TaxTMI 
TaxTMI 
2004 (8) TMI 367
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....nts. The CBI conducted a search at the residential and business premises of the assessee as well as that of Shri J.K. Jain, manager (accounts) of Bhilai Engineering Corpn. Ltd. at Delhi and Bhilai on 3rd May, 1991. The said search was carried out in connection with transfer of money to India through Hawala and was stated to be an offshoot of the search on one Shri Shambhudayan Sharma, a Hawala operator who had allegedly channelised funds for the terrorist operations. During the course of search, Indian currency of Rs. 58.5 lakhs, IVP of Rs. 10 lakhs and some foreign currency were found and seized from the residence of Shri J.K. Jain situated at G-36, 'Saket', New Delhi besides various incriminating documents and diaries. Mr. J.K. Jain was the accountant and a trusted employee of the assessee. Photocopies of some of such seized documents were handed over by the CBI to IT Department in February, 1994 for inquiries and investigations. Subsequently, the photocopies of remaining seized documents were handed over by the CBI to Directorate of IT (Inv.), New Delhi in the month of February, 1995 in response to warrant of authorisation issued by DIT (Inv.), New Delhi, under s. 132A on 17th J....
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....led query letter was sent by the AO to the assessee along with statutory notices issued under ss. 143(2) and 142(1) communicating the adverse findings of the search and seizure operations by the CBI. The incriminating documents found during the course of the said operations including the crucial diary MR-71/91 were also brought to the notice of the assessee by the AO and the prima facie inference sought to be drawn from the said seized material as well as the statements of the concerned persons recorded by the CBI as well as by the Addl. DIT (Inv.) was also communicated to the assessee seeking his explanation/clarification in the matter. It was specifically communicated by the AO to the assessee that the amounts found to be credited in the said diary during the previous years relevant to asst. yrs. 1988-89 to 1992-93 are proposed to be considered for addition under s. 68 in his case and an opportunity was given to him to offer his explanations/clarifications on various points raised in the said letter. The assessee, however, did not divulge any information in order to offer his explanation/clarification to the various points raised in the letter sent by the AO and instead raised va....
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....rsistently in the matter of compliance to the various points raised by him for the purpose of completing the reassessments, the AO found that the assessee is apparently attempting to avoid the main issue of explaining the nature and source of credits found recorded in the relevant seized diary and other documents and taking note of this non-co-operation on the part of the assessee in complying with the requirements of notices issued during the course of reassessment proceedings, he proceeded to complete the reassessments for the years under consideration under s. 143(3) r/w s. 147 on the basis of material available on record before him assessing the income of the assessee at substantially higher figure than the one returned by the assessee. 4. The basis on which the AO determined the income of the assessee is as follows. The CBI during the search in the premises of Mr. J.K. Jain recovered 11 diaries and 9 files containing loose papers bunched together at the time of seizure by the CBI. The main diary based on which the various additions were made by the AO is MR 71/91. The other diaries and documents according to the AO supplement and corroborate the transactions found recorded ....
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....r had accrued. Before coming to the determination of the income from out of the seized diary, it was necessary for the Revenue to establish- (i) that the seized diaries belonged to the assessee, Mr. S.K. Jain, though recovered from the possession and control of J.K. Jain, and (ii) that the entries therein were made by Mr. J.K. Jain, the trusted employee of S.K. Jain under whose instructions and directions the entries in the diary were made by J.K. Jain, (iii) that these were books of account maintained by the assessee (i.e., S.K. Jain) for the relevant previous year (authenticity of the seized document and diaries), and (iv) that the entries found therein were in codes and what were the actual figures that were to be ascribed to the codes used in the diary, (v) that these entries give rise to income chargeable to tax. 6. It was only after all the above were established that the question of the quantum of income to be determined in the hands of the assessee was to be decided by the AO. The AO dealt with all the above aspects and came to a conclusion on each of the above questions as follows: 1. The seized diaries and documents were authentic and were a contempor....
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.... version was adopted by J.K. Jain when he was examined by the DDIT (Inv.), New Delhi. It may be mentioned here that the Revenue has even launched prosecution against J.K. Jain for giving false statement, insofar as he changed his version in this regard, i.e., the figures in the diary were to be deciphered as in thousands as against the figure of lakhs as given in the statement before the CBI. Here again the statement of J.K. Jain and B.R. Jain recorded by the CBI and the deposition of Smt. Rachana Jain, Pawan Jain, Mukhul Jain, Veenu Jain and Pramod Jain (all relatives of the assessee) were recorded by the DDIT (Inv.), New Delhi, the statement of Mr. P. Ghoshal, Daniel P. Rambal, S.S. Sandhu, K.N. Dutta were also relied upon. The AO has set out various circumstances and the entries in the seized documents itself, which would go to show that the entries in codes were in lakhs. In this regard, the entries in the books of accounts were also compared. The AO arrived at the following total receipts and total disbursements in the diary MR-71/91 and other connected documents: ------------------------------------------------------- F. Y. Receipts &n....
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....0, respectively. These were considered as unexplained expenditure under s. 69C of the Act. The cash and IVP's and foreign currency were treated as explained, being one out of the cash balances recorded in the seized diaries. Besides the above, certain other additions were made with reference to the original assessments not connected with the search and seizure by CBI. 7. The AO also dealt with the various objections raised by the assessee in the course of assessment proceedings. (a) The objection of the assessee that he should be furnished with photocopies of the seized documents was rejected by the AO by observing that the assessee was given opportunity to inspect and that there is no requirement of furnishing copies. (b) The request of the assessee for inspection of the originals of the seized documents was held to be device to protract the proceedings. (c) The reliance placed by the AO on the material collected by the DDIT (Inv.), New Delhi, was proper as the said authority are investigating authorities and any material given by them can be used in evidence. The assessee was given opportunity of being heard on the material made available by DDIT (Inv.), New Delhi, an....
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....e original (as modified) as well as additional grounds have been argued by the learned representatives of both the sides elaborately during the course of hearing before us. They have also filed voluminous paper books containing 1141 pages in four volumes from assessee's side and 587 pages in two volumes from Revenue's side. Moreover, keeping in view the time lag between the hearings in this case which has taken place at three different times, both the sides have placed on record their written submissions containing their arguments on various issues as well as the gist of case laws relied upon by them in support, as per the directions of the Bench. During the course of hearing before us, the correspondence between the AO and the higher authorities including DDIT (Inv.), New Delhi, and CIT, Jabalpur, prior to the date of initiation of reassessment proceedings stated to be relevant and material for deciding these appeals but not provided to the assessee earlier by the Department claiming it to be confidential, was also made available to the assessee for inspection at the instance of the Bench. Before us, the learned counsel for the assessee has also submitted that even though copies o....
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....eals of the assessee read as follows: Ground No. 3: That the CIT(A) erred on facts and in law, in holding that the AO validly assumed jurisdiction to reopen the concluded assessment without appreciating that the AO had not reached any independent satisfaction that the income of the appellant had escaped assessment. Ground No. 4: That the CIT(A) erred on facts and in law, in holding that the AO validly initiated action for reopening the assessment, without appreciating that such action was taken at the behest and dictates/directions/instructions of higher/other authorities and without any independent application of mind on the part of the AO." 14. The facts and the dates which are relevant for deciding these grounds of appeal may briefly be stated as follows. On 3rd May, 1991, there was a search conducted by the Central Bureau of Investigation (CBI for short) in the residential and business premises of one Shri S.K. Jain (the assessee in these appeals) managing director of M/s Bhilai Engineering Corpn., Bhilai, Madhya Pradesh, (hereinafter referred to as BECO) and one Mr. J.K. Jain, manager (accounts) of BEC. The searches were carried out both at Bhilai and Delhi. This sear....
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....stated that the figures were only in thousands and not in lakhs. That the entries in the diary seized by the CBI were made by him at the oral instructions of Mr. S.K. Jain and N.K. Jain and no other third person would give instructions for recording transactions in the diary. That the payments stated to have been made to various politicians as recorded in the diary were not made by him nor does he know the person who used to pay money to the politicians. That receipt of money recorded in the diary were monies received either from S.K. Jain or staff members of the company. That entries in the diary used to be made sometimes on a day-to-day basis, sometimes once in a month. That the accounts as entered in the diary used to be shown by him to S.K. Jain once or twice and he has signed as token of approval of the accounts. 17. It is not in dispute that the assessee was being assessed to tax by the ITO, Ward-I, Bhilai and later on, i.e., on 12th March, 1993, the jurisdiction was transferred to Dy. CIT (Spl. Range), Bhilai, hereinafter referred to as the AO, who was also in charge of assessment of BECO. 18. The DDIT (Inv.), vide letter dt. 20th March, 1995 informed the AO, that proc....
