1998 (6) TMI 106 - AT - Income Tax

Summary

Issues Involved:
1. Consolidation of Departmental and Assessee Appeals
2. Search and Seizure Findings
3. Additional Income and Revised Returns
4. Assessment of Undisclosed Income and Additional Additions
5. Deletions by CIT(A) and Departmental Challenge
6. Examination of Undisclosed Investment in Moneylending Business
7. Verification and Corroboration of Assessee's Claims

Detailed Analysis:

1. Consolidation of Departmental and Assessee Appeals:
For the sake of convenience, the Departmental appeals for three successive years and the assessee's appeal for one year were consolidated, and a common order was passed.

2. Search and Seizure Findings:
A search was conducted on 22nd Dec., 1987, at the business premises of the assessee, his wife, and his son, revealing unaccounted transactions in rough books. Both the assessee and his son admitted that these transactions were outside the declared records and that the proceeds were invested in a moneylending business.

3. Additional Income and Revised Returns:
Subsequently, the assessee and his son were induced to file revised returns, offering undisclosed income of Rs. 10 lakhs (Rs. 5 lakhs each) spread over three assessment years (1986-87 to 1988-89). They filed their returns offering additional income of Rs. 1,66,667 for each of the three years.

4. Assessment of Undisclosed Income and Additional Additions:
In the assessment for the year 1986-87, the AO made two additional additions of Rs. 1,56,159 and Rs. 1,31,550 besides the admitted income. Similarly, for 1987-88, an additional amount of Rs. 1,59,305 was added. For 1988-89, the AO considered Rs. 1,69,231 as the gross profit of undisclosed sales but did not add the admitted additional income separately.

5. Deletions by CIT(A) and Departmental Challenge:
The CIT(A) deleted the additional amounts for 1986-87 and 1987-88, stating that the additional admitted income of Rs. 5 lakhs had already been offered and taxed. The CIT(A) also deleted the opening capital addition of Rs. 1,31,550 for 1986-87, stating it was subsumed within the amount included in the year of search. The Department challenged these deletions, but the tribunal upheld the CIT(A)'s deletions, agreeing that no separate addition was warranted.

6. Examination of Undisclosed Investment in Moneylending Business:
For the year 1988-89, the AO added Rs. 16,20,600 as undisclosed investment in the moneylending business, later reduced by Rs. 4,84,694, resulting in a net addition of Rs. 11,35,305. The CIT(A) examined the assessee's claim that Rs. 3,20,000 represented duplications or erroneous additions and agreed with the assessee, deleting this amount. The Department challenged this, but the tribunal upheld the CIT(A)'s decision, agreeing that the list provided by the assessee during the search might contain errors.

7. Verification and Corroboration of Assessee's Claims:
The assessee also claimed that another Rs. 3,00,600 did not represent his moneylending business. The CIT(A) did not accept this due to lack of verification. The tribunal directed the AO to examine the parties involved and verify the claims. If the parties denied any connection, the amounts should not be added back. The tribunal also limited any relief to the assessee to Rs. 2,37,035, as determined by the CIT(A).

Conclusion:
The departmental appeals were dismissed, and the assessee's appeal was partially allowed, with specific directions for verification and potential relief not exceeding Rs. 2,37,035.