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TMI Blog2004 (8) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... he residential and business premises of the assessee as well as that of Shri J.K. Jain, manager (accounts) of Bhilai Engineering Corpn. Ltd. at Delhi and Bhilai on 3rd May, 1991. The said search was carried out in connection with transfer of money to India through Hawala and was stated to be an offshoot of the search on one Shri Shambhudayan Sharma, a Hawala operator who had allegedly channelised funds for the terrorist operations. During the course of search, Indian currency of Rs. 58.5 lakhs, IVP of Rs. 10 lakhs and some foreign currency were found and seized from the residence of Shri J.K. Jain situated at G-36, 'Saket', New Delhi besides various incriminating documents and diaries. Mr. J.K. Jain was the accountant and a trusted employee of the assessee. Photocopies of some of such seized documents were handed over by the CBI to IT Department in February, 1994 for inquiries and investigations. Subsequently, the photocopies of remaining seized documents were handed over by the CBI to Directorate of IT (Inv.), New Delhi in the month of February, 1995 in response to warrant of authorisation issued by DIT (Inv.), New Delhi, under s. 132A on 17th Jan., 1995. Relevant copies of such d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee along with statutory notices issued under ss. 143(2) and 142(1) communicating the adverse findings of the search and seizure operations by the CBI. The incriminating documents found during the course of the said operations including the crucial diary MR-71/91 were also brought to the notice of the assessee by the AO and the prima facie inference sought to be drawn from the said seized material as well as the statements of the concerned persons recorded by the CBI as well as by the Addl. DIT (Inv.) was also communicated to the assessee seeking his explanation/clarification in the matter. It was specifically communicated by the AO to the assessee that the amounts found to be credited in the said diary during the previous years relevant to asst. yrs. 1988-89 to 1992-93 are proposed to be considered for addition under s. 68 in his case and an opportunity was given to him to offer his explanations/clarifications on various points raised in the said letter. The assessee, however, did not divulge any information in order to offer his explanation/clarification to the various points raised in the letter sent by the AO and instead raised various objections thereby calling for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... points raised by him for the purpose of completing the reassessments, the AO found that the assessee is apparently attempting to avoid the main issue of explaining the nature and source of credits found recorded in the relevant seized diary and other documents and taking note of this non-co-operation on the part of the assessee in complying with the requirements of notices issued during the course of reassessment proceedings, he proceeded to complete the reassessments for the years under consideration under s. 143(3) r/w s. 147 on the basis of material available on record before him assessing the income of the assessee at substantially higher figure than the one returned by the assessee. 4. The basis on which the AO determined the income of the assessee is as follows. The CBI during the search in the premises of Mr. J.K. Jain recovered 11 diaries and 9 files containing loose papers bunched together at the time of seizure by the CBI. The main diary based on which the various additions were made by the AO is MR 71/91. The other diaries and documents according to the AO supplement and corroborate the transactions found recorded in MR 71/91. The diary according to the Revenue consiste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome from out of the seized diary, it was necessary for the Revenue to establish- (i) that the seized diaries belonged to the assessee, Mr. S.K. Jain, though recovered from the possession and control of J.K. Jain, and (ii) that the entries therein were made by Mr. J.K. Jain, the trusted employee of S.K. Jain under whose instructions and directions the entries in the diary were made by J.K. Jain, (iii) that these were books of account maintained by the assessee (i.e., S.K. Jain) for the relevant previous year (authenticity of the seized document and diaries), and (iv) that the entries found therein were in codes and what were the actual figures that were to be ascribed to the codes used in the diary, (v) that these entries give rise to income chargeable to tax. 6. It was only after all the above were established that the question of the quantum of income to be determined in the hands of the assessee was to be decided by the AO. The AO dealt with all the above aspects and came to a conclusion on each of the above questions as follows: 1. The seized diaries and documents were authentic and were a contemporaneous record of events that have actually taken place. He came to this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew Delhi. It may be mentioned here that the Revenue has even launched prosecution against J.K. Jain for giving false statement, insofar as he changed his version in this regard, i.e., the figures in the diary were to be deciphered as in thousands as against the figure of lakhs as given in the statement before the CBI. Here again the statement of J.K. Jain and B.R. Jain recorded by the CBI and the deposition of Smt. Rachana Jain, Pawan Jain, Mukhul Jain, Veenu Jain and Pramod Jain (all relatives of the assessee) were recorded by the DDIT (Inv.), New Delhi, the statement of Mr. P. Ghoshal, Daniel P. Rambal, S.S. Sandhu, K.N. Dutta were also relied upon. The AO has set out various circumstances and the entries in the seized documents itself, which would go to show that the entries in codes were in lakhs. In this regard, the entries in the books of accounts were also compared. The AO arrived at the following total receipts and total disbursements in the diary MR-71/91 and other connected documents: ------------------------------------------------------- F. Y. Receipts Disbursement Disburse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IVP's and foreign currency were treated as explained, being one out of the cash balances recorded in the seized diaries. Besides the above, certain other additions were made with reference to the original assessments not connected with the search and seizure by CBI. 7. The AO also dealt with the various objections raised by the assessee in the course of assessment proceedings. (a) The objection of the assessee that he should be furnished with photocopies of the seized documents was rejected by the AO by observing that the assessee was given opportunity to inspect and that there is no requirement of furnishing copies. (b) The request of the assessee for inspection of the originals of the seized documents was held to be device to protract the proceedings. (c) The reliance placed by the AO on the material collected by the DDIT (Inv.), New Delhi, was proper as the said authority are investigating authorities and any material given by them can be used in evidence. The assessee was given opportunity of being heard on the material made available by DDIT (Inv.), New Delhi, and that the AO had independently evaluated the evidence so collected. (d) Protection claimed by the assessee und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laborately during the course of hearing before us. They have also filed voluminous paper books containing 1141 pages in four volumes from assessee's side and 587 pages in two volumes from Revenue's side. Moreover, keeping in view the time lag between the hearings in this case which has taken place at three different times, both the sides have placed on record their written submissions containing their arguments on various issues as well as the gist of case laws relied upon by them in support, as per the directions of the Bench. During the course of hearing before us, the correspondence between the AO and the higher authorities including DDIT (Inv.), New Delhi, and CIT, Jabalpur, prior to the date of initiation of reassessment proceedings stated to be relevant and material for deciding these appeals but not provided to the assessee earlier by the Department claiming it to be confidential, was also made available to the assessee for inspection at the instance of the Bench. Before us, the learned counsel for the assessee has also submitted that even though copies of entire material received by the AO from DDIT (Inv.), New Delhi vide letter dt. 20th March, 1995 including the documents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction to reopen the concluded assessment without appreciating that the AO had not reached any independent satisfaction that the income of the appellant had escaped assessment. Ground No. 4: That the CIT(A) erred on facts and in law, in holding that the AO validly initiated action for reopening the assessment, without appreciating that such action was taken at the behest and dictates/directions/instructions of higher/other authorities and without any independent application of mind on the part of the AO." 14. The facts and the dates which are relevant for deciding these grounds of appeal may briefly be stated as follows. On 3rd May, 1991, there was a search conducted by the Central Bureau of Investigation (CBI for short) in the residential and business premises of one Shri S.K. Jain (the assessee in these appeals) managing director of M/s Bhilai Engineering Corpn., Bhilai, Madhya Pradesh, (hereinafter referred to as BECO) and one Mr. J.K. Jain, manager (accounts) of BEC. The searches were carried out both at Bhilai and Delhi. This search was in consequence of search carried out in the case of one Shri Shambu Dayal Sharma, a Hawala operator who had allegedly channelised fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... structions of Mr. S.K. Jain and N.K. Jain and no other third person would give instructions for recording transactions in the diary. That the payments stated to have been made to various politicians as recorded in the diary were not made by him nor does he know the person who used to pay money to the politicians. That receipt of money recorded in the diary were monies received either from S.K. Jain or staff members of the company. That entries in the diary used to be made sometimes on a day-to-day basis, sometimes once in a month. That the accounts as entered in the diary used to be shown by him to S.K. Jain once or twice and he has signed as token of approval of the accounts. 