9911796707
TMI Blog1991 (3) TMI 197X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 per kg. asst. yr. 1980-81 the rates as recorded in the books of the agents of various importers of Hing at Rs. 35, 40,42 and 50 per kg. respectively inBombay. Mrs. Leela Bhatia had made sales of 9680 kg. in Dec., 1977 to May, 1978 through M/s Chanchal Singh Pradhan Singh, Ratha Bazar, Bombay @ 37.40 per kg. through broker atBombay. The sales are varying form Rs. 38 to Rs. 41 per kg. At the time of initiating proceedings under s. 147(a) of the IT Act, M.S. Uttam Chand Dwan Chand assessed with IAC(A) Range-X,New Delhihad already made disclosure showing additional income at the rate agreed to with the Department atBombayand shown additional income at rates shown in earlier paragraphs. I may further add that all the sales in respect of Mrs. Leela Bhatia were routed through M/s R.L. Traders, the family concern. 1. Mrs. Leela Bhatia Asstt. yrs. 1978-79 & 1979-80 . Sales through Chanchal Singh Pradhan Singh,Bombay 9680 kg. Rate varies from Rs. 37 to Rs. 41 . Sales through M/s R.L Traders familyv 23,362 kg. 39.5 per kg. approx. . Asst. yr. 1980-81 . . Through M/s. R.L. Traders 21392 kg. Rs. 42.50 per kg. . Through M/s R.L. Traders 20759 kg. Rs. 45 per kg. 2. M/s R.L. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -firm was closely connected with the Hawala Hing and as such, he had sufficient reasons to believe that the income chargeable to tax had escaped assessment in these assessment years. Therefore, taking into consideration the average rate of under invoicing on the basis of additional income surrendered by the relatives/business associates to the assessee-firm that is Rs. 25 per kg. applied the same at the total sales of Hing at 45807 kg. and 25017 kg. for the asst. yrs. 1980-81 and 1981-82 respectively Therefore, he made additions of Rs. 11,45,175 in the asst. yr. 1980-81 and Rs. 6,25,425 in the asst. yr. 1981-82 as concealed profits. 3. When the matter came up for consideration before the CIT(A), the CIT(A) considered the objection of the assessee relating to reopening of the assessment under s. 147(a)and after giving full opportunity to the Assessing Officer on the objection raised in the letter of the assessee and coupled with the material and information available on record, he held that the initiation of proceedings under s. 147(a) r/w s. 148 was justified. As regards the quantum of addition made by the Assessing Officer the CIT(A) was of the view that in the absence of suffici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circular points out the concealment will be Rs. 1,00,00,000 in the case of the assessee without bringing any material on record. The rate on which some persons has surrendered income after about 2 to 3 years of research, cannot be taken the basis of addition against the assessee because the very fact that those persons sold their goods through Hawala agents, is missing in the case of the assessee. Quality of Hing sold by the assessee is inferior type which is called as Hing compound. The selling rate of this Hing compound is bound to be lesser than the pure Hing. The Sales-tax Department has accepted the sale of the assessee and they could not point out even a singly instance showing under invoicing by the assessee. Complete purchases and sales were furnished before the Department and no defects were pointed out. It is also pointed out that the case of the assessee was accepted by the first appellate authority. Gross profit rate as disclosed by the assessee in the past was accepted by the department. There is no reason to make additions on account of under invoicing. In this connection, our attention was invited, to the past gross profit rate as follows: Asst. yr. Turnover(in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t time for producing the report of ADI and material. But despite opportunity given, the ld. Deptl. Rep. did not attend the hearing on that day nor moved any application for adjournment. The informations called for were also not produced till the date of order. 6. We have considered the rival submissions. It is a settled principle of law laid down by the Supreme Court in the case of Lakhmani Mewal Das that the reasons for formation of belief contemplated by s. 147(a) of the IT Act, 1961, for the reopening of an assessment must have a rational connection or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of its failure to disclose fully and truly all material facts. It is no doubt true that the Court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening the assessment. At that time, we have to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn under s. 147(a) had to be fulfilled. That condition was that formation of belief that income had escaped assessment must be by reason of either the assessee's omission to file a return of income or non-disclosure of full and material facts necessary for the assessment. This view expressed by the Hon'ble Supreme Court was followed by the Hon'ble Bombay High Court in the case of Raja Bahadur Motilal P. Ltd. where it was found that there was no indication as to whether and in what content these parties were found to be non-genuine and how they were known to have indulged in bogus Hawala transaction or that the transactions with the assessee were bogus. Therefore, it was held that the reopening of proceedings were invalid. In the case of Indo Aden Salt Mfg. & Trading Co. Pvt. Ltd. on which the ld. Deptl. Rep. placed reliance was a case where the assessee has claimed depreciation on some plant and machinery at the rate of 6 per cent. The question was whether the excessive depreciation had been allowed and income has escaped assessment. It was held that since excess depreciation had been allowed on the entirety of the assets on the basis that they consisted of masonry work, the ITO co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record. He rather preferred to be absent on that date. Therefore, in the absence of material on record, the initiation of reopening proceeding is invalid. The Department has simply gone on conjectures and surmises on the basis of some disclosure made in other cases which to our mind cannot be made the basis of reopening in the assessee's case. We would like to mention here that in the assessee's case, the book results were always accepted. No additions were ever made on the basis of estimation. The gross profit rate in the past years were accepted by the department. A perusal of that profit rate would show that whenever there was higher gross profit it was shown in the return on that basis and whenever there was low, it was shown as such, therefore, the assessee was fair enough to disclose all material facts fully and truly before the department. In view of our above discussion, we are of the opinion that the reopening of the assessment is invalid. Therefore, the order of the CIT(A) directing the ITO to make investigation and the assessment is set aside. Since we are of the opinion that the reopening itself is invalid, we do not find any necessity to discuss the merit of the addit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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