Vildirect: IncomeTax-caselaws-1991-VIL-117-ITAT-JAI

1991-VIL-117-ITAT-JAI

Equivalent Citation: TTJ 040, 381,

Income Tax Appellate Tribunal JAIPUR

Date: 08.03.1991

NARAIN SINGH BHATI.

ASSISTANT COMMISSIONER OF INCOME TAX.

BENCH

Member(s) : V. P. ELHENCE., J. K. VERMA.

JUDGMENT

All these appeals are inter-linked, inasmuch as, they are all based on a search conducted at the residence of assessee. They are being disposed of by a common order for the sake of convenience.

2. The assessee was a Development Officer in the Life Insurance Corporation of India. For the asst. yr. 1981-82, he had filed a return of income on 28th Feb., 1983 showing an income of Rs. 20,000. The assessment was made on 16th March, 1984 at Rs. 28,856 which was subsequently reduced to Rs. 22,650 by the AAC. In these assessment proceedings the assessee had disclosed that the had constructed a house, total cost of construction of which was Rs. 1,31,160. The Assessing Officer had referred the matter to the Valuation Officer on 20th Oct., 1983. The Valuation Officer, after inspection of property, estimated the cost of construction at Rs. 1,64,000 vide his report dt. 10th Feb., 1984. The assessee submitted a report of a Registered Valuer which mentioned that the construction of house was commenced on 1st Feb., 1979. The Assessing Officer had completed the assessment taking into account assessee’s detailed explanation explaining the cost of construction of the house and sources of investment and had accepted the cost of construction of the house disclosed by the assessee.

3. For the asst. yr. 1984-85, assessee’s assessment was completed under s. 143(1) on 26th March, 1986. The income consisted of salary from LIC and income from SOP. For the asst. yr. 1986-87, the assessment had filed return of income at Rs. 51,780 on 19th Aug., 1987.

4. From 26th Aug., 1987 to 27th Aug., 1987 a search under s. 132(1) of the IT Act was conducted at the residence of the assessee and allegedly certain incriminating documents were discovered. It is alleged by the Revenue that on the basis of that evidence and statements of assessee and his wife recorded during the course of search so also the statement of some of assessee’s relations and statements of some independent parties, like Shri Amarchand Machhar and his son Shri Gopal Das Machar so also some other parties it was fund that assessee had made unaccounted investment in house and also made investment in property situated at Vidhya Park, as a result of which notice under s. 147(A) was issued to the assessee. For the asst. yr. 1981-82, the assessment was made on a total income of Rs. 2,44,285 which included Rs. 1,33,076 as undisclosed investment in construction of house and Rs. 88,659 as undisclosed investment in construction of house and Rs. 88,659 as undisclosed investment in purchase of property at Vidhya Park, Jodhpur. For the asst. yr. 1984-85, the assessment was completed on an income of Rs. 2,49,865 which included Rs. 2,26,000 as income from land dealing business. This assessment, as per Assessing Officer’s order, had been reopened because—

"Order under s. 132(5) passed and as a regard of it proceedings under s. 148 were initiated for asst. yr. 1984-85".

Assessment for the asst. yr. 1987-88 was completed on a total income of Rs. 1,76,859 which included income from undisclosed sources being expenses allegedly incurred in the marriage of daughter Rs. 1 lakh.

5. In the appeals filed by the assessee while the learned CIT(A) substantially upheld the action of the Assessing Officer, some relief in terms of quantum was allowed.

Asst. yr. 1981-82

6. In this background it has been argued by the learned counsel for the as that the initiation of proceedings under s. 147(A) of the IT Act is illegal and invalid and for that reason alone the assessment framed by the Assessing Officer deserve to be quashed. The submitted that at time of original assessment the assessee had disclosed before the Assessing Officer that he had constructed a house, the details of which were filed, a report of the Registered Valuer was filed, the diary and bills were shown to the Assessing Officer to prove the correctness of the investment made by him. The Assessing Officer had not only considered all the facts himself but had obtained the opinion of the Valuation Officer, who had personally inspected the property and had there after given report, according to which the estimated cost of construction was Rs. 1,64,000. Thereafter, the assessee had filed objections and had produced the diary and the bills and after taking all these facts into account the Assessing Officer had accepted assessee’s disclosed cost of construction and had specifically written in the assessment order. "The assessee had maintained vouchers, day-to-day expenses which go to show that the property was constructed under the self-supervision and as such the assessee’s claim seems to be correct....". he submitted that in the search under s. 132(1) the diary marked as Annexure A-10 and bills, vouchers, etc. Marked as Annexure A-11 were discovered. He submitted that as per the order of the CIT(A) the reason for proceedings under s. 147(A) was that "that information so found in respect of the details of the cost of construction incurred by the appellant was the basis on account of which the understatement was clearly proved and in view of the same, the action as initiated under s. 148 was well within four corners of law and was justified". He submitted that on the basis of information action can be taken under s. 147(B) but action under s. 147(B) was barred by limitation on 31st March, 1986 and hence, if the proceedings were under s. 147(B) they were barred by time. On the other had, if the proceedings were under s. 147(A), they could not have been taken because the assessee had firstly disclosed the construction of the house and the expenses incurred therein and the basis, i.e., the diary, vouchers, etc. For proving his expenses and since the assessee had disclosed all the primary facts, action under s. 147(A) could not be taken. He argued tha the basis for action under s. 147(A) proceedings is assessee’s failure to disclose truly and fully all the material facts and the basis for action under s. 147(B) is the information which the Assessing Officer may get. Thus, according to the learned counsel, in this case 147(a) did not apply because the assessee had furnished all the material facts truly nad fully and 147(b) was, in any case, barred by limitation. Hence, he pleaded that the assessment should be annulled. Shri Jain, the learned counsel for ITO & Ors. (1981) 22 CTR (SC) 112: (1981) 130 ITR 1 (SC), ITO vs. Lakhmani Mewal Das 1976 CTR (SC) 220 : (1976) 103 ITR 437 (SC) and Jawaharlal Daryavbuxmal vs. CIT (1982) 31 CTR (MP) 282 : (1982) 137 ITR 54 (MP) for his pleadings on this point.

