9911796707
TMI Blog1986 (9) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee and SH. H.K. Rathi the assessee was required to make his submissions and produce evidence etc. in respect of the nature of the following assets seized: Cash Rs. 38,000 Jewellery Rs. 1,18,083 Shares in the names of : M/s. Saffrom Investment Rs. 1,53,000 Smt. Rekha Rathi 4,10,800 Smt. Rekha Rathi Deepak Rathi. 60,000 Airline Investment 2,85,125 Deepak Rathi 2,57,060 Smt. Rakha Rathi, may it be noted at this stage is the wife of Sh. Deepak Rathi. In the case of Sri H.K. Rathi also a similar notice was issued asking him to explain the nature and source of cash of Rs. 38,000, jewellery valued Rs. 90,480 and shares in the various names as per the notice dt.3rd Dec., 1975. In the course of the proceedings, under s. 132(5), inspection of documents and loose papers seized from the aforementioned premises appears to have been taken both by SH. Deepak Rathi and Shri H.R. Rathi, On3rd February 1976, a letter was issued by the ITO to Shri Deepak Rathi stating, Inter alia as below: "Please refer to notice under s. 132(5) served on3rd Dec., 1975. You are requested ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were made with regard one of the lose papers and the nature of the said queries becomes explicit when one reads the order under s. 132(5) passed in the case of Sh. H.K. Rathi on the same day i.e. 16th February 1976. The relevant portion with regard to the loose papers which were put to him may be extracted here as below "Apart from the above seizure in course of search contain loose papers were seized from the possession of the assessee Sh. Chandak was able to explain in respect of pages 4 to 5 which were transactions in respect of sale of scrap recorded in the book of various concerns in which the assessee and his son were interested. The page No 3 on Ayurvedic prescription Page No. 1 refers to making of 5 bowls. Assessee explains that the five bowls were made out of silver utencils. In support thereof he has filed a certificate and copy of the order from one Ballram and Sons. This leaves us with page No. 2 In this page there are three transactions recorded on of Rs. 34,219, comprising of three transactions totalling to Rs. 34,549 from which brokerage of Rs. 259 has been debited. There appears to be totalling mistake. As after deductions of brokerage the correct figure should ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority is totally wrong, completely unjust and absolutely arbitrary in treating the said loose rough paper of the nature of readiness a very valuable evidence in support of his estimating the alleged unaccounted income of Rs. 17,996. (iii) It is further submitted that the said paper at serial No. 2 referred to in the impugned order which on inspection reveals that it is some rough small brown paper carrying some jottings of figures. The said paper does not show name of any person or commodity nor any date having no identification with any transaction. It will be appropriate that in the ordinary course thousand of jottings are made on whatever paper comes ones way. Many calculations of stipulated transactions or those likely to take place are made. Over years there would have been several transactions of various companies firms etc. and continess of calculation made. It is humanly impossible to explain random jottings on some rough paper lying in and picked up from some corner of the house without any reference to some context. Inspite of best efforts it has not been possible to make any head or tail of the jottings but that would not mean that the said paper and the jottings there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recovered from the possession of his son Shri Deepak Rathi and, therefore, he was not liable to explain the entries in the said paper. The seizure memos appears to have been produced before the Tribunal, who after verifying from the same recorded the finding as follows: "We have seen the original seizure memo and and we are satisfied that this contention is correct." On the basis of the said finding, the Tribunal deleted the addition in the case of Shri H.K. Rathi by observing, Inter alia, as follows in paragraph 4 of their order: "3. In our opinion, the addition cannot at all be sustained firstly because the paper itself was not seized from the assessee, the assessee cannot be asked to answer it particularly when it is not even prepared to be in the handwriting of the assessee. We can understand, a person whose premises are searched and some papers are seized being asked to explain the contents thereof, but when admittedly papers are seized from the possession of the assessee s son and the paper is not even in the hand writing of the assessee, no onus lies on the assessee to explain unless the Department discharges the initial onus proving that this paper pertains to the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contents thereof, but when admittedly papers are seized from the possession of the assessee s son (Shri Deepak Rathi) and the paper is not even in the handwriting of the assessee, no onus lies on the assessee to explain unless the Department discharged the initial ouns of proving that this paper pertains to the transactions of the assessee." As this loose paper recording these three transactions worth Rs. 71,996 was seized from the residence of Sh. Deepak