2016 (8) TMI 514 - HC - Income Tax

Addition on salary received - addition on evidence of the statement made by the assessee s wife - Held that - It is borne out that the authorities proceeded on the basis of the statement made by the assessee s wife that she was paying salary to the assessee every month. This statement had been denied by the assessee but the same was not retracted by the assessee s wife. However, what remains to be seen here is that the revenue has not been in a position to bring any evidence on record so as to strengthen its case. Other than the statement made by the assessee s wife u/s 134(2) of the Act which has been denied by the assessee, the revenue has not produced any substantial evidence to prove its case. Assessing Officer has erred in proceeding with the calculation of undisclosed income without there being any cogent and corroborating evidence to the statement made u/s 132(4). Moreover, the calculation made for the entire block period without any basis or material from the seized documents, in our opinion, cannot be permitted. In the case of Standard Tea Processing Co. Ltd. (2013 (7) TMI 539 - GUJARAT HIGH COURT ), this Court has held that as the materials admittedly related to a brief period between 01.4.1998 till 29.7.1998, in absence of any documents found during search to even link the assessee s activities for the entire period, to project by way of extrapolation the facts found during the brief period of about four months would not be permissible and rightly so held by the Tribunal.In view of the above, we are of the opinion that the Tribunal has erred in coming to the conclusion that the assessee had received salary of ₹ 8000/- p.m. for the relevant block years in each year without evidence. The impugned order passed by the Tribunal is therefore required to be set aside. - Decided in favour of assessee

Summary

Issues:
1. Whether the Tribunal's conclusion on the assessee receiving a salary of ?8000 per month without evidence is perverse?

Analysis:
The judgment involves an appeal by the assessee against the Income Tax Appellate Tribunal's order for block assessment period 08.09.1990 to 1998-99, questioning the addition of undisclosed income of ?9,60,000 as the assessee's salary from Om Travels. The Assessing Officer relied on the statement under section 132(4) where the assessee mentioned receiving ?8000 monthly salary from Om Travels, confirmed by his wife. However, the assessee later denied receiving any salary. The CIT(A) and Tribunal upheld the addition based on the wife's statement. The key issue was the lack of concrete evidence supporting the salary addition.

The assessee's counsel argued that the addition was solely based on the wife's statement without corroborative evidence, citing a Delhi High Court decision emphasizing the need for incriminating evidence for block assessments. Referring to Circular No. F. No. 286/2/2003 - IT (Inv. II), the counsel highlighted the importance of evidence collection for undisclosed income. Additionally, a Madras High Court decision was cited to support the argument that statements should be evaluated in context with produced materials.

The revenue's counsel defended the addition, emphasizing the assessee's tax evasion history and management of business affairs under his wife's name. However, the Court noted the lack of substantial evidence beyond the wife's statement. Citing the Delhi High Court's interpretation of Section 132(4), the Court emphasized the need for incriminating evidence for block assessments, which was absent in this case.

The Court concluded that the revenue failed to provide corroborative evidence for the salary addition and erred in calculating undisclosed income for the entire block period without seized document basis. Relying on the Standard Tea Processing Co. Ltd. case, the Court held that extrapolation without proper linkage was impermissible. Consequently, the Tribunal's decision was set aside, ruling in favor of the assessee and quashing the salary addition.

In summary, the judgment addressed the lack of evidence supporting the salary addition, emphasizing the necessity of incriminating evidence for block assessments and the importance of material linkage for income calculations. The Court's decision highlighted the revenue's failure to provide substantial evidence, leading to the reversal of the Tribunal's order.