7. Coming to the merits of the case, the first point is regarding alleged undisclosed investment to ht tune Rs. 1,33,076 in the house property. He explained that the basis which the Revenue has taken is the Exhibit A-10, which is a Diary (Part ‘A’ pages 1 to 340 of the Pink Paper Book which also continues copies of seized documents and sale deeds filed by the assessee) in which the assessee had reported all the transactions mainly in respect of the construction of this souse and Exhibit A-11 (Part ‘B’ pages 1 to 148 of the above mentioned Pink Paper Book), which are the bills, vouchers, receipts challans and correspondence in respect of the expenditure incurred on the construction of the house. Shri Jain explained that in the first instance these bills, etc., pertain to asst. yr. 1979-80 to 1987-88, as per the details given on pages 19 to 31 to the first paper book filed by the assessee and hence, in any case even if the allegations of the Department that they were not accounted for and not disclosed, are accepted, the additions cannot be made in the asst. yr. 1981-82. Secondly, he explained that the transactions in respect of several items were not totalled up only twice not even three times but there are instances where the same item has been added even six times in order to work out the alleged investment in the construction of the house. He submitted that the finding of the learned CIT(A) that these transactions were recorded in Exhibit A-10 are not only erroneous but had been given without looking into those papers. Apart from the details of such instances which the assessment has given in the written submissions and the paper book No. 2 for this year, the learned counsel referred to some instances like page 11 (part 5) of the Pink Paper Book which is a receipt in respect of Bill No. 1922 for Rs. 291.50 and both have been added while arriving at the investment made by the assessee. He gave instances where amounts in copies of accounts have been added. He pointed out at page 60 of the Pink Paper Book an amount of Rs. 2,603.75 is the total of bill dt. 4th Jan., 1980 from M/s New Sanitary Pipe Stores. The final total from that party is on page 70 on bill dt. 4th Jan., 1980 where apart from the amount of that bill of Rs. 53.20, the amount of t his Rs. 2,603.75 has been given. Another item is Rs. 3,649.75 which is on page 73 of the paper book (bill dt. 4th Jan., 1980). Another item is Rs. 224.97 on page 72 of the paper book (bill of same) and Rs. 161.40 is on page 71 of the same paper book. All these items totalled up in the bill at page 70 and the to a comes to Rs. 6,692.77. while doing the totalling the amounts to those bills, namely, Rs. 2,603.75, Rs. 3,649.45, Rs. 224.97, and Rs. 161.40 have again been added to the amount of Rs. 6,622.77 by the Assessing Officer. He pointed out that, in fact, as worked out on page 18 of the First Paper Book the total of these 148 bills comes to only Rs. 73,719 and the bills pertaining to he period 1st April, 1980 to 31st March, 1981 are only Rs. 17,411.68. On pages 19 to 31 of the First Paper Book the as has given a break-up of these bills which have actually been considered and has reference to the diary of the assessee marked as Exhibit A-10 and on page 30 & 31 of Paper Book No. 2 the assessee has given bills, challans, receipts, etc. Which ought to have been excluded while considering explained investment. This total comes to Rs. 69,532.63. on pages 32 to 35, he has given instances of items which are recorded in the diary and which are reconciled with the items in Exhibit A-11 and has pointed out in respect of bills of different parties where instead of a figure of Rs. 9,043 in respect of Laxmi Timber Mart, total as per the Assessing Officer comes to Rs. 21,977; in place of Rs. 9,772 regarding sanitary Pipe Works, the total taken by Assessing Officer comes to Rs. 23,284; instead of Rs. 10,824 for Nova Trading c., the total by the Assessing Officer comes to Rs. 19,462 and for Rs. 1,792 for Hindustan Electric House, the total by Assessing Officer comes to Rs. 3,803. On pages 36 and 37 of the paper book No. 2, the assessee has given that as per Exhibit A-10, the to a comes to Rs. 1,52,236 out of which Rs. 10,714 pertains to asst. yrs. 1979-80, Rs. 1,00,729 to the asst. yr. 1980-81 and Rs. 51,507 pertains to asst. yr. 1981-82. He has give details that out of this amount of Rs. 1,52,236 the total amount of Rs. 7,845 pertained to household expenses and there remains a difference only Rs. 13,231 between the cost of construction shown by the assessee at Rs. 1,31,160 and Rs. 1,44,391 as per Exhibit A-10, i.e., Rs. 1,52,236 minus rks. 7,846= Rs. 1,44,391. Shri Jain argued that firstly this amount was set of against the amount of excess of advance given to labour, sale of some empty bags and sale of excess material, like store, patti, etc., yet if the worst presumption is made against the assessee, even this amount shall have to be broken up in three assessment years, namely, 1979-80, 1980-81 and 1981-82. The learned course further clarified that the CIT(A) was not correct in drawing the inference from the statement of the assessment regarding the Delhi Bills. What the assessment had stated was that although the amount of expenses of goods purchased at Delhi were recorded in his Diary (A-10), the assessee did not have those bills with him. The learned CIT(A) wrongly inferred that the assessee had accepted that the goods purchased at Delhi were not accounted for. In these circumstances, the learned counsel argued that even on merits the addition made by the Assessing Officer of up held by the CIT(A) (after giving a relief of Rs. 8,000 only) could also not be sustained.