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....g summary of accounts in the diary. (iv) Set-IV-Summary of accounts of diary titled as MR-70/91 having pp. 1-30. (v) Set-V-Titled as MR-72/91 showing details of payments, etc. having 51 pages. (vi) Set-VI-Titled as MR-73/91 having 50 pages. (vii) Set-VII-Titled as MR-67/91 containing 11 pages representing ledger account of BECO, S.K. Jain. (viii) Set-VIII-Copy of account of petition filed before Settlement Commission by Shri J.K. Jain having 12 pages. (ix) Set-IX-Report from CBI having 117 pages. (x) Set-X-Statement of accused recorded by CBI as containing 258 pages. I (xi) Set-XI-Containing statements of witnesses by CBI having 125 pages. (xii) Set-XII-Containing a report sent by DDIT, Unit-I to DI about appraisal of some of the documents containing 18 pages. 20. We may also mention here that in the DDIT (Inv.) letter dt. 1st March, 1995 to CIT, Jabalpur, there are some references about reopening. Copy of this letter is at pp. 1064 to 1066 of assessee's paper book. There is a reference to this letter in the letter dt. 20th March, 1995 sent by the DDIT (Inv.), New Delhi to the AO at Bhilai. The contents of this letter insofar as it relates to a decisio....
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....hi, he desired to know the latest development in the matter of investigation/reopening of the case of the persons to whose cases the seized materials relate. He is informed that this office has received the material/reports, etc., only on 24th March, 1995 at 5.00 P.M. from Delhi vide letter No. F. No. DDIT/Inv/U-I/T.W./DLH/1995-96/1464 dt. 20th March, 1995. Our position is being verified. The approval report of DDIT to DG contains set No. XII shall be perused and action of reopening, etc. as suggested shall be taken shortly. Our report shall be submitted to Hon'ble Settlement Commission. He informed that their matters are fixed for hearing before Hon'ble Supreme Court. 28th March, 1995: Received a phone call from DG, Shri G.P. Garg, Delhi. He informed of the...... (not legible) aspect of the matter. Viz., (a) the reopening of the assessment of Shri S.K. Jain, B.R. Jain and BEC (b) submission of the report to Settlement Commission (not legible) appraising them with the factual position and (c) Submission of detailed report to CBDT through Chief CIT (Bhopal, by week end). 28th March, 1995: Received phone call from CIT, Jabalpur, who informed of his talk with Shri S.P. Garg, DG,....
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....ng to him under the provisions of IT Act, it was the AO who, as a quasi judicial authority, is entrusted with the powers of forming a belief of escapement of income and, thereafter, reopening assessments and he has to independently come to such a conclusion and should not be influenced or be directed/dictated by his superiors in coming to such conclusion. It is further contended by the learned counsel for the assessee that there was no independent application of mind by the AO as can be gauged from the following: (a) The letter dt. 20th March, 1995 of DDIT (Inv.) was received by the AO on 24th March, 1995 at 5.30 P.M. (b) 25th and 26th March, 1995, were holidays being Saturday and Sunday; (c) The AO had only 3 working days, i.e., 27th, 28th and 29th March, to go through the voluminous records, statements of the various persons, decipher the notings in the diaries which, as admitted by the AO, were in alphabets, abbreviated forms, codes, etc., examine the assessment records, form prima facie link between the diary and S.K. Jain, have reason to believe that income of the assessee has escaped assessment and quantify the same. (d) In the reasons recorded, the AO has referre....
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....ention here that the proposition laid down in the aforesaid decisions are to the effect that a quasi judicial authority should exercise discretion vested in him by law independently without being influenced by any dictates or directions of superior authorities. There can be no quarrel to the proposition laid down in these decisions. The question for consideration is whether the AO acted at the dictates of his higher authorities in reopening the assessments or applied his judicial mind independently. This is a question of fact and we will examine this in the light of the material available on record. 26. The learned Departmental Representative on the other hand submitted that the correspondence relied upon by the learned counsel for the assessee does not lead to the conclusion that the initiation of reassessment proceedings was done by the AO at the dictates of his superiors and that he did not independently apply his mind before recording reasons for reopening assessments. In this regard, it was submitted by him that the entire proceedings before the Revenue authorities were to be viewed in the light of the writ petition Nos. 340-343 of 1993 filed in the Hon'ble Supreme Court in....
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.... to show that the directions contained in this letter were ever conveyed to the AO either by the DDIT (Inv.) or CIT, Jabalpur. The fact that the time gap between the time the AO received information and recorded reasons was very short would not be fatal and in any event cannot lead to the conclusion that reasons were recorded by somebody else or his superior authorities or that the AO did not apply his mind before forming a belief about escapement of income. There is no evidence on record to show that the AO did not record reasons on his own. The fact that voluminous records were to be perused before recording reasons is again not a relevant consideration. The assessee has merely relied on certain circumstances and seeks a finding on the basis of these circumstances that the reopening was at the dictates of superiors. We are of the view that the AO was in possession of information and there is nothing to show that between the period when he received information and he recorded the reasons there was any dictates from any other person to reopen the assessment. The normal presumption is that official acts have been properly done. There is no material available on record to come to the....
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....s of s. 124 of Evidence Act, privilege can be claimed only where the documents relate to communication of matters which will have adverse impact on public interest. He relied on the decision of the Hon'ble Allahabad High Court in the case of Union of India vs. Sheo Shankar Sitaram & Anr. (1974) 95 ITR 523 (All) and submitted that in the present case, the Revenue cannot seek privilege. We have considered his submissions. Sec. 124 of the Evidence Act reads as follows: 124. Official Communications.-No public officer shall be compelled to disclose communications made to him in official confidence, when he considers that the public interests would suffer by the disclosure. The decision of the Allahabad High Court was rendered after a finding of fact that disclosure of information would not be in the interest of public. In the present case; we have to consider whether the privilege claimed by the AO can be accepted. We direct the learned counsel for the assessee to have inspection of the documents production of which is not objected by the Revenue. In our view the documents production of which have been objected to by the Revenue, prima facie, appear to be documents in respect of w....
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.... 6. That the CIT(A) erred on facts and in law, in holding that the AO validly initiated proceedings under s. 148 of the Act without appreciating that the AO failed to quantify the income of the assessee alleged to have escaped taxation. 7. That the CIT(A) erred on facts and in law, in not holding that the impugned assessment is bad in law and void ab initio since there was no live link/nexus between the reasons recorded and the income assessed in the hands of the assessee." 33. The learned counsel for the assessee at the outset invited our attention to the reasons recorded by the AO and pointed out that the same were recorded in a consolidated manner in 'Jain Group of Cases' and not in the individual case of the assessee. He submitted that judicious comparison between the material available, reasons recorded and prima facie conclusion purportedly arrived at in the reasons recorded clearly show that there was no material, leave alone live/rational material, on the basis of which there could be formation of the belief that the entries in the diary represented cash credits in the hands of the assessee and/or unexplained expenditure of the assessee and, therefore, there was no....
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....unexplained cash credits and the same represent undisclosed income belonging to assessee and/or of BEC Ltd. which no prudent person could have reached on the basis of the material available or reasons recorded by the AO. According to him, if the prima facie conclusion of the AO as to involvement of the assessee/BEC Ltd. only is tested on the touchstone of the material available with him, it is patently clear that there is no nexus at all to come to that belief. In fact, the material available pointed towards involvement of many persons and not the assessee alone. Further the nature of income sought to be taxed is not what could be deduced/concluded from the available material since the available material indicated, if at all, towards an entirely different nature of transactions. He contended that the AO thus was not sure either about the nature of income or the persons actually involved on the basis of material available before him and still proceeded to reopen the assessments for exploring various options. He pointed out that reassessment proceedings initiated in the case of other assessees namely Shri B.R. Jain, Shri N.K. Jain and M/s BEC Ltd. however were subsequently dropped by....