17. It is not in dispute that the assessee was being assessed to tax by the ITO, Ward-I, Bhilai and later on, i.e., on 12th March, 1993, the jurisdiction was transferred to Dy. CIT (Spl. Range), Bhilai, hereinafter referred to as the AO, who was also in charge of assessment of BECO. 18. The DDIT (Inv.), vide letter dt. 20th March, 1995 informed the AO, that proceedings for initiating reassessment proceedings be taken in the case of the assessee. The contents of this letter are reproduced herein. To Dt. 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tc. having 51 pages. (vi) Set-VI-Titled as MR-73/91 having 50 pages. (vii) Set-VII-Titled as MR-67/91 containing 11 pages representing ledger account of BECO, S.K. Jain. (viii) Set-VIII-Copy of account of petition filed before Settlement Commission by Shri J.K. Jain having 12 pages. (ix) Set-IX-Report from CBI having 117 pages. (x) Set-X-Statement of accused recorded by CBI as containing 258 pages. I (xi) Set-XI-Containing statements of witnesses by CBI having 125 pages. (xii) Set-XII-Containing a report sent by DDIT, Unit-I to DI about appraisal of some of the documents containing 18 pages. 20. We may also mention here that in the DDIT (Inv.) letter dt. 1st March, 1995 to CIT, Jabalpur, there are some references about reopening. Copy of this letter is at pp. 1064 to 1066 of assessee's paper book. There is a reference to this letter in the letter dt. 20th March, 1995 sent by the DDIT (Inv.), New Delhi to the AO at Bhilai. The contents of this letter insofar as it relates to a decision on these grounds of appeal are that there was a request to the CIT, Jabalpur to direct the AO to consider the report sent by CBI and take action under direct taxes. There is also a reference i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the material/reports, etc., only on 24th March, 1995 at 5.00 P.M. from Delhi vide letter No. F. No. DDIT/Inv/U-I/T.W./DLH/1995-96/1464 dt. 20th March, 1995. Our position is being verified. The approval report of DDIT to DG contains set No. XII shall be perused and action of reopening, etc. as suggested shall be taken shortly. Our report shall be submitted to Hon'ble Settlement Commission. He informed that their matters are fixed for hearing before Hon'ble Supreme Court. 28th March, 1995: Received a phone call from DG, Shri G.P. Garg, Delhi. He informed of the...... (not legible) aspect of the matter. Viz., (a) the reopening of the assessment of Shri S.K. Jain, B.R. Jain and BEC (b) submission of the report to Settlement Commission (not legible) appraising them with the factual position and (c) Submission of detailed report to CBDT through Chief CIT (Bhopal, by week end). 28th March, 1995: Received phone call from CIT, Jabalpur, who informed of his talk with Shri S.P. Garg, DG, Delhi, he has been informed of the action to be taken. He expressed his satisfaction about the progress so far. 30th March, 1995: Recorded the detailed reasons under ss. 148(2), 17(1) and 16(1) of IT/WT/G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to independently come to such a conclusion and should not be influenced or be directed/dictated by his superiors in coming to such conclusion. It is further contended by the learned counsel for the assessee that there was no independent application of mind by the AO as can be gauged from the following: (a) The letter dt. 20th March, 1995 of DDIT (Inv.) was received by the AO on 24th March, 1995 at 5.30 P.M. (b) 25th and 26th March, 1995, were holidays being Saturday and Sunday; (c) The AO had only 3 working days, i.e., 27th, 28th and 29th March, to go through the voluminous records, statements of the various persons, decipher the notings in the diaries which, as admitted by the AO, were in alphabets, abbreviated forms, codes, etc., examine the assessment records, form prima facie link between the diary and S.K. Jain, have reason to believe that income of the assessee has escaped assessment and quantify the same. (d) In the reasons recorded, the AO has referred to the report dt. 20th Oct., 1994 of DDIT (Inv.) to DI, the appraisal report of the Addl. DIT, the report of the CBI, etc. the contents whereof are not known; (e) The AO specifies, in the reasons recorded, that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorities. There can be no quarrel to the proposition laid down in these decisions. The question for consideration is whether the AO acted at the dictates of his higher authorities in reopening the assessments or applied his judicial mind independently. This is a question of fact and we will examine this in the light of the material available on record. 26. The learned Departmental Representative on the other hand submitted that the correspondence relied upon by the learned counsel for the assessee does not lead to the conclusion that the initiation of reassessment proceedings was done by the AO at the dictates of his superiors and that he did not independently apply his mind before recording reasons for reopening assessments. In this regard, it was submitted by him that the entire proceedings before the Revenue authorities were to be viewed in the light of the writ petition Nos. 340-343 of 1993 filed in the Hon'ble Supreme Court in the case of Vineet Narain & Ors. vs. Union of India & Anr. wherein a public interest litigation was filed directing all Government agencies to perform their duty in accordance with law in the matter of seizure of diaries by the CBI from J.K. Jain. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in any event cannot lead to the conclusion that reasons were recorded by somebody else or his superior authorities or that the AO did not apply his mind before forming a belief about escapement of income. 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. 28. The contention that there were references to certain material or certain facts in the reasons recorded and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Sheo Shankar Sitaram & Anr. (1974) 95 ITR 523 (All) and submitted that in the present case, the Revenue cannot seek privilege. We have considered his submissions. Sec. 124 of the Evidence Act reads as follows: 124. Official Communications.-No public officer shall be compelled to disclose communications made to him in official confidence, when he considers that the public interests would suffer by the disclosure. The decision of the Allahabad High Court was rendered after a finding of fact that disclosure of information would not be in the interest of public. In the present case; we have to consider whether the privilege claimed by the AO can be accepted. We direct the learned counsel for the assessee to have inspection of the documents production of which is not objected by the Revenue. In our view the documents production of which have been objected to by the Revenue, prima facie, appear to be documents in respect of which the Revenue was entitled to claim privilege. We, therefore, rule that the said documents will be perused by us and in case any adverse inference is to be drawn on the reopening of the assessments, we shall do so. But for the present we accept the contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and in law, in not holding that the impugned assessment is bad in law and void ab initio since there was no live link/nexus between the reasons recorded and the income assessed in the hands of the assessee." 33. The learned counsel for the assessee at the outset invited our attention to the reasons recorded by the AO and pointed out that the same were recorded in a consolidated manner in 'Jain Group of Cases' and not in the individual case of the assessee. He submitted that judicious comparison between the material available, reasons recorded and prima facie conclusion purportedly arrived at in the reasons recorded clearly show that there was no material, leave alone live/rational material, on the basis of which there could be formation of the belief that the entries in the diary represented cash credits in the hands of the assessee and/or unexplained expenditure of the assessee and, therefore, there was no "reason to believe" that the assessee's income has escaped assessment. According to him, the following facts show that the AO did not even reach a prima facie conclusion as regards whose income had escaped assessment and exact nature of such income: (i) As per CBI report, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee/BEC Ltd. only is tested on the touchstone of the material available with him, it is patently clear that there is no nexus at all to come to that belief. In fact, the material available pointed towards involvement of many persons and not the assessee alone. Further the nature of income sought to be taxed is not what could be deduced/concluded from the available material since the available material indicated, if at all, towards an entirely different nature of transactions. He contended that the AO thus was not sure either about the nature of income or the persons actually involved on the basis of material available before him and still proceeded to reopen the assessments for exploring various options. He pointed out that reassessment proceedings initiated in the case of other assessees namely Shri B.R. Jain, Shri N.K. Jain and M/s BEC Ltd. however were subsequently dropped by the AO without assigning any reason. He contended that the assessment of income has to be done in the hands of the person legally entitled to that income and there could be no assessment as a matter of convenience or to serve the interests of the Department. His contention therefore was that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee was the statement of Mr. J.K. Jain, who had never been the employee of the assessee as assumed by the Revenue authorities. He reiterated that, in any case, reliance could not be placed on the statement of Mr. J.K. Jain for the reason that no opportunity was afforded to the assessee to cross-examine the said deponent. 