2002 (10) TMI 228 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 1,06,712 related to M/s Shri Mahalaxmi Poly Plast (P) Ltd.
2. Addition of Rs. 1,19,626 related to Smt. Nimmi Tayal, Smt. Neeru Tayal, and Smt. Surekha Tayal.
3. Ignoring affidavits and statements of respective parties.
4. Failure to summon parties under Section 131 of the IT Act.
5. Arbitrary disbelieving of business transactions.
6. Jurisdiction of the AO and the role of the Income-tax Inspector.
7. Rejection of additional evidence by CIT(A).

Detailed Analysis:

1. Addition of Rs. 1,06,712 related to M/s Shri Mahalaxmi Poly Plast (P) Ltd.:
The assessee claimed that profits of Rs. 1,06,712 were earned on behalf of M/s Shri Mahalaxmi Poly Plast (P) Ltd. The Assessing Officer (AO) required the assessee to prove the genuineness of the transactions. The assessee failed to produce any Sauda Behi or contract forms, written correspondence, or telephone bills. The AO's Inspector could not contact the directors of the company but recorded the statement of an accountant who was unaware of the company's affairs. The AO concluded that the profits were transferred to reduce taxable income and added Rs. 1,06,712 to the assessee's income. The CIT(A) confirmed the addition, noting the lack of evidence of orders placed by the parties and the negligible advances received compared to the transactions.

2. Addition of Rs. 1,19,626 related to Smt. Nimmi Tayal, Smt. Neeru Tayal, and Smt. Surekha Tayal:
The assessee claimed that profits of Rs. 1,19,626 were earned on behalf of Smt. Nimmi Tayal, Smt. Neeru Tayal, and Smt. Surekha Tayal. Similar to the first issue, the AO required evidence of the transactions and the personal appearance of the parties. The Inspector recorded statements of Nimmi Tayal and Neeru Tayal, who were unaware of the profits and the name of the appellant. The AO concluded that the profits were actually earned by the assessee and added Rs. 1,19,626 to the income. The CIT(A) upheld the addition, citing the lack of evidence of orders placed and the negligible advances received.

3. Ignoring affidavits and statements of respective parties:
The assessee furnished affidavits and copies of accounts from the books of the parties, which were ignored by the AO. The CIT(A) refused to consider these affidavits as additional evidence, stating that they were not submitted during the assessment proceedings and were not prepared for submission before the CIT(A).

4. Failure to summon parties under Section 131 of the IT Act:
The assessee argued that the AO failed to summon the parties under Section 131 of the IT Act. The CIT(A) noted that the AO had written several letters to the Dy. Director of IT (Inv.), Meerut, and the Asstt. Director of IT (Inv.) for collecting relevant evidence, but they did not respond. Therefore, the AO deputed his Inspector to record the statements.

5. Arbitrary disbelieving of business transactions:
The assessee contended that the business transactions conducted in the normal course of business were arbitrarily disbelieved by the AO, who relied on surmises and conjectures without substantial evidence.

6. Jurisdiction of the AO and the role of the Income-tax Inspector:
The assessee challenged the jurisdiction of the AO under Section 124(1) of the IT Act and stated that the Income-tax Inspector had no authority to record statements and make enquiries outside the jurisdiction of the ITO. The CIT(A) observed that there was no bar on the AO to authorize his Inspector under Section 131(d) to record statements of witnesses residing beyond jurisdiction.

7. Rejection of additional evidence by CIT(A):
The CIT(A) refused to consider additional evidence, including affidavits and copies of accounts, submitted by the assessee. The CIT(A) reasoned that these documents were not mentioned as additional evidence and were not prepared for submission before the CIT(A). The CIT(A) also noted inconsistencies in the affidavits and the lack of original documents.

Conclusion:
The Tribunal found that the AO did not give due and reasonable time to the assessee to defend its case, and the assessment was framed in a hasty manner. The CIT(A) was not justified in rejecting the additional evidence. The Tribunal remanded the issue back to the CIT(A) to decide afresh, directing to afford due and reasonable opportunity of being heard to the assessee. The appeal of the assessee was allowed for statistical purposes.