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....basis of reasons recorded having no nexus with the material available but the same were initiated to explore various options and the assessee was targeted as a matter of convenience. 36. The learned counsel for the assessee also contended that the only basis of connecting the impugned diary with the assessee was the statement of Mr. J.K. Jain, who had never been the employee of the assessee as assumed by the Revenue authorities. He reiterated that, in any case, reliance could not be placed on the statement of Mr. J.K. Jain for the reason that no opportunity was afforded to the assessee to cross-examine the said deponent. 37. In support of his contentions, the learned counsel for the assessee relied on the decision of Hon'ble Supreme Court in the case of Sheo Nath Singh vs. AAC 1973 CTR (SC) 484 : (1971) 82 ITR 147 (SC) wherein it was held that the words "reason to believe" suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the ITO may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. It was also held that the ITO would be acting without jurisdiction if the reason for his belief tha....
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.... application of mind by the AO. He then cited the decision of Hon'ble Madhya Pradesh High Court in the case of Bombay Pharma Products vs. ITO (1999) 153 CTR (MP) 350 : (1999) 237 ITR 614 (MP) wherein it was held that the notice issued under s. 148 of the Act should follow the reasons recorded by the ITO for reopening of the assessment and such reasons must have a material bearing on the question of escapement of income by the assessee from assessment. 40. The decision of Hon'ble Madhya Pradesh High Court in the case of Lokendra Singh Rathore vs. WTO (1986) 51 CTR (MP) 60 : (1985) 155 ITR 629 (MP) was also relied upon by the learned counsel for the assessee wherein it was held that the expression used in the relevant provisions being 'reason to believe' and not 'reason to suspect', action can be taken only when there is an honest and reasonable presumption based on reasonable grounds and not mere guess, gossip, suspicion or rumour. There should be a direct link or nexus with the information or material with the officer and the formation of the belief as to the escapement of net wealth in a particular assessment year. He submitted that the decisions of Hon'ble Delhi High Court in ....
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....1993, 17th Sept., 1993 and 23rd Sept., 1993 placed on pp. 164 to 175 of CBI's report dt. 7th Feb., 1995, Shri J.K. Jain has stated that: "My father as well as father of Shri S.K. Jain were very close friends since very beginning and due to their acquaintance, I was associated in M/s Bhilai Engineering Corpn. Ltd. by Shri Surender Kumar Jain and working with him since 1978" "I am working with M/s Bhilai Engg. Corpn. since 1978 and presently, I am getting a salary of Rs. 6,900 per month, besides free accommodation and car" (as senior executive in M/s BEC Ltd., 13 Masjid Moth, New Delhi,-as given in the caption to his statement) "I was looking after the liaison work, sales relating to the export and other activities with various management Departments, on behalf of M/s Bhilai Engg. Corpn.". "Today, I have been shown two spiral note-books and two files marked as (MR-208, 209, 325 and 326/93). The note-books and the files mentioned above have been seized from the search of my house conducted by the CBI, SIC-II, New Delhi, on 3rd May, 1991. In the note book (marked as M-209/93), the details of credit/debit have been maintained from the month of February, 1988 to April, 1991. ....
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....ed by Shri Veenu Jain and Shri Pramod Jain, directors in the companies of this family group of the assessee. Occasionally, these accounts have also been shown to his brothers Shri B.R. Jain and Shri N.K. Jain as there are remarks in the handwriting of Shri J.K. Jain on page No. 7, page No. 8 (reverse) and page No. 10 of MR-71/91 to this effect. (d) In his statement recorded on 24th April, 1995 Shri Daniel P. Rambal, an employee of Shri S.K. Jain and his companies stated that Shri J.K. Jain had given him money in Bombay office which was to be spent as per the instructions of Shri S.K. Jain. Shri Rambal had submitted the account of the expenses incurred on behalf of Shri S.K. Jain to Shri J.K. Jain who recorded them in the seized diary. (e) Shri P. Ghoshal, an employee of Shri S.K. Jain and his companies stated in his statement recorded on 26th April, 1995, that he had received in Calcutta from Shri J.K. Jain a sum of Rs. 10 lakhs which was spent for purchase of various articles of Shri S.K. Jain. The account of Rs. 10 lakhs was submitted by him to Shri J.K. Jain and which was found recorded in the impugned diary. (f) In his statement recorded on 27th April, 1995, Shri H.P. ....
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....the unrecorded business affairs of the assessee and since none else other than the assessee had any knowledge about the said transactions, his involvement therein and control thereon was very much evident. He further contended that all these transactions found recorded in the said diary belonging to the assessee represented cash credit entries and expenditure of the assessee and since the same was not disclosed in his regular returns filed for the relevant years, a prima facie case of income escaping assessment under the deeming provisions of ss. 68 and 69C r/w s. 147 was clearly made out. This is more so because the assessee had failed to prove and explain all the essential ingredients of ss. 68 and 69C insofar as they relate to the unrecorded incomings and outgoings, evident from the impugned documents. 44. Shri Anand Jaiswal pointed out that Shri Arif Mohd. Khan in his statement dt. 21st Sept., 1994 given before the CBI had admitted that he was given donation of sizeable sums of Rs. 50,000 by the assessee and that Shri S.K. Jain was also making payment of the telephone bills and incurring sundry expenses on his behalf, i.e., on behalf of the said deponent. He had also deposed....
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....Rs. 600 from Shri S.K. Jain, director of BEC. He also stated that he did not recollect the exact date and time when the amount was received. The entries stating receipt of Rs. 4.50 lakhs from his employer is incorrect. Shri Satya Bagla has deposed before the CBI that he might have received about Rs. 25,000 on various occasions from Shri S.K. Jain towards repairs of his car. Shri Vinod Kumar Jain in his statement dt. 10th Feb., 1994 deposed before the CBI that he used to receive cash from Shri S.K. Jain from time to time but the same used to be in thousands only. He denied having any knowledge regarding the entries in the impugned diary. Shri M.P. Nair in his statement dt. 18th Feb., 1994, deposed before the CBI that he did not know in what context the entries in the impugned diary were made. Further, he deposed that Shri S.K. Jain used to give him some amounts being in thousands. Shri Sanjay Kumar, S/o Shri Chandram in his statement dt. 12th Dec., 1994 deposed before the CBI that his father had arranged for a loan of Rs. 10 lakhs from Jains and he personally went to the office of Jains and collected the cheque for the same. Shri T.T. Bhatia, an employee of BEC, Bhilai, in his state....
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....e assessee to assert that the AO did not arrive at a prima facie conclusion that the income alleged to have escaped assessment belonged to the assessee. He further submitted that a critical analysis of all the depositions made by various concerned/involved persons, as enumerated above, clearly leads to an irresistible conclusion that the entries in the seized diary were recorded by the assessee's employee as per the instructions of the assessee. Even the assessee himself had explained before CBI, the nature and nomenclature of the transactions found recorded by the assessee's employee in the questioned diaries. These facts also are further fortified form the signatures of the assessee affixed on some pages of these diaries, as mentioned supra and all these evidences the fact that the entries in the said diaries were being made only as per the instruction of the assessee and it was the assessee alone who had fullest control and knowledge about the same. He contended that the AO, therefore, was fully justified in treating the entries found recorded in the seized diary as cash credit entries in the hands of the assessee considering that the same had been not disclosed in the regular r....
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....nt. 49. Further reliance was placed by Mr. Jaiswal on the decision of Hon'ble Calcutta High Court in the case of ITO vs. Electro Steel Castings Ltd. (2003) 185 CTR (Cal) 300 : (2003) 264 ITR 410 (Cal) for the proposition that the validity of proceedings has to be judged on the basis of facts as existed on the date of assumption of the jurisdiction and not on the ultimate result of any reassessment proceedings. He also relied on the decision of Hon'ble Supreme Court in the case of ITO vs. Selected Dalurband Coal Co. (P) Ltd. (1996) 132 CTR (SC) 162 : (1996) 217 ITR 597 (SC) wherein it was held that the formation of belief by the AO is within his subjective satisfaction and, therefore, at the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the facts stated in the material are true or not is not the concern at this stage. Relying further on another decision of Hon'ble apex Court in the case of Shri Krishna (P) Ltd. vs. ITO (1996) 135 CTR (SC) 75 : (1996) 221 ITR 538 (SC), he contended that the enquiry at the stage of examining the validity of reassessment notice is only to ....