37. In support of his contentions, the learned counsel for the assessee relied on the decision of Hon'ble Supreme Court in the case of Sheo Nath Singh vs. AAC 1973 CTR (SC) 484 : (1971) 82 ITR 147 (SC) wherein it was held that the words "reason to believe" suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the ITO may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. It was also held that the ITO would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. He also cited the decision of Hon'ble Supreme Court in the case of ITO vs. Lakhmani Mewal Das 1976 CTR (SC) 220 : (1976) 103 ITR 437 (SC) wherein it was held that the reasons for the for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or reopening of the assessment and such reasons must have a material bearing on the question of escapement of income by the assessee from assessment. 40. The decision of Hon'ble Madhya Pradesh High Court in the case of Lokendra Singh Rathore vs. WTO (1986) 51 CTR (MP) 60 : (1985) 155 ITR 629 (MP) was also relied upon by the learned counsel for the assessee wherein it was held that the expression used in the relevant provisions being 'reason to believe' and not 'reason to suspect', action can be taken only when there is an honest and reasonable presumption based on reasonable grounds and not mere guess, gossip, suspicion or rumour. There should be a direct link or nexus with the information or material with the officer and the formation of the belief as to the escapement of net wealth in a particular assessment year. He submitted that the decisions of Hon'ble Delhi High Court in the case of United Electrical Co. (P) Ltd. vs. CIT (2002) 178 CTR (Del) 192 : (2002) 258 ITR 317 (Del) and Bawa Abhai Singh vs. Dy. CIT (2001) 168 CTR (Del) 521 : (2002) 253 ITR 83 (Del) are also to the similar effect wherein it was held that the crucial expression 'reason to believe' predicated that the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umar Jain and working with him since 1978" "I am working with M/s Bhilai Engg. Corpn. since 1978 and presently, I am getting a salary of Rs. 6,900 per month, besides free accommodation and car" (as senior executive in M/s BEC Ltd., 13 Masjid Moth, New Delhi,-as given in the caption to his statement) "I was looking after the liaison work, sales relating to the export and other activities with various management Departments, on behalf of M/s Bhilai Engg. Corpn.". "Today, I have been shown two spiral note-books and two files marked as (MR-208, 209, 325 and 326/93). The note-books and the files mentioned above have been seized from the search of my house conducted by the CBI, SIC-II, New Delhi, on 3rd May, 1991. In the note book (marked as M-209/93), the details of credit/debit have been maintained from the month of February, 1988 to April, 1991. This bears my writing. The entry relates to receipt of various amounts and their disposal monthwise and this has been written on the instruction/dictation of Shri S.K. Jain, the managing director of Bhilai Engineering Corpn., the same were to be shown to him regularly from time to time. The details as mentioned in coded words in abbreviated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) In his statement recorded on 24th April, 1995 Shri Daniel P. Rambal, an employee of Shri S.K. Jain and his companies stated that Shri J.K. Jain had given him money in Bombay office which was to be spent as per the instructions of Shri S.K. Jain. Shri Rambal had submitted the account of the expenses incurred on behalf of Shri S.K. Jain to Shri J.K. Jain who recorded them in the seized diary. (e) Shri P. Ghoshal, an employee of Shri S.K. Jain and his companies stated in his statement recorded on 26th April, 1995, that he had received in Calcutta from Shri J.K. Jain a sum of Rs. 10 lakhs which was spent for purchase of various articles of Shri S.K. Jain. The account of Rs. 10 lakhs was submitted by him to Shri J.K. Jain and which was found recorded in the impugned diary. (f) In his statement recorded on 27th April, 1995, Shri H.P. Guha Roy, an employee of Shri S.K. Jain and his companies stated that he had received money on most of the occasions from Shri J.K. Jain which was spent at the airport for custom clearance of goods/articles imported by Shri S.K. Jain for his farmhouse. The accounts of the expenditure relating to the farmhouse of the assessee were submitted to Shri J.K. J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and since the same was not disclosed in his regular returns filed for the relevant years, a prima facie case of income escaping assessment under the deeming provisions of ss. 68 and 69C r/w s. 147 was clearly made out. This is more so because the assessee had failed to prove and explain all the essential ingredients of ss. 68 and 69C insofar as they relate to the unrecorded incomings and outgoings, evident from the impugned documents. 44. Shri Anand Jaiswal pointed out that Shri Arif Mohd. Khan in his statement dt. 21st Sept., 1994 given before the CBI had admitted that he was given donation of sizeable sums of Rs. 50,000 by the assessee and that Shri S.K. Jain was also making payment of the telephone bills and incurring sundry expenses on his behalf, i.e., on behalf of the said deponent. He had also deposed that the assessee had donated sums ranging between Rs. 20-50 thousands on various occasions. In his statement dt. 8th Dec., 1994, Shri Rajesh Pilot had deposed before the CBI as under:- "I admit having received some money from the said Shri S.K. Jain through my P.A. but, cannot exactly remember the said amount. But, I definitely remember that the said Shri S.K. Jain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s car. Shri Vinod Kumar Jain in his statement dt. 10th Feb., 1994 deposed before the CBI that he used to receive cash from Shri S.K. Jain from time to time but the same used to be in thousands only. He denied having any knowledge regarding the entries in the impugned diary. Shri M.P. Nair in his statement dt. 18th Feb., 1994, deposed before the CBI that he did not know in what context the entries in the impugned diary were made. Further, he deposed that Shri S.K. Jain used to give him some amounts being in thousands. Shri Sanjay Kumar, S/o Shri Chandram in his statement dt. 12th Dec., 1994 deposed before the CBI that his father had arranged for a loan of Rs. 10 lakhs from Jains and he personally went to the office of Jains and collected the cheque for the same. Shri T.T. Bhatia, an employee of BEC, Bhilai, in his statement dt. 29th Dec., 1993 had deposed before the CBI that he had received Rs. 60,000 as against Rs. 80,000 shown in the impugned diary as loan from the assessee. 45. Shri Anand Jaiswal submitted that the entire aforesaid information available with the AO made it abundantly clear that all the transactions were recorded by Shri J.K. Jain in the said diaries as per the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecorded by the assessee's employee as per the instructions of the assessee. Even the assessee himself had explained before CBI, the nature and nomenclature of the transactions found recorded by the assessee's employee in the questioned diaries. These facts also are further fortified form the signatures of the assessee affixed on some pages of these diaries, as mentioned supra and all these evidences the fact that the entries in the said diaries were being made only as per the instruction of the assessee and it was the assessee alone who had fullest control and knowledge about the same. He contended that the AO, therefore, was fully justified in treating the entries found recorded in the seized diary as cash credit entries in the hands of the assessee considering that the same had been not disclosed in the regular returns of income filed by the assessee and no satisfactory explanation was forthcoming from him. 47. In short, Mr. Jaiswal submitted that the entries in the questioned diaries were written by Shri J.K. Jain, employee of the assessee and in his statement given before the CBI, Shri J.K. Jain had explained in clear terms that he had written the transactions in the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ult of any reassessment proceedings. He also relied on the decision of Hon'ble Supreme Court in the case of ITO vs. Selected Dalurband Coal Co. (P) Ltd. (1996) 132 CTR (SC) 162 : (1996) 217 ITR 597 (SC) wherein it was held that the formation of belief by the AO is within his subjective satisfaction and, therefore, at the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the facts stated in the material are true or not is not the concern at this stage. Relying further on another decision of Hon'ble apex Court in the case of Shri Krishna (P) Ltd. vs. ITO (1996) 135 CTR (SC) 75 : (1996) 221 ITR 538 (SC), he contended that the enquiry at the stage of examining the validity of reassessment notice is only to see whether there are reasonable grounds for the AO and not whether the omission/failure and the escapement of income is established. Mr. Jaiswal also cited the decision of Hon'ble Supreme Court in the case of CIT vs. A. Raman & Co. (1968) 67 ITR 11 (SC) wherein it was held that the expression 'information' in the context in which it occurs must mean instruction or knowledge de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that the reasons recorded were on the basis of the material facts available before him, which indicated escapement of sizeable sums from taxation. Thus there was live link between the material on record and the reasons extensively recorded by the AO to justify action under s. 147 in this case. According to him, the information received was minutely verified and examined by the AO with reference to the returns originally filed by the assessee and this exercise independently made by the AO, after due application of mind, brought to light that the transactions reflected in the seized diaries were not disclosed in the returns originally filed and thus, there was every reason to believe escapement of substantial amount of undisclosed income/investment having direct nexus and live link between material available on record which was the basis for taking action under s. 147. 