Income Tax Appellate Tribunal - Jaipur
R.N. Ghiya vs Assistant Commissioner Of Income-Tax on 28 February, 1995
Equivalent citations: [1995]54ITD269(JP)
ORDER
M.A.A. Khan, Judicial Member
1. These seven appeals pertaining to assessment years 1980-81 to 1985-86 and 1987-88 involve almost common issues on same or similar facts. These are, therefore, disposed of by this common order.
2. Late Shri Rang Narain Ghiya, the deceased assessee, was an individual deriving business income from Photo Service and allied activities including brokerage. He died on 16-12-1987 at the age of 38 years in a road accident, leaving behind him his widow Smt. Geeta Ghiya and three minor children as his heirs and legal representatives.
3. Subsequent to the death of the assessee, a search under Section 132 of the I.T. Act, 1961 ('the Act') was carried on at the ancestral house No. 1019, Ratanion ka Rasta, Jaipur wherein the deceased used to reside along with the members of his family and other co-parceners and also his mother Smt. Manphool Devi. In the course of such search proceedings, certain incriminating documents consisting of loose papers, note books, etc., were found and seized. A study of the seized material allegedly disclosed that the deceased assessee had been carrying on various business activities undertaking foreign tours, making huge investments in movable and immovable properties since long and was actively engaged in the purchases and sales of works of arts and other antiques. Punchnamas, seizure memos and year-wise scrutiny reports were accordingly prepared. Photostat copies of all the relevant seized material were allegedly forwarded to the major legal heir of the deceased and she was required to explain the various income earning activities of the deceased assessee and investments made by him over the years. After obtaining permission under Section 151 (2) of the Act from Dy. CIT , Jaipur Range-I, Jaipur and recording reasons therefor, assessments for the years under consideration were reopened under Section 147 by issuing notices under Section 148 to the LRs. In response thereto, returns for Assessment years 1980-81, 1981-82 and 1982-83 were filed on 9-4-1991 declaring incomes at Rs. 9,300, 14,500 and Rs. 12,500 respectively. The return for 1987-88 was filed on 27-9-1991 at Rs. 15,000. Objections against legality of search proceedings, probative value of the seized material against the deceased, validity of the notice issued under Section 148, justification of proceedings taken under Section 147 and additions proposed to be made on the basis of the seized material were taken. After having considered such objections and having given opportunity to the legal representatives of the deceased assessee, the Assessing Officer made certain additions to the returned incomes and assessed the deceased assessee at incomes higher than those returned for various years. In appeals the ld. CIT (A) rejected the legal objections, as raised by the assessee's representatives before him, set aside certain issues and reduced certain additions. Aggrieved against the relevant orders of the ld. CIT (A), the assessee is now before us, in second appeals.
4. In each of the appeals, as many as 10 to 12 grounds worded almost in common language have been raised. We heard the ld. counsels for the parties at length on all these grounds and our discussion to follow shall include our findings and decisions on all such grounds in the present appeals.
5. A synthesis of the various grounds in all the appeals discloses assessee's grievances relating to the following points, viz--
(1) Legality of the search proceedings and probative value of the material seized in such proceedings against the deceased assessee (common to all):
It was vehemently urged by Mr. N.M. Ranka, the ld. counsel for the assessee that the search conducted and seizure of certain documents made in the course of such search were illegal for the reason that no authorisation in the name of the deceased assessee was ever obtained and the seizure of the alleged incriminating documents was not made from the possession of the deceased assessee and/or his legal representative. It was submitted that the residential premises, which were subjected to search, were owned by the HUF comprising of members other than the deceased assessee and/or his legal representatives also and the documents were not seized from the possession of the deceased and, therefore, no presumption under Section 132(4A) regarding their use against the deceased assessee can be made.
6. The ld. Departmental representative, however, contended that the search conducted and seizure of incriminating documents made were quite legal and the material seized, if found relevant and material in the assessment on the assessee, can be used against him in assessment proceedings without raising any presumption under Section 132(4A) of the Act. The ld. Departmental representative further submitted that such on objection cannot be considered in these proceedings.
