Income Tax Appellate Tribunal - Delhi
Smt. Shanti Devi vs Assistant Commissioner Of Income-Tax on 26 November, 1993
Equivalent citations: [1994]49ITD402(DELHI)
ORDER
N.S. Chopra, Accountant Member
1. These two appeals are filed by the assessee against order dated 17-8-1992 and 23-11-1990 of the learned CIT (Appeals). Both these appeals are, therefore, consolidated and disposed of by this common order.
I.T.A. No. 7171/Del/92:
2. First ground of appeal is against initiation of reassessment proceedings under Section 147/148 of the IT Act. The relevant facts are that the assessee is an individual having income from trading in wool, manufacturing and sale of wool tops and yarn. In his case, original assessment was framed under Section 143(1) on 31-3-1986 accepting the returned loss of Rs. 92.
3. Action under Section 132 was taken against the assessee when his business and residential premises were searched on 29-8-1986 and certain loose papers seized. One such paper (given No. 97 of Document No. 5), contain entries aggregating to Rs. 8,06,900. For want of satisfactory explanation from assessee regarding the nature of the paper and entries recorded thereon, the Assessing Officer believed that income chargeable to tax to the tune of Rs. 8,06,900 had escaped assessment. On the basis of this paper, the assessment was, therefore, reopened by the Assessing Officer after recording necessary reasons on 5-1-1990. Consequently, a notice under Section 148 was served on 8-1-1990 on the legal heir of the assessee who had in the meanwhile expired on 10-8-1988. The assessee filed his return again returning a loss of Rs. 92. In the order of reassessment, assessee's income stands computed at Rs. 10,55,270. The assessee went in appeal before the learned CIT(A) also challenging the reopening of the assessment when it was submitted that the basis of reopening was the loose papers found at the time of search which according to the assessee did not belong to him and, therefore, there opening of assessment was unjustified. This contention of the assessee was rejected by the learned CIT (Appeals). The assessee is in appeal.
4. Shri Ganeshan, the learned AR for the assessee submitted that the reopening of the assessment under Section 147 was without authority of law as also the subsequent assessment framed. Shri Ganeshan submitted that Section 147 stood amended w.e.f. 1-4-1989 and, therefore, the provisions of amended section came into play as reasons for reopening stood stand recorded after 1-4-1989, i.e., on 5-1-1990 as also the consequential notice under Section 148, second on 8-1-1990. Shri Ganeshan referred to the amended provisions of Section 147 and submitted that there was no material with the Assessing Officer which enabled him to have 'reason to believe' that any income chargeable to tax has escaped assessment for the relevant assessment year. He argued that the only basis for reopening was the loose paper No. 97 recovered at the time of search from the guest room of the assessee's residence. Shri Ganeshan submitted that during the course of proceedings under Section 132(5), the assessee in his affidavit dated 22-12-1986 had completely disowned this paper. Shri Ganeshan took us through the affidavit of late Shri Suraj Bhan in particular to para 2 thereof wherein the late Shri Suraj Bhan solemnly affirmed and declared that "Sr. Nos. 95, 96 and 97" of document No. 5 is neither in my handwriting nor the handwriting of any employees of mine. I have absolutely no interest in these documents may be due to mischief of some miscreants". Shri Ganeshan also referred to para 1 of the affirmation of Shri Suraj Bhan in the said affidavit regarding Sr. Nos. 31 to 37 of the document No. 5 and submitted that the deposition of Shri Suraj Bhan on this count has been duly accepted by the Assessing Officer. Shri Ganeshan submitted that strangely enough the affirmation of Shri Suraj Bhan in the same affidavit with regard to Sr. Nos. 95, 96 and 97 of document No. 5 has not been accepted even though late Shri Suraj Bhan categorically denied any connection whatsoever with these documents, recovered from the same premises and under similar circumstances, as papers bearing Sr. Nos. 31 to 37. Shri Ganeshan submitted that the authorities below have taken the view that the presumption under Section 132(4A) is applicable even in proceedings under Section 143(3). According to Shri Ganeshan, this view of the revenue is wholly erroneous and not permissible under the law. According to Shri Ganeshan, the presumption under Section 132(4A) is limited only for the purposes of proceedings under Section 122 and no more. In this connection, Shri Ganeshan invited our attention to the judgment of Allahabad High Court in the case of Pushkar Narain Sarraf v. CIT[ 1990] 183 ITR 388.This apart Shri Ganeshan submitted that the presumption under Section 132(4A) is a rebutable presumption and late Shri Suraj Bhan duly filed his sworn affidavit dated 22-12-1986 disowning the papers involved and the revenue has done nothing to controvert the contents of the affidavit of late Shri Suraj Bhan. According to Shri Ganeshan, the revenue did not even examine the late Shri Suraj Bhan till he died on 10-8-1988 when the search had taken place about two years earlier, i.e., on 29-8-1986. He submitted that the revenue has merely made the seized papers a pretence to reopen the