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TMI Blog1992 (2) TMI 177X X X X Extracts X X X X X X X X Extracts X X X X ..... le to tax has escaped assessment in original order passed on 26-3-1987 determining the total loss at Rs. 49,380. The basis for coming to this conclusion is confessional statement given by Shri C.V. Jain, proprietor of M/s. Mahavir Trading Co. made before the Second ITO C-III Ward, Bombay on 1-10-1985 which has been communicated through letter dated 11-11-1985 by IAC C-III Range, Bombay. It is said that Shri C.V. Jain had confessed that the loans advanced by him were not genuine but are hawalas only to accommodate the borrower concerns to enable them to introduce their unaccounted income in their account books. The assessee had also obtained a loan of Rs. 70,000 from the said person which was claimed as a loan in original assessment and was accepted. As a direct consequence of the information received, the ITO recorded reasons in the order sheet dated 26-11-1985 which led him to believe that the income had escaped assessment on account of assessee's failure to disclose fully and truly all the material facts necessary for assessment. 3. The reasons recorded by the ITO are as follows : " PROCEEDINGS UNDER SECTION 147 OF THE IT ACT, 1961 : 1 ------------------------ 26-11-198 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o items mentioned above by relying on the statement given by the assessee at the time of survey and confessional statement given by Shri C.V. Shah. 4. On appeal, the CIT (Appeals) referred to the preliminary objections raised by the assessee for the issue of notice under section 148 in para 1 of his order. In para 2 of his order, he has narrated in chronological order the proceedings and the events up to the date of reassessment on 26-3-1987. In para 3 the gist of the counsel's arguments and objections raised before the Assessing Officer have been stated. In para 4, the CIT (Appeals) dealt with merits of the case. He gave a finding that in respect of the sole loan transaction with Shri C.V. Jain of Rs. 70,000 no adverse report was received from the counterpart at Bombay nor further details of hawala transactions were furnished by Shri C.V. Jain. On the other hand, the affidavit dated 13-3-1987 furnished by Shri C.V. Jain which was filed before the ITO on 26-3-1987 confirming that this loan was genuine, showed that the very basis or material for issuing 148 notice did not exist or survive. As regards other loans he found that they were fully investigated by the predecessor ITO and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT (Appeals) the first set of grounds related to validity of reassessment proceedings while another set of grounds related to merits of the case, the CIT (Appeals) actually decided only the first set of grounds relating to validity of reassessment and not the grounds relating to the merits of the case. 7. He referred us to the order of the Supreme Court in CIT v. VIP Industries Ltd. [S.L.P. Civil Nos. 3164-65 of 1991 dated 16-7-1991] on the Special Leave Petition filed by the department against the judgment of the Bombay High Court in the case of VIP Industries Ltd. v. IAC [1991] 187 ITR 639 wherein their Lordships have made observations to the effect that subsequent facts had come to the notice of the ITO which showed that the facts set out in the return might not be true, and therefore, the order of the Bombay High Court was set aside and the matter was remanded to the ITO for fresh adjudication. In other words, he stressed the fact that the confessional statement of Shri C.V. Jain showed that the assessee had not disclosed all material facts truly and fully. Referring to the observations of the CIT (Appeals) that Shri C.V. Jain had filed fresh affidavit accompanied by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. He finally reiterated the fact that the CIT (Appeals) has not cancelled reassessment on merits of the case and even if he had discussed the merits of the case he is not justified in cancelling the reassessment made by the ITO. 8. The learned counsel for the assessee, on the other hand, strongly supported the order of the CIT (Appeals). He made a positive statement on the bar that Shri C.V. Jain did not mention in his confessional statement that Rs. 70,000 advanced by him to the assessee was only a name-lending transaction. In this connection, he referred to the statement made by Shri C.V. Jain contained in page D-1 and 2. In particular, he referred to question No. 30 and answer thereto. Referring to para 4 of the CIT (Appeals)'s order, he pointed out that it was only this confessional statement that has been forwarded by the IAC Bombay in his confidential letter dated 11-11-1985. The fresh affidavit filed by Shri C.V. Jain and which was filed before the ITO on 26-3-1987 is contained in paper book at J-15. In para 9 of the said affidavit Shri C.V. Jain has stated that no confession had been made by him anywhere saying that the said loan of Rs. 70,000 advanced by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he duty of the assessee to being it to the notice of assessing authority and if there is omission to disclose the material facts then subject to other conditions the jurisdiction to reopen is attracted. 