2012 (7) TMI 539 - HC - Income Tax

Addition on account of unaccounted income - Assessing Officer took into consideration the documents forwarded to him by the CBI and on that basis added certain incomes as unaccounted income income belonged to assessee s wife treated as income in the hands of the assessee - contention of the appellant that the assets for which wealth-tax already stood paid by his wife, Smt. Asha Bhatnagar, could not be the subject-matter of the additions Held that - statement on oath of Smt. Asha Bhatnagar has been repelled cursorily although she had in detail explained the circumstances under which she had made her savings ; her earning earned by tuition ; amounts received by her in terms of the will of her father-in-law enabling her to purchase the aforenoted properties as noted in group II in her own name - Tribunal has indulged in suspicions, conjectures and surmises and acted contrary to the evidence which position is judicially unsustainable - order set aside In favor of assessee

Summary

Issues Involved:
1. Jurisdiction of the Income-tax Department during the pendency of a criminal trial.
2. Determination of undisclosed income based on seized assets.
3. Legitimacy of wealth-tax returns filed prior to the search.
4. Assessment of assets belonging to the appellant's wife.
5. Validity of the will and affidavits supporting the appellant's wife's claims.
6. Rejection of statements and evidence by the Assessing Officer.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Income-tax Department during the pendency of a criminal trial:
The appellant challenged the jurisdiction of the Income-tax Department to frame assessment under the Income-tax Act, 1961, during the pendency of a trial under the Prevention of Corruption Act, 1988. The court formulated the substantial question of law: "Whether it is within the jurisdiction of the Income-tax Department to frame assessment under the Income-tax Act, 1961, during the pendency of the trial under the Prevention of Corruption Act?"

2. Determination of undisclosed income based on seized assets:
The CBI conducted a search on December 4, 1984, at the appellant's residence and office, seizing incriminating documents and assets. The assets were divided into three groups:
- Group I: Cash and foreign exchange seized from the appellant's residence and lockers.
- Group II: Expenses concerning foreign tours, jewellery, and immovable properties.
- Group III: FDRs, deposits, and immovable properties in the names of the appellant, his wife, and daughters.

3. Legitimacy of wealth-tax returns filed prior to the search:
The appellant's wife, Smt. Asha Bhatnagar, had filed her wealth-tax return on October 30, 1984, prior to the CBI search. The court noted that the wealth-tax returns, having been filed before the search, could not be suspected or reopened. The court stated, "The wealth-tax returns in these circumstances, cannot be a suspect document; these returns cannot now be reopened."

4. Assessment of assets belonging to the appellant's wife:
The appellant contended that the assets for which wealth-tax had already been paid by his wife could not be subject to additions by the Income-tax Appellate Tribunal. The court highlighted that the same property could not be assessed twice for tax, noting, "The same property which had been the subject-matter of the wealth-tax returns filed by Smt. Asha Bhatnagar cannot become the subject-matter of the additions made by the Income-tax Appellate Tribunal in the impugned order."

5. Validity of the will and affidavits supporting the appellant's wife's claims:
The appellant's wife claimed that she had independent sources of income, including savings from prior marriage, tuition income, and bequeathed sums from her father-in-law's will. The court found that the will and affidavits supporting her claims were improperly rejected by the Assessing Officer. The court emphasized, "The will of her father-in-law, Mr. Ram Bahadur, was also rejected without any cogent reason. The affidavits of Smt. Rani Bhatnagar and Smt. Suraj Bhatnagar who had supported the version of Asha Bhatnagar were not adverted to."

6. Rejection of statements and evidence by the Assessing Officer:
The court criticized the Assessing Officer for cursorily and illegally ignoring the statements and evidence provided by Smt. Asha Bhatnagar. The court noted, "The Assessing Officer had cursorily and illegally ignored this statement of Asha Bhatnagar." The court also found that the rejection of evidence based on the lack of documentary proof for savings made decades ago was unreasonable.

Conclusion:
The court concluded that the findings of the Income-tax Appellate Tribunal were based on surmises and conjectures, amounting to a perversity. The court set aside the impugned order, stating, "The Tribunal has indulged in suspicions, conjectures and surmises and acted contrary to the evidence which position is judicially unsustainable amounting to a perversity and liable to be set aside." The appeals were allowed.