Income Tax Appellate Tribunal - Delhi
Acit, New Delhi vs Shri Prem Prakash, New Delhi on 6 March, 2026
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'F': NEW DELHI
BEFORE SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER
AND
SHRI SUDHIR KUMAR, JUDICIAL MEMBER
ITA No.5136 /Del./1998, A.Y. 1992-93
ACIT Vs Shri Prem Prakash
Circle 25(1), . B-I/43, Ashok Vihar
New Delhi Phase-II,
New Delhi
PAN: AADCC7557J
(Appellant) (Respondent)
Assessee by Shri Ajay Vohra, Sr. Advocate
Shri Rohit Jain, Advocate
Ms. Deepashree Rao, Advocate
Shri Tavish Verma, Adv.
Revenue by Ms. Monika Singh, CIT-DR
Date of Hearing 06/01/2026
Date of Pronouncement 06/03/2026
ORDER
PER S. PRIFAUR RAHMAN, AM
The Revenue has filed appeal against the order of the Learned Commissioner of Income Tax (Appeals)-I, New Delhi ["Ld. CIT(A)", for short] dated 23.07.1998 for the Assessment Year 1992-93. 1 ITA No.5136/Del/1998
2. The brief facts of the case are that the respondent-assessee is an individual who was, during the relevant assessment year 1992-93, a salaried employee of M/s Madan Mohan Lal Shri Ram Private Limited ("MMLSR"), a DCM Group company, where he held the position of Director. His declared income for AY 1992-93 was Rs. 1,13,000 from salary alone. The assessee's source of income was entirely salaried employment; he was not engaged in any self-employment or independent business activity. The assessment proceedings in this case have a distinct history marked by significant judicial intervention. On 12.09.1993, during preliminary investigations unrelated to the assessee's income-tax assessment, a sum of Rs. 50 lakhs were recovered from a vehicle in Hoshiarpur, Punjab, in a separate FERA matter. Investigations by the Enforcement Directorate followed, and the assessee was briefly detained under COFEPOSA.
3. On 30.03.1995, the Assessing Officer (AO) completed the original assessment under Section 143(3) of the Income-tax Act, 1961, making an ad- hoc addition of Rs. 40,00,000 to the assessee's declared income, primarily based on the claim that the recovered cash belonged to the assessee. The assessee appealed this order before the CIT(A). The Set-Aside Order (07.06.1995), Ld. CIT(A) set aside the original assessment order with the 2 ITA No.5136/Del/1998 observation that the AO had not afforded adequate opportunity to the assessee before imposing such a substantial addition. Ld CIT(A) directed the AO to make a fresh assessment after proper investigation and affording due opportunity.
4. Subsequently, fresh Search was conducted on 01.10.1993 at the residence of one Mr. Shyam Sunder Gupta, certain documents were seized. On 24.07.1997, the ADIT (Investigation Circle) informed the AO that documents allegedly belonging to the assessee (Annexures AAA-I and AAA-2) had been recovered during the search at M/s Shyam Garments. These were handwritten slips in the assessee's own handwriting, containing abbreviated entries for various parties, balances, and financial notations. Upon receipt of these documents, the AO conducted an investigation spanning several months, the AO:
a. Called for books of accounts of M/s MMLSR Ltd under Section 131 and confronted the authorized representative (AR) with the seized documents.
b. The AR of the company denied any knowledge of the transactions and stated that none of the entries appeared in the company's books.
c. Summoned the assessee and recorded his statement on oath, specifically confronting him with the entries in the slips.3 ITA No.5136/Del/1998
d. Offered the assessee opportunity to examine and tally entries in the seized documents against the company's books.
e. Posed specific queries regarding the nature and source of each transaction.
5. However, the assessee merely reiterated his earlier claim that these were rough office notes made in his capacity as Director of MMLSR Ltd, relating to company matters, and it was submitted that after a lapse of over four years, he could not remember their exact nature. He refused to examine the company books despite the opportunity. The AO observed that the AR's denial was absolute and unexplained by the assessee.
6. Based on the seized documents and the assessee's failure to provide satisfactory explanations, the AO deciphered the abbreviated entries and determined the assessee's undisclosed income to be Rs. 22,31,80,000 (comprising of Rs. 9,74,80,000/- from capital appreciation and Rs.
12,57,00,000/- from charity/donations), which was added to the declared income under Section 68 of the Income-tax Act.
7. Aggrieved with the above order, the assessee preferred an appeal before Ld CIT(A) and filed detailed submissions. After considering the same, the Ld CIT(A) deleted the entire addition of Rs. 22,31,80,000/- by observing as under: 4 ITA No.5136/Del/1998
1. Jurisdictional issue: The CIT(A) held that the AO had no jurisdiction to make an addition based on the seized documents because these documents had not been mentioned in the original assessment order, and CIT(A)'s set-aside order (of 07.06.1995) had not directed the AO to look into any new source of income. The CIT(A) invoked the principles laid down in Sardari Lal Co. v. CIT (251 ITR 864, Delhi HC Full Bench), which bars the CIT(A) from discovering new sources of income. By analogy, the CIT(A) extended this bar to the AO in the context of a set-aside assessment.
2. On Merits (Evidence Act Principle): The CIT(A) held that the loose handwritten slips could not be treated as "books of account" within the meaning of Section 68 of the Act. Relying on CBI v. V.C. Shukla (1998 I Crimes 219, SC), the CIT(A) concluded that loose papers have very little evidentiaiy value and cannot form the sole basis for assessing income. The CIT(A) held that the assessee had failed to produce any conclusive evidence establishing that the figures in these slips represented his personal taxable income.
3. Natural Justice issue: The CIT(A) observed that the AO had rejected the assessee's explanation without recording reasons, and the assessment had been completed hastily.
4. Other Considerations: The CIT(A) noted that the original proceedings had been initiated based on the FERA/COFEPOSA matters, which had since been quashed by higher authorities. The CIT(A) held that using adverse inferences from quashed proceedings to support the assessment was improper.5 ITA No.5136/Del/1998
8. Aggrieved with the above order, the revenue is in appeal before us and raised the following grounds:
1. The CIT(A) erred in deleting the addition despite the lack of any evidence from the assessee to prove the genuineness (or non-taxability) of the income.
2. The AO was fully justified in making the addition under Section 68 of the Act.
9. Before us, the revenue filed with additional grounds of appeal which are as under:
"1. The CIT (A) erred in holding that it was improper on the part of the A.O to rely on alleged slips of which there was no mention in the assessment order (set aside by the CIT (A) in the first round of appeal) and bring in a new source of income without appreciating that no such fetters are put on the powers of the A.O. when the assessment order has been set aside by the Ld. CIT(A) with the direction of making the assessment denovo with the only twin conditions of making proper investigation and after affording proper opportunities to the Assessee.
2. The Ld CIT (A) has erred in deleting the addition without pointing out as to how the twin conditions of proper investigation and affording of proper opportunities were not met by the A.O. while making the impugned addition of Rs.22.31.80.000/-.
