1998 (11) TMI 145 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the addition of Rs. 1,49,000 to the assessee's income.
2. Whether the assessee was given adequate opportunity to rebut the information used against him.
3. Justification for the issuance of notice under section 148.
4. Whether the proceedings under section 148 were void ab initio due to lack of recorded reasons or requisite sanctions.

Issue-Wise Detailed Analysis:

1. Validity of the addition of Rs. 1,49,000 to the assessee's income:
The assessee, a partner in M/s Kamal Auto Consultant (KAC), was subject to a search where cash of Rs. 1,00,606 was found, and Rs. 90,000 was seized. The assessee declared a concealed income of Rs. 3,50,000 in the firm, including the cash found. The AO added Rs. 1,49,000 to the assessee's income based on the purchase of travellers cheques, which the assessee claimed were bought with customer funds, not personal funds. The CIT(A) upheld the addition, stating the assessee failed to prove the cheques were purchased with customer funds or by the firm.

2. Whether the assessee was given adequate opportunity to rebut the information used against him:
The assessee argued that the AO relied on information collected without giving him a chance to rebut it, violating sub-s. (5) of s. 132 and sub-r. (4) of r. 112(A). The CIT(A) found that the AO had given adequate opportunity to the assessee to explain, but the assessee failed to provide evidence that the cheques were purchased with customer funds or by the firm. The Tribunal noted that the AO did not verify the assessee's claim from the firm's seized books of accounts, which was a significant oversight.

3. Justification for the issuance of notice under section 148:
The assessee contended that the AO did not record reasons for the escapement of income, thus making the notice under section 148 void ab initio. The Tribunal found that the assessee did not raise this issue before lower authorities and that section 148 does not require the disclosure of reasons at the notice stage. The Tribunal presumed that the AO obtained the necessary sanctions as per the law, citing Illustration (e) to s. 114 of the Indian Evidence Act, which presumes regular performance of official acts.

4. Whether the proceedings under section 148 were void ab initio due to lack of recorded reasons or requisite sanctions:
The Tribunal held that the requirement of recording reasons for reassessment is administrative, and it is not necessary to disclose the material to the assessee at the notice stage. The Tribunal presumed that the AO obtained the required sanctions and found no evidence to the contrary. However, the Tribunal emphasized that the addition of Rs. 1,49,000 was not justified due to the lack of verification from the firm's books and the consistent claim by the assessee that the cheques were purchased in the course of the firm's business.

Conclusion:
The Tribunal allowed the appeal, deleting the addition of Rs. 1,49,000 to the assessee's income. The Tribunal found that the AO and CIT(A) failed to verify the assessee's claims from the firm's seized books and that the addition was not justified based on the evidence presented. The Tribunal also addressed the procedural issues raised by the assessee regarding the issuance of notice under section 148, ultimately finding them without merit but emphasizing the unjustified nature of the addition itself.