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....he cases relied upon by the assessee are also quite different and distinguishable from those obtaining from the record of the assessee under consideration. The ratio laid down in the said decisions relied upon by the assessee, therefore, has no application at all to the acts of the case under consideration. He also contended that the facts documented by the AO clearly evidences the fact that the reasons recorded were on the basis of the material facts available before him, which indicated escapement of sizeable sums from taxation. Thus there was live link between the material on record and the reasons extensively recorded by the AO to justify action under s. 147 in this case. According to him, the information received was minutely verified and examined by the AO with reference to the returns originally filed by the assessee and this exercise independently made by the AO, after due application of mind, brought to light that the transactions reflected in the seized diaries were not disclosed in the returns originally filed and thus, there was every reason to believe escapement of substantial amount of undisclosed income/investment having direct nexus and live link between material av....
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....ng to tax such escaped income, the AO initiated action under s. 147 after complying with all the statutory formalities. Therefore, the information, which enlightened the escapement of sizeable income, and the investigation and verification of the same with reference to the facts disclosed by the assessee in the original returns filed for these years, were very much preceded the initiation of the impugned reassessment proceedings under s. 147 and hence the action of the AO in this regard was in conformity with the ratio laid down by the Patna High Court in the case mentioned supra, although the facts of the case under consideration are entirely different from those before the Patna High Court in the case relied upon by the assessee. 54. In the rejoinder, the learned counsel for the assessee submitted that the contention of the Revenue that the assessee had signed on pp. 3 and 35 of the impugned diary is factually incorrect inasmuch as the said pages were not part of the impugned diary, i.e., MR-71/91 but were part of MR-76/91. He pointed out that p. 3 is the statement of expenses on farmhouse belonging to BEC Impex International (P) Ltd. whereas p. 35 is some statement prepared b....
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....ing that the Supreme Court gave a factual finding, even then the diary was observed to relate to the 'Jain Brothers' and not the assessee alone. Therefore, it is for the Revenue to explain as to why the entire diary was held relatable to the assessee alone. 57. As regards the decisions of the Punjab & Haryana High Court in Mrs. Rama Sinha vs. CIT (2002) 177 CTR (P&H) 47 : (2002) 256 ITR 481 (P&H) and the Calcutta High Court in Simplex Concrete Piles (India) (P) Ltd. vs. Dy. CIT (2002) 176 CTR (Cal) 353 : (2002) 255 ITR 49 (Cal) relied upon by the Revenue, he submitted that the same were rendered in totally different context. There is no dispute with the legal proposition laid down in the said decisions that at the time of issuance of notice, the AO is only required to come to a prima facie belief. The case of the assessee, however, is that on the facts and circumstances as have been highlighted, prima facie conclusion purportedly arrived at by the AO is in direct conflict with the inference that a reasonable person could have drawn from the available material. He submitted that there is also no dispute with the proposition that validity of initiation of proceedings have to be te....
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....hing and roving enquiries without even forming a prima facie belief that income of the assessee has escaped assessment. 59. The learned counsel for the assessee submitted that the Revenue's argument that the documents revealed escapement of assessee's income is also not correct as highlighted on pp. 18 to 21 of the propositions on the basis of material found and the inference drawn/prima facie conclusion arrived at by the AO does not have live nexus/connection with the available material. According to him, even the decision reported in CIT vs. Sun Engineering Works (P) Ltd. (1992) 107 CTR (SC) 209 : (1992) 198 ITR 297 (SC) and CIT vs. D.R. Vadera l/h of Hans Raj Vadera (2000) 163 CTR (Del) 251 relied upon by the Revenue are not applicable in the facts of the present case since the issue raised by the assessee is whether the proceedings could be initiated to conduct further enquiry and investigation. The decisions thus cited are not relevant. 60. As regards the statement of Shri B.R. Jain relied upon by the Revenue, the learned counsel for the assessee submitted that Shri B.R. Jain had never stated that the entries in the diary related to the assessee. On the contrary, Shri B.....
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....147, their Lordships summarised the settled legal position in the matter of conditions precedent for valid initiation of reassessment proceedings as under: (a) There must be material for the belief; (b) Circumstances must exist and cannot be deemed to exist for arriving at an opinion; (c) Reason to believe must be honest and not based on suspicion, gossip rumour or conjecture; (d) Reasons referred to must disclose the process of reasoning by which the AO held "reasons to believe" and change of opinion does not confer jurisdiction to reassess; (e) There must be nexus between material and belief; (f) The reasons referred to must show application of mind by AO. 62. It is therefore relevant to find out as to whether the aforesaid conditions were duly satisfied in the present case by the AO before initiating reassessment proceedings for the years under consideration. In this regard, it is observed that during the course of search carried out by the CBI at the residential premises of Shri J.K. Jain situated at G-13, Saket, New Delhi, various incriminating documents besides cash and other valuables were found and seized. Out of this seized material, photocopies of fol....
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....inability to explain the nature of transactions found recorded in the said diary stating that only Shri S.K. Jain had the knowledge of the said transactions. The relevant portion of the reasons recorded by the AO relating to this aspect is reproduced below: "During the course of interrogation by CBI, Shri J.K. Jain has stated that so far as the valuables seized from his house are concerned, they belong to him but the diaries and registers were not pertaining to him, even though, those have been written in his hand at the instance of Shri S.K. Jain, his employer in the capacity of managing director of BEC. When he was asked about the nature of writings, etc. he maintained utter silence on the plea that he did so at the directions and dictation's of Shri S.K. Jain who knows as to what was directed to be written by him." 64. The aforesaid statement of Shri J.K. Jain was confronted to the assessee by the CBI and in his statement recorded before CBI in this regard, assessee explained almost all the transactions appearing in the relevant seized diary and also deciphered the code words and figures as pointed out by the AO in the reasons recorded as follows: "When Shri S.K. Jain w....
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....uld have been written as 12,80,000 in absolute figure but it was written as 12.80 which revealed the position of writing of figures of lakh on left had side of the dot and figures of thousand on right hand side of the dot. Shri S.K. Jain here could not give any convincing counter-reply except saying that it is done by Shri J.K. Jain. The said diaries and registers were referred by the Investigating Officer to the Jr. Technical Officer of CBI, Shri V.K. Sharma who had also concluded that the figures were only in lakhs and since on some pages there is a clear working of amounts as converted into Indian currency by applying a conversion rate. This therefore represents nothing but the foreign currency brought on in India. This fact has been further corroborated by the fact that the various amounts were multiplied by 'cash Hawala' rates prevailing during that period and obtained from Directorate Of Enforcement by requisition. It is pertinent to mention here that no instant statement has been recorded by the CBI, i.e., on the date of search on 3rd Sept., 1991 but it was recorded on 15th Sept., 1991 and in the meantime these persons consulted each other and came out with a different st....
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....very posh locality for this purpose. The investment in this farmhouse has been made of huge amounts and has been made lavish by providing all sorts of amenities. It has been given to BEC Impex Ltd. on a lease rent of Rs. 1 lakh per annum. And utilised by the company as its guest house where VIP guests including politicians are entertained by the group. This is gathered from some of the statements of politicians. The entire investment made may be ranging between 4-5 crores as the figure of investment stated above is upto September, 1990. Thereafter further investment of Rs. 83,55,643 has been found noted on pp. 22 and 23 of the file numbered as MR 72/91 as on 23rd Feb., 1991. Thus the unaccounted investment as per seized materials works out to Rs. 4,61,75,057 which shall be assessable at half of it in the hands of the wife and husband as they being joint owner of the property. Thus a sum of Rs. 2,30,87,528 shall be assessed under s. 69 of the IT Act, 1961 in the hands of each spouse as unexplained investment during the financial year 1991-92 relevant to asst. yr. 1991-92. So far as the wealth-tax assessment is concerned, the valuation shall be taken after getting the valuation repor....
