Income Tax Appellate Tribunal - Delhi
Income-Tax Officer vs Deepak Rathi on 5 September, 1986
Equivalent citations: [1986]19ITD637(DELHI)
ORDER
Anand Prakash, Accountant Member
1. This is a departmental appeal challenging the order of the learned AAC quashing the proceedings of reassessment initiated by the ITO under Section 147(a) of the Income-tax Act, 1961 ('the Act') in respect of the assessment year 1976-77 against the respondent.
2. The facts relevant for determination of the controversy involved in the present case may be noted.
3. The assessee is the son of Shri H.K. Rathi. Both reside in the same premises, namely, 29, Sadhna Enclave, New Delhi and are also doing business together. From the aforesaid residential premises many items were seized as per the panchnama prepared on 21-11-1975. Apart from shares, silver utensils, jewellery and cash, that was seized from the said premises, some loose papers were also seized. Shri Deepak Rathi, the present respondent signed all the various annexures and panchnama which was prepared at the time of the search. In course of time, after scrutinising the seized material, the ITO issued notices under Section 132(5) of the 1961 Act read with Rule 112A of the Income-tax Rules, 1962 to the assessee and Shri H.K. Rathi on 3-12-1975. Both the notices have been placed by the assessee on record. From a perusal thereof, it appears that in the case of Shri Deepak Rathi, the assessee was required to make his submissions and produce evidence, etc., in respect of the source of the following assets seized :
Rs.
Cash 38,000 Jewellery 1,18,083 Shares in the names of : Saffron Investment 1,53,000 Smt. Rekha Rathi 4,10,800 Smt. Rekha Rathi & Deepak Rathi 60,000 Artline Investment 2,85,125 Deepak Rathi 2,57,060
Smt. Rekha Rathi, may it be noted at this stage, is the wife of Shri Deepak Rathi. In the case of Shri H.K. Rathi also similar notice was issued asking him to explain the nature and source of cash of Rs. 38,000, jewellery valued at Rs. 90,480 and shares in the various names as per the notice dated 3-12-1975. In the course of the proceedings, under Section 132(5), inspection of documents and loose papers seized from the aforementioned premises appears to have been taken both by Shri Deepak Rathi and Shri H.R. Rathi. On 3-2-1976, a letter was issued by the ITO to Shri Deepak Rathi stating, inter alia, as below :
Please refer to the notice under Section 132(5) served on 3rd December, 1975. You are requested to appear before me in this connection on 6th February, 1976.
You are aware that certain papers were seized from your residence on 20th November, 1975, when a search was undertaken at your premises.
The extracts of these papers have already been taken over by you before you made disclosure under voluntary disclosure scheme. Since no explanation has been offered as regards queries raised in this connection with these papers, I have to request you to please file your explanation on the date of appointment namely 6th February, 1976.
I hope you will appreciate that last date for passing orders under Section 132(5) is 16th February, 1975. I will, therefore, not be able to give you any further time.
(Prima facie the date of hearing was 16-2-1976 and not 16-2-1975 as wrongly written).
From a perusal of the aforesaid letter, it is not clear as to what were the papers of which extracts were taken by Shri Deepak Rathi and what were the queries raised by the ITO. Despite our request light has not been shed on this aspect by either side. Similar appears to be the position in the case of Shri H.K. Rathi.
4. Soon after, i.e., on 16-2-1975 itself orders under Section 132(5) were passed by the ITO in the cases of both Shri Deepak Rathi and Shri H.K. Rathi. From the order under Sub-section (5) of Section 132 of Shri Deepak Rathi, it appears that the query raised by the ITO to Shri Deepak Rathi was prima facie with regard to a loose receipt of Rs. 10,000 recovered from the purse of Smt. Rekha Rathi where on lending of Rs. 10,000 was noted. The relevant observations of the ITO with regard to this paper are contained at page 3 of the order under Section 132(5) as below :
In the course of search one receipt of Rs. 10,000 passed by somebody in favour of Smt. Rekha Rathi was found from the purse of Smt. Rekha Rathi. On enquiry Smt. Rekha Rathi clearly indicated that if at all any money was given to somebody it must have been by her husband. The receipt evidences a loan of Rs. 10,000 given to somebody whose signature is not readable. The fact that the receipt was carefully kept in a hand bag shows that it is not merely a scrap of paper. In absence of any explanation, I consider that this receipt represents assessee's income of Rs. 10,000.
