1986 (4) TMI 84 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the additional ground entertained by the AAC.
2. Disclosure of primary facts by the assessee at the time of original assessment.
3. Validity of reassessment proceedings under Section 147(a)/148 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the Additional Ground Entertained by the AAC:
The Revenue contended that the AAC erred in entertaining an additional ground not specified in the 'Memorandum of appeal'. The Departmental Representative argued that the issue was already present when the AAC originally decided the appeal. However, the AAC entertained the additional ground through a rectified order dated 12th Nov., 1984, which the Revenue accepted and did not appeal against. This rectified order became final, and therefore, the Department could not raise this ground in the current appeals. The Tribunal found this ground misconceived and rejected it.

2. Disclosure of Primary Facts by the Assessee at the Time of Original Assessment:
The Revenue argued that the AAC erred in holding that the assessee disclosed primary facts during the original assessment. The Departmental Representative relied on the ITO's orders, while the assessee's counsel argued that the entries in the secret register found during the raid on M/s Sujan Singh Harbans Singh were not a basis for reopening the assessments. The assessee had denied dealings with M/s Sujan Singh Harbans Singh through affidavits and certified copies of accounts, proving that the original returns were correct. The Tribunal noted that the ITO did not record statements from the firm's partners to verify the entries, thus failing to prove that the assessee did not disclose true facts. The Tribunal cited relevant case law, including CIT vs. Bhanji Lavji and P. R. Mukherjee vs. CIT, to support that the burden of proof lies with the ITO. Consequently, the Tribunal upheld the AAC's finding that the reassessment proceedings were void ab initio due to the lack of jurisdiction under Section 147(a).

3. Validity of Reassessment Proceedings under Section 147(a)/148:
The Tribunal examined whether the ITO had valid reasons to believe that the assessee failed to disclose material facts, leading to income escaping assessment. The AAC had found that the assessee disclosed primary facts and that the entries in the secret register were not adequate material for the ITO to believe income had escaped assessment. The Tribunal confirmed that the ITO's belief was not substantiated and that the reassessment proceedings were void ab initio. The Tribunal agreed with the AAC's observations and upheld the cancellation of the reassessments.

Conclusion:
The Tribunal dismissed the Revenue's appeals for both assessment years, confirming the AAC's order that the reassessment proceedings under Section 147(a) were void ab initio and the additions for peak credits were deleted. The Tribunal found that the AAC's order was not erroneous and was in accordance with the law.