TMI Blog2004 (8) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee 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 Jan., 1995. Relevant copies of such documents received by the DIT (Inv.), New Delh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 various objections thereby calling for clarifications/elucidations from the AO on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in MR 71/91. The diary according to the Revenue consisted of receipts and disbursements of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 contemporaneous record of events that have actually taken place. He came to this conclusion after comparing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oned 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 Disbursement Disbursement as per MR- as per all 71/91 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the evidence so collected. (d) Protection claimed by the assessee under Art. 20(3) of the Constitution of India and requesting for keeping the assessment proceedings in abeyance on the ground that any stand on the seized documents will tend to incriminate the assessee in the pending criminal proceedings was again rejected by the AO. (e) The assessee s request for cross-examination of the witnesses was held to be not an absolute right. (f) The challenge to the validity of reopening of the assessments was also rejected by the AO. 8. Aggrieved by the orders passed by the AO under s. 143(3) r/w s. 147 for all the years under consideration, the assessee preferred appeals before the learned CIT(A) raising various legal issues challenging, inter alia, the validity of reassessments completed by the AO as well as disputing the various additions made by him on factual merits and after considering the submissions made on behalf of the assessee before him as well as the relevant material available on record including the orders of the AO, the learned CIT(A) upheld the orders of the AO passed under s. 143(3) r/w s. 147 substantially for all the years under consideration except allowi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT (Inv.), New Delhi vide letter dt. 20th March, 1995 including the documents seized from Mr. J.K. Jain, report of CBI, appraisal report of Addl. DIT, New Delhi, etc., was not provided to the assessee by the Department claiming it to be privileged, the same may at least be perused by the Bench to appreciate the reasons recorded by the AO placing reliance on the same as well as the contentions raised on assessee s behalf challenging the validity of reopening. Accordingly, in compliance with the Bench s direction, the Department has filed the copies of such entire material after conclusion of hearing for its perusal along with factual clarification in writing in the matter of extensive and elaborate rejoinder by learned counsel for the assessee. A copy of written submissions so filed on behalf of the Department was also made available to the learned counsel for the assessee and objections/clarifications put forth by him in this regard in writing are also taken on record. 10. After considering the rival submissions in the light of entire material available on record before us as well as the various case laws cited at the bar, we now proceed to decide the various issues raised in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of one Shri Shambu Dayal Sharma, a Hawala operator who had allegedly channelised funds to the terrorists. There is no reference in the order of assessment as to what was the connection between the assessee or J.K. Jain with the Hawala operations or what was the information on the basis of which the assessee and J.K. Jain were searched by the CBI. The search in the residential premises of Mr. J.K. Jain at G-36, Saket, New Delhi, lead to seizure of Indian currency of Rs. 58.5 lakhs, Indra Vikas Patra of Rs. 10 lakhs and some foreign currency. Various documents and diaries were also seized by the CBI. The diaries seized also contained some entries relating to payments made to politicians. 15. On 18th Jan., 1995, a requisition under s. 132-A of the IT Act, 1961 was issued by the Dy. Director of IT (Inv.), New Delhi, [DDIT(Inv.) for short] to the CBI to deliver the documents seized. In response to such requisition, on 2nd Feb., 1995 the CBI vide their letter dt. 2nd Feb., 1995 handed over the seized documents along with statement of accused persons as well as politicians who were shown as recipients of monies in the diary. 16. On 2nd March, 1995, the DDIT (Inv.), examined Mr. J.K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of the assessee. The contents of this letter are reproduced herein. To Dt. 20th March, 1995 Mr. K.M. Verma, Dy. CIT, Special Range, Bhilai, Madhya Pradesh. Sir, Sub: Search operation by CBI against Shri J.K. Jain and others regarding. Please find enclosed herewith photo copies of documents. A set of such documents was sent to CIT, Jabalpur on 1st March, 1995 vide this office letter No. DIT (Inv.)/U.I./DLH/1995-96/1407. Same set of documents are being sent to you for consideration along with photocopies of the letter referred above and addressed to the CIT, Jabalpur. In this, only relevant copies of statement of accused as per set X are being sent to you. Others being not presently material are not sent. This set would therefore contain statement of Shri J.K. Jain, S.K. Jain, B.R. Jain and N.K. Jain. 2. As per discussion held with CIT, Jabalpur, you are requested to kindly initiate reassessment proceedings under the income-tax and gift-tax proceedings against Shri S.K. Jain, B.R. Jain, BECO or any other relevant persons for the relevant assessment years. For this purpose you may kindly go through the report of the CBI set out in set IX, identify the perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o direct the AO to consider the report sent by CBI and take action under direct taxes. There is also a reference in para 5 of this letter that the Director General of Income-tax (Inv.), North, has desired that action for reopening assessment be taken up at the earliest. 21. The AO on receipt of the documents on 24th March, 1995 vide his letter dt. 29th March, 1995 addressed to the DDIT (Inv.) informed him that there are some missing pages in set-X (as against 258 pages stated to have been sent there are only 72 pages) and in set-IX there are only 113 pages as against 117 stated to have been sent. The AO thereafter requested for supply of these missing pages as in his opinion they might contain relevant matter which needs to be compared with the seized diaries, files, etc. There is also some clarification sought as to whether the name BECO refers to BECO Steel Castings Ltd. or Bhilai Engineering Corporation Ltd. The letter also refers to the fact that efforts are being made to scrutinise the photocopies of the diaries, files, various reports, etc. to ascertain the assessability and extent of income in various hands under the direct taxes. It also refers to some discussion with DDI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... about the progress so far. 30th March, 1995: Recorded the detailed reasons under ss. 148(2), 17(1) and 16(1) of IT/WT/GT Act, for issue of notices under various direct taxes. 5th April, 1995: Received a phone call from CIT/DDIT (Inv.) informing the visit of Shri D.C. Agarwal. It is informed by Shri Abhey Damble, Asstt. CIT that in the case action taken report (ATR) is to be submitted to the..... (not legible) by the CIT and the said report to be submitted to the CIT showing action taken on the following aspects: (a) reopening of the cases reasons to work out; (b) submission of the report to the Settlement Commission on the basis of the documents of seized material record for CBI. Summons to B.R. Jain, issued. 23. It is in the light of the above factual details that the contentions put forth by the learned counsel for the assessee and the learned standing counsel have to be examined. The learned counsel for the assessee submitted that the letter dt. 1st March, 1995 addressed by the DDIT (Inv.) to the CIT, Jabalpur, contained a clear direction/dictate to reopen assessments in the case of the assessee. He further submitted that in the said letter the CIT, Jabalpur, has been di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T, the report of the CBI, etc. the contents whereof are not known; (e) The AO specifies, in the reasons recorded, that the assessee had made huge investment of Rs. 3,98,19,414 in a farm known as "Geetika Farm ; it is not known as to wherefrom the AO got such information at that stage; (f) How did the AO know that "Meharauli", where the aforesaid farmhouse was situated, is on the outskirts of Delhi and located in a very posh locality and that the farmhouse is lavishly furnished and has all sorts of amenities. (g) There is also a mention, in the ordersheet entry dt. 30th March, 1995, about the reasons recorded in writing being maintained in a separate confidential folder, inspection whereof has not been allowed. 