9911796707
TMI Blog1979 (4) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... humal (3) Rs. 20,000 Laxmichand Jaiprakah (4) Rs. 65,000 Prahladrai Keshavlal (5) Rs. 55,000 Naraindas, D.K. (6) Rs. 20,000 Mohansingh Kanaiyalal (7) Rs. 20,000 Lalchand Ramchand In the profit and loss account for the year Ramnavami 2016, net interest expenditure of Rs. 7,256 was claimed as deduction, including interest of Rs. 1,966 paid to hundi bankers. In the course of the examination of the books of account during the original assessment proceedings, the ITO had asked for certain particulars and the assessee's nothings in its file indicate that its authorised representative submitted the following on 22nd Nov., 61 to the ITO as required: Copies of loan accounts Bank account and reconciliation account Hundi loans Quantity details of goods account Details of hundi loan accounts filed by the assessee were in respect of 17 bankers. 8 of these represented old balances, 2 of these were accounts squarred up during the year and 7 of these contained loans of the year as noted above. The Balance Sheet filed by the assessee firm was examined by the ITO and in token thereof there are several notings on the Balance Sheet and tick marks against several ite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nse thereto on 25th April, 69. The reassessment was completed by the ITO on 24th March, 73 on a total income of Rs. 1,76,752 under s. 143(3), r/w s. 147(a) of the Act. In the reassessment so made under s. 147(a), the ITO added to the income originally determined the peak of hundi loans as of 28th March, 60 in the amount of Rs. 1,40,000 as assessee's income from undisclosed sources and also the interest amount of Rs. 1,966 as interest claimed in respect of non-genuine loan creditors. The ITO had required the assessee firm to produce before him the hundi loan creditors but the assessee was not able to do so. The ITO thereupon held that the assessee firm had failed to discharge the onus of proving the credits appearing in its books and as such the peak loan credit was treated as assessee's income from undisclosed sources In the reassessment order so made on 24th March, 73, the ITO dwelt upon the reopening of the assessment in the following terms: "During the course of asst. for the subsequent asst. year it was found that secret profits in the garb of hundi loans were introduced by the assessee in the business. Since some of such lenders confessed before the Department that they m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he present appeal before the Tribunal, we are not concerned with the merits of the addition made in the re-assessment. The only question taken up before us is whether the reassessment was validly reopened under s. 147(a). 7. The learned counsel for the assessee firm submits that the assessee's case is fully covered by the ratio of the Supreme Court's decision in the case of Lakhmani Mewal Das(1). He submits that the reasons recorded by the ITO in this regard have no rational connection with the formation of his belief that, by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the year, income chargeable to tax had escaped assessment for the year. He points out in the original assessment that the ITO had looked into the hundi credit balances. He points out that in the reasons recorded, the ITO has not noted which of the several hundi bankers were namelenders, which party had made confession, in what terms confession had been made, whether the confession involved the assessee firm also and whether the confession related to any of the transactions of this year as found recorded in the assessee's books. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder dt. 15th Dec., 78 in the case of Premier Suppliers (P) Ltd.(2) 9. We are of the opinion that on the principles laid down by the Supreme Court in the case of Lakhmani Mewal Das(1) the action of the ITO in initiating reassessment proceeding under s. 147(a) r/w s. 148 of the IT Act, 1961, cannot be sustained in relation to the facts of the present case. Two conditions have to be satisfied before an ITO can acquire jurisdiction to issue notice under s. 148 for initiating reassessment proceedings under s. 147 (a) of the Act for any particular year: "(1) the ITO must have reason to believe that income chargeable to tax has escaped assessment, and (2) he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly material facts necessary for his assessment for that year." Both these conditions must co-exist in order to confer jurisdiction on the ITO under s. 148 r/w s. 147 (a). It is also imperative for the ITO to record his reasons for initiating proceedings as required under s. 148(2). The further requirement is that the CIT should also feel satisfied on the reason reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice of the IT authorities after the assessment has been completed. The provisions of the Act in this respect depart from the normal rule that there should be, subject to right of appeal and revision, finally about orders made in judicial and quasi-judicial proceedings. It is therefore, essential that before such action is taken the requirements of the law should be satisfied." As observed in 102 ITR 96 (Cal) whether there are materials which will justifiably lead to the formation of belief on the part of the ITO that income as escaped assessment due to the omission or failure on the part of the assessee to disclose fully and truly all material facts, must necessarily depend on the facts and circumstances of each particular case. 10. In the present case, two grounds are mentioned by the ITO in his reasons recorded on 21st March, 69 as submitted to the CIT for his satisfaction. The first one is that in the original assessment the Hundi and other loan credits were accepted without investigation. Now this does not seem to be wholly so. The ITO had called for particulars of loan accounts and hundi loans and these were submitted by the assessee to the ITO on 22nd Nov., 61. Details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d which borrowers had made disclosures and when and in what terms and whether they had implicated the name of the assessee-firm in their statements and whether any of the seven hundi bankers whose accounts appear in the assessee's books had made any confession. He has not stated whether the amounts involved in the assessee's case were the amounts referred to in the confessions and in the disclosures. He has not stated whether the period referred to in the confession and disclosures was the period coinciding with the assessee's previous year relevant to the present assessment year. In fact, in the reasons recorded by the ITO on 21st March, 69, he has stated nothing, he has not stated anything which can connect any of the transactions in question recorded in the assessee's books as hundi loans with any particular name lending by any particular party for any particular period. In the reassessment order made on 24th March, 73, after so intimating the reassessment proceedings in March, 1969, the ITO has made a general reference to the assessments made for the subsequent years in the assessee's case wherein it was said to have been found that secret profits in the garb of hundi loans we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom assessment because of its failure or omission to disclose fully and truly all material facts, is missing in this case, and in any event, in the words of the Supreme Court, the link, if, any, was too tenuous to provide a legally sound basis for reopening the assessment. Such material could not have, in our opinion, led to the formation of the belief that the income of the assessee-firm had escaped assessment because of its failure or omission to disclose fully and truly all material facts. 12. The condition precedent to the exercise of jurisdiction by the ITO for initiation of reassessment proceedings under s. 148 r/w s. 147(a) was, therefore, not satisfied in this case. We are, therefore, unable to uphold the order of the AAC. The reassessment made by the ITO is accordingly held as bad in law and is vacated. 13. On these facts, we are also of the opinion that the CIT had mechanically accorded permission under s. 151(2) of the Act and if the CIT had carefully considered the report of the ITO dt. 21st March, 69, he could not have come to the conclusion that this was a fit case for issuing a notice under s. 148 r/w s. 147(a). The notice issued under s. 148 was, therefore, in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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