1992 (2) TMI 177 - AT - Income Tax

Account Books, Assessment Order, Assessment Proceedings, Original Assessment, Reassessment Proceedings, Tax At Source, Unexplained Cash Credits

Summary

Issues Involved:
1. Validity of reassessment under Section 147(a) of the Income-tax Act, 1961.
2. Legitimacy of the notice issued under Section 148.
3. Genuineness of the loan transactions.
4. Admissibility of the confessional statement by Shri C.V. Jain.
5. Consideration of fresh affidavits and evidence by the ITO.

Issue-wise Detailed Analysis:

1. Validity of Reassessment under Section 147(a):
The primary issue revolves around whether the reassessment initiated by the ITO under Section 147(a) was justified. The ITO believed that the income had escaped assessment due to the assessee's failure to disclose fully and truly all material facts necessary for assessment. This belief was based on a confessional statement by Shri C.V. Jain, who allegedly admitted that the loans advanced by him were not genuine but merely hawala transactions. The CIT (Appeals) found that there was no direct nexus or live link between the loans given by Shri C.V. Jain and the loans taken by the assessee from him. The reassessment was deemed invalid as none of the conditions precedent for issuing a notice under Section 148 were fulfilled. The Tribunal upheld this view, stating that the reasons recorded by the ITO were mere pretenses and amounted to a change of opinion on reappraisal of the same facts.

2. Legitimacy of the Notice Issued under Section 148:
The notice issued under Section 148 was challenged by the assessee on the grounds that it lacked a valid foundation. The CIT (Appeals) concluded that the notice was illegal as it had no basis or material evidence to support the belief of escapement of income. The Tribunal agreed with this conclusion, stating that the initiation of proceedings under Section 147 was not justified and was vitiated. Consequently, the notice issued under Section 148 was declared ab initio void, rendering the reassessment invalid and unjustified in law.

3. Genuineness of the Loan Transactions:
The ITO questioned the genuineness of the loan transactions based on the confessional statement of Shri C.V. Jain. However, the CIT (Appeals) found that the loans were fully investigated by the predecessor ITO, and no fresh material had come to the successor ITO to entertain the belief of escapement of income. Nine affidavits filed by creditors, accompanied by the assessee's letter dated 26-3-1987, proved the genuineness of the loans. The Tribunal noted that the assessee had provided sufficient evidence to establish the genuineness of the loans, including confirmation letters, interest payments by account payee drafts, and tax deductions at source. The Tribunal concluded that the department had not discharged its onus to disprove the prima facie evidence adduced by the assessee.

4. Admissibility of the Confessional Statement by Shri C.V. Jain:
The confessional statement by Shri C.V. Jain was a critical piece of evidence relied upon by the ITO. However, the CIT (Appeals) found that the statement was vague and general, with no direct nexus to the loans taken by the assessee. The Tribunal noted that the statement did not specifically mention that the loan of Rs. 70,000 advanced to the assessee was a name-lending transaction. The Tribunal also pointed out that no further details of hawala transactions were furnished by Shri C.V. Jain. Consequently, the confessional statement was deemed insufficient to support the belief of escapement of income.

5. Consideration of Fresh Affidavits and Evidence by the ITO:
The assessee had submitted fresh affidavits from creditors, including Shri C.V. Jain, confirming the genuineness of the loans. These affidavits were filed before the ITO on 26-3-1987, but the ITO refused to consider them. The Tribunal criticized the ITO for ignoring the affidavits and not considering the evidence before passing the reassessment order. The Tribunal emphasized that the ITO should have examined the fresh affidavits and provided reasons for rejecting them if necessary. The ITO's failure to consider the fresh evidence further undermined the validity of the reassessment.

Conclusion:
The Tribunal upheld the order of the CIT (Appeals), concluding that the reassessment made by the ITO was not justified in law. The notice issued under Section 148 was declared ab initio void, and the reassessment was deemed invalid. The Tribunal found that there was no evidence or material on record to support the belief of escapement of income, and the reasons recorded by the ITO were mere pretenses amounting to a change of opinion. Consequently, the appeal by the revenue was dismissed.