52. It was also submitted by Mr. Jaiswal that the voluminous information received by the AO from the office of the DDIT(Inv.) was thoroughly verified by him with reference to the returns originally filed by the assessee which resulted in detection of escapement of substantial income in the respective years under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the impugned reassessment proceedings under s. 147 and hence the action of the AO in this regard was in conformity with the ratio laid down by the Patna High Court in the case mentioned supra, although the facts of the case under consideration are entirely different from those before the Patna High Court in the case relied upon by the assessee. 54. In the rejoinder, the learned counsel for the assessee submitted that the contention of the Revenue that the assessee had signed on pp. 3 and 35 of the impugned diary is factually incorrect inasmuch as the said pages were not part of the impugned diary, i.e., MR-71/91 but were part of MR-76/91. He pointed out that p. 3 is the statement of expenses on farmhouse belonging to BEC Impex International (P) Ltd. whereas p. 35 is some statement prepared by Mr. P. Ghosal to Shri J.K. Jain wherein there is a reference of payment being made as per managing director's instructions. Thus, there is no reference of any payment being received or paid on behalf of the assessee and it would be totally absurd to connect the impugned diary - MR-71/91 with the assessee on the basis of these two pages which were part of MR-76/91. In any case, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P&H) and the Calcutta High Court in Simplex Concrete Piles (India) (P) Ltd. vs. Dy. CIT (2002) 176 CTR (Cal) 353 : (2002) 255 ITR 49 (Cal) relied upon by the Revenue, he submitted that the same were rendered in totally different context. There is no dispute with the legal proposition laid down in the said decisions that at the time of issuance of notice, the AO is only required to come to a prima facie belief. The case of the assessee, however, is that on the facts and circumstances as have been highlighted, prima facie conclusion purportedly arrived at by the AO is in direct conflict with the inference that a reasonable person could have drawn from the available material. He submitted that there is also no dispute with the proposition that validity of initiation of proceedings have to be tested on the basis of material available at that time. The contention of the assessee has been that on the basis of reasons recorded and the available material no prudent person would have come to the prima facie conclusion that entries recorded in the impugned diary represented cash credit and undisclosed income belonging to the assessee. Therefore, there was no live link/connection between th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusion arrived at by the AO does not have live nexus/connection with the available material. According to him, even the decision reported in CIT vs. Sun Engineering Works (P) Ltd. (1992) 107 CTR (SC) 209 : (1992) 198 ITR 297 (SC) and CIT vs. D.R. Vadera l/h of Hans Raj Vadera (2000) 163 CTR (Del) 251 relied upon by the Revenue are not applicable in the facts of the present case since the issue raised by the assessee is whether the proceedings could be initiated to conduct further enquiry and investigation. The decisions thus cited are not relevant. 60. As regards the statement of Shri B.R. Jain relied upon by the Revenue, the learned counsel for the assessee submitted that Shri B.R. Jain had never stated that the entries in the diary related to the assessee. On the contrary, Shri B.R. Jain had stated that accounts were being maintained to look after the affairs of the company out of funds generated from sale of scrap and for promoting business interest. On the basis of the said statement the only logical inference which could be drawn is that the entries in the diary related to the company and not to the assessee and the same reflected income from sale of scrap and not cash cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclose the process of reasoning by which the AO held "reasons to believe" and change of opinion does not confer jurisdiction to reassess; (e) There must be nexus between material and belief; (f) The reasons referred to must show application of mind by AO. 62. It is therefore relevant to find out as to whether the aforesaid conditions were duly satisfied in the present case by the AO before initiating reassessment proceedings for the years under consideration. In this regard, it is observed that during the course of search carried out by the CBI at the residential premises of Shri J.K. Jain situated at G-13, Saket, New Delhi, various incriminating documents besides cash and other valuables were found and seized. Out of this seized material, photocopies of following documents were received by the AO on 24th March, 1995 through DDIT under letter F. No. DDIT/INB/U-1/JW/BLH/95-96/1464, dt. 20th March, 1995 along with statements recorded of the concerned persons as well as investigation report of CBI and DDIT- (i) Set-I-Monthly receipts and payments having pp. 1-32. (ii) Set-II-Containing detailed expenditure in firm and others having pp. 1-30. (iii) Set-III-Titled as MR-69/91 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertaining to him, even though, those have been written in his hand at the instance of Shri S.K. Jain, his employer in the capacity of managing director of BEC. When he was asked about the nature of writings, etc. he maintained utter silence on the plea that he did so at the directions and dictation's of Shri S.K. Jain who knows as to what was directed to be written by him." 64. The aforesaid statement of Shri J.K. Jain was confronted to the assessee by the CBI and in his statement recorded before CBI in this regard, assessee explained almost all the transactions appearing in the relevant seized diary and also deciphered the code words and figures as pointed out by the AO in the reasons recorded as follows: "When Shri S.K. Jain was confronted by the CBI Officer, he explained that the same represented the receipt of money from Bhilai to the persons who are in employment with the company or the firm at Bhilai which was taken to Delhi and was handed over to the personnel of account section to hand over to Shri J.K. Jain for safe custody. The nature of the receipts was stated to be of unaccounted money generated as a receipt of sale of scrap of BEC Ltd. which has not been accounted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a who had also concluded that the figures were only in lakhs and since on some pages there is a clear working of amounts as converted into Indian currency by applying a conversion rate. This therefore represents nothing but the foreign currency brought on in India. This fact has been further corroborated by the fact that the various amounts were multiplied by 'cash Hawala' rates prevailing during that period and obtained from Directorate Of Enforcement by requisition. It is pertinent to mention here that no instant statement has been recorded by the CBI, i.e., on the date of search on 3rd Sept., 1991 but it was recorded on 15th Sept., 1991 and in the meantime these persons consulted each other and came out with a different story about what was found noted in the diary, etc. I have very carefully gone through the photocopies of the diary, opinion of the CBI and report of the Directorate and I find that in fact the transactions recorded in these diaries were pertaining to assessee's business of Hawala transactions, the exact mechanism of which has not come on record. However, since the concerned persons have admitted the diaries and other records as belonging to them and have accept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 crores as the figure of investment stated above is upto September, 1990. Thereafter further investment of Rs. 83,55,643 has been found noted on pp. 22 and 23 of the file numbered as MR 72/91 as on 23rd Feb., 1991. Thus the unaccounted investment as per seized materials works out to Rs. 4,61,75,057 which shall be assessable at half of it in the hands of the wife and husband as they being joint owner of the property. Thus a sum of Rs. 2,30,87,528 shall be assessed under s. 69 of the IT Act, 1961 in the hands of each spouse as unexplained investment during the financial year 1991-92 relevant to asst. yr. 1991-92. So far as the wealth-tax assessment is concerned, the valuation shall be taken after getting the valuation report for which the case shall be referred shortly. In this connection it is curiously noted that these assessees have been claiming deduction under s. 5(1A) of WT Act as exemption. It is patently incorrect as it is not allowable to them as it is not simply a house meant for the storage of crop by cultivator or for housing his live stock, but is a palatial structure. From the case files of Shri S.K. Jain and his wife Smt. Poonam Jain it is further gathered that they a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestment by Shri Jain for the asst. yr. 1986-87. Also the case file of the assessee shows withdrawal of Rs. 72,246 on 16th July, 1985 on account of air ticket and the destination of the journey has not been mentioned, whether the amount is for to-and-fro journey or for one side, is also not ascertainable. However, looking to the facts of the case, the same appears to be on account of foreign trip by Shri Jain and his family members. The corresponding expenses required to be spent have not been reflected in the accounts. Even for household expenses a paltry sum of Rs. 20,000 is only shown in the account. It will, therefore, definitely involve expenditure met out from undisclosed sources of income and calls for further addition around Rs. 2 lakhs for asst. yr. 1986-87." 