1984 (1) TMI 137 - AT - Income Tax

Tribunal reduces addition, upholds reopening under section 147(b) of Income-tax Act

The Tribunal partly allowed the appeal, reducing the addition to Rs. 2 lakhs. It upheld the validity of reopening the assessment under section 147(b) of ... Assessment Year, Original Assessment Issues Involved:1. Validity of reopening the assessment for the year 1974-75 under section 147(b) of the Income-tax Act, 1961.2. Whether the loose sheets numbering 11, on the basis of which certain additions have been made, are relatable to the assessee's activities.3. Determination of the income to be included in the assessment based on the loose sheets if they are found to have a nexus with the assessee.Issue-wise Detailed Analysis:1. Validity of Reopening the Assessment:The first issue concerns whether the reopening of the assessment under section 147(b) is valid. The assessee argued that the reopening was merely a change in the opinion of the ITO and that all information was available before the completion of the original assessment, which would render the reassessment invalid. The Tribunal, however, found that the reopening was valid because the assessing officer was not aware of the findings from the loose papers before completing the original assessment. The information was received after the completion of the assessment, and it was relevant for the assessment, giving the ITO reason to believe that the income had escaped assessment. The Tribunal cited the decision of the Calcutta High Court in ITO v. Panama (P.) Ltd. and the Supreme Court in Indian & Eastern Newspaper Society v. CIT to support its conclusion that the reopening was valid.2. Genuineness of the Loose Sheets:The second issue was whether the loose sheets found in the business premises of the assessee were genuine. The assessee argued that the sheets were fabricated and not genuine, citing various reasons such as the figures being fantastic, lack of cross-verification with other businessmen, and allegations of vindictiveness by the ITO. The Tribunal, however, found that the loose sheets were genuine. The Tribunal considered the conduct of the partners, the circumstances of the survey operation, and the statements made by the partners. The Tribunal noted that the partners had initially admitted to transactions outside the books and had signed copies of the loose sheets. The Tribunal found that the denial by the partners was a device to save themselves and that the loose sheets were genuinely found in the assessee's premises.3. Determination of Income Based on Loose Sheets:The third issue was to determine the income to be included in the assessment based on the loose sheets. The department had added the credits found in the loose sheets as undisclosed income. The Commissioner (Appeals) had reduced the addition to the peak credit. The Tribunal found that the loose sheets represented money transactions and could not be dismissed as meaningless jottings. The Tribunal also considered the possibility that the credits in the name of the partners represented moneys generated by the firm. The Tribunal concluded that an addition of Rs. 2 lakhs should be sustained, as the credits in the name of the partners were likely to represent undisclosed funds of the firm. The Tribunal justified the addition from the angle of section 69, considering the investment made during the financial year 1973-74.Conclusion:The appeal was partly allowed, and the addition was reduced to Rs. 2 lakhs. The Tribunal upheld the validity of the reopening of the assessment, found the loose sheets to be genuine, and determined that an addition of Rs. 2 lakhs should be made based on the loose sheets.