proceedings which is not permissible under the law. Shri Ganeshan invited our attention to the ratio of Hon'ble Supreme Court in S. Narayanappa v. CIT [1967] 63 ITR 219 as also ITO v. Lakhmani Mewal Das [1976] 103 ITR 437. Shri Ganeshan also invited our attention to the judgment of the Hon'ble Supreme Court in the case of Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456. Thus, according to Shri Ganeshan, there is no material in the possession of the Assessing Officer which could legally enable him to have "reason to believe" that any income chargeable to tax has escaped assessment as according to Shri Ganeshan the basis for reopening of assessment is only loose papers which is in the circumstances of the case, have no probative value justifying reopening of the assessment. Thus, according to Shri Ganeshan, reopening of assessment is bad in law. Shri Ganeshan also took us through his paper book and in particular to the copies of the seized papers and submitted that the revenue has brought no evidence on record to establish a nexus between the contents of the loose papers and the assessee muchless the business of the assessee. Shri Ganeshan also invited our attention to the Bangalore Bench of the Tribunal's order in the case of Addl. ITO v. T. Mudduveerappa Sons [1993] 114 Taxation (Trib.) 68. He also referred to Delhi Bench Order in the case of Raj Pal Singh Ram Autarv. ITO [1991] 39 TTJ (Delhi) 544. Further Shri Ganeshan refers to order of the learned CIT(A) in appeal of the assessee for assessment year 1986-87 wherein the contention of the assessee that the loose paper does not show whether the amount had been borrowed or lent by the assessee is found correct. According to Shri Ganeshan, when the very contents of the loose papers indicate nothing and the very nature thereof is doubtful, it could not be a legitimate basis for invoking the provisions of Section 147 of the Act.
5. The learned DR supported the orders of the authorities below and submitted that the basis of reopening is valid in the eyes of law.
6. We have heard both the parties carefully at length and have also perused the relevant record including the paper book filed by Shri Ganeshan. The only basis for reopening of the assessment is loose paper No. 97 found at the time of search from the guest room of assessee's residence, as is noticed from the order of assessment. We have also gone through the reasons recorded by the Assessing Officer for reopening of assessment (page 6 of paper book). That the paper in question is not. in the hand of the assessee is not controverted by the revenue. A bare perusal of this paper reveals that it is indicative of nothing which could even remotely connect its contents with the assessee or his business. The assessee's affidavit denying any connection with this paper under the circumstances cannot be brushed aside lightly. It is also settled law that presumption under Section 132(4A) is available for the limited purpose of proceeding under Section 132 and no more in the case of Pushkar Narain Sarrqf (supra), it has been held that "we are clearly of the opinion that the presumption arising under Section 132(4A) is available only in regard to and in the context of search and seizure. Sections 132 to 132B of the Income-tax Act, in our opinion, embody an integrated scheme laying down comprehensively the procedure for search and seizure and the power of the authorities making the search and seizure to order the confiscation of the assets under Sub-section (4A) of Section 132 applied only in relation to the provisional adjudication which is contemplated under Sub-section (5) of Section 132". The assessee on his part rebutted the presumption of ownership in the form of a sworn affidavit. The amended provisions of the Section 147 provide for assessment of escaped income if the Assessing Officer "has reason to believe" that any income chargeable to tax has escaped assessment. ... It is, therefore, to be seen as to whether the contents of Paper No. 97 could legitimately form the basis for the Assessing Officer to have "reason to believe" that any income chargeable to tax has escaped assessment justifying reopening of the assessment. As already mentioned the contents of the paper not only reveals no connection whatsoever with the assessee, the assessee himself has denied any link or connection with the said paper in the form of his affidavit. The Assessing Officer has done nothing to bring any material on record to establish any connection between the assessee and the said paper even a remote connection. The Hon'ble Supreme Court in the case of Lakhmani Mewal Das (supra) have held that the "reasons for the formation of the belief contemplated by Section 147(a) of the Income-tax Act, 1961 for the reopening of assessment must have a rational connection or relevant bearing on the formation of the belief". According to the Hon'ble Supreme Court "rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of the belief that there has been escapement of the income of the assessee". It further held that "it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched which would warrant formation of the belief relating to escapement of income of the assessee from assessment". The Hon'ble Supreme Court further held that "the reason for the formation of the belief must be held in good faith and should not be a mere pretence".
