeal was partly allowed. The Tribunal upheld the additions of ?2,00,000/- and ?29,760/- but deleted the addition of ?17,40,197/- due to lack of physical evidence and procedural fairness in the assessment process.

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