2003 (9) TMI 301 - AT - Income Tax

Summary

Issues Involved:
1. Initiation of proceedings under Section 158BD of the IT Act.
2. Jurisdiction and validity of the assessment under Section 254/158BC(c).
3. Material and satisfaction note for invoking Section 158BD.
4. Computation of undisclosed income.
5. Treatment of loss on sale of shares as undisclosed income.
6. Notional enhancement of Annual Letting Value (ALV) and disallowance of expenses.
7. Opportunity of being heard and principles of natural justice.
8. Approval from the Commissioner of Income Tax (CIT).
9. Levy of interest under Section 158BFA.

Detailed Analysis:

1. Initiation of Proceedings under Section 158BD of the IT Act:
The appellant contended that the initiation of proceedings under Section 158BD was arbitrary and without jurisdiction. The preconditions for invoking Section 158BD were not satisfied, rendering the assumption of jurisdiction erroneous and the assessment untenable. The Tribunal observed that no material was found during the search that could justify the initiation of proceedings under Section 158BD. The regular books of account maintained by the assessee were the only documents found and seized, which did not indicate any undisclosed income.

2. Jurisdiction and Validity of the Assessment under Section 254/158BC(c):
The appellant argued that the assessment was framed without independent reasons and was arbitrary. The Tribunal noted that the assessment order repeated the additions made in the original order dated 29th January 1999, which had been set aside by the Tribunal. The Tribunal found that the Dy. CIT had not provided any new reasons or material to justify the reassessment, making the assessment unsustainable in law.

3. Material and Satisfaction Note for Invoking Section 158BD:
The appellant contended that there was no material found during the search that indicated undisclosed income, and no satisfaction note was recorded. The Tribunal agreed, stating that mere forwarding of the books of account by the AO having jurisdiction over the Mody Group of cases was insufficient to conclude that there was any undisclosed income. The Tribunal emphasized that no books of account or documents other than those relating to the financial years 1994-95 to 1996-97 were found or seized, and no material was found to justify the computation of undisclosed income.

4. Computation of Undisclosed Income:
The Tribunal examined the computation of undisclosed income and found it to be unjustified. The Tribunal noted that the additions made were based on mere reassessment of income, which is not permissible under Chapter XIV-B of the IT Act. The Tribunal observed that the Dy. CIT had changed his opinion by treating the income earned by the assessee in the course of business as "income from property" and had enhanced the ALV of the properties without any basis.

5. Treatment of Loss on Sale of Shares as Undisclosed Income:
The appellant argued that the loss on the sale of shares was genuine and duly recorded in the books of account. The Tribunal agreed, noting that the transactions were verifiable and no material was found during the search to suggest that the transactions were bogus. The Tribunal held that the loss could not be regarded as undisclosed income and that the Dy. CIT had incorrectly treated the loss as undisclosed income.

6. Notional Enhancement of ALV and Disallowance of Expenses:
The Tribunal found that the notional enhancement of ALV and disallowance of expenses were unjustified. The Tribunal noted that the Dy. CIT had not found any material to suggest that the assessee had received rent over and above the declared rent or that the expenses were bogus. The Tribunal held that the additions made on these grounds were erroneous and not supported by any material found during the search.

7. Opportunity of Being Heard and Principles of Natural Justice:
The appellant contended that the assessment was framed without providing a fair and proper opportunity of being heard. The Tribunal observed that the Dy. CIT had not confronted the assessee with any adverse material or called upon the assessee to substantiate its submissions. The Tribunal held that the assessment was framed in violation of the principles of natural justice.

8. Approval from the Commissioner of Income Tax (CIT):
The appellant argued that the Dy. CIT had failed to obtain prior approval from the CIT, rendering the assessment void ab initio. The Tribunal did not specifically address this issue, as the assessment was found to be unsustainable on other grounds.

9. Levy of Interest under Section 158BFA:
The Tribunal found that the levy of interest under Section 158BFA was not justified, as the search was conducted prior to 1st January 1997. The Tribunal held that no interest was leviable since the addition stood deleted.

Conclusion:
The Tribunal allowed the appeal, holding that there was no undisclosed income liable to be assessed. The assessment was found to be arbitrary, without jurisdiction, and based on mere reassessment of income, which is not permissible under Chapter XIV-B of the IT Act. The Tribunal deleted all additions made by the Dy. CIT and held that the assessment was unsustainable in law.