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Issues Involved:
1. Ownership of the seized loose papers. 2. Relevance of the loose papers to the block period. 3. Tax liability of the appellant for the transactions recorded in the loose papers. Detailed Analysis: Ownership of the Seized Loose Papers: The primary issue is whether the seized loose papers belong to the erstwhile partnership firm or the appellant. The papers were seized from Shri A.K. Arora, whose wife was a partner in the erstwhile firm. The notations on the papers were in the handwriting of A.K. Arora. Both members agreed that the transactions recorded in the loose papers pertain to the erstwhile partnership firm. The learned AM deleted the additions in the appellant's hands, while the learned JM sustained the additions, arguing that the abbreviation "MLA" on the papers stood for "Mohan Lal Arora," the appellant. However, it was not conclusively proven that "MLA" referred to the appellant, and no corroborating evidence supported this claim. Thus, the learned AM's view that the revenue should have conducted further inquiries rather than assuming the liability on the appellant based on mere probability was upheld. Relevance of the Loose Papers to the Block Period: The second issue concerns whether the transactions recorded in the loose papers fall within the block period. The partnership firm subsisted from April 1982 to March 1994, and the block period was from 1986-87 to 1995-96. The seized papers did not specify the dates of the transactions, making it difficult to ascertain whether the transactions fell within the block period. The learned counsel argued that since no specific dates were mentioned, it could not be said with certainty that the transactions fell within the block period, and thus, the charge itself failed. This argument was accepted, reinforcing the view that the revenue failed to establish a clear link between the transactions and the block period. Tax Liability of the Appellant: The final issue is whether the appellant is liable to be taxed for the transactions recorded in the loose papers. The learned JM argued that since the appellant continued the business as a sole proprietor of the erstwhile firm Bharat Ispat after its dissolution, he remained liable for the firm's liabilities, both in terms of the dissolution deed and in law. However, the legal provisions under section 189(1) and 189(3) of the Income-tax Act, 1961, provide that the assessment should be made in the hands of the firm, even after its dissolution, and not in the individual capacity of the appellant. The learned AM's view that the income of the erstwhile partnership cannot be assessed in the appellant's individual hands was upheld. The proper procedure would have been to assess the income in the hands of the firm following the provisions of section 158BD read with section 189(1). Conclusion: The Third Member agreed with the learned Accountant Member, resulting in the deletion of the additions of Rs. 25,91,105 and Rs. 10,00,000 in the appellant's hands. The matter was referred back to the regular Bench for the final disposal of the appeal in accordance with the majority opinion.
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