TaxTMI 
TaxTMI 
1991 (3) TMI 210
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....h mentioned that the construction of house was commenced on 1st Feb., 1979. The Assessing Officer had completed the assessment taking into account assessee's detailed explanation explaining the cost of construction of the house and sources of investment and had accepted the cost of construction of the house disclosed by the assessee. 3. For the asst. yr. 1984-85, assessee's assessment was completed under s. 143(1) on 26th March, 1986. The income consisted of salary from LIC and income from SOP. For the asst. yr. 1986-87, the assessment had filed return of income at Rs. 51,780 on 19th Aug., 1987. 4. From 26th Aug., 1987 to 27th Aug., 1987 a search under s. 132(1) of the IT Act was conducted at the residence of the assessee and allegedly certain incriminating documents were discovered. It is alleged by the Revenue that on the basis of that evidence and statements of assessee and his wife recorded during the course of search so also the statement of some of assessee's relations and statements of some independent parties, like Shri Amarchand Machhar and his son Shri Gopal Das Machar so also some other parties it was fund that assessee had made unaccounted investment in house and also....
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....operty was constructed under the self-supervision and as such the assessee's claim seems to be correct....". he submitted that in the search under s. 132(1) the diary marked as Annexure A-10 and bills, vouchers, etc. Marked as Annexure A-11 were discovered. He submitted that as per the order of the CIT(A) the reason for proceedings under s. 147(A) was that "that information so found in respect of the details of the cost of construction incurred by the appellant was the basis on account of which the understatement was clearly proved and in view of the same, the action as initiated under s. 148 was well within four corners of law and was justified". He submitted that on the basis of information action can be taken under s. 147(B) but action under s. 147(B) was barred by limitation on 31st March, 1986 and hence, if the proceedings were under s. 147(B) they were barred by time. On the other had, if the proceedings were under s. 147(A), they could not have been taken because the assessee had firstly disclosed the construction of the house and the expenses incurred therein and the basis, i.e., the diary, vouchers, etc. For proving his expenses and since the assessee had disclosed all the....
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.... of such instances which the assessment has given in the written submissions and the paper book No. 2 for this year, the learned counsel referred to some instances like page 11 (part 5) of the Pink Paper Book which is a receipt in respect of Bill No. 1922 for Rs. 291.50 and both have been added while arriving at the investment made by the assessee. He gave instances where amounts in copies of accounts have been added. He pointed out at page 60 of the Pink Paper Book an amount of Rs. 2,603.75 is the total of bill dt. 4th Jan., 1980 from M/s New Sanitary Pipe Stores. The final total from that party is on page 70 on bill dt. 4th Jan., 1980 where apart from the amount of that bill of Rs. 53.20, the amount of t his Rs. 2,603.75 has been given. Another item is Rs. 3,649.75 which is on page 73 of the paper book (bill dt. 4th Jan., 1980). Another item is Rs. 224.97 on page 72 of the paper book (bill of same) and Rs. 161.40 is on page 71 of the same paper book. All these items totalled up in the bill at page 70 and the to a comes to Rs. 6,692.77. while doing the totalling the amounts to those bills, namely, Rs. 2,603.75, Rs. 3,649.45, Rs. 224.97, and Rs. 161.40 have again been added to the ....
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.... the Delhi Bills. What the assessment had stated was that although the amount of expenses of goods purchased at Delhi were recorded in his Diary (A-10), the assessee did not have those bills with him. The learned CIT(A) wrongly inferred that the assessee had accepted that the goods purchased at Delhi were not accounted for. In these circumstances, the learned counsel argued that even on merits the addition made by the Assessing Officer of up held by the CIT(A) (after giving a relief of Rs. 8,000 only) could also not be sustained. 8. The order addition of Rs. 88,559 according to the learned counsel can also not be sustained either legally or on facts. He explained that four lades, namely, Smt. Kamal Kanwar, wife of a Asstt. Engineer and Smt. Ichraj Kanwar, wife of an Agriculturist-cum-patwari had purchased some land from Shri Himmat Singh son of the former ruler of Jodhpur. In fact, the assessee was the Power of Attorney holder and these ladies were four of the 16 members representing three families who had purchased that land and had later on made plots out of that land and had sold them. The Assessing Officer has alleged that the assessee had made investment in the name of these ....