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....ich had escaped assessment was recorded by the AO in his reasons as follows: "The seized material contains an invoice seized during search on 3rd May, 1991 which is in the name of Shri S.K. Jain and mentions the purchase of furniture by Shri Jain for Rs. 3,75,600 from M/s Southend Furniture and Interior Decorators. Copies of account filed with the return for the asst. yr. 1986-87 does not reflect such withdrawals. Therefore, it has also to be assessed as unexplained investment by Shri Jain for the asst. yr. 1986-87. Also the case file of the assessee shows withdrawal of Rs. 72,246 on 16th July, 1985 on account of air ticket and the destination of the journey has not been mentioned, whether the amount is for to-and-fro journey or for one side, is also not ascertainable. However, looking to the facts of the case, the same appears to be on account of foreign trip by Shri Jain and his family members. The corresponding expenses required to be spent have not been reflected in the accounts. Even for household expenses a paltry sum of Rs. 20,000 is only shown in the account. It will, therefore, definitely involve expenditure met out from undisclosed sources of income and calls for furth....
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....TO vs. Selected Dalurband Coal Co. (P) Ltd., Hon'ble Supreme Court has held that the formation of belief by the AO is within his subjective satisfaction and therefore, at the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the facts stated in the material are true or not is not the concern at this stage. In the case of CIT vs. A. Raman & Co., Hon'ble Supreme Court has held that the expression 'information' in the context in which it occurs in s. 147 must mean instruction or knowledge derived from an external source concerning facts or particulars or as to law relating to a matter bearing on the assessment. If the facts of the present case are considered in the light of legal position emanating from the aforesaid judicial pronouncement, we find that specific information in the form of relevant seized material as well as statements of the concerned persons and report of two investigating agencies, i.e., CBI and DDIT was available before the AO at the relevant time and the formation of his belief about escapement of assessee's income as reflected in the reasons and based on su....
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....port of CBI as well as the Investigation Wing of the Department and on the basis of the said material, the AO entertained belief about the escapement of assessee's income from assessment. Before us, the Department has filed copies of all these documents available before the AO at the time of recording the reasons as per our directions and after perusal of the same and on appreciation of reasons recorded by the AO in the light of the said material, we find that the background of the case and source of and reasons for coming to the possession of the said material was discussed by the AO in his reasons recorded as follows: "In this case, search operations were carried out by the CBI at the residential premises situated at G-30 Saket, New Delhi of Shri J.K. Jain who happens to be the manager of Bhilai Engineering Corporation Ltd. (BEC for the short). During the search, cash amounting to Rs. 58,09,100 was seized along with Indira Vikas Patras of Rs. 10.5 lakhs, some foreign currency of UK, US, Duchmark, France and Hong Kong, in addition to two diaries and files which were seized by the CBI. The seized materials have now been received from the CBI through the DDIT, New Delhi and compr....
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....the instance of Shri N.K. Jain as stated in his statement recorded and the AO therefore was not correct in singling out only the assessee for assessing the entire transactions/credits reflected in the said diary in the hands of the assessee. He has also pointed out that Shri J.K. Jain has stated of having shown the said diary regularly to Mr. B.R. Jain and since the transactions as explained by Shri B.R. Jain had represented sale of scrap of BEC Ltd., the AO was not justified in treating the entire credits of said diary as income of the assessee under s. 68. In this regard, it is observed that the entire transactions reflected in the relevant seized diary were not considered by the AO in hands of the assessee alone at least at the stage of initiation of reassessment proceedings and as is evident from the reasons recorded by him, the reassessment proceedings were initiated not only in the case of the assessee but also in the case of his brothers S/Shri B.R. Jain, N.K. Jain, wife Smt. Poonam Jain and their company M/s BEC Ltd. It is true, as pointed out by the learned counsel for the assessee, that the reassessment proceedings initiated in the case of other persons including the comp....
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.....K. Jain for safe custody. The nature of the receipts were stated to be of unaccounted money generated as a receipt of sale of scrap of BEC Ltd. which has not been accounted for by them in the regular books of account. So far as the codes abbreviated names appearing, he explained that so far as the letter 'A' is concerned, it is assigned to BEC Ltd. and 'Beco' their another concern whose full name is Beco Steel Castings Ltd. It is further contended by Shri Jain that the figures given in the diary were only in thousand and not in lakhs. As regards the names of politicians and others is concerned, he admitted of having given some donations and gifts to ministers on various occasions which he could not remember, etc. When the other partners of Jain were interrogated, S/Shri B.R. Jain and N.K. Jain also reiterated the version of Shri S.K. Jain particularly on two aspects that the money in question was representing their black money generated from various concerns of the group mainly BEC and receipts noted in the diaries were representing the amounts only in thousands and not in lakhs. It is pertinent to mention here that no instant statement has been recorded by the CBI, i.e., on....
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....or by the other persons either before the CBI or before the DDIT, he thought it fit to treat the said entries as cash credit in the hands of Shri S.K. Jain and/or BEC Ltd. to serve the purpose of Revenue. 76. Before us, the learned counsel for the assessee has taken a strong exception to this treatment sought to be given by the AO to serve the purpose of the Department. He has contended that the assessment has to be made in accordance with law by the AO as a quasi-judicial function and there cannot be an assessment of income by convenience to serve any specific purpose of the Department. In our opinion, this objection of the learned counsel for the assessee, if considered in the factual background of the present case, is far-fetched and therefore, unsustainable. As is evident from the reasons recorded by the AO, some of the credits/receipts appearing in the relevant seized document/diary as per the version of the concerned persons represented unaccounted monies generated as a result of sale of scrap of BEC Ltd. and this was stated to have been indicated with the capital letter "A" in the seized diary. There were some other credits/receipts also appearing with the letter "C" whic....
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....e is situated near Mahraulion, at the outskirts of Delhi and it is a very posh locality for this purpose. The investment in this farmhouse has been made of huge amounts and has been made lavish by providing all sorts of amenities. It has been given to BEC Impex Ltd. on a lease rent of Rs. 1 lakh per annum. And utilised by the company as its guest house where VIP guests including politicians are entertained by the group. This is gathered from some of the statements of politicians. The entire investment made may be ranging between 4-5 crores as the figure of investment stated above is upto September, 1990. Thereafter, further investment of Rs. 83,55,643 has been found noted on pp. 22 and 23 of the file numbered as MR 72/91 as on 23rd Feb., 1991. Thus, the unaccounted investment as per seized materials works out to Rs. 4,61,75,057 which shall be assessable at half of it in the hands of the wife and husband as they being joint owner of the property. Thus, a sum of Rs. 2,30,87,528 shall be assessed under s. 69 of the IT Act, 1961 in the hands of each spouse as unexplained investment during the financial year 1990-91 relevant to asst. yr. 1991-92. So far as the WT assessment is concerned....
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....nce as on 28th Feb., 1991 styled as "trial balance of New Delhi" was found and seized. A monthly cash flow chart of Hawala transaction also formed part of the documents/material received by the AO from CBI through DDIT and after examining these documents, the AO recorded following findings in the reasons recorded by him: "A study of the monthly cash flow chart of the Hawala business shows a name of 'KJ' which has been explained to be Krishna Jain, wife of N.K. Jain from whom many a times the money shown to have been received and at times it has shown to have been paid to her. That shows her involvement also and atleast wherever her name is appearing, she should be held responsible so far as the tax liability is concerned. As such, it is partly liable to be assessed in her hands also. Another lady viz. Smt. Poonam Jain, wife of Shri S.K. Jain, has made investment to the tune of Rs. 28,09,739 till 29th Sept., 1986 as per the letter seeking legal opinion from some counsels, photocopy of which is found in the seized material, i.e., MR 72/91 placed in set No. V. As per the details stated above in the letter to the counsel, this investment has been made in respect of B-5, Maharanibag ....
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....the extent of Rs. 14 lakhs each had escaped assessment in the case of assessee as well as his wife considering that the said property was agreed to be purchased jointly by both of them. Moreover, as per the trial balance as on 28th Feb., 1991 forming part of seized material, there was an indication of further investment of Rs. 5,14,149 having been made in the said property and this unexplained investment was also held to be assessable in the hands of the husband and wife on the same analogy. Here again, it could be seen that the belief entertained by the AO about the escapement of assessee's income in the form of unexplained investment in the property situated at B-5, Maharanibagh was based on material coming to his possession after the assessment showing apparently that such investment was made by the assessee and his wife jointly which had not been disclosed in their returns of income for the relevant years. It could also be noted that the relevant documents found during the course of search and relied upon by the AO to come to this conclusion were corroborative inasmuch as the letter sent to counsel indicated the investment made in the said property which was further corroborate....