8. The order addition of Rs. 88,559 according to the learned counsel can also not be sustained either legally or on facts. He explained that four lades, namely, Smt. Kamal Kanwar, wife of a Asstt. Engineer and Smt. Ichraj Kanwar, wife of an Agriculturist-cum-patwari had purchased some land from Shri Himmat Singh son of the former ruler of Jodhpur. In fact, the assessee was the Power of Attorney holder and these ladies were four of the 16 members representing three families who had purchased that land and had later on made plots out of that land and had sold them. The Assessing Officer has alleged that the assessee had made investment in the name of these four ladies who are his relations and has worked out the investment at Rs. 88,559 and has added it to assessee’s income. The learned counsel pointed out that in the first instance these lands were purchased in May, 1982 as is evident from the copies of sale deeds (Part ‘C’ of Pink Paper Book pages 1 to 94) and hence, they cannot be considered in the asst. yr. 1981-82. Secondly, there is no basis, as he would discuss while dealing with asst. yr. 1984-85, for upholding the allegation that those ladies were benamidars of assessee, particularly in view of the provisions of Benami Transactions (Prohibition) Act. He submitted that all the four ladies were the real owners of that property and they had admitted this fact. Smt. Kamal Kanwar is assessed to tax and had disclosed income from these transactions in her income-tax returns several years before the date of search. Her assessment order for asst. yr. 1980-81 was passed on 28th Feb., 1983 and her assessments for the asst. yrs. 1983-84, 1984-85 and 1985-86 in which she had disclosed the in and income from these transactions were filed and assessments were framed years before the date of search. The other three ladies had also accepted that they had mae the investment although they did not know abut ‘Vidhya Park" because that name was given to the colony only later on. The ladies in their statements had stated that they know about purchase of land near the Air force Station. It is further argued that the adverse inference had been drawn in respect f investment by Smt. Ichraj Kenwar and Smt. Girdhar Kanwar on the basis of statements recorded by an Inspector who was not authorised to record statements on oath. Moreover, the statements were recorded behind the back of the assessee and assessee was neither given a proper opportunity to cross-examine those ladies. In the case of Smt. Bhanwar Kanwar even the statement had not been recorded but only because she was involved in this deal than she happened to be relates to assessment it was inferred that the assessee had made the in the purchase of that land. On this basis, the learned counsel argued that these additions should also be deleted.

Asst. yr. 1984-85 :

9. For this assessment year also, the ld. Counsel raised the legal objection to the effect that he had not been communicated nor could he discover the reasons recorded by the Assessing Officer before initiating reassessment proceedings, he was given to understand that these proceedings were under s. 147(B). He submitted that there was no material with the Assessing Officer to form the belief that assessee’s income liable to assessment had escaped assessment he advanced similar arguments as for asst. yr. 1981-82 to plead that this assessment should also be quashed on grounds and again he relied on the same case law as was referred to while dealing with asst. yr. 1981-82. He pointed out that the addition of Rs. 2,26,000 consisted of Rs. 1,14,000 for alleged profits on the sale of land by four ladies, referred to above and Rs. 1,12,000 as undisclosed profits on the sale of the plots of land of those ladis. Shri Jain explained that these additions were based on the statement of Shr Amarchand Machhar and his son Shri Gopal Das Machhar who, according to Department, had surrendered Rs. 1,40,000 as undisclosed profits on their dealings in land during the course of a search at there place. He explained that the land purchased from Shri Himmat Singh, referred to above was purchased by sixteen persons. According to the allegation of the Revenue they represent three family groups of:

(1) Shri Ram Kishan Lila	50 %
(2) Shri Amarchand Machhar	25 %
(3) Assessee represented by the above mentioned four ladies	25 %

He explained that Revenue’s case is that since Sh. Gopal Das Machhar, son of Shri amarchand Machhar had in the course of his assessment proceedings agreed to get the incomes of the ladies in that group assessed in his hands an since he and Shri Amarchand Machhar in their statement had disclosed that investment and profits of four ladies mentioned above, in fact, belonged to the assessee, the Revenue to it for granted that the assessee had also conceded that these investment and profits should be assessed in assessee’s hands. Shri Jain submitted that ghe had requested the Assessing Officer to give the assessee a copy of statement of Shri Amarchand Machhar and also to give opportunity to cross-examine him. He submitted that no such addition was made in the case of his own son Gopal Das Machhar whose statement is the basis of making additions in assessee’s case. The learned counsel referred to a decision in 30 STC 211 to the effect that such opportunity had to the given on the basis of principles of natural justice. The ld. Counsel submitted that there was no legal justification for making additions in the hands of the assessee on the basis of statements of those persons. It has further been argued that neither any documents nor any other evidence nor assets found during the course of search at assessee’s residence to even indicate much less prove that the investment and the profits from these plots of land were investment and profits of assessee. He again explained that the ladies had accepted in their statements that they had purchased land at Jodhpur near Air Force area and nowhere in the sale deeds ‘Vidya Park’ had been mentioned. He referred to specific instances which are explained by the assessee at the time of search regarding the nothings in respect of investment by these ladies in the land and also what the figures of 27, 19, 46-1/2 and 30, etc., represented. He pointed out that the assessee had explained incurred on their development. The learned counsel argued that since the income from that transaction had already been assessed in the hands of the wife of assessee Smt. Kamal Kanwar, there was no legal justification to tax them now in assessee’s hands. He finally argued that in these circumstances neither it was correct that the amount of Rs. 1,14,000 was the profit on the sale of land nor the amount of Rs. 1,12,000 was undisclosed profit on the sale of that land. In any case, those were the transactions pertaining to the four ladies and nothing could be added in the hands of the assessee either legally or factually.