11. We have duly considered the submissions of the parties, paper compilation filed and the records.The grounds of appeal taken by the revenue impinge on the sole issue whether the reassessment made by the ITO on 26-3-1987 under section 143(3) read with section 147 is justified or not. For this purpose, it must be seen whether the condition precedent for initiating proceedings under section 147(a) are satisfied or not.The Supreme Court in the case of Lakhmani Mewal Das and in the case of Central-Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662 and also other High Courts have held that the ITO must have reason to believe that the income of the assessee had escaped assessment and he must have reason to believe that such escapement is by reason of omission or failure on the part of the assessee to disclose fully and truly all the material facts necessary for assessment. Both these conditions must co-exist to confer the jurisdiction on the ITO to reopen the assessment. The s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 30 and answers thereto are most relevant for consideration and therefore, they are reproduced as under : " Q. No. 29 : Whether the monies advanced by you are genuine transactions ? Ans : Some money transactions are not genuine. I have actually not advanced any money to some people, only I have given accommodation entries. Q. No. 30 : How many transactions are such that you have written only names actually no money is advanced to them ? Ans : I can tell about this after looking into my note book. I shall come on 3-10-1985 in your office and tell you about it. " 14. From the abovesaid statement the fact of this person carrying on finance business and his capacity to advance and the modus operandi of advances and receipts of loans and interest could be ascertained. From the reply given to question No. 29 it could be clearly seen that only "some money transactions are not genuine" and he has not advanced any money to "some people" but given accommodation. Therefore, there is exception to the rule of having advanced the finance to people in his financial business. It is only with reference to the specific question on how many transactions or hawalas or name lending, Shri C. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er loans. It appears that the ITO had gathered during the survey operation sufficient material regarding non-genuineness of the cash credits by relying on the statement of partner Shri De'souza especially in the answers given by him to question Nos. 5, 6 and 7 of the statement. In fact, this information has been revealed by the ITO in para 4(a) of his order in rebuttal of the various preliminary objections raised by the counsel for the assessee regarding validity of re-assessment under section 147(1). In other words, the ITO is said to have gathered sufficient material to enter the belief that even the rest of the cash credits, ecepting two were non-genuine and represented actually the concealed income of the assessee. Therefore, it is also necessary to consider the statement given by partner Shri De'souza on 30-10-1985. For the sake of appreciation the relevant portion of the statement is extracted hereunder : " Q. 5 : One of the parties mentioned above is one Shri Mahendra T. Shah of Bombay from whom you allegedly took a cash loan of Rs. 70,000 (Rupees seventy thousands) on 2-6-1981. Please state in detail as to how you know this party, the nature and style of his business and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment shows that the identity of Shri C.V. Jain, proprietor of M/s. Mahavir Co. is established and the assessee knows that person through a common friend Shri Muktibhai Shah. The assessee also clarified the discrepancy in the date of borrowing of Rs. 70,000 from the said Shri C.V. Jain by saying that it was actually borrowed on 8-5-1981, but entered in the cash book on 2-6-1981, vide clarification given in clause (e) of reply to question No. 11. In regard to other loans, reply to question No. 7 shows that the loans were personally received by the partner at the place of Shri Muktibhai Shah and personally brought by him from Bombay to Nasik. In this connection, it is very much relevant to refer back to the record relating to original assessment. In his report dated 2-11-1984, the Income-tax Inspector has stated that the said Shri Muktibhai M. Shah through whom the loans were arranged had confirmed that he had arranged loans for the assessee from 10 parties including M/s. Mahavir Co. The said Shri Muktibhai Shah has given a statement on 30-10-1984 confirming the statement of the Income-tax Inspector. He has also stated that he himself had advanced Rs. 80,000 on 8-5-1981 and Rs. 45 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted and brought to you from Bombay to Nasik. (d) No brokerage has been paid on any of the allegedly seven parties including Rs. 70,000 of Shri Mahendra T. Shah of Mahavir Co. (e) There are serious discrepancies in the name and date recorded in respect of alleged borrowing of Rs. 70,000 from Shri Mahendra T. Shah of Mahavir Co. on 2-6-1981 as stated in detail in question No. 6 above. Ans : I strongly deny that any of the loan from seven parties is not genuine. In fact the genuineness of each of the loan from the seven parties stated in question No. 2 is proved as genuine from the following facts : (a) Confirmation letter from each of the seven parties are available with us and specially confirmation letter of Mahavir Co. is tendered to you herewith. (b) The interest payment on each of the seven borrowings is paid