24. It was submitted that having regard to the aforesaid and considering the complexities of the matter, it cannot be said that within the short time available with the AO, the AO could arrive at, leave alone, record elaborate reasons, as available on record, for formation of the belief that the income of the assessee has escaped assessment. In conclusion, it was contended that the AO did not apply his mind independently to reach satisfaction that income chargeable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recting all Government agencies to perform their duty in accordance with law in the matter of seizure of diaries by the CBI from J.K. Jain. This was in the light of the fact that names of several politicians and persons well placed in society were found in the diaries seized and because of this reason there was a possibility of the Government agencies not performing their statutory duty in accordance with law. It was thus contended by the learned Departmental Representative that the letters by themselves do not show that there were any dictates by the superior authorities to the AO before reopening. It was submitted that in the forwarding letter, the DDIT (Inv.), New Delhi, merely forwarded the seized documents and informed the AO to consider reopening of assessments. It was argued that it goes without saying that the AO was to act in accordance with law. The letters that transpired between the CIT, Jabalpur, and the DDIT (Inv.), New Delhi, wherein it has been alleged that there was a dictate to reopen assessment was never in possession of the AO prior to his recording reasons for reopening. In the circumstances, it was submitted that there is nothing on record to suggest that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g reasons for such reopening. 28. The contention that there were references to certain material or certain facts in the reasons recorded and the AO at the time of recording reasons was not in possession of the necessary documents or information necessary for recording such facts in the reasons recorded and, therefore, he could not have on his own recorded reasons for reopening is again not substantiated. The entire documents sent by DDIT (Inv.) and the correspondence between the AO or his higher authorities before reopening of assessment were produced before us. In the letter dt. 28th Feb., 1995 by the DDIT (Inv.), Delhi, to the CIT, Jabalpur (MP), there is a reference to 12 set of documents which were part of the seized documents found in the course of search carried out by the CBI in the case of J.K. Jain. These were the documents that were forwarded to the AO also under cover of DDIT (Inv.), Delhi, letter dt. 20th March, 1995 wherein he had requested the AO to initiate reassessment proceedings and on the basis of which the reasons were recorded before reopening assessments. According to the learned standing counsel, documents serialised as set No. IX (report of CBI) part of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and in case any adverse inference is to be drawn on the reopening of the assessments, we shall do so. But for the present we accept the contention of the Revenue that the documents relate to matters of official confidence and the assessee cannot seek inspection of the same. The opinion of the officers that the documents relate to matters of official confidence is alone relevant in this regard. This is clear from the expression used in s. 124, when he considers that the public interest would suffer by the disclosure . 30. The learned counsel sought leave of the Bench to argue on the validity of reopening after perusal of the relevant documents and was heard again on this aspect. We have perused the documents scrutiny of which by the counsel for the assessee was denied on the ground of privilege by the Revenue. We do not find that there is any basis for coming to any conclusion on the basis of these documents that there were any dictates of superior officers which influenced the mind of the AO before recording reasons for reopening or in concluding that there was escapement of income. 31. The cases relied upon by the learned counsel for the assessee are not applicable to the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO did not even reach a prima facie conclusion as regards whose income had escaped assessment and exact nature of such income: (i) As per CBI report, assessee, Shri N.K. Jain and Shri B.R. Jain were indulging in Hawala business and were enjoying commission income. (ii) The statement of Shri J.K. Jain before CBI, in fact records that the diary was being written by him at the instance of the assessee in the capacity of managing director of BEC (and not in assessee s individual capacity). (iii) As per the alleged statements of the assessee, Shri B.R. Jain and N.K. Jain recorded by CBI, the unaccounted money is stated to be through sale of scrap of BEC Ltd. (iv) On some pages there is working showing conversion into Indian currency. This, therefore, represents nothing but foreign currency brought in India. (v) It is stated "I find that in fact the transaction recorded in these diaries were pertaining to assessee s business of Hawala transaction, the exact mechanism of which has not come on record". (vi) Narration in the diary to the effect that diary shown to B.R. Jain and N.K. Jain. This shows that all the brothers were involved. (vii) Name of Krishna Jain, wife o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to that income and there could be no assessment as a matter of convenience or to serve the interests of the Department. His contention therefore was that the AO had not been able to make up his mind as to whose income (i.e., the assessee s or B.R. Jain or N.K. Jain or BEC Ltd. or all of them) has escaped assessment and what is the income that has escaped assessment (i.e. whether commission income, income from sale of scrap, cash credit, etc.) on the basis of material available before him and in fact, there was absolutely no material, leave alone live/rational material, on the basis of which belief could have been formed that the entries in the diary represented cash credits in the hands of the assessee and/or unexplained expenditure of the assessee. 35. The learned counsel for the assessee further contended that reasonable belief about escapement of assessee s income from assessment is a condition precedent to exercise jurisdiction under s. 147 and such reasonable belief of the AO available in the form of reasons recorded by him under s. 148 should have a rational connection or a live link with the materials on the basis of which the belief was arrived at. According to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of Hon ble Supreme Court in the case of ITO vs. Lakhmani Mewal Das 1976 CTR (SC) 220 : (1976) 103 ITR 437 (SC) wherein it was held that the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief and rational connection postulates that there must be 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 from assessment in the particular year. 38. The learned counsel for the assessee also cited the decision of Hon ble Supreme Court in the case of Ganga Saran Sons (P) Ltd. vs. ITO (1981) 22 CTR (SC) 112 : (1981) 130 ITR 1 (SC) for the proposition that the belief entertained by the ITO must not be arbitrary or irrational and it must be reasonable or in other words it must be based on reasons which are relevant and material. If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the ITO could not have reason to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2001) 168 CTR (Del) 521 : (2002) 253 ITR 83 (Del) are also to the similar effect wherein it was held that the crucial expression reason to believe predicated that the AO must hold a belief by the existence of reasons for holding such a belief. In other words, it contemplates existence of reasons on which the belief is founded and not be merely a belief in the existence of reasons, inducing belief. Such a belief may not be based merely on reasons but it must be founded on information. 