3. The Ld CIT(A) has erred in not appreciating that the judgment of the Hon'ble Supreme Court of India in the case of CBI Vs. V. C. Shukla reported in 1998 I crimes 219(SC). relies upon by the Ld. CIT(A), which was concerning the applicability of provisions of Indian Evidence Act without appreciating the trite law that the evidence Act. does not apply to the proceedings under the IT Act."6 ITA No.5136/Del/1998
10. It is a fact on record that Revenue has filed the additional grounds after 19 years of filing appeal before ITAT. The ld. DR justified for filing additional ground by submitting as under:
"The additional grounds are admissible under section 254 and rule 11 as the additional grounds:
1. Challenge the CIT(A)'s legal reasoning on the scope of AO's powers in a de novo (set-aside) assessment, and
2. Challenge the legal correctness of reliance on V.C. Shukla / Evidence Act to delete the addition, and therefore:
- Are pure questions of law arising from the same facts and record already before the Tribunal.
- Do not require any further investigation of facts.
-Are necessary for a correct adjudication of the appeal, because the assessee has made the jurisdiction" point (Sardari Lal / Saheli) the central ground for supporting the CIT(A).
Accordingly, they fall squarely within the law laid down in National Thermal Power Co. Ltd. v. CIT, 229 ITR 383 (SC) and the consistent ITAT practice on admission of additional grounds by either party.
Legal framework for admission- ITAT's powers- Section 254(1) empowers the Tribunal to pass such orders as it thinks fit in appeals before it. This has been interpreted as wide, plenary powers to entertain 7 ITA No.5136/Del/1998 additional grounds which are purely legal and arise from the record. Rule l1 of the ITAT Rules permits the appellant to raise additional grounds at the time of hearing, subject to Tribunal's leave. Tribunal has jurisdiction to examine a question of law which arises from the facts on record, even though not raised earlier, so long as it does not require fresh investigation of facts. No fresh facts are needed; and they are necessary to correctly decide the subject-matter of the appeal. Given the assessee himself has filed a detailed legal synopsis on jurisdiction (Saheli Synthetics, Sardari Lal, etc.), these additional grounds are merely the other side of the same legal coin and are squarely within NTPC principle.
Nature of the additional grounds-All three are legal challenges to the CIT(A)'s reasoning, not new factual pleas, and can be decided on the existing record (CIT(A) order, set-aside order, assessment order, seized material already in paper-book.
Why ITAT should admit these grounds
1. Pure questions of law, no new facts - The facts relevant to these grounds are already on record:
- CIT(A)'s earlier set-aside order and its directions.
- Fresh assessment order and reasons recorded by AO.
- CIT(A)'s present order deleting addition on jurisdiction and Evidence Act grounds.
- Additional grounds only put in issue:8 ITA No.5136/Del/1998
- Correct interpretation of Section 251 / scope of de novo assessment, and
-Correctness of using Evidence Act / V.C. Shukla to reject seized documents in income-tax.
These are purely legal; no further enquiry is required
2. They arise directly from CIT(A)'s order and assessee's own defence: - CIT(A) has explicitly held that AO travelled beyond jurisdiction by considering seized slips as a "new source" in set-aside proceedings. Assessee's entire written synopsis before ITAT is built on this jurisdictional point (Saheli Synthetics, Sardari Lal, etc.). Therefore, whether: AO was legally barred from looking at seized slips in a de novo assessment, and CIT(A) was right in applying V.C. Shukla, is squarely in issue already. The additional grounds simply articulate the Revenue's legal challenge more precisely. These grounds are not new disputes, but "refined and particularized legal articulation" of an issue already embedded in the original grounds (viz. that AO was justified in making the addition and CIT(A) erred in deleting it).
3. Necessary to decide the real controversy-If these grounds are not admitted, the Tribunal will be forced to decide the appeal on a partial legal canvas, possibly leaving a serious jurisdictional argument (on both sides) unexamined.
- The "real controversy" now, after assessee's legal synopsis and case-law paper-book, is:
9ITA No.5136/Del/1998
- What is the correct scope of AO's powers in a de novo assessment after a set-aside under Section 251?
- Can seized material, received subsequently but before completion of de novo assessment, be used†
- Did CIT(A) err in importing strict rules of the Evidence Act / V.C. Shukla into income-tax assessment?
Tribunal's duty is to decide the substantial questions of law arising from the order of CIT(A); refusing to admit these grounds would artificially truncate that duty.
4. No prejudice to assessee: -
Assessee has already: Filed an elaborate legal synopsis on jurisdiction, Filed a fat paper-book of case law on Sardari Lal, Saheli Synthetics, Evidence Act, loose papers, etc. Thus, assessee is fully aware of these issues and has already taken a considered stand on them. There is no element of surprise; at most, the Tribunal may offer opportunity to file a short-written reply. No new factual investigation is sought, so no prejudice in evidence terms. Natural justice is fully preserved: assessee has had years to address these legal issues and admission of these grounds only ensures that both sides' legal contentions are framed before the Bench.
5. Delay in raising grounds is not fatal where issue is legal-
Additional grounds have been authorized by the Principal CIT vide order dated 09.08.2017 under section 253(2), in continuation of earlier authorisation. While there is a time gap from original filing, the Supreme Court in NTPC and several Tribunals have held that delay is not decisive 10 ITA No.5136/Del/1998 where: The ground is purely legal, arises on the face of record, and is essential for correct adjudication.
The issue of jurisdiction and Evidence Act came into sharp focus only after assessee's detailed legal synopsis and heavy reliance on Sardari Lal / Saheli / V.C. Shukla. To meet this legal attack, the Department has crystallised its response in the form of these additional grounds. Therefore, the timing is explained and bona fide.
6. 'Tribunal's practice of admitting additional legal grounds by Revenue, consistent with general ITAT practice (and several HC decisions), that: While NTPC concerned assessee's grounds, the principle is symmetrical; Revenue too can raise additional legal grounds if they satisfy the same tests. There is no statutory bar discriminating Revenue from assessee regarding additional grounds. Denying admission to the Revenue, when the assessee has been allowed to fully canvass new legal lines in support of CIT(A)'s order, would be asymmetrical and unfair. Without these grounds, Tribunal will decide only part of the legal controversy, risking an incomplete or one-sided decision. Admission will assist the Bench in correctly determining the scope of de novo assessment and applicability of Evidence Act principles. Prayed that, in view of NTPC and consistent ITAT practice, all three additional grounds be admitted, with liberty to both sides to address them in detail on merits. The assessee has built his entire defence on jurisdiction and V.C. Shukla / Evidence Act. These additional grounds merely crystallize the Department's legal response to that defence, there is no prejudice. 11 ITA No.5136/Del/1998
Therefore, in the interest of complete and correct adjudication of the appeal, the Revenue's additional grounds may kindly be admitted."
11. On the other hand, Ld. AR submitted as under:
"At the outset, the assessee strongly opposes the admission of the additional grounds sought to be raised by the Revenue. The attempt to introduce such grounds is a clear afterthought, made only after counsel for the assessee consistently demonstrated that the Revenue's appeal, as originally filed, suffers from a fatal jurisdictional infirmity and is liable to be dismissed as merely academic.