Rathi and from his possession and as also observed by the ITAT in the case of Sh. H.K. Rathi for asst. yr 1976-77 the assessment proceedings of Sh. Deepak Rathi for asst. yr 1976-77 need to be reopened to bring into these unexplained transactions of Rs. 71,996 to taxation. This income of Rs. 71,996 escaped assessment by reason of the omission or failure on the the part of the assessee to disclose fully and truly all material facts necessary for his assessment. Your kind permission is, therefore, solicited for the reopening of assessment under s. 147(a) of the IT Act. 11. After obtaining the possession from the CIT he initiated proceedings against Shri Deepak Rathi issuing the notice under s. 148. In the course of the aforesai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly, he made the impugned addition of Rs. 71,996 to the assessee's total income. 14. The assessee challenged the aforesaid order before the AAC and pleaded before him, inter alia that the action of the ITO amounted to merely a change of opinion on the basis of the same material. Earlier, the ITO was of the opinion that the income as evidence by the said paper belonged to Sh. H.K. Rathi and, therefore, he had made the addition in the hands of Shri H.K. Rathi and then he changed his opinion and held that the income belonged to Shri Deepak Rathi. An action under s. 147 could not be sustained on such change of opinion. 15. The ld. AAC accepted the above contention of the assessee. 16. The Department is aggrieved of the aforesaid finding of the ld. AAC and it was the contention of the ld. DR. before us that on the basis of the findings of the ITAT, the ITO came to hold the reasons to believe that the transactions reflected at page 2 pertain to Shri Deepak Rathi and not to Shri H.K. Rathi that the Tribunal was the appellate forum whose finding was binding on the ITO that on the basis of the finding of the Tribunal the ITO could initiate proceedings against Shri Deepak Rathi that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal return, he took action against Sh. Deepak Rathi under s. 147(a). To support the above contention, the ld. Departmental Representative took us through the reasons recorded by the ITO and the assessment order subsequently passed in the case of Shri Deepak Rathi. Thus, according to the ld. departmental representative a valid case of initiation of proceedings under s. 147(a) was made out by the ITO and the AAC was wrong in having quashed the same. While laying the charge of change of opinion at the door of the ITO, the ld. AAC Prima facie forgot to take note of the fact that it was not a mere change of opinion on the same facts, but that the change of opinion had come about after the finding of the ITAT had been given in the case of Shri H.K. Rathi. The order of the ITAT was a valid source of information with the ITO and he could act on the basis thereof as per the provisions of the law and so merely for the change of opinion, the order of the ITO could not have been quashed. 18. On behalf of the assessee. the above submissions were challenged as untenable. According to the ld. counsel for the assessee, the Tribunal had not given any finding of fact in the case of Shri H.K. Rath ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eral provisions of the IT Act neither can creep from underneath these fortifications nor can overlook with favour or disfavour over these to influence the procedure or judgment in the proceedings under s. 132 of the Act." 20. It was also expressed by the ld. counsel for the assessee that onus was on the Revenue to show that what had escaped was income and merely because some amount was there written on a piece of paper being No. 1, it could not be inferred firstly that it was of income nature and secondly, that it was the income of the year under consideration and that unless the Department discharged the burden with regard to the aforesaid two points, the ITO could not have formed the belief that the assessee s income for the previous year under consideration had escaped assessment. In support of the above proposition, the ld. counsel relied upon the judgment of the Hon ble Madras High Court in the case of E.M. Muthappa Chettiar vs. CIT (1964) 43 ITR 642 at 650 (Mad) and TS. PLP. Chidambaram Chettiar vs. CIT. According to the assessee, the said paper did not belong to him nor was it in his handwriting and so no addition could be made in his hands on the basis of such a paper. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Representative submitted that we should reverse the order of the ld. AAC and uphold the initiation of proceedings under s. 147(a). 