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....ng reassessment proceedings, he was given to understand that these proceedings were under s. 147(B). He submitted that there was no material with the Assessing Officer to form the belief that assessee's income liable to assessment had escaped assessment he advanced similar arguments as for asst. yr. 1981-82 to plead that this assessment should also be quashed on grounds and again he relied on the same case law as was referred to while dealing with asst. yr. 1981-82. He pointed out that the addition of Rs. 2,26,000 consisted of Rs. 1,14,000 for alleged profits on the sale of land by four ladies, referred to above and Rs. 1,12,000 as undisclosed profits on the sale of the plots of land of those ladis. Shri Jain explained that these additions were based on the statement of Shr Amarchand Machhar and his son Shri Gopal Das Machhar who, according to Department, had surrendered Rs. 1,40,000 as undisclosed profits on their dealings in land during the course of a search at there place. He explained that the land purchased from Shri Himmat Singh, referred to above was purchased by sixteen persons. According to the allegation of the Revenue they represent three family groups of: (1) Shri Ram....
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....mount of Rs. 1,14,000 was the profit on the sale of land nor the amount of Rs. 1,12,000 was undisclosed profit on the sale of that land. In any case, those were the transactions pertaining to the four ladies and nothing could be added in the hands of the assessee either legally or factually. Asst. yr. 1987-88: 10. Shri Jain explained that the Revenue had found no record or evidence at the time of search regarding the expenditure in the marriage of assessee's daughter and yet the Assessing Officer estimated the undisclosed expenditure at Rs. 1 lakh which was added to assessee's income and which the learned CIT(A) had reduced to Rs. 75,000. He pointed out that in the first instance the statement recorded before the search could not be utilized in the case of the assessee against him as per the ruling reported in R.R. Gavit vs. Sherbanoo Hasan Daya & Anr. (1986) 55 CTR (Bom) 427: (1986) 161 ITR 793 (Bom). Secondly, in his statement under s. 132(4) the assessee had admitted an expenditure of about Rs. 50,000 which consisted of hospitality, etc. Shri Jain explained that the gold ornaments were acquired, as is common in every Hindu family, at least 8 to 10 years before the date of marr....
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....,000. The learned D.R. explained that when the Assessing Officer had asked the assessee to explain the expenditure in construction of house it was the duty of the assessee to have filed full details including the diary and all the vouchers but the alleged that the assessee had withheld his diary and compelled the Assessing Officer to make the assessment on estimate basis. 12. Regarding the investment and income from dealing in property at Vidhya Park, the learned Sr. D.R. argued that the copies of purchase and sale deeds were documents according to which they title in property passed whereas the ITO had made the addition on the basis of statements of persons and hence, the Assessing Officer was justified in making the addition in the asst. yr. 1981-82. Regarding the Benami Transaction (Prohibitions) Act, he submitted that although that Act might prohibit benami transaction yet the assessee indulged in illegal activity, particularly because he is in a semi-Government service, namely, in LIC of India and he could not have carried on this business in this own name and hence, he did Smt. Kamal Kanwar at the time of search dt. 25th Aug., 1988, statement of Smt. Girdhar Kanwar on 28th A....
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....har and Shri Gopal Machhar. He further pointed out that Smt. Kamal Kanwar had stated that she knew how to sign but was otherwise illiterate and hence, her signatures were not uniform. He against submitted that the vouchers regarding the construction of the house were voluntarily submitted to the then Assessing Officer when assessee was required to explain the different between the declared cost of construction and the cost estimated by the Department Valuer. He explained that the diary was also produced and that is why then Assessing Officer had written in the assessment order that the assessee had maintained vouchers and day-to-day expenses order that the assessee property was constructed under self-supervision. 15. We have carefully considered the arguments advanced from both the sides and carefully perused the orders of authorities below and the material brought on record before us. We are, however, unable to agree with the arguments advanced on behalf of the Department while we find a lot of force in the arguments on behalf of the assessee for reasons which we shall discuss in the following paragraphs. 16. So far as the legality of initiating reassessment proceedings is conce....
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....ant and have bearing on the matter in regard to which he is required to entertain the belief he can issue notice under s. 147(A). If there is no rational and intelligible nexus between the reasons, and the belief, so that, on such reasons, no one properly instructed on fact and law could reasonably entertain the belief, the conclusion would be inescapable that the ITO could not have reason to believe that any part of the income of the income of the assessee had escaped assessment and such escapement was by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts. In this case also, their Lordships had struck down the proceedings under s. 147(a) as invalid because the assessee-company was allowed deductions for payments of salary, commission, etc., to a close relation of the managing director of the company. The ITO had initially disallowed these claims but they were allowed in appeal and in a subsequent year the ITO had himself allowed the claim. Later on, reassessment proceedings were initiated on the ground that person D had given loans and substantial gifts to wife and son of the managing director who was his close relation and....
