Vishwanath Prasad Ashok Kumar Sarraf vs Commissioner of Income Tax and Others

Rajes Kumar, J.—By means of the present writ petition the petitioner is challenging the validity of the notices dated March 20, 2003, issued u/s 148 of the Income Tax Act, 1961 (called "the Act" for short) for the assessment years 1996-97 and 1997-98.

The brief facts giving rise to the present writ petition are that the petitioner is a partnership firm, having its place of business at Varanasi and engaged in the business of gold and silver ornaments. Apart from trading business the petitioner was also doing the job work. For the assessment year 1996-97, the petitioner filed the return on August 22, 1996. The return was initially processed u/s 143(1)(a) and, later on, the case was picked up for scrutiny in view of the search operation made u/s 132(1) of the Act, which was carried on at the premises on November 3, 1996. On examination of the books of account and other records the regular assessment order was passed on February 15, 1999. For the assessment year 1997-98, the return was filed on October 9, 1997. The said return was also originally processed u/s 143(1)(a) of the Act and thereafter the case was picked up for scrutiny and, later on, regular assessment order was passed u/s 143(3) on December 29, 1999, after scrutiny of the books of account and other documents.

On the basis of various seized documents, bullion, jewellery, etc., the block assessment was made on November 27, 1997, u/s 158BC of the Act for the period commencing from April 1, 1987, to November 3, 1996, relevant to the assessment years 1987-88 to 1997-98 (part) and undisclosed income was determined at Rs. 29,92,950 for the assessment years 1996-97 and 1997-98 (part). Against the block assessment order dated November 27, 1997, the petitioner preferred an appeal before the Income Tax Appellate Tribunal (called "the Tribunal" for brevity). The Tribunal, vide order dated August 29, 2002, allowed the appeal. According to learned Counsel for the petitioner, the order of the Tribunal has become final, inasmuch as no appeal has been filed against the said order.

Now, the assessing authority has issued the impugned two notices, both dated March 20, 2003, u/s 148 of the Act for the assessment years 1996-97 and 1997-98 with the view to reopen the case on the ground that there is an escaped assessment. At the instance of the petitioner the reasons recorded for initiation of proceedings have been provided to the petitioner for both the years, which reads as under:

Assessment year 1996-97 Reason of reopening assessment u/s 147

Smt. Ambika Devi in her return for the assessment year 1996-97 has shown income of Rs. 1,02,300 from saree business. No proper evidence found that she was carrying on the saree business in that year. Thus, declaring income in her hand is diversion of income of firm M/s. Vishwanath Prasad Ashok Kumar Sarraf, in which family members of the assessee were partners, i.e., her husband, her father-in-law and her son. The concern was only income earning unit of the family, so the income shown from the saree business is virtually not her income and thus not acceptable, in the case of Smt. Ambika Devi. Same has to be taxed as the income of M/s. Vishwanath Prasad Ashok Kumar Sarraf in the assessment year 1996-97 from the jewellery business in which the concern was dealing being only business unit and income earning business of the family.

The above amount was treated as unexplained income in the block assessment proceedings for the period from 1987-88 to 1997-98. The hon''ble Income Tax Appellate Tribunal, vide its order No. I. T. A. No. 1574 Alld. of 1997 dated August 29, 2002, has held that such amounts are not assessable in block proceeding as they are not undisclosed income u/s 158BA(3).

Regular assessment of this firm, i.e., M/s. Vishwanath Prasad Ashok Kumar Sarraf for the assessment year 1996-97 was completed on February 15, 1999. In this assessment the above mentioned amount were not considered as these amounts already brought to tax in the proceeding of block year, now, vide order dated August 29, 2002, the hon''ble Income Tax Appellate Tribunal has held that these amount are not to be assessed in the block, thus, these amounts are escaping assessment altogether.

In view of the above fact, I have reason to believe that the income of Rs. 1,02,300 chargeable to tax in the firm M/s. Vishwanath Prasad Ashok Kumar Sarraf has escaped assessment and to assess the same the assessment has to be reopened u/s 147 of the Income Tax Act, 1961.

The approval accorded by hon''ble CIT (Central), Kanpur, vide his satisfaction dated March 17, 2003 as per letter dated March 17, 2003.

Date : 20-3-2003

(Sd.)... (K. K. Upadhyay) Asst. Commissioner of Income Tax, Central Circle-II, Varanasi.

Assessment year 1997-98 Reason of reopening assessment u/s 147

The return of income for the assessment year 1997-98 showing income at nil was filed on October 9, 1997. The assessment was completed u/s 143(3) on the income of Rs. 1,35,000 vide order dated December 29, 1999.