Accordingly, the additional grounds are wholly impermissible and deserve to be rejected outright for the following reasons:
(a) The additional grounds have been filed after an inordinate and unexplained delay of nearly 19 years from the filing of the original memorandum of appeal.
Importantly, absence of any such ground was expressly recorded by the Hon'ble Tribunal in the order sheet dated 20.05.2014 and on several subsequent occasions. Further, despite the exchange of detailed legal synopses between the parties in 2011, the Revenue consciously chose not to raise the present issue; and
(b) Even at this belated stage, the Revenue has failed to furnish 12 ITA No.5136/Del/1998 any explanation whatsoever for the extraordinary delay, rendering the application for admission of additional grounds liable to be rejected on this ground alone.
In these circumstances, the additional grounds filed by the Revenue are not maintainable in law and deserve to be dismissed at the threshold."
12. Considered the rival submissions on the issue of admissibility of additional ground. It is a fact on record that the Revenue has submitted additional grounds after expiry of 19 years from the date of filing the original appeal. We observed that the Revenue has raised issues relating to the interpretation of Section 251 of the Act, the scope of denovo assessment and issue of Evidence Act in relation to the evidence found during the search were raised. This being jurisdictional issue and also all the relevant facts already available on record, as held in the several cases, legal and jurisdictional issue can be raised any time during the pendency of the appeal, therefore, we do not see any reason to reject the same. Therefore, we proceeded to condone the delay in filing the additional grounds and also proceeded to adjudicate the same.
13. At the time of hearing, the Ld. DR submitted her submissions mainly on the three additional grounds of appeal as under:
13 ITA No.5136/Del/1998
1. Ground 1 (De Novo Assessment Scope): The CIT(A) erred in holding that it was improper for the AO to rely on slips not mentioned in the original assessment and assess a new source of income, without appreciating that when assessment is set aside with directions for "proper investigation" and "affording opportunity," no fetters are placed on the AO's powers to examine all available material.
2. Ground 2 (Twin Conditions Compliance): The CIT(A) erred in deleting the addition without demonstrating that the AO failed to comply with the "twin conditions" of proper investigation and affording opportunity.
3. Ground 3 (Evidence Act Applicability): The CIT(A) erred in applying V.C. Shukla (a criminal law judgment concerning Evidence Act applicability) to income-tax assessment proceedings, where the strict rules of the Evidence Act do not apply; instead, the standard is preponderance of probabilities.
I. ON THE SCOPE OF DE NOVO ASSESSMENT (ADDITIONAL GROUND 1):
A. The Statutory Framework :Section 251 of the Income-tax Act, 1961 provides that the CIT(A), on disposing of an appeal, may "set aside the assessment and refer the case back to the ITO for making a fresh assessment in accordance with the directions given by the AAC or, as the case may be, the CITA and after making such further inquiry as may be necessary. "The use of the phrase "such further inquiry as may be necessary" is deliberately broad. It does not confine the AO to the specific items mentioned in the original assessment; rather, it grants the AO the 14 ITA No.5136/Del/1998 power to conduct a comprehensive fresh investigation into the assessee's financial position. When an assessment is set aside "de novo" (meaning from scratch), the AO regains his original plenary powers to assess the entire income of the assessee on the basis of all available material that comes to light during the course of proper investigation.
B. Distinguishing Between the CIT(A)'s Power and the AO's Power in Set-Aside Proceedings The assessee has invoked Sardari Lal Co. v. CIT (251 ITR 864), a Delhi HC Full Bench decision which holds that the CIT(A) cannot discover and enhance assessment on the basis of a "new source of income" not considered by the original AO in the original assessment. However, this principle applies only to the CIT(A)'s appellate powers under Section 251(1)(a) (to enhance assessment), not to the AO's powers in set-aside proceedings under Section 251(1)(a) (to make fresh assessment de novo).
The distinction is critical:
1. CIT(A)'s Appellate Power (Enhancement): When the CIT(A) enhances an assessment (a quasi-appellate function), the CIT(A) must issue a show-
cause notice under Section 251(2) before doing so. This procedural safeguard exists because enhancement is adding to a finalized assessment. Sardari Lal holds that without such notice, the CIT(A) cannot discover new sources. The logic is sound: the CIT(A) cannot, without prior notice, 15 ITA No.5136/Del/1998 surprise the assessee with a tax claim on a matter the assessee was not even asked to address in the original assessment.
2. AO's Assessment Power (De Novo): When the CIT(A) sets aside an assessment and directs a fresh assessment, the AO is not enhancing an existing assessment; he is making an entirely fresh assessment from the beginning. In a fresh assessment, the AO has all the powers he had in the original assessment, including the power to assess income from any source, provided:
a. The material for that assessment comes to light during p r o p e r investigation, AND b. The assessee is afforded fair opportunity to respond.
C. Application of This Principle to the Present Case:
1. The assessee had declared only salary income of Rs. 1,13,000 in his return.
2. The original AO made an addition of Rs. 40 lakhs based on allegations about the Hoshiarpur cash recovery--a matter entirely unrelated to the assessee's personal undisclosed income.
3. The CIT(A) set aside that assessment, observing that proper investigation had not been done and opportunity had not been given. The CIT(A) directed: "make assessment de novo with proper investigation and after affording due opportunity."
4. During the course of the fresh investigation, on 24.07.1997, the AO received new material--the seized documents--which had come to light during a search of third-party premises in October 1993. These 16 ITA No.5136/Del/1998 documents, admittedly in the assessee's own handwriting, contained entries suggesting personal financial dealings running to several crores.
The assessee cannot claim that the AO was barred from examining this material simply because it was not part of the original assessment. In a de novo assessment, newly discovered material is fair game, provided:
• The discovery is lawful (the documents were lawfully seized), • Investigation is proper (the AO called company books, confronted the AR, recorded assessee's statement), and • Opportunity is given (the assessee was offered multiple opportunities to explain).
All three conditions are satisfied in the present case.
D. Why "Sardari Lal" Does Not Apply: Sardari Lal dealt with the CIT(A)'s power under Section 251(2) to enhance an assessment without prior notice. The Court held that the CIT(A) cannot discover new sources without notice. The principle is about procedural fairness in appellate enhancement, not about the scope of the AO's powers in a fresh assessment directed by the appellate authority. Moreover, when an assessment is set aside, the AO must make assessment "in accordance with the directions given by the appellate authority." But "directions" do not mean the AO is limited only to the specific items mentioned; rather, the AO must follow the spirit of the directions. If the CIT(A) has directed "proper investigation" and "affording opportunity," the AO must conduct 17 ITA No.5136/Del/1998 a thorough investigation and give fair opportunity--not a limited investigation confined to original issues.
In the current case, the CIT(A)'s directions were:
• Proper investigation
• Affording due opportunity
• The AO did exactly that when fresh material came to light.