Asst. yr. 1987-88:

10. Shri Jain explained that the Revenue had found no record or evidence at the time of search regarding the expenditure in the marriage of assessee’s daughter and yet the Assessing Officer estimated the undisclosed expenditure at Rs. 1 lakh which was added to assessee’s income and which the learned CIT(A) had reduced to Rs. 75,000. He pointed out that in the first instance the statement recorded before the search could not be utilized in the case of the assessee against him as per the ruling reported in R.R. Gavit vs. Sherbanoo Hasan Daya & Anr. (1986) 55 CTR (Bom) 427: (1986) 161 ITR 793 (Bom). Secondly, in his statement under s. 132(4) the assessee had admitted an expenditure of about Rs. 50,000 which consisted of hospitality, etc. Shri Jain explained that the gold ornaments were acquired, as is common in every Hindu family, at least 8 to 10 years before the date of marriage. He submitted that it is a common practice amongst Hindu ladies to start accumulating things and particularly ornaments for their daughters almost from the day a female child is born. He submitted that is case of the assessee he had explained that about Rs. 13,000 he had received on the encasement of FDR which has been accepted by the learned CIT(A). Moreover, besides assessee’s own income and the income of assessee’s wife on which she has been paying tax since asst. yr. 1980-81, his wife also has agricultural income. He pointed out that at the time of search only Rs. 2,431 was discovered in cash at the residence and total 64 tolas of gold ornaments including 46 tolas in bank locker belonging to assessee’s daughter were discovered at the time of search. The learned counsel further submitted that as per the decision of the Hon’ble Supreme Court, a statement could not be rejected in part and accepted in part. The learned counsel further argued that there was no justification for working out income from SOP at Rs. 16,078 in that assessment year when it was accepted at Rs. 4,200 in the asst. yr. 1984-85. The learned counsel, therefore, prayed that all the additions made by the Assessing Officer should be deleted.

11. The learned Senior Department Representative mainly relies on the decisions of the Assessing Officer and the learned CIT(A) and argued that the assessment for the asst. yr. 1981-82 was reopened not because house was not disclosed but submitted that even during search the assessee had accepted that he had invested about Rs. 3,50,000 in the house. He further submitted that although in the original assessment order there was reference to vouchers, it is not clear whether the same diary which was discovered during search was disclosed to the Department during the original proceedings. He further argued that in the original proceedings the assessment were framed on the basis of estimates whereas now the assessment was on the basis of realities and facts found during the course of search. Regarding the double or multiple additions of same items he submitted that this was not explained by the assessee in the course of assessment proceedings. In fact, whatever explanations were given were considered by the Assessing Officer and as it clear from the assessment order, the proposed addition of more than Rs. 2 lakhs was brought down to only about Rs. 1,33,000. The learned D.R. explained that when the Assessing Officer had asked the assessee to explain the expenditure in construction of house it was the duty of the assessee to have filed full details including the diary and all the vouchers but the alleged that the assessee had withheld his diary and compelled the Assessing Officer to make the assessment on estimate basis.

12. Regarding the investment and income from dealing in property at Vidhya Park, the learned Sr. D.R. argued that the copies of purchase and sale deeds were documents according to which they title in property passed whereas the ITO had made the addition on the basis of statements of persons and hence, the Assessing Officer was justified in making the addition in the asst. yr. 1981-82. Regarding the Benami Transaction (Prohibitions) Act, he submitted that although that Act might prohibit benami transaction yet the assessee indulged in illegal activity, particularly because he is in a semi-Government service, namely, in LIC of India and he could not have carried on this business in this own name and hence, he did Smt. Kamal Kanwar at the time of search dt. 25th Aug., 1988, statement of Smt. Girdhar Kanwar on 28th Aug., 1988 and Smt. Ichraj Kanwar on 1st Sept., 1988. He submitted that the search had concluded on 27th August and Smt. Kamal Kanwar was unaware of the purchase of land although as mentioned in ITO’s order, she has stated that she did not possess any land till that date and that she had invested Rs. 6,000 in land near Ajit Bhawan, which is not near Air Force Station. Even in purpose to specific question, she denied earning any income from the transaction. He explained that the ladies concerned were one assessee’s own wife, two wives of assessee’s brothers and one is wife of assessee’s wife’s brother. All these ladies were those whom assessee could influence. He explained that Smt. Ichraj Kanwar had also no knowledge about the land transactions. He submitted that even if the Inspector could not take statement under s. 131 yet the information gathered by him could be given the weight of enquiry reports. He submitted that the assessee had never requested for cross-examined or for any opportunity to examine or get copies of the statements of the parties on whose statements of Assessing Officer had relied. In fact, the four ladies were assessee’s close relations and there was no question of assessee being given an opportunity to cross-examine them. However, the fact that even in 1987 the ladies did not know details of transactions in land when sale was in 1984, showed that the assessee was the real controller of these transactions. He further submitted that so far as the assessment of one lady was concerned, it was department’s policy to trust the assessee and hence, it had accepted the declaration made by Smt. Kamal Kanwar but that did not prove that assessee was not the real person behind the property transactions.