In the case of Shri H.K. Rathi, similarly numerous queries were made with regard to some of the loose papers and the nature of the said queries becomes explicit when one reads the order under Section 132(5) passed in the case of Shri H.K. Rathi on the same day, i.e., 16-2-1976. The relevant portion with regard to the loose papers which were put to him may be extracted here as below :
Apart from the above seizure in course of search certain loose papers were seized from the possession of the assessee. Shri Chandar was able to explain in respect of pages 4 to 5 which were transactions in respect of sale of scrap recorded in the book of various concerns in which the assessee and his son were interested. The page No. 3 refers to Ayurvedic prescription, page No. 1 refers to making of 5 bowls. Assessee explains that the five bowls were made out of silver utensils. In support thereof he has filed a certificate and copy of the order from one Sillram & Sons. This leaves us with page No. 2. In, this page there are three recorded transactions of Rs. 34,219, comprising of three transactions totalling to Rs. 34,549 from which brokerage of Rs, 259 has been debited. There appears to be totalling mistake, as after deductions of brokerage the correct figure should have been Rs. 34,290. Instead the figures have been shown at Rs. 34.219. Another transaction of Rs. 26,315 and the third transaction is of Rs. 11,414 from which Rs. 86 brokerage has been paid leaving the net amount at Rs. 11,355. No explanation was furnished regarding the page. It was stated that there were mere jottings. This sheet was found along with other loose sheets from assessee's possession. When the other sheets contained real transactions this sheet also should necessarily contain real transactions. The fact that the brokerage is shown to have been paid in respect of two transactions goes to prove that the transactions are real. It is not known what articles have been sold. Whether the articles since the value thereof is known (sic) and the purchase is not accounted, I consider the entire value of the transaction as unaccounted income of the assessee. The total of these three transactions works out to Rs. 71,996.
The aforesaid orders under Section 132(5) were challenged under Section 132(11) by both Shri Deepak Rathi and Shri H.K. Rathi. In the case of Shri Deepak Rathi, the stand of the assessee before the notified authority under Section 132(11) appears to have been that the said authority need give no finding with regard to the addition of Rs. 10,000 made by the ITO under Section 132(5) on the basis of the paper recovered from the purse of Smt. Rekha Rathi. In view of the said request of Shri Chander, the representative of the assessee before the notified authority, the said notified authority expressed no opinion on the said addition and he did not interfere with the inclusion of Rs. 10,000 as undisclosed income of Shri Deepak Rathi.
5. In the case of Shri H.K. Rathi, the assessee raised the following plea through the letter of his advocate dated 15-3-1976 in respect of the additions of Rs. 71,996 made to the income of Shri H.K. Rathi by the ITO under Section 132.(5) :
(i) Out of the seizure of several loose papers seized during the search only one paper marked on page No. 2 has been found objectionable by the learned ITO. While very erroneous and misleading view of the same has been taken by the said authority.
(ii) is very surprising that the learned lower authority has given a great weight to the above loose paper when on the very face of it, the same is worthless paper having some sort of totalling and jottings. The said authority is totally wrong, completely unjust and absolutely arbitrary in treating the said loose rough paper of the nature of raddi as a very valuable evidence in support of his estimating the alleged unaccounted income of Rs. 71,996.
(iii) It is further submitted that the said paper at serial No. 2 referred to in the impugned order which on inspection reveals, that it is some rough small brown paper carrying some jottings of figures. The said paper does not show name of any person or commodity nor any date having on identification with any transactions. It will be appreciated that in the ordinary course thousands of jottings are made on whatever paper comes one's way. Many calculations of stipulated transactions or those likely to take place are made. Over years there would have been several transactions of various companies, firms etc. and continues (sic.) of calculations made. It is humanly impossible to explain random jottings on some rough paper lying in and picked up from some corner of the house without any reference to some context. In spite of best efforts it has not been possible to make any head or tail of the jottings; but that would not mean that the said paper and the jottings thereon reflect any unaccounted transactions of income. The learned ITO has acted arbitrarily in concluding that unaccounted income arising to the assessee is reflected in the said paper.
(iv) In any event the finding given by the learned ITO in respect of the above loose paper are inconclusive, illogical whimsical and based on mere surmises and conjectures and thus the adopting of amount of Rs. 71,996 as alleged unaccounted income therefore, is totally unsustainable in every respect.
6. When the hearing under Section 132(11) came to take place, however, the assessee did not press the aforesaid submissions on merits and requested the said notified authority to leave the matter without elaborate discussion so that he could sort out the matter at the time of the assessment. The observations of the notified authority on this subject as contained in his order under Section 132(12) were as below :
At the time of the hearing Shri Randhawa submitted that no finding need be recorded in respect of the inclusion of Rs. 71,996. The assessee would make appropriate submissions before the ITO when the corresponding assessments were taken up.
Accordingly, the said notified authority expressed no opinion on the addition of Rs. 71,996 while passing the order under Section 132(12) as a result of which the said addition remained as part of the order under Section 132(5).