II. ON COMPLIANCE WITH THE "TWIN CONDITIONS"
(ADDITIONAL GROUND 2)
A. What Are the Twin Conditions? Even considering the assessee's jurisdictional argument that the AO was constrained by the original assessment's scope, the CIT(A)'s order fails on a fundamental point: the CIT(A) did not analyze whether the AO complied with the two conditions imposed by the CIT(A) in the set-aside order, namely:
1. Proper investigation
2. Affording due opportunity The CIT(A) simply deleted the addition on a legal premise (applying Sardari Lal) without empirically examining whether the AO's conduct satisfied the conditions.
B. Proper Investigation: The AO's Actions The assessment order reveals that the AO conducted a meticulous investigation:
1. Called Company Books: Section 131 notice was issued to Mls MMLSR Ltd requiring production of books of accounts.18 ITA No.5136/Del/1998
2. Confronted the AR: The authorized representative of MMLSR Ltd was personally confronted with Annexures AAA-1 and AAA-2. The AR Gategorically stated: "These entries do not pertain to Mls MMLSR Ltd."
3. Verified Against Books: A test-check of MMLSR's books revealed that none of the transactions mentioned in the seized documents were reflected in the company's official accounts.
4. Recorded Assessee's Statement: The assessee was summoned under Section 131 on 23.03.1998 and his statement was recorded on oath.
5. Confronted with Specific Evidence: During the statement recording, the assessee was confronted with:
o The seized documents themselves o The notation style (R for receipt, P for payment) o The apparent balance sheets o Entries in the names of family concerns (Moorthy Investment P Ltd., Executive Leasing Ltd.) o Entries showing "wife" and "PP" (Prem Prakash)
6. Offered Opportunity to Examine Company Books: The assessee was given the opportunity to examine and tally the entries in the seized documents against company books. He refused to do so.
7. Attempted to Decipher Entries: The AO, in the absence of satisfactory explanations, made reasonable inferences from the entries' pattern, notation, and cross-references.
This was NOT a cursory or inadequate investigation. This was a thorough, multi-layered investigation with multiple opportunities for the assessee to explain.
19 ITA No.5136/Del/1998 C. Affording Due Opportunity: The AO's Actions: The assessee was afforded ample opportunity:
1. Statement on 10.12.1993: During post-search operations, the assessee's statement was recorded, and he explained that the documents were his personal office notes relating to the company.
2. Statement on 23.03.1998: Over four years later, when the same documents were formally shown to him during assessment proceedings, the assessee was again given an opportunity to explain. He repeated his earlier explanation and claimed he couldn't remember details after such a long lapse.
3. Offered to Examine Company Books: The assessee was explicitly offered the opportunity to examine MMLSR's books to show that the entries matched company transactions. He refused.
The assessee's repeated refusals to provide satisfactory explanations cannot be construed as a denial of opportunity. Opportunity without willingness to cooperate or explain is not the same as denial of opportunity. D. The CIT(A)'s Failure to Apply This Analysis: The CIT(A) deleted the addition without addressing whether the AO satisfied these conditions. Instead, the CIT(A) focused on the allegedly abstract jurisdictional issue (whether the AO could assess new sources at all) and the merits (loose papers lack evidentiary value).
This is a critical lacuna in the CIT(A)'s reasoning. If the empirical facts show that the AO DID conduct proper investigation and DID afford 20 ITA No.5136/Del/1998 opportunity, then even if there were any jurisdictional constraint (which there is not), it would have been satisfied in this case.
III. ON EVIDENCE ACT APPLICABILITY (ADDITIONAL
GROUND 3)
A. The Fundamental Misapplication of V.C. Shukla: The CIT(A) has relied on CBI v. V.C. Shukla (1998 I Crimes 219, SC) to conclude that loose handwritten papers cannot be treated as "books of account" for purposes of Section 68 and therefore have no evidentiary value in income- tax assessment. This is a fundamental misunderstanding of the scope of that judgment. CBI v. V.C. Shukla is a criminal case concerned with the applicability of the strict rules of the Indian Evidence Act, 1872 (particularly Sections 61-65 regarding documentary evidence) to criminal proceedings for money-laundering and criminal conspiracy. The Supreme Court in that case held that loose papers, diaries, and unbound documents do not satisfy the definition of "book of account" under the Evidence Act and therefore cannot be used to establish criminal liability against individuals without corroborating evidence.
B. The Critical Distinction: Evidence Act Does NOT Apply to Income-Tax Assessment However, the Income-tax Act, 1961 is not governed by the strict rules of the Indian Evidence Act. This is a settled principle of law, established through a long line of decisions:
1. Principles of Burden of Proof in Income-Tax:
o In income-tax, the standard is not "beyond reasonable doubt" (as in 21 ITA No.5136/Del/1998 criminal law) or "on the balance of probabilities" with strict documentary proof(as in civil law).
o The standard is "reasonable satisfaction" of the Assessing Officer. o The AO can act on material that would not be admissible in a court of law. o The test is whether the material provides a rational basis for the AO's conclusion.
2. Section 68 Does Not Invoke the Evidence Act:
o Section 68 of the Income-tax Act permits charging unexplained credits to income where:
a. A sum is found credited in the books of account maintained by the assessee, AND b. The assessee offers no explanation or an unsatisfactory explanation.
The section does NOT require that the books be in a particular form or satisfy Evidence Act standards. The term "books of account" in the income-tax context means any record wherein the assessee has recorded credits, whether in a bound register, loose sheets, or even digital records.
3. Case Law Support:
S.P. Goyal v. Dy. CIT (82 ITD 85, Bombay Tribunal): The Tribunal held that loose papers, even if not technically "books of account" under the Evidence Act, can be relied upon in income-tax assessment if they show systematic entries of receipts and payments. The standard is "preponderance of probabilities and human conduct," not strict Evidence Act rules.
K.P. Verghese v. CIT (131 ITR 597, Supreme Court): The Supreme Court held that additions on the basis of loose papers and documents can be 22 ITA No.5136/Del/1998 sustained in income-tax if there is a "pattern" of entries and if the assessee has failed to provide satisfactory explanations. The Court emphasized that the absence of strict documentary proof is not fatal to income-tax assessment.
CIT v. Girish Chaudhary (163 Taxman 608, Delhi HC): The Delhi HC held that loose documents can be the basis for additions if they show a coherent pattern of transactions and the assessee's explanations are evasive or absent.
C. Application to the Present Case In the present case, the seized documents (Annexures AAA-1 and AAA-2) show:
1. Systematic Entries: Entries of receipts (R) and payments (P) with dates, months (though not years in most cases), and amounts in abbreviated form.
2. Provisional Balance Sheets: At regular intervals, summary balance sheets were drawn, showing debit and credit positions against abbreviated names and codes.
3. Pattern and Consistency: The entries follow a coherent double-
entry bookkeeping pattern, with balances brought forward, transactions recorded, and new balances calculated.
23 ITA No.5136/Del/1998
4. Reference to Known Entities: Entries against "Moorthy Investment P Ltd." and "Executive Leasing Ltd." (assessee's family concerns), "wife,"
and "PP" (Prem Prakash--the assessee himself), all confirmed by the assessee's statement that these are family concerns.
