1998 (5) TMI 33 - AT - Income Tax

Block Assessment, Procedure, Search And Seizure, Opportunity Of Being Heard, Undisclosed Investment, Additions

Issues Involved:
1. Validity of the notice issued under section 158BC(a) of the Income-tax Act.
2. Approval by the Commissioner under section 158BG of the Act.
3. Addition of Rs. 6,16,604 as undisclosed income for the assessment year 1996-97.
4. Addition of Rs. 25,000 representing unexplained cash found during search operations.

Detailed Analysis:

1. Validity of the Notice Issued under Section 158BC(a):
The appellants challenged the validity of the notice issued under section 158BC(a), arguing it was vague and incapable of being complied with, thus rendering the assessment order without jurisdiction. The notice required the assessees to prepare a return including undisclosed income but did not specify in which capacity (individual/HUF/firm/company/AOP/body of individuals/local authority) the return should be filed. The Tribunal noted that the search was conducted in the individual capacity of the assessees, and the notice was understood and complied with by them, as evidenced by their participation in the assessment proceedings. The Tribunal concluded that the defect in the notice was curable under section 292B of the Act, as it was a procedural rather than a jurisdictional matter.

2. Approval by the Commissioner under Section 158BG:
The appellants contended that the approval granted by the Commissioner was not valid, as it was at variance with the predecessor Commissioner's note and was granted without giving the appellants an opportunity of being heard. The Tribunal examined the note dated 11-6-1997 by the predecessor Commissioner and found no evidence that any hearing was granted to the appellants. The Tribunal agreed with the Bangalore Bench's view that the language of section 158BG does not mandate a hearing before granting approval. The Tribunal also found that the approval granted by the successor Commissioner was not a case of non-application of mind, although it would have been preferable if the approval order indicated that the draft assessment orders were thoroughly examined.

3. Addition of Rs. 6,16,604 as Undisclosed Income for the Assessment Year 1996-97:
The addition was based on a Note Book marked as "B-1/23," which recorded receipts from patients not entered in the account books. The Assessing Officer calculated the suppression of receipts at 19% of the total accounted receipts and applied this percentage to the entire year's receipts. The Tribunal found that the amounts of Rs. 6,670 and Rs. 85,820 were indeed receipts of the assessees, as they were collected by their employees. However, the Tribunal accepted the assessees' explanation that the amount of Rs. 72,915 was not received as the patients did not collect their reports. The Tribunal rejected the multiplication formula used by the Assessing Officer, emphasizing that a block assessment should be based on actual entries found during the search. The Tribunal sustained an addition of Rs. 92,490 and directed the Assessing Officer to work out the proportionate addition in the appellant's case.

4. Addition of Rs. 25,000 Representing Unexplained Cash:
The Assessing Officer accepted the explanation for Rs. 18,778 out of the cash found but added Rs. 25,000 as unexplained. The Tribunal noted that the assessees, being reputed pathologists, could reasonably have cash savings, and there was no reason to disbelieve their explanation. The Tribunal deleted the addition of Rs. 25,000.

Conclusion:
Both appeals were partly allowed. The Tribunal provided a detailed analysis of each issue, considering the legal provisions, case laws, and facts presented by both sides. The findings emphasized procedural compliance, the importance of actual entries in block assessments, and the reasonable acceptance of explanations for cash savings.

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