41. Further the learned counsel for the assessee relied on the following case laws in support of his contention that initiation of proceedings under s. 147 r/w s. 148 merely for the purpose of making roving/fishing enquiry is not permissible in law: (i) Chhugamal Rajpal vs. S.P. Chaliha (1971) 79 ITR 603 (SC) (ii) Sagar Enterprises vs. Asstt. CIT (2002) 173 CTR (Guj) 528 : (2002) 257 ITR 335 (Guj) (iii) Chunnilal Surajmal vs. CIT (1986) 50 CTR (Pat) 121 : (1986) 160 ITR 141 (Pat) (iv) C.D. Singh vs. ITO (2002) 77 TTJ (All) 282 (v) General Electric Co. of India Ltd. vs. STO 33 STC 108 (All) (vi) CST vs. Modi Industries Ltd. 67 STC 341 (All) (vii) Kanhaiyalal Damodar Das vs. CST 73 STC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Shri S.K. Jain, the managing director of Bhilai Engineering Corpn., the same were to be shown to him regularly from time to time. The details as mentioned in coded words in abbreviated forms, have been written as per instruction of Shri S.K. Jain aforesaid." "According to me, the figure is in thousand and the words written therein are the names of the individual person. The full details of the same are known to Shri S.K. Jain on whose dictation/instruction, I have noted the same in the files as well as in the note books aforesaid." "These entries have been made by me as per instructions of Shri S.K. Jain." (b)(i) All these statements given by Shri J.K. Jain before CBI were confirmed by him before the Addl. DIT (Inv.) in response to question No. 3 of his statement dt. 2nd March, 1995. All these evidences the fact that Shri J.K. Jain is an employee and a trusted man of Shri S.K. Jain and had written these diaries and documents at the instructions/dictates of Shri S.K. Jain and that the same were to be shown to the assessee regularly from time to time. Shri J.K. Jain also admitted that the transactions recorded in the impugned diary and documents related to the financial affai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port for custom clearance of goods/articles imported by Shri S.K. Jain for his farmhouse. The accounts of the expenditure relating to the farmhouse of the assessee were submitted to Shri J.K. Jain which were found recorded in the documents seized from the premises of Shri J.K. Jain. (g) In his statement given before CBI on 8th Oct., 1993, Shri B.R. Jain has clearly stated as under: These accounts were being maintained by Shri S.K. Jain who is the managing director of the company and used to look after the affairs of the company in all matters. The accounts were being maintained in a rough accounts paper by Shri J.K. Jain as per instructions by Shri S.K. Jain, only in order to keep a track on the receipts and payments. I do not remember if I had been shown these accounts by Shri J.K. Jain on 1st June, 1989 as mentioned therein and even if he had shown me the said account, I simply saw the receipts and expenditure mentioned therein in a very cursory manner. On the said accounts paper, there is mention of payment made to Jaffar Sarif, Arif Mohd. and others. I am not aware as to what amounts were paid to them and whether they were political persons or anybody else. It is purely in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CBI as under: "I admit having received some money from the said Shri S.K. Jain through my P.A. but, cannot exactly remember the said amount. But, I definitely remember that the said Shri S.K. Jain did come to me in April, 1991 and wanted to help in my election by contributing that money." Shri Mukul Jain in his statement dt. 12th Dec., 1994 deposed before the CBI that he was given amounts in thousands for meeting expenditures on the construction work for farmhouse from time to time and the details of such expenditure made, were given to the assessee. Smt. Krishna Jain in her statement dt. 7th Dec., 1994 deposed before the CBI that she used to receive money from Shri S.K. Jain and return the same on demand and further stated that she did not know about the entries in the diary. Shri Rameshwar Gupta in his statement dt. 23rd Dec., 1994 deposed before CBI that once for coming over to Bhilai from New Delhi, he asked for Rs. 500 from Shri S.K. Jain and he gave the amount to him. Shri Daniel P. Ramball in his statement dt. 13th Dec., 1994 deposed before the CBI that the amount shown against his name in the diary was actually paid to a party at Mumbai against purchases of Italian marbl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Anand Jaiswal submitted that the entire aforesaid information available with the AO made it abundantly clear that all the transactions were recorded by Shri J.K. Jain in the said diaries as per the instructions of the assessee and it was the assessee alone who had the fullest involvement and control/knowledge regarding the nature and nomenclature of the entries recorded therein. He contended that the entries in the diary were found to be real events by the AO on examination of loose documents as well as statements of the concerned persons recorded by the Addl. DIT, New Delhi and without rebutting this finding of the AO, the explanation of the assessee that the reopening was without any material or foundation and was based on hearsay could not discharge him from the onus lay upon him under s. 68 or 69C. He also submitted that the relevant seized diaries and documents also contained a record of disbursements, inter alia, on investment in construction of farmhouse at Mehrauli on the land belonging to Shri S.K. Jain and his spouse. In this regard, he contended that the expenses for import of artefacts included therein were incurred in the name of assessee which is evident from variou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aries were written by Shri J.K. Jain, employee of the assessee and in his statement given before the CBI, Shri J.K. Jain had explained in clear terms that he had written the transactions in the impugned diary as per instructions of the assessee and it was the assessee alone who could explain the nature of transactions recorded therein. This assertion of Shri J.K. Jain is further fortified from the statement given by Shri B.R. Jain (assessee s brother) wherein he had categorically stated that it was only Shri S.K. Jain (i.e. the brother of Shri B.R. Jain and assessee in this case) who could explain the nature of the entries recorded therein because, according to the assessee s brother, it was only the assessee who had complete knowledge and control over the transactions recorded therein since they were written by Shri J.K. Jain as per the instructions of the assessee. 48. In support of his contention, Mr. Jaiswal relied upon the decision of Hon ble Gujarat High Court in the case of Praful Chunilal Patel vs. M.J. Makwana, Asstt. CIT (1998) 148 CTR (Guj) 62 : (1999) 236 ITR 832 (Guj) wherein it was held that the word reason in the phrase reason to believe would mean cause or jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ble Supreme Court in the case of CIT vs. A. Raman Co. (1968) 67 ITR 11 (SC) wherein it was held that the expression information in the context in which it occurs 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. 50. Mr. Jaiswal also contended that the objection of the learned counsel for the assessee regarding non-quantification of escaped income, which according to him, vitiated the proceedings under s. 147 taken in this case, has also no merit and is unsustainable in law because the Act does not require quantification of escaped income before initiation of proceedings under s. 147 of the Act. In support of this contention, he relied on the decision of Hon ble Gauhati High Court in the case of Dhanisram Agarwalla vs. CIT (1993) 111 CTR (Gau) 39 : (1993) 201 ITR 192 (Gau) [Special Leave Petition dismissed by the Supreme Court 204 ITR (St) 45-46] wherein it was held that it is not needed, at the stage of issuance of a reassessment notice, that the assessee must be informed about the specific or exact amount which is proposed to be added to his income. He submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of the DDIT(Inv.) was thoroughly verified by him with reference to the returns originally filed by the assessee which resulted in detection of escapement of substantial income in the respective years under consideration and the proceedings under s. 147 were, therefore rightly initiated for the assessment years under consideration quantifying the probable income that had escaped assessment although there was no such requirement as per law. 53. Mr. Jaiswal then proceeded to distinguish the decisions relied upon by the learned counsel for the assessee in support of the assessee s case. In this regard, he submitted at the outset that most of these decisions cited by the learned counsel for the assessee involved period prior to 1st April, 1989 wherein pre-amended provisions of s. 147/148 were applicable whereas in the present case, law as amended w.e.f. 1st April, 1989 is applicable according to which the only condition precedent for invoking jurisdiction under s. 147 is that the AO should have reason to believe that the income chargeable to tax has escaped assessment. He submitted that even the facts involved in the present case are different than that of these cases inasmuch as i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved or paid on behalf of the assessee and it would be totally absurd to connect the impugned diary MR-71/91 with the assessee on the basis of these two pages which were part of MR-76/91. In any case, the assessee was never confronted with the said pages to confirm that the signatures assumed to be that of the assessee were actually of the assessee or not. 55. The learned counsel for the assessee also submitted that the assessee had never explained the contents of the impugned diary before the CBI, as alleged. In the returns filed by the assessee, he had denied connection with the documents seized from Mr. J.K. Jain. Further, in the only statement of the assessee recorded by the AO on 7th Feb., 2003, the assessee had categorically denied having made any such statements before the CBI and it was also stated in the said statement that he had never given any instructions to Mr. J.K. Jain for recording the entries in the impugned diary and that Mr. J.K. Jain was never his personal employee. Moreover, even the CIT(A) has held that the statements before the CBI have not been relied upon by the AO and, therefore, reliance placed by the Revenue at this stage on the statements made befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have