The order book was found during the course of search proceedings at the business premises on November 3, 1996, revealed that total of 5090.110 grams gold ornaments appearing in the name of total 17 persons details of which is as under:

-------------------------------------------------------------------------------- S. No. Name and address of the assessee Date of receipt of Weight old ornaments -------------------------------------------------------------------------------- 1 2 3 4 -------------------------------------------------------------------------------- 1. Sri Gopal Dutt Dwivedi 3-4-1996 259.150 gms. Chhoti piari, Varanasi.

Sri Awadhesh Kumar Dwivedi, 4-4-1996 482.580 gms. Varanasi.

Shri Kailash Singh, 11-4-1996 458.000 gms. Nariya, Varanasi.

Smt. Rani Devi, 12-6-1996 032.180 gms. Hirapura, Varanasi.

Sri Kailash Chaubey, 13-8-1996 229.450 gms. Hirapura, Varanasi.

Shri Ramesh Pandey, 17-8-1996 308.150 gms. Gurudham, Varanasi.

Shri Mahendra Jaiswal, 20-8-1996 293.450 gms. Chowkaghat, Varanasi.

Shri Govind Dhamnagar, 30-9-1996 105.950 gms. Varanasi.

Shri Lalji, 26-9-1996 105.950 gms. Hukulganj, Varanasi.

Shri Vishwanath Seth, 24-9-1996 148.150 gms. Lahoritola, Varanasi.

Shri Chhotey Lal, 23-9-1996 154.400 gms. Panchganga Ghat, Varanasi

Sri Ram Lalit Singh, 29-9-1996 296.500 gms. Gilat Bazar, Varanasi.

Shri Umesh Singh, 20-9-1996 428.000 gms. Gilat Bazar, Varanasi.

Shri Satish Kumar Sharma, 10-9-1996 466.800 gms. Resham Katra, Varanasi

Smt. Rani Devi, 8-9-1996 362.500 gms. C/o Shiv Kumar, Govindpura, Varanasi

Sri Ganesh Prasad Manjul, 2-9-1996 482.800 gms. Palika Colony, Sheopur, Varanasi

Sri Vinod Seth, 31-8-1996 466.300 gms. Panchkoshi, Ashapur, Varanasi --------------- Total 5090.110 gms.

--------------------------------------------------------------------------------

In the books of account seized from the premises of the assessee having no details of payments to the above persons and addresses of these persons were also incomplete. In the order book and purchase invoice the weight of the gold have been shown in the above names whereas the stock found in the premises was in the shape of new manufactured new jewellery. There was no evidence that the stock found was connected with the deposit of gold by the so-called above customers. It is beyond imagination that any customer will leave his/her ornaments for more than 7 months from the date of delivery of gold/old ornaments. In the post-search enquires letter from some addresses returned back with remarks ''not known'' for example in the case of Sri Kailash Dubey, Vinod Seth, Smt. Rani Devi, Sri Kailash Singh and in other cases the statements of the persons were having many ambiguity and non-coherence. In this connection, the statement of the partner of the firm Sri Ashok Kumar is also ambiguous and deviate from the facts. For example, in his statement in respect making the entries in the books of account he stated step by step procedure which leave many facts unanswered.

In view of the above facts the entry found recorded in the order book for 5090.110 grams of gold ornaments not explained satisfactorily by the assessee in post-search enquiries so the total value worked out at Rs. 500 per gram for 5090.110 grams comes to Rs. 25,45,055 which is nothing but undisclosed investment in the purchase of gold ornaments and entry in the order book is unexplained purchases in the form of stock is liable to be added u/s 69 of the Income Tax Act.

During the course of search proceedings cash amounting to Rs. 3,16,400 was found from the business premises of the assessee and Rs. 18,150 found from the residential premises. Out of these only Rs. 1,06,520 explained leaving Rs. 2,28,030 unexplained, so the amount of Rs. 2,28,030 is unexplained cash found lying with the assessee which is not properly explained in the post-search enquiries so it is liable to be treated income of the assessee in the assessment year 1997-98. The assessee has not shown this amount in his return for the assessment year 1997-98.

Silver utensils of Rs. 22,313, silver coins of Rs. 30,208, silver bricks of Rs. 39,433, silver article of Rs. 20,611 and deposit in bank account of Sri Ashok Kumar, HUF amounting to Rs. 5,000 are not explained properly in post search enquiry so investment in the purchase of above items is unexplained investment u/s 69 of the Income Tax Act and liable to be treated the income of the assessee for the assessment year 1997-98. The total amount comes to Rs. 1,17,565.

