1986 (9) TMI 139 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of unexplained investment additions by the Commissioner (Appeals).
2. Direction by the Commissioner (Appeals) to allow weighted deduction under section 35B.
3. Protective addition of Rs. 90,000 in the hands of Smt. Ratan Devi Dugar.
4. Cross-objections by the assessee regarding additions and interest charges.

Detailed Analysis:

1. Deletion of Unexplained Investment Additions by the Commissioner (Appeals):
The department appealed against the Commissioner (Appeals) for deleting various additions made by the Income Tax Officer (ITO) on account of unexplained investments in diamonds, gold, and other items. The ITO had added Rs. 3,68,562 as undisclosed income based on the search conducted on the assessee's premises. The Commissioner (Appeals) deleted or reduced these additions, leading to the department's appeal.

The Tribunal noted discrepancies in the search proceedings, including inconsistencies between panchnamas, statements, and the search report. For example, the search memo dated 29-5-1979 did not list any valuable articles found, yet a statement recorded on the same day mentioned the discovery of diamonds and emeralds. Further, the Tribunal highlighted procedural irregularities, such as different officers conducting the search and recording statements, and the report being filed by an officer who did not conduct the search.

Given these discrepancies, the Tribunal found it unsafe to rely solely on the statements made during the search. It directed a more thorough investigation, allowing cross-examination of the officers involved and production of certain documents (Exhibit 'EE') that were not initially provided.

2. Direction by the Commissioner (Appeals) to Allow Weighted Deduction under Section 35B:
The department contested the Commissioner (Appeals)'s direction to allow weighted deduction under section 35B for packing credit interest amounting to Rs. 10,991. The Tribunal noted that this issue was pending before a Special Bench of the Tribunal. However, at the assessee's representative's request, the Tribunal decided against the assessee, holding that no weighted deduction was permissible for packing credit interest.

3. Protective Addition of Rs. 90,000 in the Hands of Smt. Ratan Devi Dugar:
In a related matter, the Commissioner (Appeals) deleted an addition of Rs. 90,000 made in the hands of Smt. Ratan Devi Dugar on a protective basis. The ITO had added this amount, doubting her claim that she purchased diamonds with a loan from a party in Bombay. The Commissioner (Appeals) accepted her explanation and deleted the addition.

The Tribunal found the department's version doubtful and restored the matter to the Commissioner (Appeals) for reconsideration, similar to the main assessee's case.

4. Cross-Objections by the Assessee:
The assessee filed cross-objections supporting the deletions made by the Commissioner (Appeals) and challenging the sustained additions and interest charges under sections 215 and 217. The Tribunal did not interfere with the Commissioner (Appeals)'s order, noting the overall suspicious nature of the proceedings and the need for a fresh decision by the Commissioner (Appeals) after thorough investigation.

Conclusion:
The Tribunal allowed the department's appeals for statistical purposes, directing a fresh investigation and decision by the Commissioner (Appeals). The cross-objection by the assessee was dismissed, and the matter was remanded for reconsideration in light of the Tribunal's observations.