7. At the very outset, we would like to observe that the relevancy and admissibility of a piece of evidence, which is sought to be used against an assessee at the assessment proceedings may well be questioned by him in such proceedings. The right of the assessee to question the relevancy and admissibility of such evidence extends to the source and mode of acquisition of such evidence. We, therefore, overrule the objection of the ld. Departmental representative in that behalf.
8. The presumption created under Section 132(4A) in respect of the books of account, other documents, money, bullion, other valuable articles or things etc. found in the possession or control of any person in the course of a search is limited in scope and is restricted to the summary proceedings under Section 132 of the Act. Such presumption does not extend to the proceedings of regular assessment in the case of an assessee. But that legal position does not create any bar to the right of revenue to use such documents, books etc. seized in the course of search, against the assessee at the assessment proceedings. Search proceedings are neither pre-requisite proceedings nor a part of the process of the assessment. Assessment proceedings are quite independent of search proceedings. Search proceedings may take place either before or after assessment proceedings and can have relevance to the assessment proceedings only if some incriminating evidence affecting the assessability of income of the assessee is found and seized in search proceedings. An evidence found and seized in search proceedings and having relevance to the assessability of assessee's income may be used against him at the relevant assessment proceedings like any other piece of evidence without raising any sort of presumption. The relevance and probative value of such evidence shall be examined and judged in the assessment proceedings like any other piece of evidence collected and sought to be used arid relied upon against the assessee at such proceedings. The only requirement of law in that behalf is that the same must be put to the assessee and he should be given a proper opportunity to explain and rebut such evidence. His right would then extend not only to the relevancy and admissibility of such evidence against him but also to the legality, regularity and validity of the source and mode of acquisition of such evidence. For, evidence collected by illegal means like exercising coercion, undue influence, illegal and forced admissions or confessions is not considered to be good evidence for fastening a pecuniary or penal liability upon a person. The source and mode of acquisition of such incriminating evidence may give rise to some presumption against the assessee but such presumption would not arise under Section 132(4A) but under some provisions of other laws like Indian Evidence Act, e.g., Section 110 of that Act. When a presumption can be so raised under the provisions of other law and the application of the provisions of such other law is not expressly prohibited by any statute including the statute under which the assessee is being proceeded against, such presumption cannot be termed as having been raised under Section 132(4A) and hence to permissible at law. The evidentiary value of the incriminating evidence found and seized in the course of search proceedings shall then be examined and judged not with reference to the provisions of Section 132(4A) of the Act but to other provisions in the allied law which are applicable to the proceedings under the Act. We, therefore, hold that the incriminating evidence, which was found and seized in the course of search can be used against the deceased assessee without any reference to the provisions contained in Section 132(4A) of the Act provided such evidence is found to be relevant and material for the assessment of the assessee and the same has been put to him before their use against him at his assessments).
9. The legality of the search conducted and the evidentiary value of the material found and seized in the search in this case has been challenged on the ground that neither the house was owned by the deceased nor the documents found and seized in such search were written and signed by him and came from his possession. The ld. Departmental representative has objected to the acceptance of such proposition with the contention that if such a proposition is accepted then the concealed income and/or wealth of a deceased assessee can never be subjected to tax. The ld. Departmental representative urged and to our minds very rightly that for a valid search it is not at all necessary that it should be conducted only in a building which is owned by the assessee and in his presence. Similarly, it would be no good proposition of law that, urged the ld. Departmental representative, only that documentary evidence which has been made and signed by a person can be used against him. The ld. Departmental representative submitted that confessional statement of a person was one of the species of admissions. Liability, pecuniary or penal, may be fastened on a person on the basis of all such evidence whether oral or documentary, which is relevant and material to the liability, incriminates the person concerned and comes from a lawful source.