7. The regular assessments under Section 143(3) of the Act were made in the case of Shri Deepak Rathi and Shri H.K. Rathi. On the same date, namely, 31-10-1977. In accordance with the findings given in the order under Section 132(5), the respective additions made in the two assessments were of Rs. 10,000 in the case of Shri Deepak Rathi on account of the loose paper recovered from the purse of his wife Smt. Rekha Rathi and of Rs. 71,991 in the case of Shri H.K. Rathi on the basis of the loose paper No. 2 referred to in the order of the ITO under Section 132(5). The submissions of Shri H.K. Rathi before the ITO with regard to paper No. 2 referred to above were similar as were made before him in the proceedings under Section 132(5).
8. The aforesaid addition in the case of Shri H.K. Rathi was confirmed on appeal by the AAC.
9. Thereupon Shri H.K. Rathi carried the matter in appeal to the Tribunal and it was before the Tribunal that Shri H.K. Rathi for the first time, took the plea that paper No. 2 was not recovered from his possession and that the same had been recovered from the possession of his son Shri Deepak Rathi and, therefore, he was not liable to explain the entries in the said paper. The seizure memo appears to have been produced before the Tribunal, who after verifying from the same recorded the finding as follows :
We have seen the original seizure memo and we are satisfied that this contention is correct.
On the basis of the said finding, the Tribunal deleted the addition in the case of Shri H.K. Rathi by observing, inter alia, as follows in paragraph 4 of their order :
In our opinion, the addition cannot at all be sustained firstly because the paper itself was not seized from the assessee, the assessee cannot be asked to answer it particularly when it is not even prepared to be in the handwriting of the assessee. We can understand, a person whose premises are searched and some papers are seized being asked to explain the contents thereof, but when admittedly papers are seized from the possession of the assessee's son and the paper is not even in the handwriting of the assessee, no onus lies as the assessee to explain unless the department discharges the initial onus of proving that this paper pertains to the transaction of the assessee. There is no such proof in the instant case. The department has totally blundered in not even inserting the statement of the assessee and even of his son Deepak Rathi incidently after the search or even at any time thereafter. That being the position.
10. After the aforesaid order of the Tribunal was received by the ITO, he initiated proceedings under Section 147(a) against Shri Deepak Rathi and in his reasons he referred to the aforesaid order of the Tribunal and its finding with regard to the recovery of the said paper from Shri Deepak Rathi and stated that on the basis of the information now available to him, he had reasons to believe that it was the income of Shri Deepak Rathi to the extent of Rs. 71,996 which had escaped assessment. The reasons of the ITO may be extracted here as below :
The search and seizure was conducted at the residence of assessee, 29-Sadhana Enclave, New Delhi between the period 19-11-1975 to 21-11-1975. This residential premises was also shared by assessee's father Shri H.K. Rathi. During the search and seizure operation certain incriminating documents were seized. The scrutiny of seized material revealed that on one of the loose papers (item No. II) in the file cover indicating papers seized from the residence of Shri Deepak Rathi, 29-Sadhana Enclave, New Delhi three transactions amounting to Rs. 71,996 were recorded. These three transactions amounting to Rs. 71,996 were considered in the case of Shri H.K. Rathi under Section 132(5) and subsequently also during the regular assessment under Section 143(3) for assessment year 1976-77. An addition of Rs. 71,996 was made on this account, as the assessee has not been able to explain the nature of these transactions. The learned Income-tax Appellate Tribunal, Delhi Bench 'B', New Delhi in their order in IT Appeal No. 1725 (Delhi) of 1980 for the assessment year 1976-77 has deleted this addition on the account of these transactions, observing that these transactions were not in the handwriting of Shri H.K.. Rathi. The relevant portion of the Income-tax Appellate Tribunal's order is reproduced as below :
In our opinion, the addition cannot at all be sustained. Firstly because the paper itself was not seized from the assessee, the assessee cannot be asked to answer it particularly when it is not even proved to be in the handwriting of the assessee. We can understand a person whose premises are searched and some papers are seized being asked to explain the contents thereof, but when admittedly papers are seized from the possession of the assessee's son (Shri Deepak Rathi) and the paper is not even in the handwriting of the assessee, no onus lies on the assessee to explain unless the department discharges the initial onus of proving that this paper pertains to the transactions of the assessee.
As this loose paper recording these three transactions worth Rs. 71,996 was seized from the residence of Shri Deepak Rathi and from his possession and as also observed by the Income-tax Appellate Tribunal in the case of Shri H.K. Rathi for assessment year 1976-77, the assessment proceedings of Shri Deepak Rathi for assessment year 1976-77 need to be reopened to bring into these unexplained transactions of Rs. 71,996 to taxation. This income of Rs. 71,996 escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. Your kind permission is, therefore, solicited for the reopening of assessment under Section 147(a) of the Income-tax Act.