13. Regarding the addition on account of undisclosed expenses in daughter’s marriage, the learned Sr. D.R. argued that the assessee had admitted that he had incurred those expenses and the Assessing Officer had made the estimate on the basis of facts and circumstances of the case and the learned CIT(A) had already given substantial relief to the assessee.

14. In his reply, the learned counsel for the assessee clarified that the assessee had submitted written application dt. 13th Dec., 1988 and 21st Dec., 1988 to the Assessing Officer. He submitted that in these letters specific request was made to provide copies of statements of Shri Amarchand Machhar and Shri Gopal Machhar. He further pointed out that Smt. Kamal Kanwar had stated that she knew how to sign but was otherwise illiterate and hence, her signatures were not uniform. He against submitted that the vouchers regarding the construction of the house were voluntarily submitted to the then Assessing Officer when assessee was required to explain the different between the declared cost of construction and the cost estimated by the Department Valuer. He explained that the diary was also produced and that is why then Assessing Officer had written in the assessment order that the assessee had maintained vouchers and day-to-day expenses order that the assessee property was constructed under self-supervision.

15. We have carefully considered the arguments advanced from both the sides and carefully perused the orders of authorities below and the material brought on record before us. We are, however, unable to agree with the arguments advanced on behalf of the Department while we find a lot of force in the arguments on behalf of the assessee for reasons which we shall discuss in the following paragraphs.

16. So far as the legality of initiating reassessment proceedings is concerned, we may refer to the ratio of decisions referred to by Shri Jain. In the case of ITO vs. Lakhmani Mewal Das in original assessments payments of interest to some creditors was allowed as deduction. Later on, the Assessing Officer reopened the assessments because (1) one of the creditors had confessed that he was doing only name-lending and, secondly, some other creditors whose names appeared in the first of creditors of assessee were known name-lenders. It was held that the second ground could not lead to a belief that the income chargeable to tax had escaped assessment. The first ground taken by the ITO was also not approved because the confession of that creditor did not relate to a loan to the assessee. Thereafter their Lordships had laid down the preconditions on the basis of which reassessment proceedings could be initiated under s. 147(a) and those preconditions included (i) that the ITO must have reason to believe that income chargeable to tax has escaped assessment; (ii) he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee (a) to make a return under s. 139 or (b) to disclose fully or truly material facts necessary for his assessment for this year. It was further observed that the duty of the assessee in any case does not extent beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the ITO to draw the correct inference from the primary facts. It is no responsibility of the assessee to advice the ITO with regard to the inference which he should draw from the primary facts. Further, "reason to believe" does not mean a purely subjective satisfaction on the part of the ITO. The reason must be held in good faith. It cannot be merely a pretence. It is open to the Court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section.

17. Again in the case of Ganga Saran & Sons Pvt. Ltd. vs ITO, their Lordships observed that in s. 147(a) the words "has reason to believe" are stronger than the words "is satisfied" and that the belief entertained by the ITO must not be arbitrary or irrational. It must be reasonable and that the Court can examine whether the reasons are relevant and have bearing on the matter in regard to which he is required to entertain the belief he can issue notice under s. 147(A). If there is no rational and intelligible nexus between the reasons, and the belief, so that, on such reasons, no one properly instructed on fact and law could reasonably entertain the belief, the conclusion would be inescapable that the ITO could not have reason to believe that any part of the income of the income of the assessee had escaped assessment and such escapement was by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts. In this case also, their Lordships had struck down the proceedings under s. 147(a) as invalid because the assessee-company was allowed deductions for payments of salary, commission, etc., to a close relation of the managing director of the company. The ITO had initially disallowed these claims but they were allowed in appeal and in a subsequent year the ITO had himself allowed the claim. Later on, reassessment proceedings were initiated on the ground that person D had given loans and substantial gifts to wife and son of the managing director who was his close relation and, thus, the actual drawings for his own purpose by D were not more than Rs. 4,000 per annum. Their Lordships, while striking down the notice under s. 147(a) as invalid, had held that the assessee had disclosed all the material facts and that the appellant was not under an obligation to disclose to the ITO how a director, namely, D had utilised the amount of remuneration received by him. In the case of Jawaharlal Daryavbuxmal vs. CIT the assessee had disclosed to the ITO that he had constructed a house. Its commencement was started in 1963 and was completed in 1966-67. The assessee had also disclosed the details of construction and investment, the area of land by the Hon’ble High Court that the ITO could not reopen assessment under s. 147(a) on the basis of a valuation report by the Department Valuer because the assessee had disclosed all the primary and material facts necessary for his assessment.