69. All the above aspects finding place specifically in the reasons recorded by the AO are sufficient to show that there was objective and relevant material available before him and even the required circumstances for entertaining the belief about the escapement of assessee's income from assessment were much in existence at the time of initiation of reassessment proceedings by the AO. It also shows that the belief of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as held that the expression 'information' in the context in which it occurs in s. 147 must mean instruction or knowledge derived from an external source concerning facts or particulars or as to law relating to a matter bearing on the assessment. If the facts of the present case are considered in the light of legal position emanating from the aforesaid judicial pronouncement, we find that specific information in the form of relevant seized material as well as statements of the concerned persons and report of two investigating agencies, i.e., CBI and DDIT was available before the AO at the relevant time and the formation of his belief about escapement of assessee's income as reflected in the reasons and based on such relevant information as well as the circumstances which did exist as discussed above, was honest and bona fide. 70. Having held that the first three conditions precedent for entertaining the belief about the escapement of income and initiating the reassessment proceedings, i.e., existence of material as well as circumstances and honest and bona fide belief entertained by the AO about escapement of assessee's income on the basis of the same were duly satisfied in the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case and source of and reasons for coming to the possession of the said material was discussed by the AO in his reasons recorded as follows: "In this case, search operations were carried out by the CBI at the residential premises situated at G-30 Saket, New Delhi of Shri J.K. Jain who happens to be the manager of Bhilai Engineering Corporation Ltd. (BEC for the short). During the search, cash amounting to Rs. 58,09,100 was seized along with Indira Vikas Patras of Rs. 10.5 lakhs, some foreign currency of UK, US, Duchmark, France and Hong Kong, in addition to two diaries and files which were seized by the CBI. The seized materials have now been received from the CBI through the DDIT, New Delhi and comprise of photocopies of diaries, registers, reports, etc. which have been received on 24th March, 1995 vide DDIT's letter F. No. DDIT/Inv./U-1/JW/DLH/1995-96/1464 dt. 20th March, 1995. Since then the entire materials have been scrutinised and also the case files of Jain group assessed in this range viz., S/Shri S.K. Jain, B.R. Jain and N.K. Jain and Smt. Poonam Jain as also M/s BEC Ltd. The Jain group of Bhilai have been engaged in the business of manufacturing of engineering structu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the entire credits of said diary as income of the assessee under s. 68. In this regard, it is observed that the entire transactions reflected in the relevant seized diary were not considered by the AO in hands of the assessee alone at least at the stage of initiation of reassessment proceedings and as is evident from the reasons recorded by him, the reassessment proceedings were initiated not only in the case of the assessee but also in the case of his brothers S/Shri B.R. Jain, N.K. Jain, wife Smt. Poonam Jain and their company M/s BEC Ltd. It is true, as pointed out by the learned counsel for the assessee, that the reassessment proceedings initiated in the case of other persons including the company were subsequently dropped by the AO and the entire amount found credited in the relevant seized diary was treated as income of the assessee in the assessment finally completed under s. 147 r/w s. 143(3), but the fact remains to be seen is that the assessment of all these persons were reopened by the AO along with the assessment of the assessee and belief entertained by the AO about the escapement of income as is evident from the reasons recorded was not just confined to the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the diary were only in thousand and not in lakhs. As regards the names of politicians and others is concerned, he admitted of having given some donations and gifts to ministers on various occasions which he could not remember, etc. When the other partners of Jain were interrogated, S/Shri B.R. Jain and N.K. Jain also reiterated the version of Shri S.K. Jain particularly on two aspects that the money in question was representing their black money generated from various concerns of the group mainly BEC and receipts noted in the diaries were representing the amounts only in thousands and not in lakhs. It is pertinent to mention here that no instant statement has been recorded by the CBI, i.e., on the date of search on 3rd Sept., 1991 but it was recorded on 15th Sept., 1991, and in the meantime these persons consulted each other and came out with a different story about what was found noted in the diary, etc. I have very carefully gone through the photocopies of the diary, opinion of the CBI and report of the Directorate and I find that in fact the transactions recorded in these diaries were pertaining to assessee's business of Hawala transactions, the exact mechanism of which has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be an assessment of income by convenience to serve any specific purpose of the Department. In our opinion, this objection of the learned counsel for the assessee, if considered in the factual background of the present case, is far-fetched and therefore, unsustainable. As is evident from the reasons recorded by the AO, some of the credits/receipts appearing in the relevant seized document/diary as per the version of the concerned persons represented unaccounted monies generated as a result of sale of scrap of BEC Ltd. and this was stated to have been indicated with the capital letter "A" in the seized diary. There were some other credits/receipts also appearing with the letter "C" which the AO treated as commission from Hawala business of the assessee as well as his two brothers, Mr. N.K. Jain and B.R. Jain for the reasons given by him based on the detailed reports of investigating agencies viz. CBI and DDIT as well as on the working given therein showing conversion of foreign currency into Indian currency to indicate/suggest that the said credits represented unexplained transactions of assessee's Hawala business. In any case, the said credits representing apparently receipts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt made may be ranging between 4-5 crores as the figure of investment stated above is upto September, 1990. Thereafter, further investment of Rs. 83,55,643 has been found noted on pp. 22 and 23 of the file numbered as MR 72/91 as on 23rd Feb., 1991. Thus, the unaccounted investment as per seized materials works out to Rs. 4,61,75,057 which shall be assessable at half of it in the hands of the wife and husband as they being joint owner of the property. Thus, a sum of Rs. 2,30,87,528 shall be assessed under s. 69 of the IT Act, 1961 in the hands of each spouse as unexplained investment during the financial year 1990-91 relevant to asst. yr. 1991-92. So far as the WT assessment is concerned, the valuation shall be taken after getting the valuation report for which the case shall be referred shortly. In this connection it is curiously noted that these assessees have been claiming deduction under s. 5(1A) of WT Act as exemption. It is patently incorrect as it is not allowable to them as it is not simply a house meant for the storage of crop by cultivator or for housing his live stock, but is a palatial structure. From the case files of Shri S.K. Jain and his wife Smt. Poonam Jain it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to have been received and at times it has shown to have been paid to her. That shows her involvement also and atleast wherever her name is appearing, she should be held responsible so far as the tax liability is concerned. As such, it is partly liable to be assessed in her hands also. Another lady viz. Smt. Poonam Jain, wife of Shri S.K. Jain, has made investment to the tune of Rs. 28,09,739 till 29th Sept., 1986 as per the letter seeking legal opinion from some counsels, photocopy of which is found in the seized material, i.e., MR 72/91 placed in set No. V. As per the details stated above in the letter to the counsel, this investment has been made in respect of B-5, Maharanibag property which has been agreed to be purchased for Rs. 36 lakhs jointly vide agreement dt. 1st Aug., 1986, part payment of which has been stated to be made of Rs. 23 lakhs and odd as stated above, though the extent of the share in property is not mentioned which may be safely presumed to be 50-50. As such, a sum of Rs. 14 lakh comes to the share of each as their investment which is not found recorded in the income-tax and wealth-tax record, are separately liable to be assessed for asst. yr. 1987-88 and co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be seen that the belief entertained by the AO about the escapement of assessee's income in the form of unexplained investment