1999 (4) TMI 114 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the assessment order on the grounds of being time-barred.
2. Violation of principles of natural justice due to lack of opportunity to be heard.
3. Legitimacy of the computation of undisclosed income.

Issue-wise Detailed Analysis:

1. Validity of the assessment order on the grounds of being time-barred:

The assessee contended that the assessment order dated 30th July 1998 was beyond the time-barring date, arguing that the search conducted on 22nd April 1996 was effectively a search on the firm's office, which was located in the same premises as the residence of Shri M.L. Ittoop. The assessee claimed that the assessment should have been completed within one year from the date of the search, i.e., by 22nd April 1997. However, the tribunal clarified that no search was authorized on the firm M/s Divine Builders under section 132 of the IT Act. The search was conducted solely on Shri M.L. Ittoop, and the documents found pertained to the firm's transactions. Consequently, the notice under section 158BC was issued on 23rd July 1997, and the assessment was completed within the statutory period provided under section 158BE(2). Thus, this ground of appeal was decided against the assessee.

2. Violation of principles of natural justice due to lack of opportunity to be heard:

The assessee argued that the assessment order was invalid as the CIT approved it without providing an opportunity for the assessee to be heard, violating the principle of audi alteram partem. The tribunal referred to previous decisions, including the Supreme Court ruling in AIR 1982 SC 1416, which held that extending the rule of audi alteram partem beyond legislative provisions was inadmissible. The tribunal rejected the assessee's plea, stating that the approval by the CIT without hearing the assessee did not invalidate the assessment order.

3. Legitimacy of the computation of undisclosed income:

The assessee challenged the computation of undisclosed income at Rs. 38,47,580, arguing that the assessment was based on documents and statements not made available to the firm. The tribunal noted that the AO relied heavily on the statement of Shri M.L. Ittoop, who was not a partner in the firm, and estimated costs and sale prices without proper verification or allowing the assessee to cross-examine witnesses. The tribunal highlighted the need for proper verification of investments and the actual income earned by the assessee. It was noted that the entire addition was based on the statement of Shri M.L. Ittoop and that the assessment order under section 158BC for Shri Ittoop had been set aside by the Tribunal. In the interest of justice, the tribunal set aside the assessment in the case of the firm as well, directing the AO to make a proper assessment after verifying the facts, providing the assessee with the materials used for additions, and allowing cross-examination of witnesses. The AO was instructed to reassess the income for the block period in accordance with the law.

Conclusion:

The appeal by the assessee was treated as allowed for statistical purposes, with the tribunal directing a reassessment to ensure a fair and just determination of the undisclosed income.