10. Section 132 of the Act confers dangerously wide powers of search and seizure on the income-tax authorities, without any external check or safeguard for the citizen. The exercise of such powers make a serious invasion upon the rights, privacy and freedom of the taxpayer. It is, therefore, necessary that such power must be exercised with restraint and strictly in accordance with the law and for the purpose for which the law authorises it to be exercised. If the action of the officer issuing the authorisation or of the designated officer is challenged, the officer concerned is required to satisfy the court about the regularity of his action. If the action is maliciously taken or power of search and seizure is exercised for a collateral purpose it is liable to be struck down by the courts. If the conditions for exercise of the powers are not satisfied the proceeding is liable to be quashed. If the action taken under Section 132 is found to be mala fide or arbitrary, or does not comply with the statutory requirements, it would be illegal and the court would interfere. The section does not permit a sweeping search or seizure of documents or things irrespective of their relevancy and usefulness for some 'proceedings under the Act. The issue of a search warrant under this section is not a judicial or quasi-judicial act and it is not necessary that the warrant of authorisation should specify the particulars of the account books or documents or that before effecting search and seizure under this section, the Deptt. should give to the person concerned a notice to produce the relevant books or documents. What is necessary for a valid search under this section is the presence of bona fide good faith and honesty of purpose in the act of the officer(s) issuing the authorisation and/or conducting the search. Where such power is exercised bona fide, in good faith and in furtherance of the statutory duties of the tax officer, any error of judgment on his part will not vitiate the exercise of the power.
11. The material obtained during a search and seizure, which may be illegally or irregularly conducted can nevertheless be utilised for the purpose of an ordinary assessment provided that it is relevant and material to such assessment and the person to be affected by the assessment has been given proper opportunity to explain such material and rebut it, if he so likes. What, therefore, is of utmost importance is the due safeguard of the right of the taxpayer to protect and defend himself from the consequences flowing from the use of seized material against him. It is necessary to do so in order to uphold the application of the principle of natural justice in the administration of tax justice. Once that is found to have been done in a given case, there would be no bar to the use of seized material, which is relevant and material to the assessment on a person against him at the ordinary or regular assessment proceedings.
12. For a valid search and seizure under Section 132 it is not at all necessary that the premises searched should be owned and possessed by the person concerned and/or he should be present at the time the search is conducted. Possession of the premises and/or the material found and seized may be relevant for raising a presumption under Section 132(4A) but that is not necessary for the very relevancy and usefulness of the materiala seized at the regular assessment proceedings. A document which incriminates a person may be found in possession of another person e.g. a pronote written and signed by a debtor and casting a pecuniary liability upon him would ordinarily and in the natural course of the things be found in possession of the creditor. Similarly, it is not necessary that pecuniary or penal liability can be fastened on a person on the basis of his admission or confession only. Confession is simply a specie of admission. No doubt that admission of a fact by a person is the best evidence against him. But that does not mean that statements of other persons, when such statements incriminate the person concerned, are not relevant to the liability of the person concerned and are inadmissible against him. The only requirement of law is that the incriminating material should be relevant and material to the issue and the source of such evidence should be reliable. It is not necessary that the document sought to be relied upon in evidence against a person should be written and/or signed by him. Documents, written and signed by other persons, if incriminate the person concerned and are relevant and material to the fixation of determination of liability on the person concerned, may be tendered in evidence against such person concerned and acted upon for fixing or determining his liability. That is permissible under Section 34 of the Indian Evidence Act.
13. Now reverting to the facts in the instant case the authorisation could not have been issued in the name of the deceased as he had already died. The authorisation was issued in the name of his widow Smt. Geeta Devi and his mother, Smt. Manphool Devi, may be in their individual capacities and not necessarily in their representative capacities. That error of judgment, if it is considered so, would not vitiate the search proceedings. The premises which were subjected to search had been in possession of the deceased and still were in the possession of his widow and children, may be in their own rights but admittedly in their capacities of the heirs and legal representatives of the deceased also. The documents seized might not be written and /or signed by the deceased but they incriminated him as they reflected his income earning and income investing activities. Such material was, therefore, relevant to and material for making assessment of the income of the deceased in various years. Before their use against the assessee in the assessment proceedings, those were put to his L/Rs who was given proper opportunity to explain them and if possible to rebut them also. Such material could have thus been legally used and was rightly and lawfully used in evidence against the deceased assessee. We thus find no illegality or invalidity either in the conduct of the search or in reading the seized material in evidence against the assessee in the assessment proceedings against him. Therefore, grounds relating to this point in all appeals are dismissed.