in the property situated at B-5, Maharanibagh was based on material coming to his possession after the assessment showing apparently that such investment was made by the assessee and his wife jointly which had not been disclosed in their returns of income for the relevant years. It could also be noted that the relevant documents found during the course of search and relied upon by the AO to come to this conclusion were corroborative inasmuch as the letter sent to counsel indicated the investment made in the said property which was further corroborated by the trial balance as on 28th Feb., 1991 showing an additional investment of Rs. 5,14,149 in the very same property. Thus, there was direct nexus or live link not only in the material coming to the possession of the AO and the reasons recorded for entertaining the belief about the escapement but such nexus or direct link was there even between the relevant seized documents corroborating the fact of investments as is evident from the reasons recorded by the AO in this regard. Moreover, the reasons record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his observations that towards the end of the trial balance, the opening cash balance had been clearly given separately. According to the AO, the said code letter "C" in all probability meant commission received by the assessee and other persons belonging to Jain group and this opinion of the AO again was based on the entries appearing in the relevant seized material which had been treated as Hawala transactions for which the assessee and his brothers ought to have received certain commission which was not separately appearing anywhere in the seized documents. Whether this opinion of the AO was correct or not on merits is not the matter of consideration here, but expression of such opinion by the AO, which was different from the one contained in Addl. DIT's appraisal report and was based on the scrutiny and analysis of the relevant seized documents, clearly shows that the AO had applied his mind independently to the material coming to his possession and on such application, he had recorded reasons for entertaining the belief about the escapement of assessee's income from assessment. 83. The relevant seized documents coming to the possession of the AO also revealed expenses incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articles like statues, slabs, etc. and were used for decoration of the assessee's farmhouse situated near Delhi. This action goes to establish that the belief entertained by the AO about the escapement of assessee's income was based on the material coming to his possession after assessment as well as the specific admission of the assessee before the DDIT in the letter dt. 31st May, 1995 as well as before the Settlement Commission in the settlement petition filed by him. 85. The seized material received by the AO from CBI through DDIT also contained a bill/notice issued by M/s Southend Furniture and Interior Decorators in the name of the assessee, evidencing investment made by him in the purchase of furniture amounting to Rs. 3,75,600 and the AO has recorded his reasons in respect of the said bill as follows: "The seized material contains an invoice seized during search on 3rd May, 1991 which is in the name of Shri S.K. Jain and mentions the purchase of furniture by Shri Jain for Rs. 3,75,600 from M/s Southend Furniture and Interior Decorators. Copies of account filed with the return for the asst. yr. 1986-87 does not reflect such withdrawals. Therefore, it has also to be assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of mind. 88. Before us, the learned counsel for the assessee has also challenged the validity of initiation of reassessment proceedings on the ground of AO's failure to quantify the income of the assessee alleged to have escaped assessment. However, as held by Hon'ble Gauhati High Court in the case of Dhanisram Agarwalla vs. CIT there is no such requirement in law to quantify the income escaping assessment at the stage of reopening and in any case, as pointed out on behalf of the Revenue, the AO having duly quantified the probable income escaping assessment as is evident from the annexure to the reasons recorded dt. 30th March, 1995, the contention raised by the learned counsel for the assessee in this regard is devoid of any merit and accordingly is liable to be rejected. The other contention of the assessee, that the assessee was implicated with the relevant seized diary only on the basis of statement of Mr. J.K. Jain is also unfounded and is contrary to record inasmuch as there was enough material/information available with the AO besides the said statement to establish the nexus of the assessee with the said diary as already discussed. Similarly, his assertion before us that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment is bad in law and void ab initio for the reason that the assessment order was passed by the AO without independent application of mind; Ground No. 10: That the CIT(A) erred on facts and in law in not holding that the impugned assessment is bad in law for the reason that the assessment was monitored/completed at the dictates/directions/instructions of the higher/other authorities, who had no jurisdiction in the matter." 91. The facts necessary for adjudication of these grounds of appeal are as follows. The entire sequence of events commencing from the reopening of the assessment to the conclusion of the assessment proceedings needs to be looked into. We may mention here that we will make a frequent reference to the name of one Mr. D.C. Agarwal, who is the Addl. Director of Income-tax (Investigation), New Delhi. A reference to the record of proceedings before the AO is also inevitable. The sequence of events is supported by the record of proceedings in the assessment before the AO. In appreciating the rival contentions regarding these grounds of appeal, it is also necessary to take note of two aspects viz., (a) there was settlement petition filed before the Settlement C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO records the fact that he had proceeded to New Delhi as per telephone message received from D.C. Agarwal, to take possession of the seized material and discuss the case with higher authorities viz., DIT/DGIT, Delhi. Between 6th June, 1995 and 8th Jan., 1996, there has been no progress in the proceedings before the AO at Bhilai. 93. There were however some developments that took place in New Delhi, regarding the case pertaining to the assessee. (a) The DDIT (Inv.) had issued summons to the assessee under s. 131(1) of the Act. The assessee however sought protection (under Art. 20(3) of the Constitution of India) from interrogation on the ground that any statement made by him would tend to incriminate him in the pending criminal proceedings arising out of the seizure of the diaries vide his letter filed on 9th April, 1995. (b) The DDIT (Inv.) New Delhi, examined Smt. Rachana Jain (member of the family of the assessee) on 20th April, 1995, Shri Pawan Jain on 21st April, 1995, Mr. K.N. Dutta (an employee of BECO) on 24th April, 1995, Mr. Daniel P. Ramball (an employee of BECO) on 25th April, 1995, Mr. Mukul Jain and Mr. P. Ghosal (employees of BECO) on 26th April, 1995, Mr. D.K. G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material and also discussed the case with higher authorities. This is evident as already stated from the record of the proceedings before the AO. On 8th Jan., 1995 the AO issued notice under ss. 142(1) and 143(2) of the Act along with a questionnaire dt. 20th Dec., 1995 and forwarded the same to D.C. Agarwal at Delhi for service on the assessee at his Delhi address. There is a reference in the record of proceedings of the AO that the same is being forwarded as discussed with him at Delhi during the AO's visit to Delhi. There are some reference to communication between AO and Mr. Agarwal between 17th Jan., 1996 to 30th Jan., 1995 (sic-1996). These communications are not very material but these references in the record of proceedings would go to show that Mr. Agarwal was kept informed about the progress of the case at every material point of time. We will only refer to some of the important record of proceedings. On 15th Feb., 1996, the AO recorded the fact that Mr. Agarwal had informed him that the case is to be proceeded with and assessment is to be framed as early as possible. The assessee had filed before the AO dt. 5th Feb., 1996, a reply in the assessment proceedings and this i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 5th Feb., 1996 along with acknowledgement slip which has been duly sealed and signed. 28th Feb., 1996: Shri H.L. Vaddadi, ITI informed that the sealed envelope containing the above has been delivered to HPO for sending it to Addl. DIT, Shri Agarwal, by speed post vide Ack. No. 5358 dt. 28th Feb., 1996 which is placed on record. 