5. Cross-Reference to Property Transactions: Property purchase agreements found during the search, signed by the assessee's wife, bearing significantly different prices (Rs. 17 lakhs vs. Rs. 79 lakhs for the same property), corroborate the existence of undisclosed funds available to the assessee.
These documents display a pattern consistent with personal financial record-keeping by the assessee, not mere random notes. D. The Assessee's Failure to Explain: Most critically, the assessee himself admitted that the entries were in his own handwriting and that they related to his personal dealings (through the entries naming his wife and family concerns). His explanation--that these were rough notes made in his official capacity for the company--was directly contradicted by the AR's categorical denial and the company books' lack of any matching entries.
24 ITA No.5136/Del/1998 In income-tax assessment, when an assessee, having been afforded opportunity, fails to provide a satisfactory explanation for entries in documents he admits to having created, the AO is justified in making an inference based on the available material. This is exactly what the AO did. The AO's inference that the figures represented the assessee's personal capital and income is rational and supported by the pattern of entries.
E. The CIT(A)'s Error: The CIT(A), by importing the strict Evidence Act standard from the criminal case of V C. Shukla, effectively imposed a standard of proof higher than required in income-tax assessment. The CIT(A) demanded that the AO produce "conclusive evidence" and "corroboration," standards that are applicable in criminal or civil litigation but not in income-tax assessment. The correct standard is whether the seized documents, viewed in light of the assessee's own admissions and the AR's denials, provide a rational basis for the AO's inference. They clearly do."
14. . Further, she submitted as under:
"A. The Statutory Requirement: Section 68 of the Income-tax Act provides:25 ITA No.5136/Del/1998
"Where any sum is found' credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to the income-tax as the income of the assessee of that previous year."
The section does NOT require that the books be bound registers maintained in the course of business in the strict sense understood under the Evidence Act. Rather, "books of account" in the income-tax context simply means any record wherein the assessee has recorded financial entries. A.Presence of All Ingredients In the present case, all ingredients of Section 68 are satisfied:
1. Books Maintained by Assessee: The assessee maintained the handwritten slips (Annexures AAA-1 and AAA-2). This is admitted by the assessee himself.
2. Sum Credited: Multiple sums were credited in the provisional balance sheets drawn from these slips:
o Capital balance of PP as on 01.04.1991: Rs. 17,70,01,000 (represented as 1770.8 in the abbreviated notation) o Capital balance of PP as on 11.12.1991: Rs. 27,45,60,000 (represented as 2745.6) o Charity credit as on 01.04.1991 to 11.12.1991: Rs. 12,57,00,000 (represented as 1257)
3. No Satisfactory Explanation: The assessee's explanation was that these 26 ITA No.5136/Del/1998 were rough notes relating to the cpulpany's transactions. However:
o The AR of the company categorically denied any connection. o The company's books reflected none of these transactions. o The entries explicitly referenced the assessee's wife and family concerns, not the company.
o The assessee refused to examine the company books to substantiate his explanation.
o His explanation was evasive and non-specific ("I don't remember after so long").
The explanation was clearly unsatisfactory within the meaning of Section
68.
C. Quantification of the Addition: The AO quantified the addition as follows:
1. Capital Appreciation: The difference between opening and closing capital balances of PP (17,70,01,000 to 27,45,60,000) = Rs. 9,74,80,000.
2. Charity: The credit balance shown as "Charity" from the provisional balance sheet = Rs. 12,57,00,000.
3. Total Addition: Rs. 9,74,80,000 + Rs. 12,57,00,000 = Rs. 22,31,80,000.
The quantification methodology is sound. The assessee has provided no alternative explanation for these figures. In the absence of explanation, the figures as deciphered by the AO must stand.
D. Distinguishing Assessee's Reliance on Case Law: The assessee has relied on various judgments to argue that assessment cannot be made on 27 ITA No.5136/Del/1998 "presumptions," "conjectures," or "mere guess work." However, the AO's assessment in this case is not based on presumptions or guesswork; it is based on:
1. Documents created by the assessee himself (admitted handwriting)
2. Systematic entries showing a pattern of business-like record-
keeping ..The assessee's own admissions (family concerns, wife mentioned in entries)
4. Denials from other sources (AR's denial of company connection)
5. Corroborating circumstances (property purchase agreements with significant discrepancies in consideration, Enforcement Directorate's findings of hawala activities) This assessment is not on suspicion; it is on available material. E. Burden of Proof in Income-Tax Assessment It is well settled that once the Revenue brings forth material (here, the seized documents) suggesting undisclosed income, the burden shifts to the assessee to establish that the material does not represent his income or that it relates to exempt sources. (Ref: Parimisetti Seetharamaiah v. CIT, 57 ITR 532 (SC). The assessee has failed to discharge this burden. His explanation was vague, evasive, and directly contradicted by the AR's denial and the company books' lack of matching entries. V. DISTINGUISHING ASSESSEE'S CASE LAW RELIANCE A. Sardari Lal and Saheli Synthetics (Jurisdictional Arguments) 28 ITA No.5136/Del/1998 As discussed, these cases pertain to the CIT(A)'s appellate power of enhancement, not the AO's power in a de novo assessment. The CIT(A) cannot discover new sources and enhance without notice. However, when an assessment is set aside for fresh assessment with directions for "proper investigation" and "affording opportunity," the AO can assess any source provided the material lawfully comes to light and procedure is followed. Moreover, Saheli Synthetics itself states that the AO's scope in a set-aside assessment is "in accordance with the directions given by the appellate authority." The directions in the CIT(A)'s set-aside order were to conduct "proper investigation" and afford "due opportunity"--both of which the AO did.
B. V.C. Shukla (Evidence Act Issue): As discussed extensively, this is a criminal case applying Evidence Act standards, not a tax assessment case. It should not be used to import criminal-law evidentiaiy standards into income- tax proceedings. Moreover, the Supreme Court in K.P. Verghese (131 ITR 597) specifically held that loose documents can support income-tax additions if a pattern is evident and explanations are unsatisfactory.
C. Assessee's "Burden of Proof" Arguments: The assessee has cited Parimisetti Seetharamaiah for the proposition that once Revenue alleges income, it must prove it, and mere receipt of funds does not make them taxable without more. While the legal principle is correct, it does not apply to the extent it applies when:
29ITA No.5136/Del/1998
1. The assessee himself created the documents showing the entries.
2. The assessee admits the documents are in his handwriting.
3. The entries pattern suggests personal dealings (entries against wife, family concerns).
4. The assessee refuses to provide coherent explanations.
5. The assessee refuses to examine corroborating documents (company books).
In such circumstances, the burden of clarification falls squarely on the assessee, and his failure constitutes an unsatisfactory explanation under Section 68.