14. (2) Validity of notice under Section 148 and the legality of the assessment proceedings based on such notices (Common to allyears):
The next objection of the assessee is that the notices issued under Section 148 were bad in law inasmuch as such notices were not issued to Smt. Geeta Devi in her representative capacity. It was further urged that the assessment proceedings based on such notices were also invalid for that reason.
15. On his part, the ld. Departmental representative has pointed out that the photostat copies of all the relevant seized material along with the year-wise scrutiny report were duly forwarded to Smt. Geeta Devi and she was specifically required to furnish necessary explanation with regard to various trading activities, investments made, income earned and expenditure incurred in different years by the deceased assessee, but no reply was submitted by her. Thereafter, after obtaining the permission under Section 151(2) from the Dy. CIT and recording the necessary reasons notices under Section 148 were issued to her in compliance of which she filed the returns. The ld. Departmental representative submitted that the steps taken and act done by the Assessing Officer in the direction of making assessments under Section 147/148 in the case of the deceased assessee for various years fulfilled all the necessary requirements for making such assessments. We find good force in the submissions of the ld. Departmental representative.
16. The material found and seized in the course of search prima facie disclosed that the deceased assessee had been earning taxable income during his lifetime but not offering such income for taxation. The Assessing Officer therefore, had reasons to believe that by reasons of the omission or failure on the part of the deceased assessee to make a return under Section 139 for the years under consideration to the Assessing Officer income chargeable to tax had escaped assessment. That apart, the Assessing Officer at least in consequence of the information in his possession through the seized material, had reasons to believe that the income of the deceased had escaped assessments for the years under consideration. In any case, the Assessing Officer had good reasons to act under Section 147 of the Act. Once he had reasons to so act the only requirement in law for such action was to record his reasons in writing and to serve on the assessee a notice containing all or any of the requirement which may be included in a notice under Section 139(2) of the Act. The Assessing Officer had done that the assessee had already died and the Departmental representative of the deceased had already been communicated the information coming to the possession of the ITO in consequence of which the intended action was proposed to be taken against the deceased assessee. No invalidity or irregularity was thus committed either in issuing the notices under Section 148 or undertaking the assessment proceedings under Section 147 of the Act.
17. The issue of a notice under Section 148 is a condition precedent to the validity of the assessment to be made under Section 147 of the Act. If no such notice is issued or if the notice issued is invalid or is not served in accordance with law, the assessment made would undoubtedly be bad. But it is not necessary that the notice under Section 148 calling for a return should also specify the item of income which has escaped assessment or the source of such income or indicate whether it is issued under Clause (a) or Clause (b) of Section 147. What is necessary for the ITO to do is to draw the attention of the assessee, by issue of such notice, to the case which he has to meet at the assessment proceedings. That had been sufficiently done by the Assessing Officer in the present cases and the assessee raised no such objection before the Assessing Officer. We find absolutely no grounds at all to declare either the notice under Section 148 as invalid or the proceedings under Section 147 as bad in law. Objections raised through various grounds in different years in that behalf are overruled and the relevant grounds dismissed.
18. (3) General objections against observations made by the CIT (A) in his orders (common to ally ears): The assessee has also raised certain general objections against the observations made by the ld. CIT (A) in his orders for different years. But no specific reference was made in the course of arguments before us tofohe allegedly offending observations. We do not find any observation of the ld. CIT (A) in any of his orders as irrelevant or offending to the assessee or his counsel. Grounds raised in that behalf in various years are therefore dismissed.
19. (4) Additions: (a) On a/c of Handicraft business (Common to all the years): On scrutiny and study of the seized material, the Assessing Officer came to the conclusion that the assessee was actively engaged in carrying on handicraft business and earning sufficient income from such activities. He further noted that the assessee had undertaken frequent foreign tours. Taking into account all such activities of the assessee, the Assessing Officer estimated his income from Handicraft business between Rs. 60,000 and Rs. 2,12,500 for the years under consideration. In appeals, however, the ld. CIT (A) noted that there was no satisfactory evidence to form the final and clear opinion that the assessee has been carrying on handicraft business of his own though there was evidence of his undertaking foreign tours. He, therefore, set aside the issues in the relevant point to the Assessing Officer with the direction to enquire into and know the purpose, source, extent of expenditure/investment in foreign tours undertaken by the assessee in various years and find out their relation with assessee's income earning activities from handicraft business.
