1987 (5) TMI 40 - AT - Income Tax

Summary

Issues Involved:
1. The addition of Rs. 1,40,000 to the assessee's total income as investment from undisclosed sources.
2. The admissibility of evidence collected by the Income-tax Officer (ITO).
3. The credibility of statements made by witnesses and their impact on the assessment.

Detailed Analysis:

1. Addition of Rs. 1,40,000 to the Assessee's Total Income:
The primary issue in this case was the addition of Rs. 1,40,000 to the total income of the assessee, a partnership firm dealing in sarees, by the Income-tax Officer (ITO). The ITO believed that this amount represented an investment made out of books from income from undisclosed sources. The Commissioner of Income-tax (Appeals) deleted this addition, leading to the present appeal by the Revenue.

2. Admissibility of Evidence Collected by the ITO:
The ITO's addition was based on the information that the assessee-firm had paid Rs. 1,60,000 as "pagri" for acquiring business premises on rent. This information was gathered through an enquiry conducted by Ward Inspector Shri R.J. Vyas, who contacted the landlord and the outgoing tenant's husband. The Commissioner (Appeals) rejected this evidence as hearsay and inadmissible, leading to the deletion of the addition. However, the Tribunal emphasized that technical rules of law of evidence do not apply to tax proceedings, and the ITO is not bound by them. The ITO's duty is to collect relevant material, which can be done even through private enquiries. The Tribunal found that the ITO had followed the correct procedure for collecting material and that the evidence collected was reliable and credible.

3. Credibility of Statements Made by Witnesses:
The ITO's conclusion was based on the statements of Shri Harish Jadavji Parekh, the landlord, and Shri Bhopat Rai C. Doshi, the husband of the outgoing tenant. Shri Parekh initially hesitated but eventually disclosed that the assessee-firm had paid Rs. 1,60,000 for acquiring the shop's possession. Shri Doshi corroborated this by stating that his wife had received Rs. 1,20,000, of which Rs. 20,000 was paid by cheque for the cost of furniture, and the rest in cash. The Tribunal found these statements credible and supported by the assessee's own account books, which showed a payment of Rs. 20,000 by cheque to Smt. Vidyaben C. Doshi. The Tribunal rejected the affidavit of Smt. Vidyaben C. Doshi, which denied the receipt of any pagri, as it was highly belated and lacked spontaneity.

Conclusion:
The Tribunal concluded that the assessee-firm had indeed paid Rs. 1,40,000 (Rs. 40,000 to the landlord and Rs. 1,00,000 to the outgoing tenant) as pagri, and this amount represented an investment made out of books from income from undisclosed sources. Therefore, the Tribunal vacated the order of the Commissioner (Appeals) and restored the addition made by the ITO.

Final Judgment:
The appeal by the Revenue was allowed, and the addition of Rs. 1,40,000 to the total income of the assessee as income from undisclosed sources was restored.