18. Applying these tests and provisions of s. 147(a) to the facts and circumstances of assessee’s case for the asst. yr. 1981-82 we find that whereas the assessee had supplied all the primary and material facts necessary for its assessment at the time of original assessment, the basis taken by the Department for reopening the assessment cannot be said to be a rational basis, a basis which has got a direct nexus or live for formation of the belief that assessee’s income had escaped assessment. From the orders of authorities below which are in appeal before us, it is clear that the assessee had disclosed that he had constructed a house on an area of land of 1096 sq. mtrs; that the said land was purchased from the UIT, Jodhpur; that he had invested an amount of Rs. 1,31,160 in its construction. From the original assessment order it can easily be gathered that he had explained the sources of investment; that the Assessing Officer had not only examined in detail the explanations of the assessee but had even referred the matter to the Valuation Officer who had initially estimated the cost of construction at Rs. 1,64,000 but after taking into account the fact that the assessee had maintained vouchers and day-to-day details of expenses, had accepted assessee’s version, namely, that the assessee had rightly disclosed that the expenditure was Rs. 1,31,160 only. According to the allegation of the Department the assessee had not disclosed the diary (A-10) to the Department and, thus, had not truly and fully disclosed the material facts. Similarly, he had not disclosed all the bills and vouchers (A-11). We, however, fail to agree with this allegation because even if it is accepted that the Assessing Officer has not written the word "diary" in his original order, the Revenue has not been able to bring on record or explain any material even after the search to show what was that day-to-day record of expenditure which was shown before the Assessing Officer at the time of original assessment. In our opinion, that day-to-day record could have been nothing else than this diary which is now shown as Annexure A-10. Moreover, a reading of the statements of assessee recorded during the course of search and questions put by the Authorised Officer show that on the basis of those papers the Revenue thought that assessee had made an investment of Rs. 4,50,000 in the construction of the house. Later on, while issuing the notice the Assessing Officer had ‘reason to believe’ that the investment was about to Rs. 3,50,000 and, thus, the assessee had not disclosed investment of about Rs. 2 lakhs. At this stage, we may mention it was not correct on the part of the learned Sr. D.R. to claim that the assessee had accepted that he had invested Rs. 3,50,000 in the construction of the house. On the other hand, when he was given suggestion (Question No. 64) that he had shown an investment of only about Rs. 1,50,000 in the construction of the house when as per the material discovered at the time of search the investment was coming to Rs. 4,50,000, the assessee had stated that according to him, the expenditure was only about Rs. 1,50,000 end that he had disclosed the correct investment and there must be some mistakes somewhere and that there cannot be an investment of Rs. 4,50,000 in the construction work. Later on, while framing the assessment the Assessing Officer worked out the cost of construction on the basis of the bills and vouchers at Rs. 2,64,236 and made an addition of Rs. 1,33,076. The CIT(A) gave a relief of Rs. 8,000 and as has been explained in the paper book and has been mentioned by us while dealing with the arguments of Shri Jain, there are innumerable instances of taking into consideration the same account not only twice but even six times. This would show that no person properly instructed on fact and no law could have formed a reasonable relief that a house, the cost of construction of which was disclosed by assessee at Rs. 1,31,000, to which even the Department valuer had agreed after inspecting the property himself and after taking into account the detailed explanation and bills, vouchers and day-to-day record, could have, in fact, cost an expenditure of Rs. 3,50,000. In our opinion, the Department Valuation Cell will not be worth its name if it cannot discover the different between investment as disclosed by an assessee and the actual expenditure even if the difference is about three times more than what is disclosed by the assessee. Hence, the only reasonable conclusion which can be drawn is that when the Department valuer estimated the investment at about Rs. 1,64,000 that was a reasonable about Rs. 1,31,000 he was right and justified because from the estimate on the basis of general hypothesis, he had come down to the working of actual expenditure based on the vouchers and day-to-day record of expenditure maintained by the assessee and the fact that the construction was under assessee’s own supervision. We have mentioned this because in our opinion no reasonable person can have "reason to believe" that a house, the cost of construction of which was disclosed at Rs. 1,31,000 and which was accepted as such even after detailed enquiry not only by the then Assessing Officer but even after the report from the Valuation Cell, could have had an investment of Rs. 4,50,000 (as alleged at the time of search) or even Rs. 3,50,000 as alleged at the time of issue of the notice. We, therefore, hold that in the first instance the assessee had disclosed all the primary and material particulars necessary for his assessment and there was no omission or failure on his part to disclose fully and truly all the material facts necessary for his assessment and hence, the notices under s. 147(a) could not have been validly issued. Secondly, we hold that in the facts and circumstances of the case on reasonable person could have formed a belief that the assessee had not disclosed truly and fully the investment in the house and that the investment could have been about Rs. 3,50,000 when originally it was accepted that it was only about Rs. 1,31,000. We, accordingly, hold that the reassessment proceedings initiated under s. 147(a) were invalid and are, therefore, annulled.

19. Even on merits, we have taken into account the detailed arguments of Shri Jain and we have perused the material on record. In our opinion, it is assessee’s misfortune that, not only the Assessing Officer but even the learned CIT(A) have based their decisions perhaps more on hearsay than on the basis of material on record. Thus, for example, the Assessing Officer has written in the order that the assessee has stated that entries of these bills are not made in the Diary mentioned at Annexure A-10 and that totalling of these bills come to Rs. 1,04,000. She has also written that the assessee had stated in his statement that the material worth about Rs. 8,000 was purchased in cash and no detail is written in the Diary. These observations of the learned Assessing Officer are not factually correct. Similarly, even the learned CIT(A) has written in his order that the total of the bills was Rs. 1,04,000 is not correct. The observation of the learned CIT(A) to the effect not entered in the said note book, is also not factually correct. We find that it was not question No. 59 but Question No. 63 to the following effect—

"On seeing the note book it is known that you had purchased some electrical goods from Delhi, the description of which is no pages 6 to 25 of the Note Book but the loose bills which we have seized do not have the Delhi bills. Have you got the Delhi party bills with you or you had purchased goods from Delhi without bills" and the assessee had replied that the goods from Delhi were worth about Rs. 4,000 to Rs. 5,000, the bills of which he does not have.

