1998 (6) TMI 110 - AT - Income Tax

Summary

Issues Involved:
1. Violation of principles of natural justice.
2. Justification of addition of Rs. 2,05,000 as income from undisclosed sources.
3. Reliability of the statement of the seller, Shri Surinder Kumar Mittal.
4. Verification of the market price of the electric motor.
5. Discrepancies in the purchase bill and transportation records.

Issue-wise Detailed Analysis:

1. Violation of Principles of Natural Justice:
The appellant contended that the orders passed by the CIT(A) violated the principles of natural justice. The appellant argued that the Assessing Officer (AO) rejected their request to summon the books of M/s Gemini Industrial Ltd. to verify the purchase of the electric motor from M/s Aggarwal Steel Traders and whether it was bought from a 'kabari' in Delhi. This request was denied without specific reasons, leading to a claim of procedural unfairness.

2. Justification of Addition of Rs. 2,05,000 as Income from Undisclosed Sources:
The AO added Rs. 2,05,000 to the assessee's income, treating it as an unexplained investment in the purchase of a 1000 HP electric motor. The AO concluded that the assessee paid Rs. 2,05,000 outside the books of account based on the statement of Shri Surinder Kumar Mittal, who claimed the motor was actually sold for Rs. 4,20,000, although the bill was issued for Rs. 2,15,000 at the assessee's request. The CIT(A) upheld this addition, noting that the market price of a 1000 HP motor was around Rs. 4,00,000, and the assessee's attempt to show a lower purchase price was an attempt to evade tax.

3. Reliability of the Statement of Shri Surinder Kumar Mittal:
The appellant challenged the reliability of Shri Mittal's statement, highlighting contradictions and evasive answers. Shri Mittal initially stated he sold the motor for Rs. 4,20,000 but issued a bill for Rs. 2,15,000. He later claimed to have issued a bogus sale bill to cover up the on-money received from the assessee. The appellant argued that Shri Mittal's statement was inconsistent and unreliable, particularly his claim that he had purchased two motors from Jay Shree Trading Co., although the bill mentioned only one.

4. Verification of the Market Price of the Electric Motor:
The learned Accountant Member noted that neither the AO nor the CIT(A) verified the market price of a 1000 HP BHEL electric motor. The CIT(A) mentioned the market price was around Rs. 4,00,000 but provided no supporting evidence. The appellant pointed out that Shri Mittal sold another 1000 HP motor for Rs. 2,95,000, suggesting the market price was closer to Rs. 2,15,000.

5. Discrepancies in the Purchase Bill and Transportation Records:
The appellant argued that the purchase bill from M/s Aggarwal Steel Traders intentionally understated the motor's capacity to 500 HP due to inadequate load sanctioned by PSEB. The appellant also highlighted discrepancies in the transportation records, such as the Goods Receipt (GR) from Ajanta Roadlines, which was allegedly interpolated to show two motors instead of one. The appellant provided evidence, including a letter from Jay Shree Trading Co. indicating two motors were dispatched, and a wiring test report showing the motor's serial number.

Separate Judgments Delivered by Judges:

Accountant Member's Judgment:
The learned Accountant Member proposed restoring the issue to the AO for fresh adjudication. He emphasized the need for further verification, including:
- Enquiring from Jay Shree Trading Co. about the number of motors sold.
- Calling for the books of M/s Gemini Industrial Ltd. and M/s Northern India Steel Co. to verify the purchase and sale of the motor.
- Verifying the weight mentioned in the GR to determine if it corresponds to one or two motors.
- Checking the market value of a 1000 HP BHEL motor.
- Investigating the existence of a letter from Jay Shree Trading Co. confirming the dispatch of two motors.

Judicial Member's Judgment:
The learned Judicial Member disagreed with the Accountant Member, upholding the addition of Rs. 2,05,000. He relied on the evidence provided by the department, including:
- The bill from Jay Shree Trading Co. showing the sale of one motor for Rs. 4,10,000.
- The GR from Ajanta Roadlines indicating interpolation to show two motors.
- The octroi receipt suggesting only one motor was transported.
The Judicial Member concluded that the addition was justified based on the seller's admission and the corroborating evidence.

Third Member's Judgment:
The Third Member agreed with the Accountant Member, emphasizing the need for a thorough investigation to ascertain the truth. He highlighted the importance of verifying the weight of the motor, the interpolation in the GR, the market value, and the books of M/s Gemini Industrial Ltd. and M/s Northern India Steel Co. The Third Member concluded that restoring the issue to the AO for fresh adjudication was the correct approach.

Conclusion:
The majority opinion favored restoring the issue to the AO for fresh adjudication, with instructions to conduct a detailed investigation and verify the relevant facts. The appeal was treated as allowed for statistical purposes.