11. After obtaining the permission from the Commissioner, he initiated proceedings against Shri Deepak Rathi, by issuing the notice under Section 148 of the Act. In the course of the aforesaid proceedings, the ITO called upon the assessee vide his letter dated 9-5-1983 to explain the entries totalling Rs. 71,996 contained at page 2 in respect of which earlier addition was made in the case of Shri H.K. Rathi and in respect of which now the addition was sought to be made in the case of Shri Deepak Rathi, the present respondent. In the said letter, it was pointed out to Shri Deepak Rathi by the ITO, inter alia, that 'since the aforesaid paper was seized from his possession, the onus squarely lay upon him to explain the transactions to the ITO's satisfaction'. The assessee took inspection of the said paper on 18-5-1983 and, thereafter, several objections were raised to the proposed action of the ITO including the initiation of the proceedings under Section 147. The objections with regard to the addition on merits were five-fold as summarised by the ITO in paragraph 3 of his order into which we need not go for the purpose of disposing this appeal.
12. The assessee's challenge to the initiation of the proceedings under Section 147(a) was rebutted by the ITO by pointing out that the assessee had failed to disclose primary facts with regard to the earning of the income as noted down at page 2, referred to above and as such the proceedings were properly initiated against the assessee. He placed reliance on the decision of TS. PL. P. Chidambaram Chettiar v. CIT [1966] 62 ITR 774 (Mad.). In the said case, the following observations were made by their Lordships :
For invoking jurisdiction under Section 34(1)(a) and initiating action thereunder, it is not necessary that omission or failure on the part of the assessee and escapement of income from assessment should be found as a condition precedent. It is sufficient if the Income-tax Officer has reason to believe that income has escaped assessment on account of the failure of the assessee to disclose fully and truly all material facts necessary for the assessment of a particular year. The burden to disclose facts is primarily on the assessee and any information that the department may have will not dispense with the necessity of the assessee to discharge his Juty. (p. 774)
13. On the basis of the aforesaid ratio, the ITO made the following observation :
Thus although the seized document was in the possession of the ITO at the time of original assessment, still the burden lay upon the assessee in view of the case laws quoted in this sub-para.
Accordingly, he made the impugned addition of Rs. 71,996 to the assessee's total income.
14. The assessee challenged the aforesaid order before the AAC and pleaded before him, inter alia, that the action of the ITO amounted to merely a change of opinion on the basis of the same material. Earlier, the ITO was of the opinion that the income as evidenced by the said paper belonged to Shri H.K. Rathi and, therefore, he had made the addition in the hands of Shri H.K. Rathi and then he changed his opinion and held that the income belonged to Shri Deepak Rathi. An action under Section 147 could not be sustained on such change of opinion.
15. The learned AAC accepted the above contention of the assessee.
16. The department is aggrieved of the aforesaid finding of the learned AAC and it was the contention of the learned departmental representative before us that on the basis of the findings of the Tribunal, the ITO came to hold the reasons to believe that the transactions reflected at page 2 pertains to Shri Deepak Rathi and not to Shri H.K. Rathi ; that the Tribunal was the appellate forum whose finding was binding on the ITO ; that on the basis of the finding of the Tribunal, the ITO could initiate proceedings against Shri Deepak Rathi ; that inasmuch as the paper had been recovered from his possession, as per the findings of the Tribunal the onus was on him to explain the nature of the transactions in question ; that inasmuch as the nature of the entries on the said paper indicated the income nature of the transactions clearly, the ITO had reasons to believe that the income of Shri Deepak Rathi as reflected on the said paper had escaped assessment due to his omission and failure to disclose the said transactions in his income-tax return for the assessment year 1976-77.
17. In this connection, the learned departmental representative took us through the entire historical background of the search made at the residential premises of Shri Deepak Rathi and Shri H.K. Rathi and the chequred history of assessment, traced out above and pointed out that both Shri Deepak Rathi and Shri H.K, Rathi have been consistently non-co-operative with regard to explaining the nature of the transactions entered on the said paper and, therefore, in view of the said non-co-operative nature, it was not possible for the ITO but to conclude that prima facie there was a case of escapement of income in the hands of Shri Deepak Rathi, after the Tribunal's finding in the case of Shri H.K. Rathi had been given by the Tribunal. The finding of the Tribunal was a fresh piece of evidence which was not available with the ITO earlier. Earlier, the ITO was proceeding in the belief that the transaction belonged to Shri H.K. Rathi and Shri H.K. Rathi at no stage before the departmental authorities took the stand that the said paper did not pertain to him even though other papers forming part of the same bunch did pertain to him and he did explain the nature of the transactions entered into on the said papers. If the other papers pertained to him, the natural presumption in the mind of the ITO was that even paper No. 2 pertained to him. It was in this belief that the ITO persisted with the addition in question in the hand of Shri H.K. Rathi who never challenged it before the authorities below on the ground that the paper was not seized from him and, therefore, the onus to explain the nature of the transactions did not rest on him. He took this plea for the first time before the Tribunal and once the Tribunal recorded its finding accepting the above submission of Shri H.K. Rathi, the consciousness dawned on the ITO that the transaction in fact related to Shri Deepak Rathi and inasmuch as Shri Deepak Rathi had not disclosed the same in his original return, he took action against Shri Deepak Rathi under Section 147(a). To support the above contention, the learned departmental representative took us through the reasons recorded by the ITO and the assessment order subsequently passed in the case of Shri Deepak Rathi. Thus, according to the learned departmental representative a valid case of initiation of proceedings under Section 147(a) was made out by the ITO and the AAC was wrong in having quashed the same. While laying the charge of change of opinion at the door of the ITO, the learned AAC prima facie forgot to take note of the fact that it was not a mere change of opinion on the same facts, but that the change of opinion had come about after the finding of the Tribunal had been given in the case of Shri H.K. Rathi. The order of the Tribunal was a valid source of information with the ITO and he could act on the basis thereof as per the provisions of the law and so merely for the change of opinion, the order of the ITO could not have been quashed.