In fact, it was on this basis that the CIT(A) himself has given a relief of Rs. 8,000 to the assessee. We may mention that Question No. 59 was to the effect : Whether the assessee had some other bills and vouchers concurring the construction of the house then what have been put in Annexure A-11 from pages 1 to 148 and the assessee had replied that he does not have any other bills or vouchers apart from those which are from pages 1 to 148. We have mentioned this because on account of this approach by the authorities below they even ignored the basic provisions of law, namely, that if undisclosed investments, etc., are to be assessed, the Assessing Officer in accordance with the provisions of ss. 69,69A, 69B or 69C as the case may be, has to ascertain with the financial year in which that investment was made. In the instant case, not only the Assessing Officer did not mention or did the CIT(A) find out the financial years of investment, they did not even peruse the seized materials which would have proved what the assessee had claimed, namely, that the investment in the construction of the house was for asst. yr. 1979-80, 1080-81 and 1981-82 and the maximum investment disclosed by the assessee was for the asst. yr. 1980-81. Further the dates of the bills contained in annexure A-11 show that they pertain to the period 1st April, 1978 to 31st March and their total is only Rs. 73,719 and even if worst is presumed against the assessee the entire addition could not have been made in the asst. yr. 1981-82. Hence, we hold that even on merits, firstly there was nothing which remained undisclosed by the assessee and hence, no addition could have been made to the originally assessed income of the assessee and, secondly, because the investment did not pertain to the asst. yr. 1981-82 only, for that reason also, the additions made by the Assessing Officer and sustained by the learned CIT(A) cannot be upheld. Even if there is a slight discrepancy which the learned counsel was fair enough to concede, in our opinion, it cannot be reassessed under s. 147(a) and the benefit has to be given to the assessee to believe that slight discrepancy could have been covered by the recoveries which the assessee may have made by selling empty cement bags and other material required in construction work.

20. For similar reasons we hold that in the first instance there was no basis or evidence with the Revenue to pursuer and hold that the assessee made by the four ladies including assessee’s wife was actually assessee’s undisclosed investment in purchase of land. Hence we hold that the addition of Rs. 88,559 cannot be sustained. In any case we do not agree with the argument of the learned Sr. D.R. that although the sale deeds are dt. May, 1982 the payment might have been able to adduce any evidence to support this hypothesis. No assessment can be made on presumptions only, particularly when the documentary evidence in the shape of sale deeds show that the transactions took place in May, 1982. For this reason also the addition of Rs. 88,659 made by the Assessing Officer and sustained by the learned CIT(A) is directed to be deleted.

21. As regards the next ground of appeal that this property could not be regarded as benami in view of the provisions of Benami Transactions (Prohibitions) Act, since we have held that neither the ownership of the assessee nor assessee’s investment in this financial year is proved and hence the question of its assessment this year would not arise and hence, in our opinion, the reference to the Benami Transaction (Prohibition) Act, becomes unnecessary for this year.

22. Next opinion regarding charging of interest under ss. 139(8) and 217 also becomes infructuous in view of the fact that the entire addition made by the Assessing Officer have been directed to be deleted by us even merits apart from our holding that the proceedings initiated under s. 147(a) were invalid and hence, they have been annulled.

23. For the asst. yr. 1984-85, we do not agree with the objections of learned counsel for the assessee that the proceedings initiated under s. 147(b) are invalid because these proceedings have been initiated under s. 147(b) which presupposes that even if there is no failure or omission on the part of the assessee, the Assessing Officer may reopen an assessment on the basis of information in his possession to the effect that income liable to tax has escaped assessment. In the instant case we are of the opinion that the information received by the Assessing Officer in the course of search so also in the course of enquiries from Shri Amarchand Machhar and Shri Gopal Das Machhar was sufficient information and basis for the Assessing Officer to initiate proceedings under s. 147(b).

