2000 (2) TMI 193 - AT - Income Tax

Summary

Issues Involved:
1. Condonation of delay in filing appeals.
2. Application of Section 145(2) and estimated addition to rental income.
3. Additions under Section 68 for various years.
4. Examination of undisclosed income under Section 158BA.
5. Principles of natural justice and cross-examination of creditors.

Detailed Analysis:

1. Condonation of Delay in Filing Appeals:
The appeals were filed late by 109 days. The appellants argued that they were misled by the demand notices which mentioned the appellate authority as CIT(A)-XXIII, New Delhi. The appeals were initially filed in the wrong office and later refiled with the Tribunal. The Tribunal found the cause for delay reasonable and condoned the delay in filing both appeals.

2. Application of Section 145(2) and Estimated Addition to Rental Income:
During the search and seizure operation, discrepancies were found in the books of accounts of the assessees. The AO applied Section 145(2) due to non-cooperation from the assessees. For M/s. White Lily Estates (P) Ltd., the AO estimated rental income for the assessment years 1993-94 to 1996-97 and for the period falling in assessment year 1997-98. The Tribunal noted that merely receiving rental income in the past does not justify additions without proper findings under Section 158BA.

3. Additions Under Section 68 for Various Years:
The AO made substantial additions under Section 68 treating various amounts as undisclosed income. The assessees argued that the scope of "undisclosed income" under Section 158B is limited and cannot be based on presumptions. The Tribunal observed that the AO did not examine whether any incriminating documents were found during the search that suggested undisclosed income. The AO relied on a letter allegedly signed by Shri U.S. Kohli, which contradicted individual confirmations from creditors. The Tribunal found that the AO failed to reconcile these contradictions or provide an opportunity for cross-examination, violating principles of natural justice.

4. Examination of Undisclosed Income Under Section 158BA:
The Tribunal emphasized that Section 158BA deals with assessments of undisclosed income detected as a result of search and seizure operations. It referred to various case laws indicating that undisclosed income must be based on material found during the search. The AO treated disclosed income as undisclosed without applying the correct legal standards. The Tribunal directed the AO to reassess whether there was any undisclosed income within the meaning of Section 158BA.

5. Principles of Natural Justice and Cross-Examination of Creditors:
The Tribunal highlighted that the AO relied on documents unfavorable to the assessees without providing an opportunity for cross-examination. This was against the principles of natural justice. The Tribunal directed the AO to allow the assessees to cross-examine the creditors and to consider all relevant documents.

Conclusion:
The Tribunal set aside the assessment orders and restored the cases to the AO for fresh assessment. The AO was directed to consider the scope of "undisclosed income" under Section 158BA, allow the assessees to submit evidence, and provide opportunities for cross-examination. The appeals were allowed for statistical purposes.