1998 (9) TMI 116 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 4.00 lakhs as income from undisclosed sources.
2. Violation of principles of natural justice.
3. Procedural irregularity and its impact on the validity of the assessment.
4. Compliance with section 142(3) of the Income-tax Act, 1961.
5. The scope of appellate authority in correcting procedural irregularities.

Issue-wise Detailed Analysis:

1. Addition of Rs. 4.00 lakhs as income from undisclosed sources:
The primary controversy in this case revolves around the addition of Rs. 4.00 lakhs made by the Assessing Officer (AO), who held that the prize-winning lottery ticket was procured by the assessee out of concealed income. The AO traced the ticket's sale through a series of intermediaries and found discrepancies in the claims register of the lottery organizers, leading him to conclude that the ticket was purchased after the draw. The CIT(A) initially upheld this addition, but the Tribunal set aside the order for fresh adjudication.

2. Violation of principles of natural justice:
The assessee argued that the AO recorded statements and relied on documents without confronting the assessee, thus violating the principles of natural justice. The Tribunal, in its earlier order, noted this violation and directed the CIT(A) to consider this aspect afresh. The CIT(A), in the impugned order, annulled the entire assessment on this ground without examining other additions.

3. Procedural irregularity and its impact on the validity of the assessment:
The Tribunal considered whether the denial of proper opportunity regarding one aspect of the assessment (the Rs. 4.00 lakhs addition) would render the entire assessment void. It was held that the assessment suffered from a procedural irregularity due to the AO's failure to comply with section 142(3), which embodies the rule of audi alteram partem. However, this irregularity was deemed curable and did not justify annulling the entire assessment.

4. Compliance with section 142(3) of the Income-tax Act, 1961:
Section 142(3) requires the AO to provide an opportunity of being heard concerning any material gathered during an enquiry. The AO failed to do so for the Rs. 4.00 lakhs addition. The Tribunal held that non-compliance with this procedural section does not make the assessment void but necessitates setting aside the assessment for fresh adjudication.

5. The scope of appellate authority in correcting procedural irregularities:
The Tribunal emphasized that the appellate authority has the jurisdiction and duty to correct procedural errors and issue directions for fresh adjudication. Citing Supreme Court decisions, the Tribunal supported the view that an assessment order involving material collected at the back of the assessee should be set aside for fresh adjudication rather than being declared void.

Conclusion:
The Tribunal set aside the CIT(A)'s order and directed a fresh adjudication of the Rs. 4.00 lakhs addition and other grounds raised by the assessee. The CIT(A) was instructed to provide the assessee with an opportunity to address the material concerning the Rs. 4.00 lakhs addition before concluding on the matter. The appeal was allowed for statistical purposes.