Further in the case of Phool Chand Bajrang Lal (supra), it is held that an ITO acquires jurisdiction to reopen an assessment under Section 147(a) only if, on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons which he must record to believe that assessee's income chargeable to tax has escaped assessment. It is further held "Since the belief is that of the ITO, sufficiency of the reasons for forming the belief is not for the court to judge, but it is open to an assessee to establish that there in fact existed no belief or that the belief was not a bona fide one or was based on vague, irrelevant and nonspecific information. To that limited extent, the court may look into the conclusion arrived at by the ITO and examine whether there was any material available on the record from which the requisite belief could be formed by the ITO and further whether that material had any rational connection with or a live link for the formation of the requisite belief."
7. Therefore, it is settled law that reasons to belief must be based on definite, specific, reliable and relevant information. In our view, the loose paper bearing No. 97 does not qualify to constitute an acceptable basis for reopening of assessment. We accordingly find substance in the submissions made by the learned AR for the assessee and hold that the reopening was without authority of law and consequently notice issued under Section 148 deserves to be quashed as also the reassessment order.
8. On merit, the assessee is aggrieved with addition of Rs. 8,06,900 and Rs. 75,649. These are based on loose papers bearing Nos. 97, 95 and 96. We have already held that loose paper No. 97 has no probative value and, therefore, any addition made on the basis thereof deserves to be deleted. It is deleted.
9. As regards addition of Rs. 75,649 based on the loose paper Nos. 95 and 96, here again we find that the assessee in a sworn affidavit has denied any link whatsoever with these papers and the additions have been made by the Assessing Officer on the basis of presumption available under Section 132(4A). We have also already held that presumption under Section 132(4A) is limited for the purposes of proceedings under Section 132 and has nothing to do while framing the regular assessment under Section 143(3). The Assessing Officer has done nothing to establish the contents of the paper with the assessee. We accordingly delete this addition also.
10. Ground No. 4 is against disallowance of stock loss of Rs. 1,79,480. The assessee claimed a loss of Rs. 1,79,480 by debit to his profit and loss account being the value of goods imported but surrendered at port. The Assessing Officer held that the loss could not be allowed having been incurred on account of infraction of law. The action of the Assessing officer was upheld in appeal by the learned CIT(A). Shri Ganeshan submitted that the imports made by the assessee are bona fide and the goods stood imported after following the prescribed procedure. He submitted that the goods were imported during the normal course of assessee's business and it was the fault of the supplier that the goods sent were different from that ordered. Shri Ganeshan submitted that the goods imported having been found of no value by the assessee, we surrendered to the customs authorities. In this connection, Shri Ganeshan has invited our attention to the order of the Addl. Collector of Customs, Bombay. The learned DR submitted that it was manifest that the assessee had imported the goods involved in infraction of law and the competent authority having gone into the depth of the matter and by conducting enquiries and investigations had recorded a finding of fact that the assessee had committed an offence and stood to gain substantially, had he succeeded in his design. He submitted that the customs authorities did not even allow compounding of the offence. This according to the learned DR established the mala fide on the part of the assessee. Therefore, according to the learned DR, the amount involved did not represent business loss.