All the above amounts were treated as unexplained income in block assessment proceedings for period from 1987-88 to 1997-98. The hon''ble Income Tax Appellate Tribunal, vide its order No. I. T. A. No. 1574 Alld. of 1997, dated August 29, 2002, has held that such amounts are not assessable in block proceeding as they are not undisclosed income u/s 158BA(3).

Regular assessment of this firm, i.e., M/s. Vishwanath Prasad Ashok Kumar Sarraf for the assessment year 1997-98 was completed on December 29, 1999. In this assessment the above mentioned amounts were not considered as these amounts already brought to tax in the proceeding of block year, now, vide order dated August 29, 2002, the hon''ble Income Tax Appellate Tribunal has held that these amount are not to be assessed in the block, thus, these amounts are escaping assessment altogether.

In view of the above facts and discussion, I have reason to believe that the total amount of (Rs. 24,45,055 + Rs. 2,28,030 + Rs. 1,17,565) Rs. 28,90,650 as stated above has escaped assessment and to assess the same the case has to be reopened u/s 147 of the Income Tax Act, 1961.

The approval accorded by the hon''ble C1T (Central), Kanpur, vide his satisfaction dated March 17, 2003 as per letter dated March 17, 2003.

Date : 20-3-2003

(Sd.)... (K. K. Upadhyay) Asst. Commissioner of income tax Central Circle-II, Varanasi.

Learned counsel for the petitioner submitted that the income, which are alleged to have been escaped assessment in the relevant years, have been considered in detail in the block assessment order and the same have been assessed as undisclosed income, but in appeal such additions have been deleted by the Tribunal on the ground that they do not relate to undisclosed income of the petitioner. The relevant paragraph of the Tribunal''s order reads as follows:

1996-97

The Assessing Officer made the addition of Rs. 1,02,300 in the block assessment year 1996-97 on substantive basis in the hands of the assessee. This income was shown by Smt. Ambika Devi in her return in the assessment year 1996-97 as income from the saree business. The Assessing Officer disbelieved and made the addition on substantive basis in the hands of the assessee-firm and on protective basis in the hands of Smt. Ambika Devi. We are unable to agree with the view of the Assessing Officer. Once Smt. Ambika Devi had shown income from the saree business in her return for the assessment year 1996-97, prior to the search, the same cannot be termed as ''undisclosed income''. We are repeating again that for undisclosed income, the Assessing Officer will have to establish that the assessee would not show the same income in his hands for the purpose of this Act. However, in this case, Smt. Ambika Devi has already shown the same income in her hands prior to the search in the assessment year 1996-97. The search party did not find any evidence during the search that the assessee-firm was doing the business of sarees. In the earlier assessment year 1996-97 u/s 143(3), the Department accepted the business activity of the assessee-firm to be manufacturing sales, purchases, silver and gold ornaments, etc. Even in the regular assessment in 1997-98, the same business activity was accepted, more so the Assessing Officer in the block assessment order also at page 2 has mentioned that:

The assessee is a partnership firm consisting of three partners. It is engaged in the business of purchase and sale of bullion, silver ornaments and gold ornaments.

The Department has therefore, never established that the assessee was having income from the saree business. No show-cause notice or query was issued to the assessee-firm in the block assessment about the protective assessment in the hands of Smt. Ambika Devi. The entire addition is Illegal and without any basis and is liable to be set aside. The same cannot be termed as ''undisclosed income'' in the block assessment. The addition made on this issue is accordingly deleted."