come to the prima facie conclusion that entries recorded in the impugned diary represented cash credit and undisclosed income belonging to the assessee. Therefore, there was no live link/connection between the material received and the reasons recorded. He submitted that the decisions relied upon by the assessee and sought to be distinguished by the Revenue, merely lay down an accepted legal principle that proceedings under s. 147 could be initiated only after recording reasons under s. 148 of the Act. Further, the reasons recorded must reflect application of mind by the AO and the reasons recorded must have live and rational connection/link with the material available. The said principles apply both to the pre-amended as well as the post-amended law since the expression reasons to believe exists under both the provisions as held, inter alia, in the case of Arjun Singh and Seth Bros. 58. The learned counsel for the assessee further submitted that the Revenue has missed the import of the assessee s arguments inasmuch as it has never been the contention of the assessee that the document received from the CBI by the AO could not be held to be "information" in order to form a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the said statement the only logical inference which could be drawn is that the entries in the diary related to the company and not to the assessee and the same reflected income from sale of scrap and not cash credits. The AO, on the contrary, had come to a conclusion that the diary belonged to the assessee and entries therein represent unexplained cash credits which shows that there was not even prima facie link between the material relied upon and the conclusions drawn by the AO. 61. We have considered the rival submissions and also perused the relevant material on record to which our attention was drawn during the course of hearing. It is observed that in his arguments in support of ground Nos. 5, 6 and 7 raised in the assessee s appeal, the learned counsel for the assessee has challenged the validity of initiation of reassessment proceedings for the years under consideration mainly on the following grounds: (a) The AO did not reach prima facie conclusion that income alleged to have escaped assessment belonged to the assessee. (b) The AO failed to quantify the income of the assessee alleged to have escaped assessment. (c) There was no live link/nexus between reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sons as well as investigation report of CBI and DDIT (i) Set I Monthly receipts and payments having pp. 1 32. (ii) Set II Containing detailed expenditure in firm and others having pp. 1 30. (iii) Set III Titled as MR-69/91 containing pp. 1-8 showing 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. 63. All the above documents seized by CBI and received from DDIT office under letter dt. 20th March, 1995 were scrutinised by the AO on receipt of the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... handed over to the personnel of account section to hand over to Shri J.K. Jain for safe custody. The nature of the receipts was 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 Casting 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." 65. Even the statements of S/Shri B.R. Jain and N.K. Jain were also recorded by the CBI as well as by the DDIT and the findings based on the said statements as well as on the report of CBI and DDIT were recorded by the AO in his reasons as follows: "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 aspe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these diaries were pertaining to assessee s business of Hawala transactions, the exact mechanism of which has not come on record. However, since the concerned persons have admitted the diaries and other records as belonging to them and have accepted the receipts as representing their black money, the Department s purpose is served if the said entries are treated as cash credits in the hands of Shri S.K. Jain and/or BEC Ltd. on which the nexus of earning has been conceded by the Jains. It may be mentioned that in some places of the diary there are narrations to the effect that these accounts have been shown on a particular date and shown to Shri B.R. Jain and N.K. Jain. This shows that all the three brothers viz. S/Shri B.R. Jain, N.K. Jain and S.K. Jain were involved in this affair and the accounting of it was being done by their manager Shri J.K. Jain who appears to be man of confidence of the Jains, as he happened to be an old employee since 1978 and otherwise happens to be their distant relative. So far as the payment of money to various persons as mentioned above is concerned, in addition to making the payments, the Jains have enjoyed the same by making investments in propertie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owable to them as it is not simply a house meant for the storage of crop by cultivator or for housing his live stock, but is a palatial structure. From the case files of Shri S.K. Jain and his wife Smt. Poonam Jain it is further gathered that they are showing lease rent of this farmhouse at Rs. 50,000 p.a. in each of their hands which appears to be highly understated looking to the total investment made and amenities provided. The said lease rent should be around Rs. 1 lakh per month. It will call further addition of Rs. 5,50,000 in their respective hands which would be from asst. yr. 1990-91." 67. Further a trial balance was also found during the course of search conducted at the premises of Shri J.K. Jain and in the reasons recorded by him, AO has dealt with the same as under: The trial balance further reveals that there is a receipt of Rs. 2,24,68,029 which has been given under code letter C which has been deciphered to be cash by the Addl. DIT in his appraisal report which does not appear to be correct meaning of it because towards the end of the trial balance, the opening cash balance has been clearly given separately. In all probability C may mean commission receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before him and even the required circumstances for entertaining the belief about the escapement of assessee s income from assessment were much in existence at the time of initiation of reassessment proceedings by the AO. It also shows that the belief of the AO was based on cogent and relevant material coming to his possession from CBI through DDIT and after analysing and scrutinising the said material as well as the reports of these two investigating agencies, the AO had entertained a reasonable and honest belief that the income of the assessee had escaped assessment. It is worthwhile to note here that the information coming to his possession had been duly verified by him with the relevant returns of income filed by the assessee and after having satisfied that the financial transactions reflected in the relevant seized material have not been disclosed by the assessee in the said returns, he had entertained a belief about the escapement of assessee s income from assessment which, in our opinion, was an honest and bona fide belief in the facts and circumstances of the case as well as the evidence/material available on record before him at the relevant time. In these circumstances, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income and initiating the reassessment proceedings, i.e., existence of material as well as circumstances and honest and bona fide belief entertained by the AO about escapement of assessee s income on the basis of the same were duly satisfied in the present case, it is now necessary to ascertain as to whether the other three conditions precedent to this process, i.e., nexus between the material and belief as well as application of mind and process of reasoning by the AO to hold such belief were satisfied or not in the present case. In our opinion, these three important aspects relating to justification of initiation of reassessment proceedings are inter-linked and it is, therefore, necessary to consider and deal with the same concurrently to decide the validity of initiation in the present case. 71. In this context, a useful reference can be made to the decision of Hon ble Bombay High Court in the case of N.D. Bhatt, IAC vs. IBM World Trade Corpn. (1993) 115 CTR (Bom) 103 : (1995) 216 ITR 811 (Bom) wherein it was held that for adjudicating the issue relating to validity of initiation of reassessment proceedings, it is well settled that reasons for reopening are required to be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utinised and also the case files of Jain group assessed in this range viz., S/Shri S.K. Jain, B.R. Jain and N.K. Jain and Smt. Poonam Jain as also M/s BEC Ltd. The Jain group of Bhilai have been engaged in the business of manufacturing of engineering structure steels, fertilisers, processing of food stuff, etc. The entire company is known as BEC. The firm viz., M/s Bharat Industrial Works, Bhilai in which Jain brothers happened to be partners has been engaged in executing contracts of mainly construction of boilers for thermal power plants all over the country. In the report of CBI, it has been given that these persons were indulging in Hawala business, transferring money from abroad to India and were enjoying commission thereof. The diary seized has been containing relevant information of transactions and pertain to the period from February, 1988 to April, 1991. The description of the diary is in the form of monthly summary of the receipts and payments of money whereas the source of receipts has been given by putting some code names and on payment side names of various persons including politicians and bureaucrats have been given in abbreviation." 