20. Though the ld. counsel for the assessee urged that once the ld. CIT (A) had found no evidence on record to prove handicraft business which was alleged to have been carried on by the deceased assessee, he should not have set aside the issue to the Assessing Officer, yet we are of the opinion that since the ld. CIT (A) has not recorded his final verdict on the issue in the point, it would not be proper on our part to decide the issue either way finally. In this behalf we rely upon Rajasthan High Court decision in the case of Prem Agencies v. CIT [1988] 173 ITR 110 and dismiss the relevant grounds in all the appeals.
21.(b) On account of Photo Service Business (Common toalltheyears):Late Shri R.N. Ghiya, the deceased assessee, had admittedly been earning business income from running Ghiya Photo Service and also from brokerage. In compliance of the notices issued under Section 148, the widow of the deceased assessee returned her late husband's income from various sources without giving bifurcation, for various years but assessments were made at higher figures which were reduced to some extent in the appeals. The final position in this behalf comes to the following:
Particulars A. Y. 80-81 81-82 82-83 83-84 84-85 85-86 87-88 Rs. Rs. Rs. Rs. Rs. Rs. Rs. 1. Income returned 7,500 7,500 7,500 - - - - 2. Income estimated by AO 15,000 20,000 20,000 20,000 20,000 20,000 20,000 3. Income estimated by CIT (Appeals) 10,000 15,000 15,000 15,000 15,000 15,000 15,000
It was urged on behalf of the assessee that the estimate made of assessee's income from Photo service business was excessive. We, however, find that since no details of such income earning activities which the assessee had been admittedly carrying on during the years under consideration is forthcoming, the estimate made by the ld. CIT (A) is most proper and reasonable. We, therefore, approve of his estimation of such income of the assessee in various years and dismiss the relevant grounds.
22. (c) Other additions:
(1) AY 1980-81:
(i) Deposits in Bank Rs. 77,500 : The Assessing Officer made an addition of Rs. 77,500 on account of unexplained deposits in bank. In appeal, the ld. CIT (A) directed that only peak amount of Rs. 42,820 be added.
23. The contention of the assessee, as is gathered from study of the various written submissions made and placed on pp. 27 to 50 of the paper book seems to be that the various deposits made in the bank a/c by the deceased assessee related to the amounts received by him from his customers for purchase of handicraft articles on their behalf and thus those were in the nature of trading transactions concerning the commission earning activities of the deceased assessee. The ld. CIT (A) has no doubt rejected such contention but we find that he has already remitted the issue relating to the business activities of the assessee in handicraft items. In view of the repeatedly made contentions of the assessee, we deem it proper to set aside the issue relating to this addition to be considered and decided along with the issue regarding assessee's alleged business in handicraft items and the foreign tours undertaken by him. If these deposits are made in relation to those business activities then these be considered in estimating his income from that business. But if these are found to be having no relation with them then separate addition may be considered. Presently, the addition of Rs. 42,820 is deleted. We direct accordingly.
24. (ii) Investment in plot purchased Rs. 20,000: The Assessing Officer made an addition of Rs. 20,000 on account of purchase of a plot by the assessee for factory shed; the source of which could not be explained. In appeal, the ld. CIT (A) for good reasons recorded in his order, has set aside the issue in the point to the assessee. Since no final opinion has been recorded by the ld. CIT (A) on the point, we decline to decide the issue finally at our stage.
(2) AY 1981-82:
25. (i) Addition of Rs. 20,351: This addition was made under Section 69 of the Act on account of an unexplained receipt of Rs. 20,351 by the deceased assessee from one Shri Janki Das Mehta of Bikaner. The contention of the assessee was that this receipt related to deceased's activity of purchase of handicraft items for his customers in order to earn commission income. For reasons recorded in A.Y. 80-81 in respect of such activities we presently delete the addition and set aside the issue in the point to the Assessing Officer with the same directions as given in this behalf in A.Y. 80-81 above.