29th Feb., 1996: Shri D.C. Agarwal, Addl. DIT, informed that he had not received the above till 6.00 p.m., who was informed by the undersigned that the delivery of the dak could be effected only by tomorrow by 12 noon. He desired to have a set of the contents of the envelope to be sent by fax which has been so transmitted to him. 1st March, 1996: Tried to contact Shri D.C. Agarwal on his telephone No. 7527513 but there was no response. This was just done to have the confirmation of having received the sealed envelope as above. At about 4.30 p.m. the Hon'ble DG, Shri G.P. Garg had a telephonic talk with undersigned who wanted to know about the delivery of the above material and its mode, who has been informed of the facts narrated hereinabove. He instructed to get in touch with Shri D.C. Agarwal in this regard immediately, accordingly telephonically cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment orders, so that the assessment orders along with the demand notice, challan, etc. be served upon the assessee in the first week of April, 1996 as desired by the DG (Inv.), since the Hon'ble Supreme Court has posted the case for hearing on 9th April, 1996. It has been explained to him that in view of the other time barring assessments pending in this range, it is very difficult for the undersigned to camp at Delhi from 25th as suggested by him. 22nd March, 1996: The Hon'ble CIT, Jabalpur, telephonically directed that I have to proceed to Delhi on 28th March, 1996, as he has received the message from higher authorities in Delhi and Bhopal to that effect. He further directed that I should report on 29th March, 1996 in the Investigation Directorate and carry out the work of drafting of assessment orders in the case of Shri S.K. Jain on holidays, i.e., 30th March, 1996, 31st March, 1996 and 1st April, 1996, which are required to be drafted with the guidance of DI, DG and Addl. DIT as they would approve the assessment orders to be framed. In this connection, the CIT, Jabalpur, also directed that there is no need of the undersigned in attending the proceedings before the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e records of the AO and the assessee has obtained a copy and filed it before us. According to the learned counsel for the assessee, in the draft assessment order there has been a reference to the enquiries conducted by the DDIT (Inv.) at New Delhi whereas in the fair order of assessment served on the parties there is no reference to such enquiries. This, according to the learned counsel for the assessee, is for the reason that the Revenue realised that the enquiries conducted by the DDIT (Inv.) were illegal and no credence or reliance could be placed on the same by the AO. 96. The learned counsel for the assessee made a detailed reference to the above sequence of events and submitted that the same established beyond doubt that the DDIT (Inv.) and other higher authorities continued to monitor the case and were giving instructions to the AO on the manner in which he was to conduct and complete the assessment proceedings. According to him, the DDIT (Inv.) continued to record statements of various persons and issued questionnaires/letters/summons to the assessee while the AO was a mere spectator to the whole proceedings. The record of proceedings according to him clearly reveals that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) Yeshwant Talkies vs. CIT (vii) CIT vs. T.R. Rajakumari (viii) Asstt. CIT vs. O.P. Gupta (ix) Jawahar Lal vs. Competent Authority (x) Rajputana Mining Agencies vs. ITO 98. The learned standing counsel in reply submitted that the apprehension/contention of the assessee that the assessment was completed by the AO without application of mind at the dictates and directions of the superior authorities is absolutely without any basis. According to him, whatever communication was addressed to the AO was to be appreciated in the light of the decision of the Hon'ble Supreme Court in the case of Vineet Narain & Ors. vs. Union of India & Anr. WP (Crl.) Nos. 340-343 of 1993. It was submitted by him that the Hon'ble Supreme Court in the aforesaid writ petition had observed that consequent to seizure of diaries from J.K. Jain by the CBI there were accusation against many persons who were bureaucrats and politicians and therefore, had directed that all Government agencies, entrusted with performing their duty should act in accordance with law irrespective of the position and status of that person and conduct and complete and investigate into every accusation, expeditiously. This order was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income of the assessee have been specifically conferred on the AO, which must be completed after independent application of mind, without being influenced by the instructions/directions of any other authority. The Courts have consistently held that proceedings concluded on the advice/instructions/direction of any other authority are illegal and void ab initio. We may at this stage refer to the commentaries of eminent author H.W.R. Wade, in his book Administrative Law (5th Edn.) p. 329 under the heading Retention of discretion by Administrative Authorities and sub-heading Surrender, Abdication, Dictation: "Closely akin to delegation, and scarcely distinguishable from it in some cases, is any arrangement by which a power conferred upon one authority is in substance exercised by another. The proper authority may share its power with someone else, or may allow someone else to dictate to it by declining to act without their consent or by submitting to their wishes or instructions. The effect then is that the discretion conferred by Parliament is exercised, at least in part, by the wrong authority, and the resulting decision is ultra vires and void. So strict are the Courts in apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lute discretion on the CWT. In exercise of the power the CWT must bring to bear an unbiased mind, consider impartially the objections raised by the aggrieved party, and decide the dispute according to procedure consistent with the principles of natural justice; he cannot permit his judgment to be influenced by matters not disclosed to the assessee, nor by dictation of another authority. Sec. 13 of the WT Act provides that all officers and other persons employed in the execution of this Act shall observe and follow the orders, instructions and directions of the Board. These instruction may control the exercise of the power of the officer of the Department in matters administrative but not quasi-judicial. The proviso to s. 13 is somewhat obscure in its import. It enacts that no orders, instructions or directions shall be given by the Board so as to interfere with the discretion of the AAC in the exercise of his appellate functions. It does not, however, imply that the Board may give any directions or instructions to the WTO or to the CWT in exercise of his quasi-judicial function." 102. Under the IT Act, 1961, the AO has the power to assess or reassess income of a person over whom h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing 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 under s. 148 of the Act. On issue of notice under s. 148 of the Act, the AO had assumed jurisdicti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Thereafter, the AO did not do anything till 20th Dec., 1995. In the meantime, the DDIT (Inv.), New Delhi issued summons to several persons viz., Rachna Jain, Sh. Pawan Jain, Pramod Jain, Veenu Jain, etc., (family members of the Jain brothers), K.N. Dutta, Daniel P. Ramball, Mukul Jain, P. Ghosal, D.K. Guha, H.P. Guha Ray, S.S. Sandhu (all are employees of Jain brothers). One significant fact to be noted in all these statements is that the same has been recorded not as one pertaining to the case of the assessee. We may mention here that the DDIT (Inv.), New Delhi, has powers to examine any person without there being any proceedings pending before him by virtue of the provisions of s. 131(1A) of the Act. But such examination can be only with regard to a contemplated action under s. 132 which is in loose expression referred to as "pre-search enquiries". We may also state here that the nature of enquiries clearly point out to the fact that the DDIT (Inv.), New Delhi, was conducting an enquiry with reference to the pending case of the assessee before the AO at Bhilai and there is nothing to indicate that the same was with regard to any pre-search enquiries. (c) On 20th Dec., 1995, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IPC. At the same time it was decided that the cases under income-tax and wealth-tax, particularly that of Shri S.K. Jain were required to be proceeded with vigorously in the light of Supreme Court's hearings which are taking place frequently. For this purpose, the AO was required to prepare the statutory notices along with detailed questionnaire under ss. 142(1) and 143(2) of the IT Act, 1961 and under s. 16(2) of WT Act, 1957, and after getting the same approved by the DIT/DG the same was required to be served upon Shri S.K. Jain in Delhi allowing him time of a fortnight. The spade work for preparation of notices was completed in the directorate itself where various issues involved and investigated into were incorporated in detail including the detailed reasons for establishing the fact that the figures noted in the diary and allied documents were in the code of 'lakhs'. The rough sketch of the questionnaire was gone through by the DIT(Inv.) who instructed that the questionnaire should be prepared separately for all the assessment years by recapitulating the facts and reasons as incorporated in the notices issued by the Addl. DIT (Inv.), Delhi to the concerned assessee. After re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent to DDIT (Inv.), New Delhi, informing the AO that the notices could not be served for want of approval by DIT and since the time fixed for enquiry was also short, the same needs to be updated extending the time to be allowed to assessee. We may mention here that there is no necessity for approval of the statutory notice by the DIT. As already observed, the AO was expected to act independently and his seeking advice at every stage of the proceedings from his higher authorities only shows that he did not act independently in framing the assessment. (e) Fresh notice of hearing fixing the case on 5th Feb., 1996 was sent to the assessee. On 5th Feb., 1996, the assessee appeared through his counsel and filed a letter raising several objections, pleading ignorance about the diary, seeking some documents and clarifications. (f) On 6th Feb., 1996, the AO forwarded the reply filed by the assessee to DDIT (Inv.), New Delhi who on the same day informed the AO telephonically that a suitable reply to be sent to assessee be prepared and sent to the higher authorities for perusal. The telephonic message is further to the effect that the assessee should be given one more opportunity of being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to notices issued under income-tax and wealth-tax Acts-Reg.