2001 (3) TMI 294 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 1,50,000 in each year for eight appeals.
2. Validity of declaration under Section 132(4) of the Income Tax Act.
3. Evidentiary value of statements made during search operations.
4. Assessment of dissolved firms.
5. Addition of excess liabilities as income.
6. Deletion of sum of Rs. 27,824.

Issue-wise Detailed Analysis:

1. Addition of Rs. 1,50,000 in Each Year:
The first common grievance in all eight appeals relates to an addition of Rs. 1,50,000 for each year. The firms M/s Jaguste Tandale & Co. and M/s Ganesh Trading Co. were dissolved on 12th Nov. 1985. Despite the dissolution, a search under Section 132 of the IT Act on 4th Oct. 1989 led to a declaration by one of the partners, Shri Chandrakant A. Jaguste, of Rs. 12 lakhs as additional income for the years 1986-87 to 1989-90. The CIT(A) deleted these additions, reasoning that the firms had been dissolved, and there was no material evidence to support the declaration of income.

2. Validity of Declaration under Section 132(4):
The declaration made under Section 132(4) by Shri Jaguste was considered vague and not based on any material evidence. The CIT(A) noted that no books, papers, or valuable assets were found during the search to indicate the possibility of such income. The Tribunal agreed, stating that the declaration was ad hoc and lacked evidentiary value.

3. Evidentiary Value of Statements Made During Search Operations:
The Tribunal emphasized that statements made during search operations under Section 132(4) should be viewed with caution. In the absence of supporting material evidence, such statements do not have significant evidentiary value. This aligns with the decision in Asst. CIT vs. Mrs. Sushiladevi S. Agarwal, where it was held that statements made under mental stress or coercion during search operations should not be taken as the absolute truth.

4. Assessment of Dissolved Firms:
The Tribunal held that no income could be said to have arisen to the dissolved firms for the years 1987-88 to 1989-90. The firms were legally dissolved, and any declaration of income by a partner post-dissolution was not valid. The Tribunal also noted that the Department's reliance on Section 176(3A) was misplaced as there was no independent evidence of income earned post-dissolution.

5. Addition of Excess Liabilities as Income:
In the case of M/s Jaguste Tandale & Co. for the assessment year 1986-87, the AO added Rs. 5,34,992 and Rs. 3,16,000 as excess liabilities treated as income. The CIT(A) deleted these additions, noting that the AO had accepted the balance sheet and books of account as filed by the assessee. The Tribunal agreed, stating that no proof of possession of on money or suppressed assets was found during the search.

6. Deletion of Sum of Rs. 27,824:
The AO added Rs. 27,824 as unaccounted payment, but the CIT(A) deleted this addition, observing that the payment was made after the end of the year. The Tribunal upheld this deletion, finding no infirmity in the CIT(A)'s remarks.

Conclusion:
The Tribunal concurred with the CIT(A)'s findings and dismissed all the appeals. The declarations made under Section 132(4) were deemed to lack evidentiary value, and the additions based on excess liabilities and unaccounted payments were not justified. The dissolved firms could not be assessed for income post-dissolution, and the appeals were accordingly dismissed.