2003 (9) TMI 302 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction and initiation of proceedings under Section 158BD of the IT Act.
2. Validity of the assessment of undisclosed income.
3. Treatment of loss on sale of shares as undisclosed income.
4. Procedural lapses and principles of natural justice.
5. Levy of surcharge.

Issue-wise Detailed Analysis:

1. Jurisdiction and Initiation of Proceedings under Section 158BD:
The appellant contended that the initiation of proceedings under Section 158BD of the IT Act was arbitrary and without jurisdiction as the preconditions for invoking these provisions were not satisfied. The Tribunal noted that the Dy. CIT exceeded his jurisdiction in computing the purported undisclosed income for the assessment year 1995-96. It was emphasized that the search on the Mody group of cases was conducted on 21st Nov. 1996, and the return of income for the assessment year 1995-96 had already been filed on 27th Nov. 1995. All transactions were duly recorded in the books of accounts, and there was no justification for holding that there was any undisclosed income for the assessment year 1995-96.

2. Validity of the Assessment of Undisclosed Income:
The Tribunal observed that the assessment completed by an order dated 31st March 1998, was set aside by the Tribunal and the High Court, which held that any finding/observation made by the Tribunal would not be considered while making the fresh assessment. The present assessment repeated the addition made originally, which was found to be erroneous both on facts and in law. The Tribunal highlighted that no incriminating material was found during the search that could establish the transactions as undisclosed. The assessment was deemed to show complete non-application of mind, and the Dy. CIT exceeded his jurisdiction in repeating the addition.

3. Treatment of Loss on Sale of Shares as Undisclosed Income:
The Tribunal examined the transaction in detail and found that the loss suffered by the assessee on the sale of shares was genuine and duly recorded in the books of accounts. The shares were purchased at market rates, and the sale was made through a broker at market rates. The Tribunal noted that the loss could not be regarded as undisclosed income as all transactions were verifiable and supported by relevant material. The Tribunal also referred to previous decisions where similar losses were held to be genuine and allowable.

4. Procedural Lapses and Principles of Natural Justice:
The appellant argued that the assessment was framed without providing a fair and proper opportunity of being heard, contrary to the principles of natural justice. The Tribunal noted that the proceedings were initiated without any basis or material, and the assessment was unsustainable. The Tribunal emphasized that no adverse material was found during the search, and the proceedings under Section 158BD were initiated merely on the basis of regular books of accounts, which could not be held as legal and valid.

5. Levy of Surcharge:
The Tribunal referred to the decision in the case of Microland Ltd. vs. Asstt. CIT, where it was held that separate surcharge could not be levied in respect of search and seizure assessment under Chapter XIV-B of the IT Act. The Tribunal agreed with this observation and held that no surcharge was leviable. Since the addition was deleted, there was no justification to levy any surcharge.

Conclusion:
The Tribunal concluded that there was no undisclosed income liable to be assessed as such. The appeal was allowed, and it was held that the present assessment had no legs to stand on, with the addition made deserving to be deleted altogether. The Tribunal emphasized the importance of judicial consistency and adherence to legal principles in making assessments.