18. On behalf of the assessee, the above submissions were challenged as untenable. According to the learned counsel for the assessee, the Tribunal had not given any final finding of fact in the case of Shri H.K. Rathi that the transactions on page 2 pertained to Shri Deepak Rathi. They had merely pointed out that the said paper came from the custody of Shri Deepak Rathi and, therefore, the questions of the department should have been addressed to Shri Deepak Rathi rather than to Shri H.K. Rathi. Merely on the basis of this finding it could not be said that the Tribunal had held that what was reflected in the said paper was income and that it did not belong to Shri H.K. Rathi but to Shri Deepak Rathi. Initiation of proceedings against Shri Deepak Rathi on the basis of the findings of the Tribunal per se could not be justified. The Bench had merely noted an existing fact as manifest from the seizure memo on the question of recovery of the said paper from Shri Deepak Rathi. The fact of recovery of the said paper from Shri Deepak Rathi was already on record and if the ITO did not draw proper inferences from such recovery, he could not make up his inadvertence or oversight a pretext to have recourse to proceedings under Section 147(a). The existence of the said paper was all along known to the ITO and as such no new facts came to the notice of the ITO to justify action under Section 147(a).
19. The learned counsel also submitted that the provisions of Sub-section (4A) of Section 132 could not be invoked while making the assessment or reassessment for according to him, the said provisions had to be confined only to the proceedings under Section 132. In this connection, the learned counsel relied on the observations of their Lordships of the Hon'ble Punjab and Haryana High Court in the case of Joginder Singh v. CIT[ 1981] 128 ITR 14 wherein their Lordships have explained that Section 132 was itself a code and that no provisions of the Act outside Section 132 could be brought in. Emphasis was placed, inter alia, on the following observations :
... When Section 132 is considered as a whole, it reveals that it has its own procedure for the search, seizure, determination of the point in dispute, quantum to be retained and also the quantum of the tax and interest on the undisclosed income, in relation to the amounts seized. It has its own procedure for application under Sub-section (11) in the place of appeal. It has all the fortifications of a code. The general provisions of the Act like the assessment under Section 139, etc., cannot be invoked in this provision. This provision exists in complete isolation of the other provisions of the Income-tax Act and the general provisions of the Income-tax Act neither can creep from underneath these fortifications nor can overlook with favour or disfavour over these to influence the procedure or judgment in the proceeding under Section 132 of the Act. . . . (p. 25)
20. It was also expressed by the learned counsel for the assessee that onus was on the revenue to show that what had escaped was income and merely because some amount was there written on a piece of paper (being No. 2) it could not be inferred firstly that it was of income nature and secondly, that it was the income of the year under consideration and that unless the department discharged the burden with regard to the aforesaid two points, the ITO could not have formed the belief that the assessee's income for the previous year under consideration had escaped assessment. In support of the above proposition, the learned counsel relied upon the judgments of the Hon'ble Madras High Court in the case of E.M. Muthappa Chettiar v. CIT [1964] 53 ITR 642 at p. 650 and TS. PL. P. Chidambaram Chettiar's case (supra) at p. 780. According to the assessee, the said paper did not belong to him nor was it in his handwriting and so no addition could be made in his hands on the basis of such a paper. The learned counsel reiterated the principle that inadvertence of the ITO to do what he should have done to begin with at the time of making the original assessment could not become a ground of reopening the assessment. In this connection, he pointed out that the Hon'ble Supreme Court had reversed its earlier judgment in the case of Kalyanji Mavji & Co. v. CIT [1976] 102 ITR 287 vide their order in the case of Indian & Eastern Newspaper Society v.CiT [1979] 119 ITR 996 and that it was not possible for the ITO to cure the proceedings, if the defect was to begin with due to his negligence.
