1982 (1) TMI 89 - AT - Income Tax

Summary

Issues Involved:
1. Legality of reopening assessments under Section 147(a) of the IT Act.
2. Validity of additions based on entries in a note book seized from a third party's premises.
3. Adequacy of reasons provided for reopening assessments.
4. Burden of proof regarding the entries in the note book.

Issue-wise Detailed Analysis:

1. Legality of Reopening Assessments under Section 147(a) of the IT Act:
The Income Tax Officer (ITO) issued notices under Section 148 for all the assessment years under appeal and completed reassessments by invoking the provisions of Section 147(a) read with Section 147(3). The assessee contended that the ITO did not indicate the reasons which prompted him to reopen the assessments. Despite repeated requests, the ITO did not show the reasons recorded, which the assessee argued made the reopening of the assessments bad in law. This argument was supported by several judicial precedents, including Karam Chand Kakkar vs. ITO and ITO vs. Lakhmani Mewal Das.

The Tribunal concluded that the ITO had not supplied reasons to the assessee, and on this count alone, the orders were bad in law. The Tribunal emphasized that after the returns had been filed by the assessee, they were entitled to see the reasons which prompted the ITO to reopen the assessments. The Tribunal found that the ITO's failure to show the reasons to the assessee rendered the reassessments invalid.

2. Validity of Additions Based on Entries in a Note Book Seized from a Third Party's Premises:
The ITO made additions based on entries in a note book seized from the residential premises of Shri N.N. Bahl, which included an account captioned "A/c Abhay Kumar." The ITO presumed that the entries represented undisclosed brokerage income. However, the entries were not dated, and the ITO used conjecture to determine the period to which these entries related. The ITO's method involved averaging the total amount over five years and making adjustments for non-receipt and expenses.

The Tribunal found that the ITO's approach was based on conjectures and surmises. The Tribunal noted that the entries in the note book were explained by the parties involved as figures jotted down for determining profit-sharing ratios for a proposed joint venture. The ITO did not disprove this explanation. The Tribunal concluded that the ITO had no evidence to support the conclusion that the entries represented income of the assessee for the assessment years under appeal. Therefore, the additions made by the ITO had no legs to stand upon.

3. Adequacy of Reasons Provided for Reopening Assessments:
The ITO's orders did not contain any observation about the reasons for reopening the assessments. The Tribunal emphasized that the belief entertained by the ITO must be reasonable and based on relevant and material reasons. The Tribunal found that the ITO had not shown the reasons to the assessee and that the reasons given in the assessment orders did not satisfy the conditions for reopening the assessments. The Tribunal cited the Supreme Court's decision in Ganga Saran & Sons P. Ltd. vs. ITO, which highlighted the importance of the ITO having a reason to believe that income had escaped assessment.

4. Burden of Proof Regarding the Entries in the Note Book:
The Tribunal addressed whether the onus of proof regarding the entries in the note book could be placed on the assessee. The Tribunal found that the figures of cash were recorded along with figures of cheques, and the parties concerned gave a reasonable explanation for these entries. The ITO did not believe this version but failed to prove that the entries represented income and that the income belonged to the assessee. The Tribunal concluded that the ITO's approach was flawed as it presumed the figures represented income without evidence. The Tribunal emphasized that the burden of proof was on the ITO to establish that the entries were income of the assessee.

Conclusion:
The Tribunal found that the entire proceedings taken by the ITO were without any basis. The reassessments were struck down as bad in law due to the non-supply of reasons for reopening the assessments. Additionally, the Tribunal concluded that the additions made by the ITO based on conjectures and surmises had no legs to stand upon. The Tribunal allowed the appeals and canceled all the reassessments.