24. However, when it comes to the question of assessing the income of Rs. 2,26,000 in the hands of the assessee, we do not agree with the decisions of authorities below and with the arguments advanced by the learned Sr. Department Representative. On the other hand, we find a lot of force in the argument of the learned counsel for the assessee. In our opinion, even if Sh. AmarChand Machhar and Shri Gopal Das Machhar had agreed that the transactions the name of members of their family or ladies could be treated as their the transaction, it could not be treated as an evidence against the assessee so as to authorise the Assessing Officer to treat the transactions of his wife and the wives of his brothers and brother-in-law as transactions done by assessee. We may mention that we have perused the letters of the assessee dt. 13th Dec., 1988 and 31st Dec., 1988 which show that the assessee had made specific request for providing copies of statements of Shri Amarchand Machhar and Shri Gopaldas Machhar and had requested for opportunity to cross-examine them but that was not given to the assessee. We are further of the opinion that even if the worst is presumed against the assessee, though factually it is not correct that the four ladies knew nothing about the transactions of Vidhya Park properly, we are of the opinion that that cannot give the Assessing Officer an authority to presume that all these transactions and all the profits derived therefrom were the profits of the assessee. The statements of the ladies show that they were aware of the transactions of the properly and we agree with the arguments given in this regard by Sh. Jain, which we have already referred to in this order. We have further noticed from the statement of the assessee recorded during search that he had given information regarding these transactions in the names of four ladies and had specifically and firmly denied that they were his transactions. In our opinion, merely if he has helped his wife and his close relations in some property deals and has even held Power of Attorney, it cannot lead to the inference that the income from those transactions belongs to him. Our opinion is based on the facts that firstly his wife has been a separate assessee even several years before the search. Having accepted her investments and her income to be hers, it does not now lie in the month of the Revenue to say after several years that was not her income but of her husband. Moreover, merely on the basis of the statement or the allegation of a third party, the Assessing Officer does not get authority to club the income of assessee’s relations in assessee’s hands. Moreover, while there is documentary evidence to prove that those properties and those transaction belonged to those ladies and they have even accepted having advanced money to the assessee for purchase of some property near Air Force Station, there is no evidence to prove that those transactions and those profits really belonged to the assessee. Moreover, the assessee had demonstrated that all those amount are not profits but include investment in the purchase of property which at least assessee’s wife had disclosed to the Department and in respect of which assessment have been made in her case. The other ladies may not be assessee and hence, at least that income which has been assessed in hands of assessee’s wife cannot again be assessed in assessee’s hands, at least so long as her assessment are not cancelled, a step which has not been taken in her case. Finally, even if worst was to be presumed against the assessee the facts and circumstances discovered during the course of search lead us to believe that the assessee could not have earned such huge profits in money transactions and in the form of undisclosed income because if the assessee had really earned about Rs. 2,26,000 in asst. yr. 1984-85 besides about Rs. 62,000 in the asst. yr. 1983-84 he should not have been found to be in possession of only me agree amount of cash amounting to Rs. 2,431 at the time of search and only about 64 tolas of gold ornaments. The search operations must have given indication of some assets, investments or expenses which the assessee must have made out of the record of those earning more so when the Department did find that assessee had preserved the record of his transactions, and even petty domestic expenses, for about 9 past years. But no such indication or evidence has been discovered during the course of the search which continued for three days and in which prolonged and detailed statements of assessee were recorded. We, therefore, hold that the Assessing Officer was not justified in treating the income of Rs. 2,26,000 as the undisclosed income of the assessee nor was the learned CIT(A) justified in upholding those additions. The addition of Rs. 2,26,000 is, therefore, directed to be deleted.

25. Since the entire addition had been deleted, the objection regarding charging of interest under ss. 139(8) and 217 becomes superfluous and unnecessary.

26. For the asst. yr. 1987-88 an addition of Rs. 1 lakh was made by the Assessing Officer in the income of the assessee on account of alleged undisclosed expenditure in the marriage of his daughter out of which only Rs. 75,000 has been upheld by the learned CIT(A). After having gone through the orders of the authorities below, material on record and arguments from both the sides, we are of the opinion that there is no evidence on the basis of which these additions could be sustained. On the other hand, in our opinion the addition has been made merely on the basis of conjectures and surmises and by either not correctly understanding the statement of the assessee regarding the expenditure or reading it out of context. We agree with the argument of the learned counsel for the assessee that we have to take into account the normal social practice regarding small bits of jewellery being gathered by the parents of a Hindu daughter almost immediately after her birth. In the case of the assessee who had himself disclosed an income of Rs. 51,780 in the asst. yr. 1987-88 before search under s. 132(!), whose wife has also been an assessee since asst. yr. 1980-81 it would not be too much to expect if he had spent about Rs. 50,000 in the marriage of his daughter. We have taken note of the fact that the statements, one such word of which the authorities below seem to be relying heavily against the assessee, were recorded during the course of a search which continued on 25th, 26th and 27th of Aug., 1987 and the statements were recorded on all the three days. Those statements run from page 56 to page 155 of the paper book for the asst. yr. 1984-85 and if during the course of those statements he had stated that the expenditure was Rs. 50,000 and the jewellery was given in addition to clothing and utensils, in our opinion, it cannot be reasonable to infer that the total expenditure should have been about Rs. 75,000, which has not been disclosed. In our opinion, in the instant case, the burden on the Department became heavier because the search was conducted by the Department in this case and it had discovered documents which pertain to period starting from at least 1st April, 1978 till the date of search and if the assessee had really incurred expenditure in the marriage of his daughter, that evidence should have been collected by the Department and should have been utilized against the assessee. But while on the one hand the Department could not discover any such evidence, on the other hand, the Assessing Officer so also the learned CIT(A) are drawing inference against the assessee on the ground that the income from the agricultural lands might not have been sufficient and that between 1982 to 1987 there were acute drought in these parts of the State. Having taken all these factors into account, we are of the opinion that the addition made by the Assessing Officer and sustained by the learned CIT(A) as income from undisclosed sources on the basis of estimated expenses incurred in the marriage of daughter are based only on conjectures and surmises and are not supported by any evidence and hence, they are directed to be deleted.

27. The next objection of the assessee is regarding assessing income from SOP at Rs. 16,708 against Rs. 4,200 assessed last year. We find that the main reason for enhancing income from SOP was increase in assessee’s own income an account of additions of Rs. 1 lakh. Those additions have been directed to be deleted by us. In any case, there appears to be no justification for increasing income from SOP from Rs. 4,200 assessed in the asst. yr. 1984-85 and again in 1988-89 to a higher figure in the assessment year under consideration. Hence the income from SOP is directed to be assessed at Rs. 4,200.

28. Accordingly, all the three appeals filed by the assessee are allowed.

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