73. As is evident from the afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be seen is that the assessment of all these persons were reopened by the AO along with the assessment of the assessee and belief entertained by the AO about the escapement of income as is evident from the reasons recorded was not just confined to the case of the assessee but also to the case of other persons whose involvement was apparent from the material available with the AO at the relevant time. In these circumstances, even though the reassessment proceedings initiated in the case of the other persons were dropped by the AO and the entire amount was assessed in the hands of the assessee finally, the same could not be a material or relevant factor for the purpose of ascertaining the validity of initiation of reassessment proceedings which necessarily 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 assessment proceedings as held by Hon ble Calcutta High Court in the case of ITO vs. Electro Steel Castings Ltd. 74. As already observed, the nature of transactions reflected in the relevant seized documents was ascertained by the AO on the basis of material coming to his possession and the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fully gone through the photocopies of the diary, opinion of the CBI and report of the Directorate and I find that in fact the transactions recorded in these diaries were pertaining to assessee s business of Hawala transactions, the exact mechanism of which has not come on record. However, since the concerned persons have admitted the diaries and other records as belonging to them and have accepted the receipts as representing their black money, the Department s purpose is served if the said entries are treated as cash credits in the hands of Shri S.K. Jain and/or BEC Ltd. or which the nexus of earning has been conceded by the Jains. It may be mentioned that in some places of the diary there are narrations to the effect that these accounts have been shown on a particular date and shown to Shri B.R. Jain and N.K. Jain. This shows that all the three brothers viz. S/Shri B.R. Jain, N.K. Jain and S.K. Jain were involved in this affair and the accounting of it was being done by their manager Shri J.K. Jain who appears to be man of confidence of the Jains, as he happened to be an old employee since 1978 and otherwise happens to be their distant relative. So far as the payment of money to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as on the working given therein showing conversion of foreign currency into Indian currency to indicate/suggest that the said credits represented unexplained transactions of assessee s Hawala business. In any case, the said credits representing apparently receipts in cash as commission from Hawala business were ultimately treated as unexplained cash credits in the hands of all the three brothers in equal proportion, whereas the other cash receipts stated to be against sale of scrap were considered in the hands of M/s Bhilai Engineering Corporation Ltd., while quantifying the income alleged to have escaped assessment in annexures to the reasons recorded by the AO. In these circumstances, even if the observations made by the AO in the reasons recorded were to the effect that it would serve the interest of the Revenue if the credits appearing in the diary are treated as unexplained cash credits in the hands of the assessee and/or BEC Ltd., going by the quantification of income alleged to have escaped assessment done by him in the annexures to the reasons recorded as well as the fact that the assessments of all the assessees have been reopened, the same were ultimately considered in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. It is patently incorrect as it is not allowable to them as it is not simply a house meant for the storage of crop by cultivator or for housing his live stock, but is a palatial structure. From the case files of Shri S.K. Jain and his wife Smt. Poonam Jain it is further gathered that they are showing lease rent of this farmhouse at Rs. 50,000 per annum in each of their hands which appears to be highly understated looking to the total investment made and amenities provided. The said lease rent should be around Rs. 1 lakh per month. It will call further addition of Rs. 5,50,000 in their respective hands which would be from asst. yr. 1990-91." 78. As is apparent from the above reasons recorded by the AO, the said farm house was owned by the assessee along with his wife Smt. Poonam Jain jointly and this being the admitted position, the AO had every reason to believe that the said investment having not been reflected/disclosed in the regular return of income of the assessee, represented his undisclosed income at least to the extent of 50 per cent. No doubt, this unexplained investment, as pointed out by the learned counsel for the assessee, ultimately was considered in the hands o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not mentioned which may be safely presumed to be 50-50. As such, a sum of Rs. 14 lakh comes to the share of each as their investment which is not found recorded in the income-tax and wealth-tax record, are separately liable to be assessed for asst. yr. 1987-88 and corresponding levy of wealth-tax in their hands. In this connection, it may be mentioned that the DDIT s report to DI dt. 20th Oct., 1994 at page mentions about this property that it is owned by the group company viz., Jafferson Leasing Finance Ltd., 31-Maker Chamber, Nariman Point, Bombay, in which both the husband and wife hold directorship. This position does not appear to be correct on the basis of record available as in the letter of the counsel they have never identified themselves as directors of the aforesaid company, rather they made query in their individual capacity than showing their nexus in any capacity with the said company. As per trial balance as on 28th Feb., 1991 styled as trial balance of New Delhi, there is an indication that they have further invested Rs. 5,14,149 in this property. It will also be unexplained investment in their hands and half of it shall be assessable in the hands of the husban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corded for entertaining the belief about the escapement but such nexus or direct link was there even between the relevant seized documents corroborating the fact of investments as is evident from the reasons recorded by the AO in this regard. Moreover, the reasons recorded by the AO in this regard also clearly indicate the independent application of mind by the AO inasmuch as DDIT s report to DI dt. 20th Oct., 1994 mentioning the aforesaid property as owned by the group company viz., Jafferson Leasing Finance Ltd., 31 Maker Chambers, Nariman Point, Bombay, was found to be incorrect by him based on record available before him particularly a letter written to the counsel wherein the assessee and his wife had never identified themselves as directors of the said company as mentioned by the DDIT in its report to DI. In our opinion, this portion of the reasons recorded by the AO clearly shows that the material coming to his possession from DDIT had been carefully scrutinised by him independently applying his own mind and it was not the case of mere acceptance of whatever was stated by the DDIT in its report to DI. 81. The independent application of mind by the AO in the matter of rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the material coming to his possession and on such application, he had recorded reasons for entertaining the belief about the escapement of assessee s income from assessment. 83. The relevant seized documents coming to the possession of the AO also revealed expenses incurred in connection with foreign visits of the assessee as well as his employees and friends. The reasons recorded by the AO in this regard are as follows: "Shri S.K. Jain and some of his employees and friends have undertaken a number of foreign visits, the expenses of which were stated to be borne by their respective companies except in the case of Mr. S. Begla and Mr. S.S. Sandhur. It is contended by Shri S.K. Jain in his letter dt. 31st May, 1995 to the Directorate that they used to receive various foreign articles on behalf of Shri S.K. Jain and the customs duty and other expenses in respect of such items were borne by Shri S.K. Jain himself which he stated that these were his own expenses and have been given as an item of unaccounted expenditure in the settlement petition before the Settlement Commission, Bombay. Such expenses for the financial year 1990-91 work out to Rs. 2,73,695 and, therefore, assessable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 but 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 further addition around Rs. 2 lakhs for asst. yr. 1986-87." 