1993 (7) TMI 106 - AT - Income Tax

Summary

Issues Involved:
1. Ownership and income attribution of M/s Krupa Corporation.
2. Validity of statements from flat owners regarding "on money" payments.
3. Taxation year for the "on money" received.
4. Right to cross-examine witnesses.
5. Proper assessment procedure and evidence consideration.

Issue-wise Detailed Analysis:

1. Ownership and Income Attribution of M/s Krupa Corporation:
The assessee was the proprietor of M/s Krupa Corporation and a partner in two other firms. The ITO initially observed conflicting statements regarding the ownership of Krupa Corporation, suggesting that the assessee was not the actual owner but was shown as such in the books. Despite these contradictions, the ITO ultimately taxed the income of Krupa Corporation in the hands of the assessee on a substantive basis, recognizing him as the owner.

2. Validity of Statements from Flat Owners Regarding "On Money" Payments:
The ITO relied on statements from flat owners who claimed to have paid "on money" to Shri Mahesh G. Vakil. These statements were used to infer that the assessee received "on money" during the year under consideration. However, none of the flat owners named the assessee directly. The Tribunal noted that the statements were recorded during search operations against Shri Mahesh G. Vakil, not the assessee, and emphasized that these statements alone could not form the basis for addition without proper examination and cross-examination.

3. Taxation Year for the "On Money" Received:
The ITO concluded that since the year under consideration was the first year of business for Krupa Corporation, the "on money" should be taxed in that year. The assessee argued that the income was disclosed under section 132(4) for the assessment year 1991-92, and the same income could not be taxed twice. The Tribunal highlighted the need to determine the correct year of income accrual, considering the method of accounting and completion of transactions.

4. Right to Cross-Examine Witnesses:
The Tribunal underscored the importance of cross-examination for the statements used against the assessee. The ITO failed to provide the assessee with the opportunity to cross-examine the flat owners whose statements were relied upon. The Tribunal cited the Supreme Court's decision, emphasizing that evidence must be tested by cross-examination to be valid. The lack of opportunity to cross-examine rendered the statements insufficient for making additions to the assessee's income.

5. Proper Assessment Procedure and Evidence Consideration:
The Tribunal found that the assessment order was not well-structured and lacked comprehensive investigation. It directed the ITO to re-assess the case, ensuring all relevant facts and evidence are brought on record. The ITO was instructed to examine the flat owners afresh, ascertain the connection of the assessee with the "on money," and provide the assessee with the opportunity to cross-examine. The Tribunal also stressed the need to consider the timing of income accrual and the method of accounting followed by the assessee.

Conclusion:
The Tribunal set aside the assessment order and directed the ITO to conduct a fresh assessment in accordance with the law, ensuring all relevant materials are considered and the assessee is given a reasonable opportunity to be heard. The appeal was allowed for statistical purposes.