1989 (12) TMI 114 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the issue of notice under Section 148.
2. Completion of re-assessment proceedings without proper justification.
3. Proper service of notices on all legal heirs.
4. Additions made to the originally assessed income on merits.
5. Sufficiency of reasons recorded by the ITO for reopening assessments.
6. Assessment of unexplained investments in gold and properties.
7. Opportunity for the assessee to cross-examine the statements recorded.
8. Allowance of loss due to confiscation of gold.

Detailed Analysis:

1. Validity of the Issue of Notice under Section 148:
The assessee challenged the validity of the notice issued under Section 148. The court observed that the reasons for reopening the assessments were recorded in a casual manner by the ITO. The ITO mentioned gold seizures but did not clarify from whom the gold was seized or how the assessee was involved. The court held that the reasons should be self-sufficient for a reasonable person to infer that income had escaped assessment. The court found that the notices were issued without proper application of mind, as there was no reasonable correlation between the amount alleged to have escaped assessment and the amount finally held to have escaped assessment.

2. Completion of Re-assessment Proceedings without Proper Justification:
The court noted that the ITO had not followed the principles of natural justice by failing to confront the assessee with the material collected by the Income-tax Department. The learned CIT(A) had already set aside the assessment order on this ground and restored the matter to the ITO for proper enquiries and to confront the assessee with the results of those enquiries.

3. Proper Service of Notices on All Legal Heirs:
The assessee argued that notices were not served on all the legal heirs of the deceased Shri Jagannath Sharma, rendering the assessment orders null and void. The court observed that the ITO was aware of the death of Shri Jagannath Sharma but did not serve notices on all legal heirs. However, the court found that the assessee and the legal heirs were aware of the proceedings, and the technical ground of non-service of notice on any one of the heirs could not be held as a ground for quashing the assessment order.

4. Additions Made to the Originally Assessed Income on Merits:
The assessee challenged the additions made to the originally assessed income. The court did not proceed to decide the quantum of income assessed, as the learned CIT(A) had not given a decision on merits and had restored the matter to the ITO for fresh assessment.

5. Sufficiency of Reasons Recorded by the ITO for Reopening Assessments:
The court found that the reasons recorded by the ITO for reopening the assessments were insufficient and lacked clarity. The ITO mentioned gold seizures but did not provide details on how the assessee was involved. The court held that the reasons recorded were not sufficient to form a reasonable belief that income had escaped assessment.

6. Assessment of Unexplained Investments in Gold and Properties:
The court noted that the ITO had assessed unexplained investments in gold and properties. For the assessment year 1973-74, the ITO included unexplained investments in properties and gold. For the assessment year 1974-75, the ITO assessed unexplained investments in properties and gold seized from one Shri Ram Prasad. The court found that the ITO had not provided proper justification for these assessments.

7. Opportunity for the Assessee to Cross-examine the Statements Recorded:
The assessee argued that the additions were made based on statements recorded behind their back, and they were not given an opportunity to cross-examine those parties. The court found that the assessee was not provided copies of the statements nor given a chance to cross-examine, violating the principles of natural justice.

8. Allowance of Loss Due to Confiscation of Gold:
The assessee argued that the entire gold had been confiscated and should be allowed as a loss. The court did not provide specific directions on this issue, as the quantum of assessment was to be decided afresh by the assessing officer.

Conclusion:
The appeal for the assessment year 1973-74 was rejected, while the appeal for the assessment year 1974-75 was allowed. The court held that the proceedings for the assessment year 1974-75 were not validly initiated, and the ITO did not assume jurisdiction to issue notice under Section 147(a) for that year. The court found that there was a reasonable ground for the ITO to believe that income had escaped assessment for the assessment year 1973-74, and the sufficiency of the reasons was not justiciable. The court directed the ITO to give the assessee a fresh opportunity to be heard and to confront the evidence collected against them.