VI. ON PROCEDURAL FAIRNESS (NATURAL JUSTICE) A. The CIT(A)'s "Hasty Completion" Argument: The assessee had been given ample opportunity to explain the seized documents, first during post-search operations in December 1993 and again during the detailed statement recorded on 23.03.1998. Additional time or additional opportunities, once the assessee has stated his position, would not cure the merits of the assessment B. The "Rejection of Explanation Without Reasons" Argument: The assessee argues that the AO rejected his explanation without recording reasons. This argument is factually incorrect. The assessment order explicitly addres"ses the assessee's explanation (that the documents related to company transactions) and records reasons for rejection:
1. The AR's categorical denial.
2. The absence of these entries in the company's books.30 ITA No.5136/Del/1998
3. The presence of entries against family concerns (Moorthy Investment, Executive Leasing) and the assessee's wife, which the company could not possibly have.
4. The assessee's admission that these are family concerns where he is a director.
These are detailed, specific reasons for rejection. The CIT(A)'s suggestion that reasons are absent is unsupported by the text of the assessment order.
VII. ADDRESSING THE "CONTEXT" ARGUMENT
(FERA/COFEPOSA)
The CIT(A) noted that the original proceedings were initiated in the context of alleged FERA/COFEPOSA violations, which were later quashed. The CIT(A) suggested that using adverse inferences from quashed proceedings was improper. This argument conflates two separate matters:
1. The original assessment (which the CIT(A) correctly set aside) was indeed based on the Hoshiarpur cash recovery, a FERA matter. The CIT(A) was right to set it aside for lack of proper investigation and opportunity.
2. The fresh assessment, however, is based on the seized documents from the Mls Shyam Garments search--a search that was conducted independently and lawfully. The AO did NOT rely on adverse inferences from the FERA/COFEPOSA proceedings; rather, he used documents that emerged from the Shyam Garments search as material facts in a fresh investigation.31 ITA No.5136/Del/1998
The quashing of FERA/COFEPOSA proceedings is irrelevant to the assessment based on seized documents. The AO's use of the seized documents is entirely independent of the quashed proceedings. Moreover, the AO specifically noted in the assessment order that the seized documents were of "extreme importance" to the assessee (he kept them in a bag for safe custody and shifted them from his residence before the Enforcement Directorate raid). This circumstantial evidence of importance is a legitimate inference the AO can draw. VIII. Prayer to TRIBUNAL to UPHOLD THE AO'S ADDITION A. Summary of Revenue's Position
1. Jurisdictional: The AO had full authority to examine the seized documents in the course of a de novo assessment directed by the CIT(A), provided he conducted proper investigation and afforded opportunity. He did both.
2, Substantive: The seized documents show a pattern of personal financial dealings by the assessee. The assessee's explanation was evasive and contradicted by the AR's denial and company books. The addition under Section 68 is justified.
3. Evidentiary: The strict rules of the Evidence Act do not apply to income-
tax assessment. The standard is "reasonable satisfaction" based on "preponderance of probabilities." The seized documents meet this standard.
32ITA No.5136/Del/1998
4. Procedural: The assessee was afforded ample opportunity to explain. His failure to do so, combined with his refusal to examine corroborating documents, constitutes an unsatisfactory explanation. B. Implications of Accepting Assessee's Arguments: If the Tribunal accepts the assessee's arguments:
1. The AO's power to conduct fresh investigation would be severely curtailed, effectively converting a "de novo" assessment into a "limited" assessment confined to original issues.
2. Any discovery of new material during the course of a fresh assessment would be deemed beyond jurisdiction, regardless of how significant or probative.
3. Income-tax assessment would be effectively governed by the strict rules of the Evidence Act, depriving the AO of the flexibility needed in assessment practice and reducing the Revenue's ability to bring undisclosed income to tax.
4. Assesses would be incentivized to destroy or conceal documents, knowing that even if discovered later, assessments based on them could be challenged on jurisdictional grounds.
These implications are contrary to the statutory scheme and the settled jurisprudence.
CONCLUSION-
The CIT(A)'s order rests on two pillars, both of which are flawed:
1. Jurisdictional Flaw: The AO was not barred by Sardari Lal or any other 33 ITA No.5136/Del/1998 principle from examining seized documents in the course of a de novo assessment, provided he conducted proper investigation and afforded opportunity. He did.
2. Evidentiary Flaw: The CIT(A) wrongly imported strict Evidence Act standards into income-tax assessment, relying on V.C. Shukla (a criminal case). Income-tax assessment is governed by its own standards of "reasonable satisfaction" and "preponderance of probabilities," not the Evidence Act.
The addition of Rs. 22,31,80,000 under Section 68 should be upheld. The assessee's declared income of Rs. 1,13,000 from salary cannot stand in the face of seized documents in his own handwriting showing capital balances running to crores and charitable donations running to crores, with no satisfactory explanation for these figures. The Tribunal should allow the Revenue's appeal and uphold the AO's assessment."
15. On the other hand, the ld. AR submitted as under: -
"Re (I): On the scope of De Novo Assessment In the written submission dated 08.01.2026, the Revenue has contended that in the set-aside proceedings, the scope of the assessing officer is wider and not limited to issues arising from the original assessment order.
Though the Revenue has acknowledged the decision of the Full Bench of the Delhi High Court in the case of Sardari Lal Co. vs. CIT 251 ITR 864 34 ITA No.5136/Del/1998 and categorically accepted that the CIT(A) cannot discover and enhance assessment on the basis of a "new source of income" not considered in the original assessment, but has sought to distinguish the decision by arguing that the powers of AO in set-aside proceedings are wider and not limited to issues arising from the original assessment order.
In this regard, it is submitted that the Revenue has failed to appreciate that wherever jurisdiction to pass fresh order is derived by the assessing officer from the order passed by an appellate authority, the scope and jurisdiction of the assessing officer to pass fresh order will have to be seen with reference to:
(a) the specific findings/ directions given by the appellate authority; and
(b) powers vested in the appellate authority since the appellate authority cannot grant any authority/ power to the assessing officer that does not vest in the appellate authority itself.
In the facts of the present case, it will kindly be noticed that the original assessment was set aside by the CIT(A) to the assessing officer on the ground that proper opportunity was not given to the assessee before making ad-hoc addition of Rs.40 lakhs on the basis of some information allegedly received about seizure of some cash. The said information is totally unrelated to seized annexures, which undisputedly were, in the set 35 ITA No.5136/Del/1998 aside proceedings, received by the assessing officer for the first time from the Investigation Circle.
To put it simply, the Revenue accepts that CIT(A) has, in the appellate proceedings, no power to introduce a new source of income. As a necessary sequitur, CIT(A) while setting aside the proceedings to the assessing officer could not have authorized the latter to add a new source of income. Therefore, the Revenue's contention that the AO has, in the set aside proceedings, much wider power, is fallacious and deserves outright rejection.
Additionally, it is also a matter of record that prior to the set aside, no enhancement notice was issued by the CIT(A) to the assessee under section 251(2) of the Act. In the absence of any enhancement notice, the CIT(A) had no power to even consider enhancement of income. As a necessary sequitur, the CIT(A) had no power to direct, and consequentially AO cannot derive any power, to consider enhancement of income.