21. In rejoinder, the learned departmental representative repeated that the order of the Tribunal was a fresh piece of evidence and that from it the ITO learnt for the first time that the paper in question belonged to Shri Deepak Rathi and that rule as contained in Section 132(4A) was a rule of evidence and the said rule was available for making additions to the assessee's total income under various provisions of the Act and that even though it may not be possible for the other provisions of the Act to make inroad into Section 132, the provisions of Section 132 could certainly be made use of for making the assessment, for if that were not so, there would be no purpose whatsoever investing the Commissioner with the powers of search and seizure under Section 132. The only purpose of the said power was to call the same to aid of assessment and that the search and seizure was not done for their own sake. Therefore, such an interpretation as was suggested by the assessee's learned counsel on the provisions of Section 132 could not be accepted otherwise it will make the provisions of Section 132 absolutely unrelated with the purpose of tax administration under the Act. He also emphasised the fact that at the stage of formation of belief what had to be seen was the subjective condition of the ITO's mind and what the Court had to see was whether there was some objective material on record which could provide the nexus for the formation of the belief in his mind with regard to the escapement of income of the assessee from tax due to his omission or failure to disclose fully and truly all the primary facts necessary for his assessment and sufficiency of the evidence could not be gone into for determining the validity of the reassessment proceedings. The learned departmental representative, therefore, submitted that we should reverse the order of the learned AAC and uphold the initiation of proceedings under Section 147(a).
22. We have given careful consideration to the facts of the case and the rival submissions. In our opinion, for the reasons given hereafter, the initiation of proceedings under Section 147(a) was valid and the AAC erred in law and on facts in quashing the same.
23. It is important to remember that, at the time of initiation of proceedings under Section 147(a), the requirement is not that the ITO should have conclusive evidence with him and on this basis 'should believe' that there has been escapement of income of the assessee from assessment due to his omission or failure. The requirement is that he should have 'reasons to believe' (not that he 'should believe') that the assessee's income has escaped assessment due to his omission or failure. In other words, what has to be seen, at this stage is whether, prima facie, the ITO as a person of ordinary prudence, well instructed in law could tentatively form the opinion, on the basis of material before him that :
(1) there has been escapement of assessee's income from the assessment of his total income at the time of the original assessment, and (2) such escapement has happened due to the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment.
Thus, what one has to look for while examining the validity of initiation of proceedings under Section 147(a) is whether there is any objective material on record and whether there is any nexus in the said material and formation of belief by the ITO. If there is such nexus, the initiation is valid and it is not open to the appellate authority then to go into the question of sufficiency of evidence. That will be gone into later, after the proceedings have been initiated, and they are in progress. Attention should, therefore, be focussed at the state of mind of the ITO at the time of initiation of proceedings, and see whether his subjectivity has a perceptible link with the objective material on record.
24. In this case, the objective material on record, as brought out by the ITO in his reasons consists of the following facts :
(1) That there was a search at the residential premises shared by Shri Deepak Rathi and his father Shri H.K. Rathi in November 1975.
(2) That during this search certain incriminating documents were seized which contained, inter alia, a loose paper, being paper No. 2 containing three transactions amounting to Rs. 71,996.
(3) That an addition of Rs. 71,996 was made to the total income of Shri H.K. Rathi for the assessment year 1976-77 as the said assessee failed to explain the nature of these transactions, (4) That the said addition has been deleted by the Tribunal, observing that the said paper was neither seized from Shri H.K. Rathi, nor was it in his handwriting, and that it was seized 'from the possession of Shri Deepak Rathi' and that the Tribunal could understand a person whose premises are searched and some papers are seized being asked to explain the contents thereof.
(5) That in view of the above rinding of the Tribunal, 'the assessment proceedings of Shri Deepak Rathi for assessment year 1976-77 need to be reopened to bring into these unexplained transactions of Rs. 71,996 to taxation'.
What the ITO, therefore, had before him was :
(1) the A.O. of Shri H.K. Rathi containing all the reasoning and the finding based thereon, that the transactions of the value of Rs. 71,996 noted on seized paper No. 2 remained unexplained and that they bore the character of income pertaining to the assessment year 1976-77.
(2) The original A.O. of Shri Deepak Rathi showing that he had not disclosed the above income in his return.
(3) The record of original assessment proceedings showing that Shri Deepak Rathi had never been questioned with regard to the above transactions, nor had he ever owned up the said transactions suo motu, and (4) The finding of the Tribunal in the case of Shri H.K. Rathi that only that person from whom the said paper had been seized could have been asked to explain the contents of the said paper, and that it was Shri Deepak Rathi from whom the said paper had been seized.