86. A copy of the aforesaid bill received by the AO is forming part of the paper set filed on behalf of the Revenue before u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Mr. J.K. Jain is also unfounded and is contrary to record inasmuch as there was enough material/information available with the AO besides the said statement to establish the nexus of the assessee with the said diary as already discussed. Similarly, his assertion before us that the statement of the assessee was never recorded by the CBI is also found to be factually incorrect inasmuch as such statement was recorded by the CBI initially on 17th Sept., 1993 which continued up to 24th Sept., 1993. In his statement recorded on 17th Sept., 1993, 20th Sept., 1993 and 21st Sept., 1993, the assessee explained and deciphered most of the coded words and figures appearing in the relevant seized diaries giving details of each and every transaction. Further, the statements of the assessee were also recorded by the CBI on 22nd Dec., 1993, 6th Jan., 1994, 12th Dec., 1994 and 3rd Jan., 1995. 89. Keeping in view the detailed discussion made hereinabove in the light of the reasons recorded by the AO as well as the relevant material available before him at the time of recording such reasons, one can easily conclude that sufficient material having direct nexus with the escapement of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sequence of events is supported by the record of proceedings in the assessment before the AO. In appreciating the rival contentions regarding these grounds of appeal, it is also necessary to take note of two aspects viz., (a) there was settlement petition filed before the Settlement Commission by Mr. J.K. Jain relating to the seizure effected by CBI and the developments in the assessment proceedings were to be kept informed to higher authorities for proper representation before the Settlement Commission; (b) There was a public interest litigation that was filed in the Hon ble Supreme Court seeking directions that all persons who may be found involved in the seizure effected by CBI of the diaries be dealt with in accordance with law by all Government agencies concerned. This petition was filed in 1993 and the Hon ble Supreme Court had passed orders dt. 30th Jan., 1996 directing that all Government machinery shall conduct enquiries in accordance with law and keep the Supreme Court informed on such progress. 92. The assessment was reopened by issue of notice under s. 148 on 30th March, 1995, after recording detailed reasons. On 5th April, 1995, the AO was informed that Mr. Agarwal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e family of the assessee) on 20th April, 1995, Shri Pawan Jain on 21st April, 1995, Mr. K.N. Dutta (an employee of BECO) on 24th April, 1995, Mr. Daniel P. Ramball (an employee of BECO) on 25th April, 1995, Mr. Mukul Jain and Mr. P. Ghosal (employees of BECO) on 26th April, 1995, Mr. D.K. Guha and H.P. Guha Ray on 27th April, 1995, (employee of BECO) Mr. Pawan Jain on 28th April, 1995 (relative of S.K. Jain) and Mr. S.S. Sandhu on 1st May, 1995 (third party). (c) On 15th May, 1995, the DDIT (Inv.), New Delhi, addressed a letter to the assessee calling for explanation with regard to the cash, IVP and foreign currency recovered by the CBI from Mr. J.K. Jain which was stated by him before the FERA authorities to belong to S.K. Jain and called upon the assessee to show-cause as to why the sums credited in the diary be not treated as cash credits and if unexplained be not added under s. 68 of the Act and also show-cause as to why the expenditure recorded in the diary be not treated as unexplained and added as income under s. 69C of the Act. (d) On 15th May, 1995, Veenu Jain and Sh. Pramod Jain were examined by DDIT (Inv.), New Delhi. On the same date, a letter was sent to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record of proceedings. On 15th Feb., 1996, the AO recorded the fact that Mr. Agarwal had informed him that the case is to be proceeded with and assessment is to be framed as early as possible. The assessee had filed before the AO dt. 5th Feb., 1996, a reply in the assessment proceedings and this is forwarded by the AO to Agarwal. On 27th Feb., 1996, there is a reference in the record of proceedings that a draft reply to the assessee s reply dt. 5th Feb., 1996 was received from D.C. Agarwal and a reply is being sent by the AO on the basis of such draft. The record of proceedings before the AO from 5th Feb., 1996 to the date of his passing order of assessment reads as follows: "5th Feb., 1996: In response to statutory notice Shri G.C. Jain, authorised attorney, appeared and filed a letter dt. 5th Feb., 1996 from the assessee, the contents of which have been discussed with him. 6th Feb., 1996: Received a telephonic message from Shri D.C. Agarwal, Addl. DIT (Delhi), regarding the proceedings, who has since been appraised of the same. He desired to have the copy of reply of the a , to be sent by fax for perusal, the same is therefore sent to him vide letter F. No. DCIT (Ad.) BHI/re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble DG, Shri G.P. Garg had a telephonic talk with undersigned who wanted to know about the delivery of the above material and its mode, who has been informed of the facts narrated hereinabove. He instructed to get in touch with Shri D.C. Agarwal in this regard immediately, accordingly telephonically contacted and at the other end, Shri C.L. Meena, Inspector informed that he had taken delivery of the said sealed envelope from the concerned post office who has been informed to deliver the same to Shri D.C. Agarwal at his residential address and also send a word to the Hon ble D.G. in this regard. 4th March, 1996: Shri D.C. Agarwal, Addl. DIT (Inv.) telephonically informed that letter addressed to the assessee bearing F. No. DCIT (Assmt.) BHI/S 777/95-96/dt. 27th Feb., 1996 has been served upon the assessee at 1.30 a.m. today itself and further conveyed the DG s instructions to draft the assessment order under s. 143(3) r/w s. 147 presuming that the assessee would not come with any explanation required from him, so far as the assessment of his income is concerned. 8th March, 1996: Shri G.C. Jain, CA, authorised attorney of the assessee appeared and filed two letters from the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 996, 31st March, 1996 and 1st April, 1996, which are required to be drafted with the guidance of DI, DG and Addl. DIT as they would approve the assessment orders to be framed. In this connection, the CIT, Jabalpur, also directed that there is no need of the undersigned in attending the proceedings before the Hon ble Settlement Commission in Bombay on 3rd and 4th April, 1996 which were decided to be attended earlier. 25th March, 1996: The assessee s authorised attorney, Shri G.C. Jain, CA appeared and filed letter dt. 25th March, 1996 from the assessee in which also the facts and circumstances of the case were reiterated and requested for further time meanwhile further opportunities in accordance with the principles of natural justice as per directions contained in Hon ble Supreme Court s judgment in Dhirajlal Girdharilal s case. Copy of this letter along with covering letter of even date has been forwarded to Shri D.C. Agarwal, Addl. DIT (Inv.), Delhi, and to the CIT, Jabalpur, by fax. 26th March, 1996: Shri D.C. Agarwal, Addl. DIT (Inv.) informed telephonically that he had received assessee s letter dt. 25th March, 1996 and expressed his opinion that the assessment has to be f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was to conduct and complete the assessment proceedings. According to him, the DDIT (Inv.) continued to record statements of various persons and issued questionnaires/letters/summons to the assessee while the AO was a mere spectator to the whole proceedings. The record of proceedings according to him clearly reveals that every letter/reply filed by the assessee was promptly sent to the higher officers at Delhi and their instructions were awaited before taking any action. Even a request for adjournment was forwarded to the higher authorities and instructions were given by the higher authorities on the course of action to be adopted by the AO. The progress of the case was forwarded to the AO and the AO even records the fact that he is proceeding to Delhi to finalise the order of assessment. According to the learned counsel for the assessee, the presence of a draft assessment order on the file of the AO and the variation between the draft assessment order and final order of assessment clearly brings out the fact that the order of assessment was not framed by the AO on his own. According to him, the irresistible conclusion that one can reach on perusal of the record of proceedings as we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst many persons who were bureaucrats and politicians and therefore, had directed that all Government agencies, entrusted with performing their duty should act in accordance with law irrespective of