22. We have given careful consideration to the facts of the case and the rival submissions. In our opinion, for the reasons given hereafter, the initiation of proceedings under s. 147(a) was valid and the AAC erred in law and on facts in quashing the same. 23. It is important to remember that, at the time of initiation of proceedings under s. 147(a), the requirement is not that the ITO should have conclusive evidence with him and on this basis "should believe" that there has been escapement of income of the assessee from assessment due to his omission or failure. The requirement is that he should have "reasons to believe" (not that he "should believe" that the assessee s income has escaped assessment due to his omission or failure. In other words, what has to be seen, at this stage is whether, Prima facie, the ITO as a person of ordinary prudence, well instructed in law could tentatively form the opinion, on the basis of material before him that: (1) There has been escapement of assessee s income from the assessment of his total income at the ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the character of income pertaining to asst. yr. 1976-77. (2) The original A.O. Of Sri Deepak Rathi showing that he had not disclosed the above income in his return. (3) The record of original assessment proceedings showing that Sri Deepak Rathi had never been questioned with regard to the above transactions, nor had he ever owned up the said transactions, nor had he ever owned up the said transactions Suo motu, and (4) the finding of the Tribunal in the case of Sri H.K. Rathi that only that person from whom the said paper had been seized could have been asked to explain the contents of the said paper, and that it was Sri Deepak Rathi from whom the said paper had been seized. 25. On the basis of the above objective material, the ITO formed his subjective belief that Prima facie the assessee s income for asst. yr. 1976-77 had escaped assessment due to omission and failure on his part to declare the said transactions. We see no basis for holding that there is no nexus between the above objective material and the formation of belief by the ITO. There is clear-cut nexus between the two. That the transactions recorded at paper No. 2 reflected items of income nature was clear t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he asst. yr. 1976-77. 26. The contention of the ld. counsel for the assessee that the ITAT had not given any final finding of fact on this subject and hat it had merely stated what was obvious from the record does not appeal to us. From the orders of the ITO, passed under s. 132(5) as well as under s. 143(3) in the case of Shri H.K. Rathi, it is obvious that the papers, to which the ITO was addressing himself and which according to the Tribunal, were recovered from Shri Deepak Rathi, were 8 in number. Of the said papers, all but paper No. 2 related to Sh. H.K. Rathi, and he did explain the nature of the transactions covered by the said papers. Thus, page 1 contained transaction regarding making the silver bowl which was examined by Shri H.K. Rathi, and in support of which he filed a certificate and copy of the order, from one Shalegram Sons. Paper No. 3 was an ayurvedic prescription, and Shri H.K. Rathi explained it also. Pages 4 to 8 contained transactions in respect of sale of scrap which were also explained by Shri H.K. Rathi. Thus when, out of 8 papers, 7 were pertaining to Shri H.K. Rathi and were explained by him, the ITO could not be said to be acting contrary to the doc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said paper was very much within the knowledge of the ITO and he acted on it to the best of his understanding. To say, therefore, that it was a case of oversight or inadvertance would not be correct. It is a case where his conclusion that the paper pertained to Shri H.K. Rathi was corrected by the Tribunal, who held that the said paper was recovered from the possession of Shri Deepak Rathi and it was he to whom the queries should be addressed with regard thereto. The ITO thereupon turned to Shri Deepak Rathi and inasmuch as Shri Deepak Rathi had not disclosed the transactions in question in his original return, he came according to us within the mischief of cl. (a) of s. 147 of the IT Act, 1961. 28. It is important to note in this connection that there is no evidence whatsoever on record to suggest even remotely that the said paper No. 2 was put across to Shri Deepak Rathi at any stage under the belief that it might pertain to him. All the eight papers were put across to Shri H.K. Rathi only. There can, therefore, be no question of there being any formation of opinion in respect thereto in the case of the assessee. The ITO laboured under the impression, right from the beginning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to the assessee s real income. If the information discovered through the proceedings under s. 132 could not be made use of for the purpose of making regular assessments, the entire retionale of s. 132 would be negatived. We cannot interpret the provisions of s. 132 in such a manner. 30. The above legal position apart, we see no relevance of this argument with the question of validity of reopening the assessment under s. 147(a) on the fats of the present case. As pointed out earlier, for this purpose, we have to see whether there was any objective basis for the ITO s formation of the belief that the assessee s income had escaped assessment from the relevant assessment year. For ascertaining as to what was the basis of the formation of the ITO s belief, we have merely to look at the reasons recorded by him. A perusal thereof clearly shows that he took no assistance from s. 132(4)A for this purpose. He looked at the Tribunal s order and the assessment orders of Shri H.K. Rathi, and the original return of income filed by Shri Deepak Rathi and on their basis he formed his belief under s. 147(a) and we have held above the reopening on this basis as valid. 31. For the reasons s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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