26. (3) A.Y. 82-83:
(i) Deposits in Bank a/c Rs. 75,000: Facts relating to this addition are quite identical to those regarding additiorfof Rs. 77,500 reduced to Rs. 42,820 by the ld. CIT (A) in appeal in A.Y. 80-81. For reasons recorded in that year in respect of similar additions, we presently delete this addition and remit the issue in the point to the Assessing Officer with the same directions as recorded in A.Y. 80-81 in that behalf.
27. (ii) Addition of Rs. 18,526: On the basis of the entries in page 14 of Annexure A-1, which evidenced advancement of Rs. 15,700 on interest @ 18% p.a. addition of Rs. 18,526 inclusive of interest was made. With reference to her answers to question No. 4 and question No. 23, Smt. Ghiy a explained that she had received certain ornaments in her marriage and some gold was pawned by the deceased assessee. The I.T. authorities found no substance in the contention. We also find no satisfactory corroborative evidence in that behalf. The addition made is, therefore, upheld.
28. (iii) Addition of Rs. 9501: Page 22 of Annexure A-1 reflected receipt of Rs. 9501 from one Shri Ujwal Kothari by the deceased. No satisfactory explanation could be offered by the assessee. The addition is, therefore, justified.
29. (4) A. Y. 83-84:
(i) Addition of Rs. 2826: This addition represents interest income from deposit of Rs. 15,700 discussed in A.Y. 82-83 above. Since the principal amount of Rs. 15,700 is not proved to have been received back, the inclusion of interest income in this year was justified.
30. (5) AT. 84-85:
(i) Addition of Rs. 2826: This addition represents interest on deposit of Rs. 15,700 aforesaid and is upheld for the reasons recorded in that behalf in A.Y. 83-84.
31. (6) A.Y. 85-86:
(i) Addition of Rs. 2826: This addition represents interest income from deposit of Rs. 15,700 discussed above and is hereby confirmed for reasons recorded in A.Y. 82-83.
(ii) Addition of Rs. 50,000 : Page 19 of Annexure A-l showed an advancement of Rs. 50,000 by the assessee to one Shri Sanjeev Kumar S/o Shri Heera Lal Saraff for purchase of building material. The advancement was corroborated by a receipt duly signed by the recipient. Since the assessee could not offer any reasonable explanation in respect to this advancement, the addition has rightly been made and is hereby confirmed.
32. (7) AY. 87-88:
(i) Addition of Rs. 18,000: Addition of Rs. 18,000 was made on account of rental income of Rs. 4500 p.m. from factory building at 22, Godown, Jaipur, allegedly owned by the deceased assessee. We find that it was on the basis of seized material that it was known that the assessee owned a factory building presently worth Rs. 15 to 20 lakhs. Answer to Q. No. 25 by Smt. Geeta Devi and the evidence of purchase of building material in earlier years supported the findings and conclusions of the income-tax authorities. The addition was well-merited and is hereby confirmed.
33. (ii) Addition of Rs. 50,000: On the basis of various documents seized in the course of search, it was gathered that the assessee had been making investments in acquiring stocks, deposits, valuables and incurring expenses on household. By taking into consideration the investment made in earlier years at Rs. 6,75,000 and comparing them with the investment of Rs. 7,24,000 reflected by the seized material, the balance investment of Rs. 50,000 was treated as assessee's income for the year under consideration. The ld. CIT (A), however, set aside the issue in this point to the Assessing Officer for further examination and decision afresh according to law and we do not feel inclined to interfere with that order. The ground is, therefore, dismissed.
34. (8) Charge of interest under Sections 139(8)/215 and 217: Though charge of interest under Sections 139(8) and 215/217 is consequential to the reliefs granted, yet we direct that the Assessing Officer shall consider the chargeability of such interest in these proceedings commenced on issue of notice under Section 148 with specific reference to amendment made by Taxation Laws (Amendment) Act, 1984 w.e.f. 1-4-1985, keeping in view of the binding decision of the Jurisdictional High Court in Golcha Properties (P.) Ltd. v. CIT [1988] 171 ITR 47 (Raj.).
35. In the result all the appeals are partly allowed for statistical purposes.