25. On the basis of the above objective material, the ITO formed his subjective belief that prima facie the assessee's income for the assessment year 1976-77 had escaped assessment due to omission and failure on his part to declare the said transactions. We see no basis for holding that there is no nexus between the above objective material and the formation of the belief by the ITO, There is clear-cut nexus between the two. That the transactions recorded at paper No. 2 reflected items of income nature was clear to the ITO from the finding given by him in the case of Shri H.K. Rathi both under Sections 132(5) and 143(3). He had included the said income in the total income of Shri H.K. Rathi under the mistaken belief that the said paper belonged to him and that, therefore, it was for him to explain the nature and source thereof. In our opinion, such a finding could not be prima facie faulted because the narration on the said paper indicated that, to earn the said income, the assessee had to pay dalali. When, prima facie, a certain transaction is discovered to be of income nature, the primary onus, which was on the department, namely, to show that the item in question bore the character of income, stood, in our opinion, discharged. That the said income accrued and arose to the assessee during the previous year is a presumption raised by the ITO on the basis of the recovery of the said paper from the custody of the assessee during the previous year in question. It will not be possible for us to hold that such an inference could not have been drawn by the ITO for the purpose of initiation of proceedings under Section 147(a). The order of the Tribunal in the case of Shri H.K. Rathi explained that the said paper No. 2 was not seized from Shri H.K. Rathi nor was it in his handwriting and so no onus lay on Shri H.K. Rathi to explain the transactions in question. According to the Tribunal the person from whom the said paper was seized had the onus of explaining the said transactions. They also pointed out that it was from the possession of Shri Deepak Rathi that the said paper was recovered. We have, therefore, to see whether on being instructed as above by the Tribunal's order, the ITO could hold the reasons to believe in terms of Section 147(a) in the assessee's case as held by him. The Tribunal's order without doubt can be a source of instruction for the ITO. On its basis, the ITO felt that it was for Shri Deepak Rathi to explain the contents of paper No. 2, seized from him. This impression could not be said to be incorrect. We also get similar impression from the reading of the said order, the ITO was, therefore, justified in tentatively believing that the income reflected from the transactions contained on paper No. 2 should have been explained by Shri Deepak Rathi and inasmuch as he did not disclose it in his original return, his income prima facie, escaped assessment for the assessment year 1976-77.
26. The contention of the learned counsel for the assessee that the Tribunal had not given any final finding of fact on this subject and that it had merely stated what was obvious from the record does not appeal to us. From the orders of the ITO, passed under Section 132(5) as well as under Section 143(3) in the case of Shri H.K. Rathi, it is obvious that the papers, to which the ITO was addressing himself, and which, according to the Tribunal, were recovered from Shri Deepak Rathi, were 8 in number.
Of the said papers, all but paper No. 2 related to Shri H.K. Rathi, and he did explain the nature of the transactions covered by the said papers. Thus, page 1 contained transactions regarding making of silver bowl which was explained by Shri H.K. Rathi, and in support of which he filed a certificate and copy of the order, from one Shalegram & Sons. Paper No. 3 was an ayurvedic prescription, and Shri H.K. Rathi explained it also. Pages 4 to 8 contained transactions in respect of sale of scrap, which were also explained by Shri H.K. Rathi. Thus, when, out of 8 papers, 7 were pertaining to Shri H.K. Rathi and were explained by him, the ITO could not be said to be acting contrary to the doctrine of preponderance of probability, if he presumed that even page 2 belonged to Shri H.K. Rathi, to whom the remaining 7 papers admittedly pertained, and which were explained by him. It was in these circumstances that the ITO originally formed the belief that page 2 belonged to Shri H.K. Rathi, even though it might have been recovered from Shri Deepak Rathi, and so he addressed his queries with regard to the transactions on the said paper to Shri H.K. Rathi and not to Shri Deepak Rathi. It was only when the Tribunal gave the rinding in the appeal of Shri H.K. Rathi that the queries with regard to the said paper should not have been referred to Shri H.K. Rathi but should have been referred, if at all, to Shri Deepak Rathi, that the ITO became alive to the correct factual and legal position. Thereafter, he acted on the basis of the findings of the Tribunal and initiated the impugned proceedings. Initiating the proceedings in the aforesaid circumstances, cannot in our opinion, be regarded as erroneous and based on a mere change of opinion. It was not really a change of opinion, but a quest for finding out the reality. Even otherwise we notice that Shri H.K. Rathi never took the plea before the ITO, or for that matter, even before the Commissioner (Appeals), either in proceedings under Section 132(5) or in proceedings under Section 143(3) that the said paper did not pertain to him and, therefore, he would not give any reply with regard thereto. On the other hand, he did give certain replies to the ITO and to the notified authority under Section 132 (11) as is clear from the note submitted by him to the notified authority. In these circumstances, it is not surprising that the ITO persisted with his belief that the said paper, along with the remaining 7 papers, though recovered from Shri Deepak Rathi, pertained to him. That this was in fact not so became clear to him, as noted earlier, from the order of the Tribunal and it was, therefore, on the basis of the order of the Tribunal that the reassessment proceedings were initiated by him, and, in our opinion, correctly.
