2004 (8) TMI 367 - AT - Income Tax

Validity of initiation of reassessment proceedings - Income from salary as managing director -Sanction for issue of notice - expiry of four years from the end of the relevant assessment year - Assumption of jurisdiction - Independent application of mind by the AO before framing the order of assessment - HELD THAT - There is no evidence on record to show that the AO did not record reasons on his own. The fact that voluminous records were to be perused before recording reasons is again not a relevant consideration. The assessee has merely relied on certain circumstances and seeks a finding on the basis of these circumstances that the reopening was at the dictates of superiors. We are of the view that the AO was in possession of information and there is nothing to show that between the period when he received information and he recorded the reasons there was any dictates from any other person to reopen the assessment. The normal presumption is that official acts have been properly done. There is no material available on record to come to the conclusion that there was no independent application of mind by the AO before reopening the case and recording reasons for such reopening. The CBI had handed over copies of the documents and some of the materials seized to the IT Department for the purpose of assessing income, if any, in the hands of the assessee or other persons. Since the CBI, New Delhi had carried out the search, the DDIT (Inv.), New Delhi, made a requisition in terms of s. 132A and such requisition was issued by the DDIT (Inv.), New Delhi. Consequent to such requisition, the CBI handed over the material to the DDIT (Inv.), New Delhi on 18th Jan., 1995. The DDIT (Inv.), New Delhi, on taking delivery of the seized documents and material, by virtue of the provisions of s. 132A(3) was in the position of an authorised officer who had conducted a search and had seized the documents and materials in the course of search. The assessee was being assessed at Bhilai and, therefore, the DDIT (Inv.), New Delhi, in his capacity as authorised officer had duly forwarded the same to the AO at Bhilai on 20th March, 1995 as required by the provisions of 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 u/s 148 of the Act. On issue of notice u/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. We directed the Revenue authorities to file copies of such letters. The same have since been produced before us and we had the benefit of going through these correspondence. It was stated by the learned standing counsel for the Revenue that except the documents produced before us, there is no other correspondence between the AO and the higher authorities that transpired between the reopening of the assessment and the completion of the assessment. 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 assessment which was decided in the conference between the AO and the DDIT (Inv.), New Delhi, before completion of the assessment proceedings. The assessment proceedings before the AO proceeded on a predetermined course and the AO was merely carrying out what has already been decided by his superiors. The direct as well as circumstantial evidence clearly establish that the impugned assessments were finalised/drafted by the DDIT (Inv.), New Delhi and or other higher authorities and the AO, merely signed the same or at any rate the same were drafted by the AO at the directions/dictates of the higher authorities. In any event, the order of assessment has to be held as nullity in the eye of law. We refrain ourselves from making any elaborate reference to several judicial pronouncements on the validity of an order of assessment framed at the dictates and directions of a superior as the law in this regard is well settled. We have no hesitation in holding that the impugned assessments are bad in law for the reason that the same were monitored/ completed at the dictates/directions/instructions of the higher/other authorities, who had no jurisdiction in the matter. The 8th and 10th grounds of appeal of the assessee are allowed and orders of assessment in all the assessment years are annulled. In the present case, the end of the relevant assessment year is 1st April, 1989. The original assessments were completed under s. 143(3) of the Act. A period of 4 years from this date would be 31st March, 1993. The notice for reopening the assessment was issued on 30th March, 1995. The reopening was therefore beyond the period of 4 years from the end of the assessment year. If the old law was to be applied then the satisfaction of the Chief CIT or CIT on the basis of the reasons recorded that it is a fit case has to be obtained. If the new law were to be applied then there is no necessity for obtaining of such sanction. We may clarify that the proviso to s. 151(1) as per the new law will not apply since in the present case the reopening was done by the Dy. CIT and it is only when an officer below the rank of Dy. CIT that a satisfaction of the Chief CIT or CIT was to be obtained. The question therefore is as to whether the new law will apply for reopening in the present case or whether the old law (i.e., the law prevailing at the relevant point of time viz., the assessment year) should apply. This question had already arisen for consideration in many cases and there are conflicting judicial opinion on this point. In the result, all the appeals of the assessee are partly allowed whereas the appeal by the Revenue is dismissed.

Summary

Issues Involved:
1. Validity of reopening of assessments.
2. Independent application of mind by the Assessing Officer (AO).
3. Completion of assessment at the dictates of higher authorities.
4. Jurisdiction and actions of the Deputy Director of Income-tax (Investigation) [DDIT (Inv.)], New Delhi.
5. Procedural fairness and principles of natural justice.
6. Specific additions under sections 68 and 69C of the Income-tax Act.
7. Charging of interest under sections 234A, 234B, and 234C.

Summary:

1. Validity of Reopening of Assessments:
The AO reopened the assessments based on material received from the CBI and DDIT (Inv.), New Delhi, which included seized documents and statements. The AO scrutinized this material and formed a belief that the income of the assessee had escaped assessment. The Tribunal held that the AO had sufficient material and reasons to believe that income had escaped assessment, satisfying the conditions precedent for reopening the assessments. The AO's belief was based on relevant and material information, and there was a direct nexus between the material and the belief.

2. Independent Application of Mind by the AO:
The Tribunal found that the AO had independently applied his mind to the material available on record. The reasons recorded by the AO reflected an honest and reasonable belief based on the available material. The AO scrutinized the seized documents, analyzed the statements, and independently verified the information before forming a belief about the escapement of income.

3. Completion of Assessment at the Dictates of Higher Authorities:
The Tribunal observed that the AO did not act independently and was influenced by the dictates of higher authorities, particularly the DDIT (Inv.), New Delhi. The AO's actions, including issuing notices and considering replies, were directed by higher authorities. The Tribunal concluded that the assessments were finalized/drafted by the DDIT (Inv.), New Delhi, and/or other higher authorities, and the AO merely signed the same. Consequently, the assessments were annulled as they were completed at the dictates of higher authorities, which is illegal.

4. Jurisdiction and Actions of DDIT (Inv.), New Delhi:
The Tribunal noted that the DDIT (Inv.), New Delhi, continued to conduct enquiries and issue directions even after the AO had assumed jurisdiction. The DDIT (Inv.) recorded statements and issued letters to the assessee, which was beyond his jurisdiction once the AO had reopened the assessments. The Tribunal held that the DDIT (Inv.) acted in excess of authority and beyond jurisdiction, and the statements recorded by him could not be relied upon.

5. Procedural Fairness and Principles of Natural Justice:
The Tribunal found that the AO did not provide reasonable opportunity to the assessee to be heard and did not allow cross-examination of witnesses whose statements were relied upon. The AO also did not furnish copies of all seized documents to the assessee. The Tribunal held that the assessment was vitiated for violating the principles of natural justice.

6. Specific Additions under Sections 68 and 69C:
The Tribunal did not specifically address the merits of the additions under sections 68 and 69C due to the annulment of the assessments. However, it noted that the AO had treated the entries in the seized diary as unexplained cash credits and unexplained expenditure based on the material available.

7. Charging of Interest under Sections 234A, 234B, and 234C:
The Tribunal did not specifically address the issue of charging interest under sections 234A, 234B, and 234C due to the annulment of the assessments.

Conclusion:
The Tribunal annulled the assessments for all the years under consideration on the ground that they were completed at the dictates of higher authorities, which is illegal. The appeal by the Revenue was dismissed as infructuous due to the annulment of the assessments.