1998 (8) TMI 114 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the statement recorded by the ADI under section 132A.
2. Whether the assessee carried on any business during the assessment years 1986-87 and 1987-88, giving rise to an income of Rs. 1,08,000 each year.

Issue-wise Detailed Analysis:

1. Validity of the Statement Recorded by the ADI:

The primary issue was whether the ADI was competent to record the statement of the assessee during proceedings under section 132A of the IT Act. The assessee argued that the statement was invalid because:
- The statement did not specify the section under which it was recorded.
- The ADI could not record a statement at the Airport.
- The statement could not be deemed to have been recorded under section 132(4) since the action was taken under section 132A.

The AO refuted these objections, stating:
- The absence of a specified section in the statement was a procedural matter and did not invalidate the voluntary statement.
- An ADI could record a statement outside his office under section 131.
- Section 292B of the IT Act allows for procedural errors as long as the proceedings are in substance and effect in conformity with the intent and purpose of the Act.

The CIT(A) concluded that the statement was not valid because:
- A statement under section 132(4) could only be recorded during a search, not a seizure under section 132A.
- The ADI had no jurisdiction to record a statement under section 131 as he was neither the AO nor had a commission from the AO.
- Section 292B did not apply as the error was jurisdictional, not procedural.

The Tribunal, however, held that:
- The ADI was competent to record the statement under section 131(1A), which allows ADIs to exercise powers for any inquiry or investigation even if no proceedings are pending.
- The procedural error of not specifying the section did not invalidate the statement, supported by case laws such as L. Hazari Mal Kuthiala and R. P. Kandaswami.
- The statement recorded by the ADI was valid, and the department succeeded on this technical ground.

2. Whether the Assessee Carried on Any Business During the Assessment Years 1986-87 and 1987-88:

The AO included an income of Rs. 1,08,000 each for the assessment years 1986-87 and 1987-88 based on the assessee's statement recorded on 2-10-1987, where he admitted to earning such income from an undisclosed business. The assessee did not file revised returns for these years.

The CIT(A) found:
- The only basis for the AO's inclusion of the amounts was the assessee's statement.
- There was no other evidence to show that the assessee carried on any business.
- The assessee was an employee of a public-sector undertaking until 31-3-1987, which prohibited him from carrying on any business.
- The CBI had conducted searches and found no evidence of the assessee conducting any business.
- For the assessment year 1988-89, the AO had concluded that the assessee did not carry on any business despite the assessee offering Rs. 60,000 as business income.

The Tribunal agreed with the CIT(A), noting:
- The department did not pursue the matter further after the assessee's statement.
- The assessee's employment with a public-sector undertaking and the lack of evidence from the CBI searches indicated no business activity.
- The department's acceptance that the assessee did not carry on any business for the assessment year 1988-89 undermined their position for the earlier years.
- The CIT(A) was justified in deleting the additions of Rs. 1,08,000 for the assessment years 1986-87 and 1987-88.

Conclusion:

The appeals filed by the revenue were allowed in part. The Tribunal upheld the validity of the statement recorded by the ADI but agreed with the CIT(A) that the assessee did not carry on any business during the assessment years 1986-87 and 1987-88, thereby justifying the deletion of the additions.