27. The argument of the assessee that the ITO had committed inadvertence in this case or there was an oversight on his part does not convince us. On the basis of the facts noted above, it does not appear to us to be a case of either invadvertence or oversight. The recovery of the said paper was very much within the knowledge of the ITO and he acted on it to the best of his understanding. To say, therefore, that it was a case of oversight or inadvertence would not be correct. It is a case where his conclusion that the paper pertained to Shri H.K. Rathi was corrected by the Tribunal, who held that the said paper was recovered from the possession of Shri Deepak Rathi and it was he to whom the queries should be addressed with regard thereto. The ITO, thereupon turned to Shri Deepak Rathi and inasmuch as Shri Deepak Rathi had not disclosed the transactions in question in his original return, he came, according to us, within the mischief of Clause (a) of Section 147.
28. It is important to note in this connection that there is no evidence whatsoever on record to suggest even remotely that the said paper No. 2 was put across to Shri Deepak Rathi at any stage under the belief that it might pertain to him. All the 8 papers were put across to Shri H.K. Rathi only. There can, therefore, be no question of there being any formation of opinion in respect thereto in the case of the assessee. The ITO laboured under the impression, right from the beginning that all the 8 papers, referred to above, pertained to Shri H.K. Rathi. As explained above, the ITO had strong reasons to adopt that line. He did not examine the possibility that one paper out of eight might pertain to Shri Deepak Rathi. It is, therefore, wrong to presume that the ITO had made the enquiry if the paper No. 2 belonged to Shri H.K. Rathi or Shri Deepak Rathi, and then decided that it belonged to Shri H.K. Rathi and not to Shri Deepak Rathi. If he had adopted this course, it might have been plausibly suggested that he had taken a conscious decision that the paper pertained to Shri H.K. Rathi and not to Shri Deepak Rathi. The possibility that it might belong to Shri Deepak Rathi never crossed the mind of the ITO. This factual position becomes abundantly clear from the proceedings under Sections 132 and 143, as noted above in the cases both of the assessee and Shri H.K. Rathi which were carried on simultaneously. The suggestion as to change of opinion on the part of the ITO, in the circumstances, does not sound credible. When there was no opinion formation in this regard at the stage of initial assessment proceedings, and no questions regarding paper No. 2 were put to Shri Deepak Rathi, and he on his own did nothing to explain the said paper, it may not be possible to say that Shri Deepak Rathi had placed all the relevant primary facts on record suo motu or that the relevant facts were within the knowledge of the ITO and yet he left them out of account.
29. The argument based on the provisions of Section 132 not being available for the purpose of making the assessment has merely to be stated to be rejected, for their Lordships of the Hon'ble Punjab and Haryana High Court never made such a statement in Joginder Singh's case (supra). What their Lordships were saying was that the provisions of Sections 139 and 148 could not be imparted into Section 132 via the provisions of Sub-section (5) of Section 124 of the Act to determine as to whether provisions of Sub-section (1) of Section 124 applied to a case, when the jurisdiction of the ITO was challenged by the assessee with regard to the making of assessment under Section 132. To read into the ratio of such a case, the principle that the provisions of Section 132 stood in isolation and could not be related to the provisions of Section 143 or 144 or 147 is not warranted. In fact the entire purpose of an operation under Section 132 is to make an effective assessment under Section 143 with regard to the assessee's real income. If the information discovered through the proceedings under Section 132 could not be made use of for the purpose of making regular assessments, the entire rationale of Section 132 would be negatived. We cannot interpret the provisions of Section 132 in such a manner.
30. The above legal position apart, we see no relevance of this argument with the question of validity of reopening the assessment under Section 147(a) on the facts of the present case. As pointed out earlier, for this purpose, we have to see whether there was any objective basis for the ITO's formation of the belief that the assessee's income had escaped assessment for the relevant assessment year. For ascertaining as to what was the basis of the formation of the ITO's belief, we have merely to look at the reasons recorded by him. A perusal thereof clearly shows that he took no assistance from Section 132(4A) for this purpose. He looked at the Tribunal's order and the assessment orders of Shri H.K. Rathi, and the original return of income filed by Shri Deepak Rathi and on their basis he formed his belief under Section 147(a) and we have held above the reopening on this basis as valid.
31. For the reasons stated above, we hold that the order of the learned AAC is unsustainable in law and on facts and, accordingly, we reverse it and sustain the initiation of proceedings under Section 147(a) in the present case.
32. In the result, the departmental appeal stands allowed.