by account-payee draft and tax has been deducted from each of the interest payments. (c) Inspector of department verified by test check last year by visiting Bombay and having recorded statement of Shri Muktibhai Shah, who confirmed that he has arranged for cash loan. (d) All these loans have been repaid by a/c payee cheques drawn on Central Bank, Crawfo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid to the Government. In the original proceedings, the Income-tax Inspector has recorded statement from Shri Muktibhai Shah who confirmed the arrangement of loans and parties were repaid loans by way of account payee cheques. It is pertinent to point out that the statement recorded at the time of survey pertained to 7 parties, namely, Shri Nakoda Enterprises, Shri Mahendra T. Shah alias S.V. Jain alias Chelraj Vanaji Jain, Shri Vasant C. Shah, Shri Kantilal S. Shah, K. Jayendra Co., J.V. Corporation and Bhurmal Chanaji Jain, amounting to Rs. 4,55,000 on 2-6-1981. At this juncture, it is necessary to point out that the ITO has also assessed as non-genuine cash credits other loans taken on 4-5-1981 and 8-5-1981. In respect of loans taken on these two dates, there is no material evidence brought on record to show that these were not genuine loans but represented escaped income of the assessee. 19. On the other hand, a perusal of the record shows that even at the time of original assessment, the ITO deputed his Inspector to conduct the enquiry and verification of these loan transactions. It is seen from the Inspector's report dated 2-11-1984 that he visited Bombay on 29-10-1984 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the originals for confirmation and the assessee was directed to file the same in the office and, accordingly, they were filed in the office. It is stated that these affidavits were filed in accordance with the directions given by the ITO but in spite of that it is mentioned that the ITO informed the assessee that he would not consider the same. These affidavits are contained in page J-1 to 32 of the paper book compilation. 22. A perusal of the affidavits show that Shri Hemant S. Shah advanced loan of Rs. 70,000 on 8-5-1981 and Rs. 90,000 on 2-6-1981 from out of cash balance reflected in the cash book pages 182 to 207, respectively, and he has been assessed to tax and he received the repayment on 2-8-1985 by way of account payee cheque. In similar manner, Shri Kantilal Shah advanced loan of Rs. 70,000 on 2-6-1981, Shri Jyendrakumar Sonmal Shah advanced Rs. 80,000 on 8-5-1981 and Rs. 65,000 on 2-6-1981 and Shri Chelraj Vanaji Jain in respect of whom all the loan transactions were treated as non-genuine by the ITO, confirmed that he has advanced Rs. 70,000 on 8-5-1981 and received repayment of Rs. 72,727 by way of account payee cheque on 12-8-1985 and in para 9 of the affidavit h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ready taken by his predecessor regarding the other loan transactions. In spite of the efforts taken by the assessee to trace out the correct addresses of the parties on whom summons by the ITO could not be served and furnishing the correct addresses and securing fresh affidavits from 9 parties and producing them before him on 26-3-1987 the ITO refused to look into them or consider the evidence before passing the order on 26-3-1987. Nothing could have prevented the ITO from looking into those fresh affidavits and passing an order rejecting them for some reason or the other. Simply by ignoring the affidavits produced in person before him on 26-3-1987 the ITO has shirked his responsibility to consider the evidence produced by the ITO though all along he has been harping on the fact that the assessee has not produced evidence regarding the genuineness of the loans. 24. It is needless to point out that the very case viz. Shankar Industries v. CIT [1978] 114 ITR 689 (Cal.) on the basis of which the ITO has devised the format contained in annexure 'B' to the assessment order to establish the identity, the capacity and the genuineness of the transactions lays down the principle that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieve escapement of income, re-assessment becomes invalid in law as it cuts at the root of the reassessment. Therefore, there is no merit in the contention of the learned departmental representative that the CIT (Appeals) has not appreciated the evidence or not dealt with the grounds relating to merits of the case. Therefore, it could be inferred that in the order the CIT (Appeals) has dealt with both grounds relating to jurisdiction under section 147 as well as merits of the case vide paras 4 and 5 of the appellate order. It is not as though the department has got a case on merits of the case which was declined to be considered by the CIT (Appeals). On the other hand, the order of the CIT (Appeals) shows that he has considered all the material evidence on record while passing the order. The order of the Supreme Court on the Special Leave Petition filed against the judgment of the Bombay High Court in the case of VIP Industries Ltd. would be applicable only when true facts crop up subsequent to original assessment which was made by accepting the material facts disclosed by the assessee. In other words, truth is a complete defence not only against the defamation but also against chal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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