1986 (2) TMI 87 - AT - Income Tax

Summary

Issues Involved:

1. Legitimacy of the assessment based on undated signed cash vouchers.
2. Credibility of statements by employees, particularly Shri Jaswinder Singh and Smt. Chand Rani.
3. Justification of additions made by the Income Tax Officer (ITO) on alleged inflation of expenses.

Issue-wise Detailed Analysis:

1. Legitimacy of the assessment based on undated signed cash vouchers:

The ITO relied heavily on undated signed cash vouchers found during the search operations on 12th Aug., 1975, to conclude that the assessees were inflating their expenses to reduce taxable income. However, the Appellate Tribunal noted that these vouchers were "dumb" and did not indicate any amounts, making them insufficient for proving inflation of expenses. The Tribunal emphasized that the ITO failed to provide any material evidence correlating these vouchers with the debits in the books of the assessees. The Tribunal also pointed out that the vouchers were used for making advances to workers, which were later adjusted against their monthly salaries, a common practice corroborated by the testimony of Smt. Chand Rani. Therefore, the Tribunal found no justification for the additions made solely based on these vouchers.

2. Credibility of statements by employees, particularly Shri Jaswinder Singh and Smt. Chand Rani:

The ITO used the statements of Shri Jaswinder Singh and Smt. Chand Rani to support the claim of inflated expenses. Shri Jaswinder Singh's initial statement recorded on 30th Aug., 1976, was used to suggest discrepancies in salary payments. However, the Tribunal noted that this statement was taken at the back of the assessee without giving him an opportunity to cross-examine, violating principles of natural justice. Shri Jaswinder Singh later provided an affidavit and was cross-examined, clarifying that his salary included an extra amount for night duty, which he had not initially mentioned. The Tribunal found his later statements more credible and noted that the ITO failed to dislodge his position during cross-examination. Similarly, Smt. Chand Rani's testimony was twisted by the ITO, but the Tribunal found that her full statement supported the assessees' explanation of the advance payment system. Thus, the Tribunal dismissed the ITO's reliance on these statements as unjustified.

3. Justification of additions made by the Income Tax Officer (ITO) on alleged inflation of expenses:

The ITO concluded that the assessees were inflating expenses based on circumstantial evidence and discrepancies in the statements of Shri Jaswinder Singh. Additions of Rs. 45,000 and Rs. 40,000 were made in the case of Shri Parkash Chandra Mehra for the assessment years 1975-76 and 1976-77, respectively. Similar additions were made in the cases of Smt. Karuna Kapoor and Shri Prem Mehra. However, the Tribunal found that the ITO's conclusions were based on a misreading of evidence and ignoring relevant facts. The Tribunal noted that no discrepancies were found in stocks, cash, or jewelry during the search, and no undisclosed cash was discovered. The Tribunal also pointed out that the ITO failed to examine other workers or provide material evidence to support the claim of inflated expenses. The Tribunal concluded that the additions were "highly vexatious in nature" and upheld the AAC's decision to delete them.

Conclusion:

The Appellate Tribunal dismissed all the appeals of the Revenue, confirming the deletion of additions made by the ITO. The Tribunal found that the assessments were based on insufficient and misinterpreted evidence, and the principles of natural justice were not followed. The Tribunal emphasized that the undated signed cash vouchers and the statements of employees did not provide a credible basis for the additions, and the ITO failed to substantiate the claims of inflated expenses.