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....memorandum of understanding, since no note found placed in the seized material and it is chargeable to tax for the asst. yr. 1991-92. Thus, Rs. 64,97,900 is assessable in the hands of each." 82. As is evident from the aforesaid portion of the reasons recorded by the AO, the receipts of Rs. 2,24,68,209 shown in the trial balance under the code letter "C" had been deciphered by the Addl. DIT in his appraisal report as cash. This meaning assigned by the Addl. DIT was held to be incorrect by the AO on the basis of his observations that towards the end of the trial balance, the opening cash balance had been clearly given separately. According to the AO, the said code letter "C" in all probability meant commission received by the assessee and other persons belonging to Jain group and this opinion of the AO again was based on the entries appearing in the relevant seized material which had been treated as Hawala transactions for which the assessee and his brothers ought to have received certain commission which was not separately appearing anywhere in the seized documents. Whether this opinion of the AO was correct or not on merits is not the matter of consideration here, but expression....
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....t the expenditure of Rs. 2,73,695 was incurred by the assessee in the previous year relevant to asst. yr. 1991-92 and the same having been not disclosed or accounted for in his return of income for the relevant year filed in the regular proceedings, he came to the conclusion that the income of the assessee for the said year had escaped assessment. This belief entertained by the AO was further fortified from the fact that even in the DDIT's report such expenses had been stated to have been incurred for import of marble articles like statues, slabs, etc. and were used for decoration of the assessee's farmhouse situated near Delhi. This action goes to establish that the belief entertained by the AO about the escapement of assessee's income was based on the material coming to his possession after assessment as well as the specific admission of the assessee before the DDIT in the letter dt. 31st May, 1995 as well as before the Settlement Commission in the settlement petition filed by him. 85. The seized material received by the AO from CBI through DDIT also contained a bill/notice issued by M/s Southend Furniture and Interior Decorators in the name of the assessee, evidencing investm....
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....available on record and the reasons recorded by him reflect an honest and reasonable belief based on available material and not merely on suspicion, gossip or pretence. It also shows that there was a direct nexus or live link between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of the income of the assessee for the years under consideration and such belief entertained by the AO was based on relevant and material information and on proper and independent application of mind. 88. Before us, the learned counsel for the assessee has also challenged the validity of initiation of reassessment proceedings on the ground of AO's failure to quantify the income of the assessee alleged to have escaped assessment. However, as held by Hon'ble Gauhati High Court in the case of Dhanisram Agarwalla vs. CIT there is no such requirement in law to quantify the income escaping assessment at the stage of reopening and in any case, as pointed out on behalf of the Revenue, the AO having duly quantified the probable income escaping assessment as is evident from the annexure to the reasons recorded dt. 30th March, 1995, the contention raised ....
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.... the learned CIT(A) was fully justified in upholding his action on this count. His impugned orders on this issue are, therefore, upheld dismissing ground Nos. 5, 6 and 7 of the assessee's appeals. 90. The next issue for consideration is as to whether the reassessment was completed at the dictates of another officer and, therefore, is illegal and needs to be annulled. The grievance is projected in ground Nos. 8 and 10, which reads as follows: Ground No. 8: That the CIT(A) erred on facts and in law in not holding that the impugned assessment is bad in law and void ab initio for the reason that the assessment order was passed by the AO without independent application of mind; Ground No. 10: That the CIT(A) erred on facts and in law in not holding that the impugned assessment is bad in law for the reason that the assessment was monitored/completed at the dictates/directions/instructions of the higher/other authorities, who had no jurisdiction in the matter." 91. The facts necessary for adjudication of these grounds of appeal are as follows. The entire sequence of events commencing from the reopening of the assessment to the conclusion of the assessment proceedings needs to ....
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....ecting provisional attachment on 19th April, 1995 and obtained an approval from him on 25th April, 1995. There is a record of proceedings on 18th May, 1995 that notice under s. 148 was served on the assessee through DDIT (Inv.), New Delhi, on 10th April, 1995. The assessee filed his return of income on 6th June, 1995 under protest. The assessee in a note appended to the return demanded copy of reasons recorded, denied connection with the seized documents and also challenged the initiation of reassessment proceedings. On 20th Dec., 1995, the AO records the fact that he had proceeded to New Delhi as per telephone message received from D.C. Agarwal, to take possession of the seized material and discuss the case with higher authorities viz., DIT/DGIT, Delhi. Between 6th June, 1995 and 8th Jan., 1996, there has been no progress in the proceedings before the AO at Bhilai. 93. There were however some developments that took place in New Delhi, regarding the case pertaining to the assessee. (a) The DDIT (Inv.) had issued summons to the assessee under s. 131(1) of the Act. The assessee however sought protection (under Art. 20(3) of the Constitution of India) from interrogation on the g....
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....ies therein were made by J.K. Jain at the instructions of the assessee and that the figures written therein were to be deciphered as one in lakhs and an opportunity was given to the assessee to explain the transactions and show-cause against addition being made under s. 68/69C. (h) Similar letters quantifying the proposed additions were sent by Agarwal to the assessee on 11th Dec., 1995. 94. From now on, the focus shifted to the AO at Bhilai. On 20th Dec., 1995, the AO proceeded to New Delhi on instructions from Mr. Agarwal and took possession of seized material and also discussed the case with higher authorities. This is evident as already stated from the record of the proceedings before the AO. On 8th Jan., 1995 the AO issued notice under ss. 142(1) and 143(2) of the Act along with a questionnaire dt. 20th Dec., 1995 and forwarded the same to D.C. Agarwal at Delhi for service on the assessee at his Delhi address. There is a reference in the record of proceedings of the AO that the same is being forwarded as discussed with him at Delhi during the AO's visit to Delhi. There are some reference to communication between AO and Mr. Agarwal between 17th Jan., 1996 to 30th Jan., 19....
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....at the assessments for income-tax and wealth-tax are to be completed. Only the assessments under the gift-tax are to be kept pending. Accordingly a detailed reply to assessee's letter dt. 5th Feb., 1996 is issued on the basis of draft letter received from Shri D.C. Agarwal, through CIT, Jabalpur through fax. 27th Feb., 1996: A sealed cover addressed to Shri D.C. Agarwal, Addl. DIT was handed over to Shri H.L. Vaddadi, ITI for delivering the same by speed post at Raipur head post office. The sealed cover contains the replies to Shri S.K. Jain's letter (reply to notice) dt. 5th Feb., 1996 along with acknowledgement slip which has been duly sealed and signed. 28th Feb., 1996: Shri H.L. Vaddadi, ITI informed that the sealed envelope containing the above has been delivered to HPO for sending it to Addl. DIT, Shri Agarwal, by speed post vide Ack. No. 5358 dt. 28th Feb., 1996 which is placed on record. 29th Feb., 1996: Shri D.C. Agarwal, Addl. DIT, informed that he had not received the above till 6.00 p.m., who was informed by the undersigned that the delivery of the dak could be effected only by tomorrow by 12 noon. He desired to have a set of the contents of the envelope to be ....
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....e communicated that the copies of these letters be forwarded to him by fax. 11th March, 1996: As desired, the copies of assessee's reply have been transmitted through fax to the Directorate of Inspection (Inv.) along with the covering letter dt. 10th March, 1996. 20th March, 1996: Shri D.C. Agarwal, Addl. DIT (Inv.), Delhi, telephonically informed that the case cannot be further prolonged on the basis of contentions raised by the assessee in his letters dt. 7th March, 1996 and 8th March, 1996. He further communicated that the undersigned should camp at Delhi for the completion of the assessment orders, so that the assessment orders along with the demand notice, challan, etc. be served upon the assessee in the first week of April, 1996 as desired by the DG (Inv.), since the Hon'ble Supreme Court has posted the case for hearing on 9th April, 1996. It has been explained to him that in view of the other time barring assessments pending in this range, it is very difficult for the undersigned to camp at Delhi from 25th as suggested by him. 22nd March, 1996: The Hon'ble CIT, Jabalpur, telephonically directed that I have to proceed to Delhi on 28th March, 1996, as he has received ....