- In connection with the telephone talk I had with you yesterday the 9th March, 1996 on the captioned matter and as desired by you I am forwarding the copies of the assessee's reply filed by him on 8th March, 1996 in response to this office letter F. No. DCIT (Assmt.)/BHI/S-777/1995-96 dt. 27th Feb., 1996. 2. As usual, I am forwarding the sample of the copies of reply for asst. yr. 1992-93 for income-tax and for asst. yr. 1991-92 under the wealth-tax, since the remaining replies are exactly on the same lines. The assessee has filed in each case two letters one dt. 7th of March, 1996 and another dt. 8th of March, 1996. The contents of which are basically similar in nature except some changes here and there. The letter dt. 7th March, 1996 mentions the assessee's viewpoint in generality and appears to have been prepared in haste just to seek the adjournment of the case. The letter dt. 8th March, 1996 brings out some specific legal objections based on the authorities cited therein. In this letter, following three points have been made out for seeking the adjournment of one month's time: That the assessee be supplied with or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lhi on 28th March, 1996 for completing the assessments. The instruction by the CIT, Jabalpur, is further to the effect that the AO should report before the Directorate of Investigation on 29th March, 1996 and carry out the work of drafting of assessment orders in the case of the assessee with the guidance of the DI, DG and Addl. DIT and they would approve the assessment orders to be framed. (j) On 25th March, 1996, the assessee had again written a letter to the AO pleading for opportunity of hearing. The AO in turn informed the DDIT (Inv.), New Delhi about the request for adjournment. The DDIT (Inv.), New Delhi in turn informed the AO to send a reply to the assessee but however proceed with the work of framing the assessment. The AO had sent a reply as suggested by the DDIT (Inv.), New Delhi, refusing adjournment. (k) The AO proceeded to Delhi for framing the assessment order as per directions of the DI, DG, New Delhi. (l) On 16th April, 1996, the AO passed the order of assessment. 105. It is clear from the above sequence of events that the AO at no point of time acted independently. In fact it was the DDIT (Inv.), New Delhi, who was monitoring the proceedings from New Delhi an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt proceedings at the direction and dictates of his superior. This is clear from his letter dt. 10th March, 1996 wherein he expressed his opinion that on the basis of the assessee's letter dt. 8th March, 1996 in the assessment proceedings he was of the opinion that one month's time should be allowed to the assessee. The AO however concluded the proceedings on 25th March, 1996 at the dictates of his superior. This is clear from the telephonic message received by the AO from the CIT, Jabalpur asking the AO to proceed to New Delhi for framing the order of the assessment. 106. The learned standing counsel vehemently contended that there was independent application of mind by the AO before framing the order of assessment. He placed strong reliance on the order of the Hon'ble Supreme Court dt. 30th Jan., 1996 in the case of Vineet Narain & Ors. vs. Union of India & Anr. wherein the Hon'ble Supreme Court had directed Government agencies to fairly, properly and fully investigate into every accusation against every person and take the logical final action in accordance with law. According to him the DDIT (Inv.), New Delhi and higher authorities were merely monitoring the proceedings and at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the facts and in the circumstances of the case, the reopening of assessment for the asst. yr. 1988-89 without obtaining the sanction of the CIT is bad in law and void ab initio." 109. The additional ground sought to be raised being a legal ground is permitted to be raised and taken up for adjudication. Prior to amendment of s. 151 w.e.f. 1st April, 1989, the section stood as follows: "(1) No notice shall be issued under s. 148 after the expiry of eight years from the end of the relevant assessment year, unless the Board is satisfied on the reasons recorded by the AO that it is a fit case for the issue of such notice. (2) No notice shall be issued under s. 148 after the expiry of four years from the end of the relevant assessment year, unless the Chief CIT or CIT is satisfied on the reasons recorded by the AO that it is a fit case for the issue of such notice." After its amendment w.e.f. 1st April, 1989, s. 151 reads as follows: 151 Sanction for issue of notice. (1) In a case where an assessment under sub-s. (3) of s. 143 or s. 147 has been made for the relevant assessment year, no notice shall be issued under s. 148 by an AO, who is below the rank of Asstt. CIT, a or Dy. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it may be pointed out that so far as the asst. yr. 1988-89 is concerned, the old provisions shall be applicable. In the case of K.M. Sharma vs. ITO (2002) 174 CTR (SC) 210 : (2002) 254 ITR 772 (SC), the Hon'ble Supreme Court of India while considering the amendment made to sub-s. (1) of s. 150 of IT Act, 1961, which became effective from 1st April, 1989, has held that the amended provisions shall be applicable prospectively. According to the Hon'ble Supreme Court of India, the provisions of fiscal statute, more particularly one regulating the period of limitation, must receive a strict construction. The relevant observations of the Hon'ble Court are being reproduced below: "On a proper construction of the provisions of s. 150(1) and the effect of its operation from 1st April, 1989, we are clearly of the opinion that the provisions cannot be given retrospective effect prior to 1st April, 1989, for assessments which have already become final due to the bar of limitation prior to 1st April, 1989. The taxing provision imposing a liability is governed by the normal presumption that it is not retrospective and the settled principle of law is that the law to be applied is that which is i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not expired. The provisions of assessment are meant for determination of the correct liability of tax in accordance with law which should be on the basis of correct income and if there is any escapement, then the ITO has power to reopen the matter. The repealed section refers to the 'information' on the basis of which the reassessment proceedings could have been initiated. The information with regard to correct state of law by way of judgment of the apex Court is also an information on the basis of which the action could have been taken under the repealed section. Now, the ITO can reassess for any reason, therefore, the amended section cannot be considered to be affecting any right of the assessee. The circular, issued by the CBDT, though is having no binding effect on the Court, but the view which has been taken cannot be considered to be contrary to law. In the case of the assessee, the power could have been exercised under the repealed section as well as the amended section. The matter with regard to the applicability of the repealed section is merely an academic argument; however, in view of the fact that the power of reopening was existing in respect of escaped assessment pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and in law, in not holding that the impugned assessment is bad in law and void ab initio for the reason that the assessment was completed without giving reasonable opportunity of being heard to the appellant in violation of the principles of natural justice. 11. That the CIT(A) erred on facts and in law in not holding that the impugned assessment was vitiated in law for the reason that the assessment was based on suspicion, surmises and conjectures and was not based on any evidence or materials. 12. That the CIT(A) erred on facts and in law in not holding that the impugned assessment was vitiated in law since the AO had relied on ex parte statements recorded behind the back of the appellant without affording opportunity of cross-examination. 13. That the CIT(A) erred on facts and in law in not holding that the ex parte statements of deponents used against the appellant without affording opportunity of cross-examination, had to be excluded from consideration. 14. That the CIT(A) erred in holding that the opportunity of cross-examination was made available to the appellant insofar as the statement of Shri J.K. Jain was recorded in the presence of the counsel of the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st under ss. 234A/234B and 234C of the Act. Additional grounds: 2.1 That on the facts and in the circumstances of the case, the entire proceedings before the Dy. Director of IT (Inv.), New Delhi, are null and void. 2.2 That on the facts and in the circumstances of the case, the Dy. Director of IT (Inv.), New Delhi, erred in law in conducting proceedings in the instant case when the said officer had no jurisdiction in the matter. 2.3 That the Dy. Director of IT (Inv.), New Delhi, acted in excess of authority and beyond jurisdiction in handing over the material requisitioned from CBI to the AO beyond the period of 15 days stipulated under s. 132A(3) r/w s. 132(9A) of the Act. 2.4 That on the facts and in the circumstances of the case, the Dy. Director of IT (Inv.), New Delhi, erred in assuming jurisdiction to record the statements of witness under s. 131 of the Act. 2.5 That, on the facts and in the circumstances of the case, the statements of witness recorded results of enquiries conducted by the Dy. Director of IT (Inv.), New Delhi, who did not have valid jurisdiction in the matter, cannot be relied upon and have to be excluded from consideration. 116. Although elaborate sub ..... X X X X Extracts X X X X X X X X Extracts X X X X
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