COMMISSIONER OF INCOME TAX vs. RAMESH KHOSLA

Facts

The Revenue filed a reference application under Section 256(1) of the Income Tax Act, 1961, seeking to refer a question of law to the High Court. This arose from an Income Tax Appellate Tribunal (ITAT) order dated September 30, 1998, which rejected the Revenue's application to draw up a statement of case. The ITAT's decision was based on its earlier order dated December 22, 1997, in ITA No. 1074(ASR)/1994. The dispute originated from a search and seizure operation on January 19, 1987, at the assessee Shri Ramesh Khosla's premises. Additions of Rs. 2,00,000/- on account of unexplained investments in Indira Vikas Patras (IVPs) and Rs. 1,68,000/- on account of unexplained investments in bank drafts were made by the Assessing Officer. The Commissioner of Income Tax (Appeals) deleted these additions, which the ITAT upheld.

Held

The High Court held that there was no substance in the Revenue's reference case. Regarding the IVPs, the Court found that Robin Khosla, born on December 30, 1966, was not a minor when the IVPs were purchased on January 17, 1987. Therefore, the addition of Rs. 2,00,000/- by the Assessing Officer was perverse, as the income tax authorities had not assessed Robin Khosla's income. Concerning the bank drafts totaling Rs. 1,68,000/-, the Court noted that the CIT(A), after considering additional evidence including affidavits from Smt. Vanita Khosla and Robin Khosla, found that the assessee had explained the deposit of funds in Meera Khosla's account. The Court also found that the CIT(A) had exercised powers under sub-rule 4 of Rule 46A of the 1962 Rules, which allows the Commissioner to ask for documents or examine witnesses for substantial cause, thus validating the admission of additional evidence. The Revenue had not raised the issue of contravention of Rule 46A before the ITAT. The Tribunal had rightly dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of additions.

Key Issues

1. Whether, on the facts and in the circumstances of the case, the ITAT was right in law in dismissing the appeal of the Revenue, thereby upholding the order of the CIT(A) directing deletion of additions of Rs. 2,00,000/- and Rs. 1,68,000/- made on account of unexplained investments in IVPs and bank drafts respectively, found and seized during a search operation, while entertaining additional evidence in contravention of Rule 46A of the Income-tax Rules, 1962? Assessee's Contentions: - Robin Khosla, in whose name the IVPs were purchased, was not a minor as his date of birth was December 30, 1966, and the IVPs were purchased on January 17, 1987. - A plausible explanation was provided for the bank drafts. The sum of Rs. 68,000/- was deposited in Meera Khosla's account from the sale proceeds of a Maruti Van, supported by an affidavit of the purchaser and the accountant's books. The draft of Rs. 1,00,000/- was also proved to be from Meera Khosla's savings account. Revenue's Contentions: - The CIT(A) could not have entertained additional evidence as it contravened Rule 46A of the Income-tax Rules, 1962. - The assessee failed to furnish a plausible explanation for the purchase of IVPs, and Robin Khosla was a minor at the time. - The Assessing Officer rightly attributed the bank drafts to unexplained investments.