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....h and 25th March, 1996, have been reiterated. 8th April, 1996: Proceeded to Delhi for finalising the assessment order as per directions of the Hon'ble DI/DG, New Delhi. 16th April, 1996: Order passed under s. 143(3) r/w s. 147. Copy of the order along with demand notice & challan, etc. have been handed over to Shri D.C. Agarwal for affecting the service upon the assessee. 95. A draft assessment order was prepared in this case and copies of the same for the asst. yrs. 1988-89 and 1992-93 are placed at pp. 925 to 960 of the assessee's paper book. This draft assessment order copy was available on the records of the AO and the assessee has obtained a copy and filed it before us. According to the learned counsel for the assessee, in the draft assessment order there has been a reference to the enquiries conducted by the DDIT (Inv.) at New Delhi whereas in the fair order of assessment served on the parties there is no reference to such enquiries. This, according to the learned counsel for the assessee, is for the reason that the Revenue realised that the enquiries conducted by the DDIT (Inv.) were illegal and no credence or reliance could be placed on the same by the AO. 96. T....
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....ve been specifically conferred on the AO, which must be completed after independent application of mind, without being influenced by the instructions/directions of any other authority. The Courts have consistently held that proceedings concluded on the advice/instructions/direction of any other authority are illegal and void ab initio. The learned counsel placed reliance on the following decisions: (i) Purtabpur Co. Ltd. vs. Cane Commissioner of Bihar (ii) State of U.P. vs. Maharaja Dharamander Prasad Singh (iii) Arjun Singh's case (iv) Gujarat Gas Co. Ltd. vs. Jt. CIT (v) Sheo Narain Jaiswal vs. ITO (vi) Yeshwant Talkies vs. CIT (vii) CIT vs. T.R. Rajakumari (viii) Asstt. CIT vs. O.P. Gupta (ix) Jawahar Lal vs. Competent Authority (x) Rajputana Mining Agencies vs. ITO 98. The learned standing counsel in reply submitted that the apprehension/contention of the assessee that the assessment was completed by the AO without application of mind at the dictates and directions of the superior authorities is absolutely without any basis. According to him, whatever communication was addressed to the AO was to be appreciated in the light of the decision of the....
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.... did not act independently or acted only at the behest of his superiors or under their directions or dictates in framing the order of assessment. 99. We have considered the rival submissions. The question whether the AO acted independently or at the behest of his superiors or at the directions or dictates is essentially a question of fact. The law is well settled that when certain powers are conferred under the Act on a quasi-judicial authority, the said authority must act independently, without being influenced by the advice/instruction/direction of any other authority. Under the scheme of the Act, the powers to assess/reassess the income of the assessee have been specifically conferred on the AO, which must be completed after independent application of mind, without being influenced by the instructions/directions of any other authority. The Courts have consistently held that proceedings concluded on the advice/instructions/direction of any other authority are illegal and void ab initio. We may at this stage refer to the commentaries of eminent author H.W.R. Wade, in his book Administrative Law (5th Edn.) p. 329 under the heading Retention of discretion by Administrative Author....
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....conclusion are the basic principles from which no judicial Tribunal can depart. The intended purpose of writs is to direct observance of these principles in instances where they are overlooked or flouted." 101. In the case of Sirpur Paper Mills Ltd. vs. CWT (1970) 77 ITR 6 (SC), the Hon'ble Supreme Court in the context of revisional powers to be exercised by the CWT on the ground that order of the AO was erroneous and prejudicial to the interest of the Revenue held as follows : "The power conferred by s. 25 is not administrative it is quasi-judicial. The expression 'may make such inquiry and pass such order thereon' does not confer any absolute discretion on the CWT. In exercise of the power the CWT must bring to bear an unbiased mind, consider impartially the objections raised by the aggrieved party, and decide the dispute according to procedure consistent with the principles of natural justice; he cannot permit his judgment to be influenced by matters not disclosed to the assessee, nor by dictation of another authority. Sec. 13 of the WT Act provides that all officers and other persons employed in the execution of this Act shall observe and follow the orders, instructions a....
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....ins as a reward for giving them and the companies they own and manage, various contracts. The CBI registered cases against the Jain brothers as well as the persons whose names appeared in those diaries as recipients under the Prevention of Corruption Act, Foreign Exchange Regulation Act, etc. These are matters, which are subject-matter of criminal prosecution against the assessee and his brothers. The IT Department in exercise of its powers under s. 132A of the Act, called for these documents and material seized from the CBI. The CBI had handed over copies of the documents and some of the materials seized to the IT Department for the purpose of assessing income, if any, in the hands of the assessee or other persons. Since the CBI, New Delhi had carried out the search, the DDIT (Inv.), New Delhi, made a requisition in terms of s. 132A and such requisition was issued by the DDIT (Inv.), New Delhi. Consequent to such requisition, the CBI handed over the material to the DDIT (Inv.), New Delhi on 18th Jan., 1995. The DDIT (Inv.), New Delhi, on taking delivery of the seized documents and material, by virtue of the provisions of s. 132A(3) was in the position of an authorised officer who ....
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....ndence between the AO and the higher authorities that transpired between the reopening of the assessment and the completion of the assessment. We shall also make a reference to some of these correspondence and our findings and conclusions on the validity of the order passed by the AO: (a) The AO after recording reasons for reopening issued notices to the assessee and the same were served through the DDIT (Inv.), New Delhi, on 10th April, 1995. The service of notice through DDIT (Inv.), New Delhi in, our view, is not something unusual and nothing adverse can be said about this action. (b) The return of income was filed by the assessee on 6th June, 1995. Thereafter, the AO did not do anything till 20th Dec., 1995. In the meantime, the DDIT (Inv.), New Delhi issued summons to several persons viz., Rachna Jain, Sh. Pawan Jain, Pramod Jain, Veenu Jain, etc., (family members of the Jain brothers), K.N. Dutta, Daniel P. Ramball, Mukul Jain, P. Ghosal, D.K. Guha, H.P. Guha Ray, S.S. Sandhu (all are employees of Jain brothers). One significant fact to be noted in all these statements is that the same has been recorded not as one pertaining to the case of the assessee. We may mention h....
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....d Dec., 1995 from 4.30 P.M. to 7.00 P.M. with the Hon'ble DG (Inv.) which was attended by Shri P.K. Kashyap, DIT (Inv.), Shri D.C. Agarwal, Addl. DIT (Inv.), Shri P.C. Chhotary, Addl. Director and myself. The strategy in the Jain group of cases was discussed during the conference, keeping in view the co-ordination with other investigation agencies like CBI, FERA, etc. It was decided during the course of discussion that for the time being the cases initiated under the GT Act were not required to be proceeded with, as the same would otherwise weaken the case of CBI where they have filed charge sheet against Jains and other bureaucrats under the Prevention of Corruption Act and IPC. At the same time it was decided that the cases under income-tax and wealth-tax, particularly that of Shri S.K. Jain were required to be proceeded with vigorously in the light of Supreme Court's hearings which are taking place frequently. For this purpose, the AO was required to prepare the statutory notices along with detailed questionnaire under ss. 142(1) and 143(2) of the IT Act, 1961 and under s. 16(2) of WT Act, 1957, and after getting the same approved by the DIT/DG the same was required to be ser....
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....well as the questionnaire to be sent were all prepared at Delhi at the instructions of the DDIT (Inv.), New Delhi. To what extent the AO applied his mind and was influenced by the dictates of his superior is a matter of inference. The subsequent conduct of proceedings by the AO and the ultimate order of assessment framed by the AO would throw some light on the inference to be drawn which will be discussed in the following paras. (d) On 8th Jan., 1996, the AO issued statutory notices under s. 142(1) and 143(2) of the Act along with a detailed questionnaire dt. 26th Dec., 1995. The hearing of the case was to take place on 25th Jan., 1996. The notices for the hearing along with questionnaire were sent to DDIT (Inv.), New Delhi, informing the AO that the notices could not be served for want of approval by DIT and since the time fixed for enquiry was also short, the same needs to be updated extending the time to be allowed to assessee. We may mention here that there is no necessity for approval of the statutory notice by the DIT. As already observed, the AO was expected to act independently and his seeking advice at every stage of the proceedings from his higher authorities only show....