the position and status of that person and conduct and complete and investigate into every accusation, expeditiously. This order was passed on 30th Jan., 1996 though the writ petition was filed as early as 1993. The Supreme Court had also called for submission of reports regarding the progress achieved in the matter of investigation and emphasised that no time should be lost in completing the process of investigation. It was under these circumstances that there was some communication between the AO and the higher officers and none of the officers concerned had exceeded their jurisdiction or powers vested in them under the IT Act, 1961. It was submitted by him that examination of various persons by the DDIT (Inv.) was well within his powers under s. 131(1A) of the Act. The assessee had properties within the jurisdiction of the DDIT (Inv.), New Delhi, and had also business interest within his jurisdiction and, therefore, it cannot be said that the DDIT (Inv.) in any manner influenced th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may allow someone else to dictate to it by declining to act without their consent or by submitting to their wishes or instructions. The effect then is that the discretion conferred by Parliament is exercised, at least in part, by the wrong authority, and the resulting decision is ultra vires and void. So strict are the Courts in applying this principle that they condemn some administrative arrangements which must seem quite natural and proper to those who make them." The author further explains the permissible guidelines under the heading "Permissible Guidelines" at p. 530: "Clearly these rules ought not to be carried to the length of preventing one Government department from consulting another, or of preventing Government agencies from acting in accordance with Government policy. There must always be a difference between seeking advice and then genuinely exercising one s own discretion, on the one hand, and on the other hand, acting obediently or automatically under some one else s advice or directions." 100. In S.B. Adityan Ors. vs. ITO (1964) 52 ITR 453 (Mad), the Hon ble High Court had an occasion to deal with a case where an ITO relied on the opinion of the Board on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interfere with the discretion of the AAC in the exercise of his appellate functions. It does not, however, imply that the Board may give any directions or instructions to the WTO or to the CWT in exercise of his quasi-judicial function." 102. Under the IT Act, 1961, the AO has the power to assess or reassess income of a person over whom he has jurisdiction by virtue of the provisions of the Act. In making an assessment, the AO has to afford opportunity of hearing and letting in evidence to the assessee and has to take into account all relevant material which he has gathered and, thereafter, make an order in writing assessing the total income and determine the sum payable by the assessee or refund due to the assessee on the basis of such assessment. This is clear from the provisions of s. 143(3) of the Act. It is implicit in these provisions that while making an assessment, the AO is expected to act independently and without being influenced by his superiors. He is not expected to act under their dictates. The discretion conferred on the AO by the Act should not be abdicated, surrendered or be exercised at the dictates of others. 103. In the present case, a search was conducted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f s. 132(9A) of the Act. The AO after having come into possession of information in the form of documents and material seized by the CBI on its receipt on 24th March, 1995 had recorded reasons for reopening on 30th March, 1995 and issued notices under s. 148 of the Act. On issue of notice under s. 148 of the Act, the AO had assumed jurisdiction over the case of the assessee. Thereafter, the question of assessment of income and the nature of enquiries to be conducted and evidence to be gathered and the manner of conducting enquiries all lies in the exclusive domain of the AO. By virtue of the provisions of s. 132(9A), the DDIT (Inv.), New Delhi, ceased to have any powers as an authorised officer over the assessee on or after 20th March, 1995 when the documents and seized material were sent to the AO or at any rate from 24th March, 1995 when the same is received by the AO. 104. We shall now examine the manner in which the enquiries were conducted by the AO from the time the assessments were reopened, the role played by the DDIT (Inv.), New Delhi, in the present case and also the manner in which the assessments were framed. We have already referred to the sequence of events as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enquiries". We may also state here that the nature of enquiries clearly point out to the fact that the DDIT (Inv.), New Delhi, was conducting an enquiry with reference to the pending case of the assessee before the AO at Bhilai and there is nothing to indicate that the same was with regard to any pre-search enquiries. (c) On 20th Dec., 1995, the AO proceeded to Delhi on receipt of telephonic message of the DDIT (Inv.), New Delhi. The record of proceedings before the AO clearly states that the visit is for the purpose of discussing the case with higher authorities viz., DIT/Dy. CIT, Delhi. What transpired during the visit of the AO to Delhi is revealed through a correspondence, which is in the form of a report about the progress of the case by the AO to the CIT, Jabalpur. This letter is dt. 30th Jan., 1996 and is a very important piece of communication, which throws light on the issue in controversy. The same reads as follows: "To The CIT, Central Revenue Building, Napier Town, Jabalpur (MP). Attention: Shri Abhay Damle, Asstt. CIT (Hqrs.) Sir, Sub: Monitoring of the assessment by Hon ble CIT in the case of Shri S.K. Jain under income-tax, wealth-tax gift-tax Deli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allied documents were in the code of lakhs . The rough sketch of the questionnaire was gone through by the DIT(Inv.) who instructed that the questionnaire should be prepared separately for all the assessment years by recapitulating the facts and reasons as incorporated in the notices issued by the Addl. DIT (Inv.), Delhi to the concerned assessee. After returning from Delhi, the said exercise was carried out and the notices were prepared both under income-tax and wealth-tax and submitted to the DIT on 8th Jan., 1996 and 9th Jan., 1996, so that the service could be effected on or before 10th Jan., 1996, on which date, the Hon ble Supreme Court had fixed the case for hearing. The notices issued for asst. yrs. 1988-89 to 1992-93 under ss. 142(1) and 143(2) of IT Act, 1961 along with detailed questionnaire as also statutory notice under s. 16(2) along with detailed questionnaire under the WT Act, 1957 have been kept in the paper book prepared for submission to the Hon ble Settlement Commission, a copy of which has already been submitted to you. Presently the hearing of the case both under income-tax and wealth-tax has been fixed on 5th Feb., 1996. As transpired in the conference w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (f) On 6th Feb., 1996, the AO forwarded the reply filed by the assessee to DDIT (Inv.), New Delhi who on the same day informed the AO telephonically that a suitable reply to be sent to assessee be prepared and sent to the higher authorities for perusal. The telephonic message is further to the effect that the assessee should be given one more opportunity of being heard in the matter. (g) The CIT, Jabalpur, thereafter informed the AO on 15th Feb., 1996 not to proceed further in the matter until further instructions. But however, the DDIT (Inv.), New Delhi informed the AO on 23rd Feb., 1996 that the case is to be progressed fast and the assessment is to be completed as early as possible and that there was a communication gap in the message sent by the CIT, Jabalpur, to the AO. This is also confirmed by the CIT, Jabalpur through his telephonic communication dt. 27th Feb., 1996 with the AO. (h) On 27th Feb., 1996, the AO had sent a draft reply to the assessee s letter dt. 5th Feb., 1996 and this reply is served through the DDIT (Inv.), New Delhi, on 4th March, 1996. This reply is again based on a draft reply which the DDIT (Inv.), New Delhi, had sent to the assessee through fax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee s viewpoint in generality and appears to have been prepared in haste just to seek the adjournment of the case. The letter dt. 8th March, 1996 brings out some specific legal objections based on the authorities cited therein. In this letter, following three points have been made out for seeking the adjournment of one month s time: That the assessee be supplied with or allowed to have an access to the original documents on the basis of which the assessment is proposed to be made; The assessee requested for allowing him to cross-examine the various witnesses on the testimony of which the inferences in the matter of making the assessment have been drawn; It is emphasised upon by the assessee that the criminal cases which he is facing as per the list appended with the reply must take precedence over the civil proceeding, i.e., assessment proceedings under income-tax wealth-tax. Under these circumstances, I solicit the valuable guidance of the higher authorities viz., DIT/DG (Inv.) in the matter so that any legal infirmity in the assessment order be properly taken care of. 3. I may mention that I have drafted the basic skeleton of the order which could only be con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refusing adjournment. (k) The AO proceeded to Delhi for framing the assessment order as per directions of the DI, DG, New Delhi. (l) On 16th April, 1996, the AO passed the order of assessment. 