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....d, thus, had not truly and fully disclosed the material facts. Similarly, he had not disclosed all the bills and vouchers (A-11). We, however, fail to agree with this allegation because even if it is accepted that the Assessing Officer has not written the word "diary" in his original order, the Revenue has not been able to bring on record or explain any material even after the search to show what was that day-to-day record of expenditure which was shown before the Assessing Officer at the time of original assessment. In our opinion, that day-to-day record could have been nothing else than this diary which is now shown as Annexure A-10. Moreover, a reading of the statements of assessee recorded during the course of search and questions put by the Authorised Officer show that on the basis of those papers the Revenue thought that assessee had made an investment of Rs. 4,50,000 in the construction of the house. Later on, while issuing the notice the Assessing Officer had 'reason to believe' that the investment was about to Rs. 3,50,000 and, thus, the assessee had not disclosed investment of about Rs. 2 lakhs. At this stage, we may mention it was not correct on the part of the learned S....
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....e, the cost of construction of which was disclosed at Rs. 1,31,000 and which was accepted as such even after detailed enquiry not only by the then Assessing Officer but even after the report from the Valuation Cell, could have had an investment of Rs. 4,50,000 (as alleged at the time of search) or even Rs. 3,50,000 as alleged at the time of issue of the notice. We, therefore, hold that in the first instance the assessee had disclosed all the primary and material particulars necessary for his assessment and there was no omission or failure on his part to disclose fully and truly all the material facts necessary for his assessment and hence, the notices under s. 147(a) could not have been validly issued. Secondly, we hold that in the facts and circumstances of the case on reasonable person could have formed a belief that the assessee had not disclosed truly and fully the investment in the house and that the investment could have been about Rs. 3,50,000 when originally it was accepted that it was only about Rs. 1,31,000. We, accordingly, hold that the reassessment proceedings initiated under s. 147(a) were invalid and are, therefore, annulled. 19. Even on merits, we have taken into a....
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....he Assessing Officer did not mention or did the CIT(A) find out the financial years of investment, they did not even peruse the seized materials which would have proved what the assessee had claimed, namely, that the investment in the construction of the house was for asst. yr. 1979-80, 1080-81 and 1981-82 and the maximum investment disclosed by the assessee was for the asst. yr. 1980-81. Further the dates of the bills contained in annexure A-11 show that they pertain to the period 1st April, 1978 to 31st March and their total is only Rs. 73,719 and even if worst is presumed against the assessee the entire addition could not have been made in the asst. yr. 1981-82. Hence, we hold that even on merits, firstly there was nothing which remained undisclosed by the assessee and hence, no addition could have been made to the originally assessed income of the assessee and, secondly, because the investment did not pertain to the asst. yr. 1981-82 only, for that reason also, the additions made by the Assessing Officer and sustained by the learned CIT(A) cannot be upheld. Even if there is a slight discrepancy which the learned counsel was fair enough to concede, in our opinion, it cannot be r....
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....e instant case we are of the opinion that the information received by the Assessing Officer in the course of search so also in the course of enquiries from Shri Amarchand Machhar and Shri Gopal Das Machhar was sufficient information and basis for the Assessing Officer to initiate proceedings under s. 147(b). 24. However, when it comes to the question of assessing the income of Rs. 2,26,000 in the hands of the assessee, we do not agree with the decisions of authorities below and with the arguments advanced by the learned Sr. Department Representative. On the other hand, we find a lot of force in the argument of the learned counsel for the assessee. In our opinion, even if Sh. AmarChand Machhar and Shri Gopal Das Machhar had agreed that the transactions the name of members of their family or ladies could be treated as their the transaction, it could not be treated as an evidence against the assessee so as to authorise the Assessing Officer to treat the transactions of his wife and the wives of his brothers and brother-in-law as transactions done by assessee. We may mention that we have perused the letters of the assessee dt. 13th Dec., 1988 and 31st Dec., 1988 which show that the as....
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....be assessee and hence, at least that income which has been assessed in hands of assessee's wife cannot again be assessed in assessee's hands, at least so long as her assessment are not cancelled, a step which has not been taken in her case. Finally, even if worst was to be presumed against the assessee the facts and circumstances discovered during the course of search lead us to believe that the assessee could not have earned such huge profits in money transactions and in the form of undisclosed income because if the assessee had really earned about Rs. 2,26,000 in asst. yr. 1984-85 besides about Rs. 62,000 in the asst. yr. 1983-84 he should not have been found to be in possession of only me agree amount of cash amounting to Rs. 2,431 at the time of search and only about 64 tolas of gold ornaments. The search operations must have given indication of some assets, investments or expenses which the assessee must have made out of the record of those earning more so when the Department did find that assessee had preserved the record of his transactions, and even petty domestic expenses, for about 9 past years. But no such indication or evidence has been discovered during the course of t....