11. We have heard both the parties and have perused the relevant record including the order of the learned Addl. Collector of Customs.
12. The facts which emerge from the order dated 2-9-1984 of the Addl. Collector of Customs are that the assessee placed an order for import of 57 balls of white wool waste. The indent for import was placed through the indenting agent M/s. Narinder Nath & Sons and the supplier of exporters, namely, M/s. Hanfred & Co., New York. The assessee opened a letter of credit with Oriental Bank of Commerce. The imports landed in India in February 1984. The Customs Authorities noted that while the import was for white wool waste as was also the declaration given by the assessee, the consignment, in fact, contained synthetic waste, which carried a higher incidence of customs duty as compared to the same on white wool waste. The Customs Authorities started investigations and issued summons to the Bankers of the assessee on 5-7-1984 and subsequently to the assessee on 3-8-1984. The Customs Authorities also recorded the statements of Manager of the Clearing House Agency Mr. Kamal Aggarwal and Shri Vinod Kumar of the assessee on 21st August, 1984. The Customs Authorities also carried out physical and laboratory tests of imports and found that the assessee had filed a misdeclaration of the contents of the imports which constituted an offence and rendered the goods liable to confiscation. The authorities gave necessary opportunity of being heard to the assessee who made written submissions on 28th September, 1984 denying that there had been any misdeclaration on his part. It was broadly submitted that the assessee had placed order for white thread wool waste on the New York party through their indenting agent and proper procedure was followed as also a letter of credit was opened through the normal banking channels. It was submitted that the consignment arrived some time in February 1984 and the assessee received shipment samples from the indenting agency on 15-2-1984. Seeing that the sample sent was different from the item for which order was placed for importing, the assessee took up the matter with the indenting agent on 22-2-1984, pointing out that what was supplied was not what was indented for. The assessee followed with a reminder on 5-3-1984 again on 28-3-1984. On 3rd April, 1984, the agent informed the assessee that they have not received any reply from the supplier and advised the assessee to contact the supplier directly. This was done by the assessee on 9th April, 1984 asking them to clarify why there was a difference between the shipment sample and the basic sample. There being no reply a reminder was sent on 8-5-1984. It was thus submitted that the assessee was already in correspondence with the concerned parties to clarify the position. It was also submitted that the goods sent were of no use to the assessee and he surrendered the same to the customs. The submissions made by the assessee were considered as unacceptable by the learned Collector of Customs who termed the correspondence referred to by the assessee in his written submission as an afterthought having been initiated only after the department took up the investigations. He held the assessee by misdeclaration had made an attempt to avoid proper incidence of duty as also had violated the relevant import rules. He ordered the confiscation of the goods as also imposed a personal penalty. As is seen from the facts contained in the order of the learned Collector of Customs, the contention of the assessee that it had already undertaken correspondence with the concerned parties to clarify the position regarding difference in order placed and the supply effected, was not repelled by any positive and independent evidence. The submissions made by the assessee are held merely as an afterthought without controverting the correspondence which the assessee carried out with his indenting agent as also with the supplier. On a consideration of relevant facts and circumstances, we are of the view that the import made by the assessee was bona fide and made in the normal course of his business and the fact that the supplier supplied something different from the item indented for, would not render the claim of the assessee inadmissible, there being no independent evidence brought on record by the revenue, in support of rejection of claim of the assessee. The rejection is based entirely on the orders passed by the Customs Authorities. This is not permissible as the Assessing Officer ought to have been applied his own mind on the given set of facts and circumstances to find out as to whether the claim was admissible under the Income-tax Act or not. In our view, the claim is fully admissible as a business loss having been incurred during the normal course of assessee's business. We, therefore, delete the addition made.
13. The last grievance of the assessee is against disallowance of travelling expenses Rs. 2,000 and telephone expenses Rs. 1,500. The learned AR submitted that there was no justification for the disallowance since no non-business element is involved in the expenditure claimed,
14. We have heard both the parties. We find that no specifics have been pointed out by the authorities below justifying the disallowance. The same are deleted.