In view of the aforesaid, it is clear that the assessing officer had no authority/ jurisdiction to make addition on the basis totally unrelated 36 ITA No.5136/Del/1998 seized annexures and make addition of an altogether new source of income.
It is submitted that the CIT(A) can assume jurisdiction to enhance income only after issuing a specific show-cause notice under section 251(2) and, even then, not in respect of a new source of income [Refer Sardari Lal (supra)]. Consequently, where an assessment is set aside without issuance of any enhancement notice, the assessing officer derives no authority to enhance income or assess a new source in the set-aside proceedings. The assessing officer cannot assume powers greater than those vested in the CIT(A).
The aforesaid issue is squarely covered by the judgment of the Gujarat High Court in Saheli Synthetics (P) Ltd. v. CIT (302 ITR 126), wherein it was held that a set-aside assessment must strictly conform to the appellate directions and cannot be used to expand the scope of assessment or introduce new sources of income in the absence of an enhancement notice.
Similar views have been consistently taken in Inter-Asian Footwear Corporation (66 ITR 110), Jyoti Tube-well Co. (164 ITR 301), Rai 37 ITA No.5136/Del/1998 Bahadur Hardutroy Motilal Chamaria (66 ITR 443, SC), Shapoorji Pallonji Mistry (44 ITR 891, SC), and Gedore Tools (161 CTR 472). In view of the aforesaid, it is submitted that the assessing officer exceeded his jurisdiction to make addition of Rs.22,31,80,000 under section 68 of the Act since:
a) the CIT(A), in the original proceedings had no power and did not empower the assessing officer to enhance the income by going beyond the points which were not investigated by the assessing officer or the CIT(A); the assessing officer, in the set aside proceedings, had no jurisdiction to consider/ enhance the income of the assessee on new points/ issues; and
b) addition has been made in respect of an altogether new source of income, which is clearly contrary to the decision of the Full Bench of the Delhi High Court in the case of Sardari Lal (supra).
In view of the aforesaid, it is the respectful submission of the assessee that the assessing officer clearly exceeded his jurisdiction in making addition of Rs.22,31,80,000 and order of the CIT(A) deleting the addition calls for being confirmed.
That apart, even if the assessing officer had to make addition as aforesaid 38 ITA No.5136/Del/1998 on the basis of information received pursuant to search conducted in the case of Shyam Garments, the same could have, if at all, been made by undertaking certain fresh proceedings in accordance with law. However, the assessing officer sought to usurp jurisdiction, which it did not have, to consider the fresh material in the set aside proceedings and went beyond the reason for which matter was remanded back to the assessing officer. This is clear violation of the provisions of law and thus, the order of the CIT(A) deleting the additions made by assessing officer cannot be interfered with.
An appellant cannot be worse off as a result of filing the appeal It is settled law that an appellant cannot be put in a worse off position by filing an appeal. Consequently, by merely filing appeal against the addition of Rs.40 lakh in the original proceedings, the appellant cannot be put in a worse off position in the set aside proceedings. It is trite law that it is not open to the appellate authorities to give a finding adverse to the assessee on an issue which is not before them and consequently, there cannot be an adverse finding on an issue/ question which is not raised in the appeal. It is also well settled that it is not open to an appellate authority to raise any ground which would work adversely 39 ITA No.5136/Del/1998 to the appellant and pass an order which makes his position worse than it was under the order appealed against [refer decisions page 12 of written submission dated 04.03.2025].
Addition in set-aside proceedings cannot exceed original addition Even otherwise, addition in set-aside proceedings cannot exceed the original addition, as doing so would amount to withdrawing relief already granted. Reliance is placed on Maxpak Investment Ltd. v. ACIT and Hitachi High Technologies Pte. Ltd. v. DCIT (Delhi Tribunal). The assessee seeks to place reliance on the detailed written submissions filed during the course of hearing on 06.01.2026 in support of the aforesaid contentions, which is not repeated here for the sake of brevity. Re (II): Compliance of Twin Conditions The Revenue has contended that the CIT(A) erred in reversing the order of the assessing officer in so far as the CIT(A) lost sight of the fact that in the set-aside proceedings, the assessing officer did comply with the directions of the CIT(A) [in the 1st round of proceedings] and conducted proper and adequate investigation after affording due opportunity of hearing to the assessee before concluding the assessment. In this regard, it is submitted that the Revenue has failed to appreciate the 40 ITA No.5136/Del/1998 fundamental fact that the original assessment was set aside by the CIT(A) to the assessing officer on the ground that proper opportunity was not given to the assessee before making ad-hoc addition of Rs.40 lakhs on the basis of some information allegedly received about seizure of some cash. However, the assessing officer, completely digressing from the said issue and without judiciously appreciating the scope and jurisdiction of the set aside proceedings, proceeded to make astronomically high ad-hoc and baseless addition of Rs.22,31,80,000 under section 68 of the Act in respect of altogether new source of income.
In view of the above, it is submitted that the assessing officer did not, as demonstrated above, comply but in fact transgressed the directions of the CIT(A).
Re (III): Applicability of Evidence Act In the written submission dated 08.01.2026, the Revenue has further contended that the CIT(A) erred in deleting the addition made on the basis of unauthenticated/ unverified loose papers in so far as the Evidence Act has no applicability in respect of income tax proceedings. In this regard, it is submitted that it is trite law that no addition can be made on the basis of unauthenticated/ unverified loose papers, which have 41 ITA No.5136/Del/1998 no evidentiary value in the eyes on law.
Emphatic reliance is placed on the decision of the Hon'ble Supreme Court in the case of Common Cause (A Registered Society) vs. UOI: 245 Taxman 214 (SC), wherein it was held that entries in loose papers/ sheets are irrelevant and not admissible under section 34 of the Evidence Act and that only where the entries are recorded in the books of account regularly kept, depending on the nature of occupation, that those are admissible. The aforesaid landmark decisions of the Supreme Court lay down following important principles of law:
(a) Addition cannot, in the absence of any cogent material, be made on mere suspicion and surmises; and
(b) It is for the Revenue to prove that the assessee has actually received/ paid any money/ cash more than what is declared/ recorded in the books of account The aforesaid decision has been applied by the Karnataka High Court in DCIT vs. Sunil Kumar Sharma: 159 taxmann.com 179 [22.01.2024]. The apex Court dismissed the SLP filed by the revenue in the case of DCIT vs. Sunil Kumar Sharma: SLP (C) Diary No(s). 21526/2024 [20.08.2024] 42 ITA No.5136/Del/1998 It is further submitted that there are a plethora of decisions rendered in context with income tax proceedings only wherein additions made, solely on the basis of loose papers without bringing on record any evidence to establish that notings on loose papers represented has been held to be unsustainable in law and has thus been deleted [@ pages 19 to 22 of written submission dated 04.03.2025.
