1985 (6) TMI 78 - AT - Income Tax

Summary

Issues Involved:
1. Legitimacy of the assessment made by the ITO.
2. Ownership and operation of three firms (Sunder & Co., Amarchand Agarwal & Co., and Industrial Chemicals).
3. Examination of evidence and statements from various parties.
4. Opportunity for cross-examination.
5. Estimation of concealed income and initial investment.
6. Procedural fairness and adherence to legal standards.

Detailed Analysis:

1. Legitimacy of the Assessment Made by the ITO:
The ITO conducted an assessment based on the belief that the assessee was involved in unaccounted transactions through three firms. The assessment was based on documents seized during a search operation and statements from various individuals. The Commissioner (Appeals) set aside the ITO's order, citing the need for re-examination of evidence and procedural fairness.

2. Ownership and Operation of Three Firms:
The ITO concluded that the assessee owned and operated three firms (Sunder & Co., Amarchand Agarwal & Co., and Industrial Chemicals) based on:
- Seizure of visiting cards and correspondence.
- Statements from Praveen Kumar and Ratan Lal.
- Similarity in the nature of goods traded.
The Commissioner (Appeals) noted that the ITO should have provided the assessee with an opportunity to cross-examine Ratan Lal and thoroughly examined the books of Anubhav Traders.

3. Examination of Evidence and Statements:
The ITO relied heavily on the statements of Praveen Kumar and Ratan Lal:
- Praveen Kumar's statement indicated that Shyam Sunder Dhoot of Gulabdas Jagannath & Associates was involved in the transportation of goods.
- Ratan Lal's statement confirmed the receipt of goods from the three firms and identified Shyam Sunder Dhoot as Ram Lal Garg.
The Tribunal found that Praveen Kumar's statement was based on assumptions and not concrete evidence. Ratan Lal's statement was considered unreliable due to procedural issues and lack of cross-examination.

4. Opportunity for Cross-Examination:
The Tribunal noted that the ITO did not inform the assessee about the examination of Ratan Lal and did not provide an opportunity for cross-examination. This was seen as a violation of procedural fairness, leading to the conclusion that the statement of Ratan Lal could not be held against the assessee.

5. Estimation of Concealed Income and Initial Investment:
The ITO estimated the concealed income based on the number of bills issued and the average value per bill, leading to a total estimated sale of Rs. 7.50 crores and a gross profit of Rs. 30.20 lakhs. An additional Rs. 1.50 lakhs was added as initial investment under section 69A. The Tribunal found this estimation to be arbitrary and not based on concrete evidence. The Tribunal emphasized that even best judgment assessments must be reasonable and supported by evidence.

6. Procedural Fairness and Adherence to Legal Standards:
The Tribunal highlighted several procedural lapses, including:
- Lack of opportunity for cross-examination.
- Reliance on assumptions and hearsay evidence.
- Failure to find unexplained cash or investments during the search.
The Tribunal concluded that the ITO's assessment was not justified and lacked sufficient evidence to support the addition of Rs. 24.15 lakhs to the assessee's income.

Conclusion:
The Tribunal deleted the entire addition of Rs. 24.15 lakhs, finding that the ITO's assessment was based on insufficient and unreliable evidence. The Tribunal directed the Commissioner (Appeals) to hear and dispose of other grounds raised by the assessee. The departmental appeal was dismissed, and the assessee's appeal was partly allowed.