15. In the result, the appeal is fully allowed. I.T.A. No. 2030/Del/91
16. This appeal of the assessee is against order dated 23rd November, 1990 of the learned CIT(A). First grievance of the assessee is that the CIT(A) erred in not completely deleting the interest of Rs. 70,788 on amount of Rs. 7,35,000 and reducing the same to Rs. 53,091.
17. The Assessing Officer made an addition of Rs. 70,788 being interest at the rate of 12% on the opening balance as on 1-4-1985 of Rs. 5,89,900 as appearing on a loose paper found at the time of search at the residence of the assessee on 29th August, 1986. This was treated as assessee's income by way of interest on the amount of Rs. 5,89,900 advanced outside books of account.
18. The matter was taken up in appeal before the learned CIT(A) who rejected the assessee's contention that the loose paper in question did not belong to him, as according to the learned CIT(A), the assessee's denial that the loose paper in question did not belong to him could not be accepted in view of the provisions of Section 132(4A) of the Income-tax Act, 1961. However, the learned CIT(A) agreed with the contention of the assessee that the loose paper did not show whether the amount had been borrowed or lent by the appellant. Nevertheless, the learned CIT(A) took the view that this did not matter as even if the assessee "is considered to have borrowed this amount outside the books of account, even then income in respect thereof will have to be estimated as the appellant could only have borrowed the amount for investment in the business outside the books of account."
He, however, reduced the amount of interest to Rs. 53,091 being interest shown up to 31-12-1985 on the said loose paper. The assessee in appeal.
19. Shri Ganeshan assailed the action of authorities below and contended that the loose paper in question is No. 97. He submitted that the action of authorities below is inconsistent as also illegal. He submitted that the presumption under Section 132(4A) is not available insofar as proceedings under Section 143(3) are concerned. In this connection, he reiterated his submission made on this very issue as also on the probaty of this very loose paper while arguing his appeal for the immediately preceding assessment year. He submitted that it was very strange that without knowing for certain as to whether the paper belonged to the assessee or not as also as to whether the entries represented debits or credits, the authorities below went on to make the impugned addition. This according to Shri Ganeshan is wholly impermissible under law. The learned DR supported the order of the learned CIT(A).
20. We have heard both the parties and have also perused the relevant record. In our order on assessee's ITA No. 7171/Del/92, we have already held that paper No. 97 has no probative value and, therefore, action of the Assessing Officer as also the learned CIT(A) in making any addition on the basis thereof is unjustified. The addition of Rs. 53,091 is, therefore, deleted.
21. The next grievance of the assessee is that the CIT(A) erred in not deleting the addition of Rs. 11,300 out of the total addition of Rs. 20,000 made by the Assessing Officer as income from undisclosed sources on account of investments made on Colour TV and VCR discovered at the time of search. The Assessing Officer made an addition of Rs. 20,000 being the unexplained investment on a Colour TV and a VCR. The matter was taken in appeal before the learned CIT(A) who noticed that the Colour TV was, in fact, purchased by Smt. Shashi Singla, the assessee's daughter-in-law. He deleted the addition of Rs. 8,705 being the value of Colour TV. He, however, did not accept the contention of the assessee that the VCR also belongs to Smt. Shashi Singla who had purchased the same out of various gifts received by her on various occasions. The learned AR submitted that the view taken by the learned CIT(A) is inconsistent as also unjustified. He submitted that while the learned CIT(A) accepts that the TV belongs to Smt. Shashi Singla, he did not believe that VCR also belongs to her. He submitted that the assessee is a man of status and it is not improbable for his daughter-in-law to have received gifts on various occasions to enable her to buy a VCR for use with the TV. The learned DR supported the order of the learned CIT(A).
22. We have heard both the parties and have perused the relevant record. We are unable to sustain this addition for the reason that once having accepted that the colour TV was owned by Smt. Shashi Singla, it was not improbable to hold that the VCR also belongs to her since a VCR by itself has no meaning. This has to be used alongwith the TV. We, therefore, find merit in the statement made by Shri Ganeshan and delete the addition of Rs. 11,300.
23. In the result, both the appeals are fully allowed.