2012 (9) TMI 131 - HC - Income Tax

Determination of undisclosed income - Held that - The search was conducted on 19.01.1996 and thereafterwards, upto 09.02.1998, there were enquiries going on and the notice was issued only on 27.02.1998. The facts are self-evident that no sufficient opportunity was granted to assessee before finalising the assessment. The Order of Tribunal is set aside on the question of violation of the principles of natural justice, that the assessee was not granted sufficient time to counter the notice of assessment that within three days of receipt of the notice, the assessment was finalized - directions to the assessee to file its objections within two weeks from the date of receipt of a copy of this order and on receipt of the objection, the Assessing Officer shall finalize the assessment within four weeks from the date of receipt of the objection from the assessee - in favour of assessee for statistical purposes.

Summary

Issues:
1. Violation of principles of natural justice in assessment proceedings.
2. Adequacy of opportunity provided to the assessee.
3. Validity of the estimation of undisclosed income during block assessment.

Issue 1: Violation of Principles of Natural Justice
The assessee, a partnership firm in the granite debris business, challenged the assessment for block years 1986-87 to 1996-97, raising concerns about the violation of natural justice principles. The High Court noted that the assessee was not granted sufficient time to counter the assessment notice, which was finalized within three days of receipt, potentially to avoid limitations under Chapter XVA. The Court found merit in the argument, emphasizing the importance of providing adequate opportunity to present objections before finalizing assessments. The Tribunal's decision was overturned, and the matter was remanded to allow the assessee to present all relevant materials before the Assessing Officer.

Issue 2: Adequacy of Opportunity Provided
The Assessing Officer had issued a notice to the assessee on 27.03.1998, with the assessment finalized on 31.03.1998, despite the assessee seeking an adjournment. The Tribunal, while acknowledging the need for effective opportunity provision, deemed the time given to the assessee as sufficient. However, the High Court disagreed, highlighting that the period between the search in 1996 and the notice issuance in 1998 should have allowed more time for objections and responses. The Court set aside the Tribunal's decision, emphasizing the necessity of granting ample time for the assessee to present their case adequately.

Issue 3: Validity of Undisclosed Income Estimation
Regarding the estimation of undisclosed income based on seized documents and loose sheets, the Tribunal upheld the Assessing Officer's determination for certain assessment years. However, the High Court's focus was primarily on the procedural aspect of granting adequate opportunity rather than delving into the merits of the assessment. The Court's decision to set aside the Tribunal's order was based on the failure to provide the assessee with a reasonable opportunity to contest the assessment, rather than solely on the estimation of undisclosed income. The matter was remanded for fresh consideration by the Assessing Officer, emphasizing the importance of procedural fairness in such assessments.