In view of the above, it is submitted that addition made simply on the basis of unauthenticated/ unverified loose papers, which have no evidentiary value in the eyes on law, is unsustainable and liable to be deleted. IV. On Merits--All ingredient of section 68 satisfied In the present case, substantial additions have been made in the hands of the assessee solely on the basis of certain documents seized by the Income- tax Department from the premises of M/s Shyam Garments on 01.10.1993. The assessment order primarily relies upon two seized annexures marked as AAA-1 and AAA-2, which are alleged to be in the handwriting of the 43 ITA No.5136/Del/1998 assessee, Shri Prem Prakash. The statement of the assessee was recorded on 10.12.1993, wherein he acknowledged the handwriting. Copy of the said statement were not made available to the assessee. Further, upon being confronted with the seized documents during post- search proceedings on 10.12.1993 and again during assessment proceedings on 23.03.1998 (pages 9-18 of the paper book), the assessee consistently submitted that:
a) the transactions, if any, recorded in the seized papers did not pertain to him in his personal capacity;
b) the notings primarily related to transactions concerning properties and shares of M/s Madan Mohan Lall Sriram Pvt. Ltd. (DCM Group), where the assessee was employed; and
c) the inferences sought to be drawn by the Department regarding the quantum or nature of the figures recorded were emphatically denied.
Thus, the assessee repeatedly and unequivocally denied that the seized documents represented any financial transactions of his own. Despite this, the impugned addition of ₹22.31 crores has been made merely on the basis of the seized papers and conjectural inferences drawn therefrom, without 44 ITA No.5136/Del/1998 any independent or corroborative evidence to establish receipt of any undisclosed income or cash.
It is submitted that such addition is patently illegal and unsustainable in law. Further, the existence of "books of account" maintained by the assessee is a sine qua non for invoking section 68 of the Act. Section 68 applies only where a sum is found credited in the books of the assessee and the assessee fails to satisfactorily explain the nature and source thereof. The emphasis is on the books being those maintained by the assessee himself.
It is well settled that loose papers/rough noting cannot be construed as "books of account" for the purposes of section 68. In the instant case, the assessee is a salaried employee and is not required to maintain books of accounts in terms of section 44AA of the Act. Accordingly, the provisions of section 68 of the Act are not at all applicable in the case of the assessee. The assessee seeks to place reliance on the detailed written submissions filed during the course of hearing on 06.01.2026 on the aforesaid issue @ pages 23 to 25, which is not repeated here for the sake of brevity." 45 ITA No.5136/Del/1998
16. Considered the rival submissions and material placed on record. We observe that the revenue has raised the main issue, whether in the set aside proceeding, can the AO bring on record fresh material which was not available before the Ld CIT(A) at the time of set aside to make fresh assessment. In this regard we observed that Ld CIT(A) had set aside the original assessment with the observation that the assessee was not provided proper opportunity at the time of original assessment proceedings. We observed that the above set aside proceeding was kept pending by the AO, meantime, there was a search at the residence of Mr. Shyam Sunder Gupta, certain documents were found and the same was forwarded to the AO. By considering the above information, the AO made investigation and due to non-availability of proper information from the assessee, he proceeded to decipher the information available in the loose sheets which are impounded during the search. Even though, the above documents had information which had assessee's own handwriting. The issue raised by the parties before us, Can the new information received by the AO out of search proceedings be included in the set aside proceedings.
17. In the given case, Ld CIT(A) had set aside the order on 07.06.1995 for fresh assessment. The relevant order u/s 143(3)/250 of the Act was passed on 46 ITA No.5136/Del/1998 31.03.1998. It is fact on record that the impugned assessment order was remitted back to AO to do reassessment afresh as per law. The Ld DR vehemently argued that the AO gets the authority to redo the assessment comprehensively from the directions of Ld CIT(A) as the Ld CIT(A) has power to do so vide his power u/s 251 of the Act. However, the facts brought to our notice clearly indicate that the AO was informed about the new material found during the search in the case of third party and the evidence proves the involvement of the assessee in the alleged transactions. We noticed that the impugned assessment order was passed on 31.03.1998, the provisions as existed at that point of time are applicable. The amended provisions from 01.07.1995 to 31.05.2003, the relevant provisions applicable were 158BC, as per which the AO had to complete the search assessment in Block of 10 years and only for computation of undisclosed income. Since the information received by the AO from the investigation wing after the search in the case of Shyam Garment Group on 1.10.1993 and the assessee's statement was recorded on 10.12.1993. That being the case, the pending assessment which was set aside, the AO should have completed the assessment u/s 143(3) only on the basis of information already available on record to complete the regular assessment. With regard to seized material 47 ITA No.5136/Del/1998 found during the search, as discussed above, the AO has to initiate separate proceedings and complete the proceedings only on the issue of undisclosed income. As discussed, it is a separate proceedings, the AO should have initiated separate proceedings u/s 158BC. Instead, he proceeded to use the material received by him while completing the present set aside proceedings. The duty of the AO to issue fresh notice u/s 158BC or 158BD to initiate separate proceedings to bring the undisclosed income. The AO had not followed the due process of law in this case. Further we observed that the additions made by the AO u/s 143(3) proceedings relate to the material found during the search. The whole process is beyond the mandate of section 143(3) read with section 250 of the Act.
18. As discussed above, the AO has no jurisdiction to complete the set aside proceedings when the seized material was not before the Ld CIT(A) at the time of set aside. It is settled proposition that even the Ld CIT(A) cannot make addition or enhance the addition without any notice of enhancement. Regarding set aside proceedings also, first Ld CIT(A) has to issue enhancement notice, he has to get the response on the issue of enhancement from the assessee, only after which he can set aside the proceedings to the AO to make fresh assessment. As held in the case of Saheli Synthetics (P) 48 ITA No.5136/Del/1998 Limited (supra) that it is not possible to define a set aside assessment as either open set aside or a conditional set aside or a limited set aside. The set aside assessment made by the appellate authority is always in accordance with the directions given by the appellate authority for making a fresh assessment. Therefore, the information what was available at the time of set aside alone is the material to be applied for completing the set aside proceedings. Subsequently, any new material is made available to the AO, he must apply the same as per law depending upon the quality of material. In the given case, the material available with the AO is the seized material from the possession of the third party, AO must have initiated the proceedings as per law. As discussed above, the AO only had the option to proceed to make separate proceedings u/s 158BD only to the extent of undisclosed income unearthed during the search. Therefore, the order passed by the AO utilizing the material found during the search in the set aside proceedings is bad in law. Therefore, we are inclined not to disturb the findings of Ld CIT(A) for quashing the assessment order.
19. With regard to issue on merits of the case, we already held that the assessment itself is bad in law, and the issue of merits are not adjudicated at this stage.
49ITA No.5136/Del/1998
20. In the result, appeal filed by the revenue is dismissed.
Order pronounced in the open court on this 6th March, 2026.
Sd/- Sd/-
(SUDHIR KUMAR) (S. RIFAUR RAHMAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated:06/03/2 026
Binita, Sr. PS
Copy forwarded to:
1. Appellant
2. Respondent
3. PCIT/CIT
4. CIT(Appeals)
5. CIT-DR, ITAT
ASSISTANT REGISTRAR
ITAT, NEW DELHI
50