105. It is clear from the above sequence of events that the AO at no point of time acted independently. In fact it was the DDIT (Inv.), New Delhi, who was monitoring the proceedings from New Delhi and the AO acted merely at his dictates. We have already referred to the letter dt. 30th Jan., 1996 by the AO to the CIT, Jabalpur, informing about the progress of the case in which he has clearly stated that he is acting as per the dictates of his superior and as discussed in the meeting with his superiors. These facts are further fortified by the manner in which the order of assessment has been framed. The AO has proceeded to determine the taxable income on the lines as were indicated by the DDIT (Inv.), New Delhi, in its letters dt. 27th Nov., 1995 and 11th Dec., 1995 to the assessee. It is relevant to point out that the DDIT (Inv.), New Delhi, had issued letters dt. 27th Nov., 1995 and 11th Dec., 1995 calling for explanation from the assessee on the basis of the seized documents as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0th Jan., 1996 in the case of Vineet Narain Ors. vs. Union of India Anr. wherein the Hon ble Supreme Court had directed Government agencies to fairly, properly and fully investigate into every accusation against every person and take the logical final action in accordance with law. According to him the DDIT (Inv.), New Delhi and higher authorities were merely monitoring the proceedings and at no stage attempted to interfere with his independence. According to him, a distinction has to be made between a superior exercising his power of superintendence and control over his subordinates on the one hand and giving dictates or instructions on the other. We do not think that the superior authorities merely exercised their power of superintendence or control over their subordinates. The evidence on record clearly suggests that the AO did not act independently but was merely acting on the dictates of his superior. There can be no better case of abdication of powers than the present one. Even the letter dt. 30th Jan., 1996 by the AO to the CIT, Jabalpur, reporting the progress of events clearly mentions about the manner in which the material seized was to be used in completing the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reasons recorded by the AO that it is a fit case for the issue of such notice." After its amendment w.e.f. 1st April, 1989, s. 151 reads as follows: 151 Sanction for issue of notice. (1) In a case where an assessment under sub-s. (3) of s. 143 or s. 147 has been made for the relevant assessment year, no notice shall be issued under s. 148 by an AO, who is below the rank of Asstt. CIT, a or Dy. CIT unless the Jt. CIT is satisfied on the reasons recorded by such AO that it is a fit case for the issue of such notice: Provided that, after the expiry of four years from the end of the relevant assessment year, no such notice shall be issued unless the Chief CIT or CIT is satisfied, on the reasons recorded by the AO aforesaid, that it is a fit case for the issue of such notice. (2) In a case other than a case falling under sub-s. (1), no notice shall be issued under s. 148 by an AO, who is below the rank of Dy. CIT, after the expiry of four years from the end of the relevant assessment year, unless the Jt. CIT is satisfied, on the reasons recorded by such AO, that it is a fit case for the issue of such notice. 110. In the present case, the end of the relevant assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il, 1989, we are clearly of the opinion that the provisions cannot be given retrospective effect prior to 1st April, 1989, for assessments which have already become final due to the bar of limitation prior to 1st April, 1989. The taxing provision imposing a liability is governed by the normal presumption that it is not retrospective and the settled principle of law is that the law to be applied is that which is in force in the assessment year, unless otherwise provided expressly or by necessary implication. Even a procedural provision cannot in the absence of clear contrary intendment expressed therein be given greater retrospectivity than is expressly mentioned so as to enable the authorities to effect the finality of tax assessments or to open up liabilities, which have become barred by lapse of time. Our conclusion therefore, is that sub-s. (1) of s. 150, as amended w.e.f. 1st April, 1989, does not enable the authorities to reopen assessments which have become final due to bar of limitation prior to 1st April, 1989, and this position is applicable equally to reassessments proposed on the basis of orders passed under the Act or under any other law." 112. In the case of Ranchi H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Court, but the view which has been taken cannot be considered to be contrary to law. In the case of the assessee, the power could have been exercised under the repealed section as well as the amended section. The matter with regard to the applicability of the repealed section is merely an academic argument; however, in view of the fact that the power of reopening was existing in respect of escaped assessment prior to 1st April, 1989, therefore, it cannot be said that any new right has been acquired by the ITO or the said amendment has effected any vested right of the assessee. The object of reassessment is to assess the correct income and is a matter of procedure. The provisions of s. 148, therefore, have to be considered as procedural in nature. A change in the procedure may be by way of limitation or otherwise does not affect the vested right and as such the ITO was competent to invoke the provisions after 1st April, 1989 in accordance with the amended law, in respect of previous year which have not become time-barred." (ii) The Hon ble Punjab Haryana High Court in the case of Steel Strips Ltd. vs. Asstt. CIT (1995) 125 CTR (P H) 310 : (1995) 211 ITR 1021 (P H) has held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A) erred on facts and in law in not holding that the ex parte statements of deponents used against the appellant without affording opportunity of cross-examination, had to be excluded from consideration. 14. That the CIT(A) erred in holding that the opportunity of cross-examination was made available to the appellant insofar as the statement of Shri J.K. Jain was recorded in the presence of the counsel of the appellant and the appellant failed to invoke the right of cross-examination. 15. That the CIT(A) erred on facts and in law in confirming the addition of Rs. 43,50,000 made under s. 68 of the Act. 16. That the CIT(A) erred on facts and in law in upholding the finding of the AO that the diary recovered from the premises of the third party and written in the handwriting of the third party belonged to the appellant. 17. That the CIT(A) erred on facts and in law in wrongly placing the onus on the appellant to prove that the entries recorded in the said diary did not belong to the appellant, not appreciating that the appellant had denied that the diary or the entries contained therein belonged to the appellant. 18. That the CIT(A) erred on facts and in law in confi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dy. Director of IT (Inv.), New Delhi, erred in assuming jurisdiction to record the statements of witness under s. 131 of the Act. 2.5 That, on the facts and in the circumstances of the case, the statements of witness recorded results of enquiries conducted by the Dy. Director of IT (Inv.), New Delhi, who did not have valid jurisdiction in the matter, cannot be relied upon and have to be excluded from consideration. 116. Although elaborate submissions have been made on all the aforesaid grounds by the learned representatives of both the sides, keeping in view our decision rendered on ground Nos. 8 and 10 in the preceding paragraphs of this order annulling the assessments completed for all the years under consideration, we do not deem it necessary or expedient to decide the same, which have been rendered merely of academic nature, on merit. 117. ITA No. 585/Nag/1997 is an appeal by the Revenue against the order dt. 25th July, 1997 of learned CIT(A)-I, Raipur, relating to asst. yr. 1988-89. The grounds of appeal of the Revenue read as follows: 1. On the facts and in the circumstances of the case, the learned CIT(A) has erred in deleting the interest under s. 139(8) charged at ..... X X X X Extracts X X X X X X X X Extracts X X X X
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