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....aries and any reply by him would tend to incriminate him in the pending criminal prosecution. The assessee sought protection under Art. 20(3) of the Constitution of India and pleaded for keeping the proceedings in abeyance. (k) The contents of this letter are reported by the AO to the DDIT (Inv.), New Delhi, on 8th March, 1996 itself and a copy of the same is forwarded by fax on 11th March, 1996 as desired by the DDIT (Inv.), New Delhi. A letter dt. 10th March, 1996 is addressed by the AO to the DDIT (Inv.), New Delhi, and the same reads as follows: "To Shri D.C. Agarwal, IRS, Addl. Director of Income-tax (Inv.), Jhandewala Extention, New Delhi. Sir, Sub: Forwarding of the assessee's reply in response to notices issued under income-tax and wealth-tax Acts-Reg.- In connection with the telephone talk I had with you yesterday the 9th March, 1996 on the captioned matter and as desired by you I am forwarding the copies of the assessee's reply filed by him on 8th March, 1996 in response to this office letter F. No. DCIT (Assmt.)/BHI/S-777/1995-96 dt. 27th Feb., 1996. 2. As usual, I am forwarding the sample of the copies of reply for asst. yr. 1992-93 for income....
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.... before the Hon'ble Supreme Court. We may mention here that the Hon'ble Supreme Court in a pending public interest litigation had passed orders on 30th Jan., 1996 wherein it had directed that all Government agencies must expedite their action in the cases arising out of the seizure of diaries by the CBI. The reference made is probably to the progress to be shown to the Hon'ble Supreme Court in the matter of completing assessments against the assessee. The AO informed the DDIT (Inv.), New Delhi, that it is not possible for him to camp at Delhi from 25th March, 1996 as suggested by him because of time barring assessments to be completed by him in his range. (i) On 22nd March, 1996, the CIT, Jabalpur, directed the AO telephonically to proceed to Delhi on 28th March, 1996 for completing the assessments. The instruction by the CIT, Jabalpur, is further to the effect that the AO should report before the Directorate of Investigation on 29th March, 1996 and carry out the work of drafting of assessment orders in the case of the assessee with the guidance of the DI, DG and Addl. DIT and they would approve the assessment orders to be framed. (j) On 25th March, 1996, the assessee had aga....
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....95 sent by the DDIT (Inv.), New Delhi to the assessee. As already stated the order of assessment is on identical lines with that of the questionnaire sent by the AO to the assessee. The striking similarity between these documents clearly go to suggest that it was the DDIT (Inv.), New Delhi who had either drafted the order of assessee or the AO had done so at the dictates and directions of the DDIT (Inv.), New Delhi. It cannot be said to be a coincidence. At every stage of the assessment proceedings, viz., issuing of notices to the assessee, considering the replies of the assessee, request for adjournment, contents of the replies to be sent by the AO to the assessee were at the directions and dictates of the higher authorities. The AO concluded the assessment proceedings at the direction and dictates of his superior. This is clear from his letter dt. 10th March, 1996 wherein he expressed his opinion that on the basis of the assessee's letter dt. 8th March, 1996 in the assessment proceedings he was of the opinion that one month's time should be allowed to the assessee. The AO however concluded the proceedings on 25th March, 1996 at the dictates of his superior. This is clear from the....
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....ssment framed at the dictates and directions of a superior as the law in this regard is well settled. We have no hesitation in holding that the impugned assessments are bad in law for the reason that the same were monitored/ completed at the dictates/directions/instructions of the higher/other authorities, who had no jurisdiction in the matter. The 8th and 10th grounds of appeal of the assessee are allowed and orders of assessment in all the assessment years are annulled. 108. We shall now consider the plea of the assessee that reopening was without sanction of CIT and therefore, not valid. This ground is relevant only for asst. yr. 1988-89. This is sought to be raised as an additional ground No. 1 in ITA No. 552/Nag/1997. The same reads as follows: "That, on the facts and in the circumstances of the case, the reopening of assessment for the asst. yr. 1988-89 without obtaining the sanction of the CIT is bad in law and void ab initio." 109. The additional ground sought to be raised being a legal ground is permitted to be raised and taken up for adjudication. Prior to amendment of s. 151 w.e.f. 1st April, 1989, the section stood as follows: "(1) No notice shall be issu....
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.... to be obtained. The question therefore is as to whether the new law will apply for reopening in the present case or whether the old law (i.e., the law prevailing at the relevant point of time viz., the assessment year) should apply. This question had already arisen for consideration in many cases and there are conflicting judicial opinion on this point. 111. We shall first refer to the decisions which were relied upon by the learned counsel for the assessee which are to the effect that the reopening of assessment is a substantive right and, therefore, the reopening has to be in accordance with the law that was prevailing during the relevant assessment year. In Entee Builders vs. Dy. CIT (2003) 78 TTJ (Lucknow) 952, the Tribunal, Lucknow Bench, has held as follows: At the outset, it may be pointed out that so far as the asst. yr. 1988-89 is concerned, the old provisions shall be applicable. In the case of K.M. Sharma vs. ITO (2002) 174 CTR (SC) 210 : (2002) 254 ITR 772 (SC), the Hon'ble Supreme Court of India while considering the amendment made to sub-s. (1) of s. 150 of IT Act, 1961, which became effective from 1st April, 1989, has held that the amended provisions shall ....
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....in the following decisions: (i) The Hon'ble Rajasthan High Court in the case of Chandi Ram vs. ITO & Anr. (1996) 131 CTR (Raj) 256 : (1997) 225 ITR 611 (Raj) has held as follows: "No one has vested right in procedural law and whenever a change is made with regard to procedure, it is retrospective in nature. In a matter of reassessment proceedings under the IT Act the change has been brought with regard to circumstances and limitation as well. If the limitation has already expired, then the amended law would not revive the matters where the limitation is already expired by taking into consideration the amended provisions of law on the ground that the limitation is extended. The provisions of amended Act, therefore, would be applicable only in those cases where the limitation under the old law has not expired. The provisions of assessment are meant for determination of the correct liability of tax in accordance with law which should be on the basis of correct income and if there is any escapement, then the ITO has power to reopen the matter. The repealed section refers to the 'information' on the basis of which the reassessment proceedings could have been initiated. The informa....
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....g for making an assessment against him, was a substantive right and the same cannot be said to be procedural right. As far as the present case is concerned, we are of the view that the satisfaction of the CIT on the basis of the reasons recorded by the AO that income has escaped assessment is not a substantive right but a procedural one. The decision of the Hon'ble Rajasthan High Court can be more appropriately applied to the facts of the present case. We, therefore, hold that approval of the CIT was not necessary in the present case. The additional ground of appeal is, therefore, dismissed. 115. The remaining grounds, original as well as additional, raised by the assessee, which are common in his appeals for all the years under consideration, read as under: Original grounds: 9. That the CIT(A) erred on facts and in law, in not holding that the impugned assessment is bad in law and void ab initio for the reason that the assessment was completed without giving reasonable opportunity of being heard to the appellant in violation of the principles of natural justice. 11. That the CIT(A) erred on facts and in law in not holding that the impugned assessment was vitiated in la....
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.... on facts and in law in confirming the arbitrary, huge and legally untenable additions on the basis of a diary allegedly seized by the CBI without appreciating that (a) the said diary did not belong to the appellant; and/or (b) the said diary did not reflect any undisclosed income of the appellant. 22. That the CIT(A) erred on facts and in law in confirming the additions made by the AO without appreciating that the appellant, having limited and known sources of income, could not have earned such imaginary income. 23. That the AO erred on facts and in law in placing onus on the appellant and holding that the appellant had not offered any explanation, without appreciating that the appellant was entitled to immunity/protection under Art. 20(3) of the Constitution of India. 24. That the AO erred on facts and in law in charging interest under ss. 234A/234B and 234C of the Act. Additional grounds: 2.1 That on the facts and in the circumstances of the case, the entire proceedings before the Dy. Director of IT (Inv.), New Delhi, are null and void. 2.2 That on the facts and in the circumstances of the case, the Dy. Director of IT (Inv.), New Delhi, erred in law in co....