1997-98

The Assessing Officer has dealt with this issue and issued questionnaire dated August 18, 1997 whereby the assessee has been asked to explain gold jewelleries weighing 5090.110 gms. recorded on the order book. It was stated that these gold articles were found mentioned against the names of 17 customers, which is incorporated in this order also. The assessee relied on the same. The assessee initially filed 14 affidavits of these customers and for one customer, Shri Kai-lash Singh, advocate, affidavit was filed on October 22, 1997. The remaining two affidavits were not filed as the gold articles were already returned to Smt. Rani Devi and other customer, Ganesh Prasad Manjul appeared before the Assessing Officer and was examined u/s 131. The Assessing Officer recorded the statement of some of these customers on random basis u/s 131 of the Income Tax Act. All the customers affirmed their dealings with the assessee and also affirmed that they had handed over their jewelleries for remaking to the assessee against the receipts. The Assessing Officer also recorded the statement of Ashok Kumar, partner in the assessee-firm during the course of the assessment proceedings, in which Ashok Kumar has explained to have maintained the books of account in the ordinary course of the business and the same contained like roznamcha, rokar bahi ledger, karigar bahi, order book, stock register for gold ornaments, sales tax register, gold purchase voucher and sale vouchers, silver jewellery purchase vouchers and silver purchase vouchers. Shri Ashok Kumar, partner, also narrated the procedure for making entries in the books of account in his statement. However, the Assessing Officer did not believe the affidavits and statement of the customers as he found discrepancy in their statements. The Assessing Officer also did not believe the statement of Ashok Kumar as he found discrepancies in the statement of Ashok Kumar, therefore, made the addition of value of 5090.110 gms. of the jewellery at Rs. 500 per grams in a sum of Rs. 25,45,055 and treated the same as unaccounted stock of the assessee. The Assessing Officer noticed that the aforesaid persons have made incoherent statements and also did not know English. The Assessing Officer also objected to their dealings as the ornaments were kept for long time and while delivery was not taken at the earliest and that the customers have not specified special occasions for remaking of their gold jewellery and also the signature did not tally with the receipts. The learned Departmental representative strongly supported the finding of the Assessing Officer. However, the learned Counsel for the assessee objected to the same on the grounds which we have already incorporated above. We are not in agreement with the contention of the learned Departmental representative The Assessing Officer at page 4 of the assessment order himself mentioned that gold jewellery weighing 5090.110 gms are recorded on the order book. The same is also recorded in item No. 2 of annexure ''A'' of the panchnama prepared at the time of search. The Assessing Officer himself admitted that the different gold jewellery of different weights have been found recorded against the names of 17 parties. The details have already been given above in this order. We fail to understand, the moment the Assessing Officer mentioned this fact in the assessment order that the gold jewellery is found mentioned in the records of the assessee and the books of account prior to the date of the search, how the same can be treated as undisclosed income. All the details of 17 parties who have handed over their gold ornaments for remaking were found mentioned in the records, which were seized by the search party. The assessee has filed 14 affidavits of the different customers at the initial stage and also filed one more affidavit of Shri Kailash Singh, advocate on October 22, 1997 to prove the dealing with these customers. The remaining two affidavits could not be filed as the articles belonging to Smt. Rani Devi were already returned on October 18, 1996, i.e., prior to the search. The details are mentioned in the paper book at page 176 and the same tallies in the weight also. Another customer, Shri Ganesh Prasad Manjul had already appeared before the Assessing Officer and was examined u/s 131 by the Assessing Officer. The Assessing Officer also admitted to have examined eight persons out of these 17 parties on random basis u/s 131 of the Income Tax Act. The Assessing Officer himself did not examine all the 17 parties, therefore, his objection that Smt. Rani Devi was not produced is of no relevance. All the bills executed between these customers were available at the time of search and seized by the search party and found part of the panchnama prepared by the search party. The stock register, cash book, karigar bahi, G-12 register, etc., were seized and also found mentioning the dealings of these customers with the assessee. All these records were seized by the search party. The assessee was maintaining the registers of the customers giving their articles for remaking as per the Gold (Control) Act, which was previously applicable. All these details of the customers were recorded in the books of account and documents seized by the search party. The learned Departmental representative argued that the nature of the transaction was different. However, it is admitted that the same are purchase vouchers entered in the books of account. His only objection is that the same are not the dealings for the purpose of remaking of the gold jewellery. It is not a case made out by the Assessing Officer. The Assessing Officer made the addition as he found discrepancy in the statement of the witness and Ashok Kumar. The learned Departmental representative admitted all vouchers pertaining to 17 customers have been entered into the records and documents which were seized by the search party. Everything is disclosed in the books of account and documents maintained by the assessee in the normal course relating to the previous year. The same can never be termed as undisclosed income. The stock register as seized under the search operation found mentioning of the details of gold jewellery given to 11 karigars of 5090.110 gms. in respect of 17 customers. All vouchers of karigars were available and seized also. The payments to karigars entered in the books of account. In the regular assessment proceedings also, the same is assessed. In the earlier year also, the same job work is shown and accepted by the Department. The details are specifically mentioned in the paper book at page 176 showing the job work and dealings with the karigars prior to the search on November 3, 1996. All the details are entered into the records of the assessee. The aims and object of Chapter XIV-B was to unearth the black money. Since the assessee has shown every dealing with the customers and further dealing with the karigars in its record prior to the search, therefore, it is unbelievable that any undisclosed income was discovered during the search operation. The very purpose of Chapter XTV-B is frustrated in this case in view of the entries made in the books or account and other records or the assessee, which were also seized and scrutinised by the Department. We have already indicated that search was made prior to the expiry of the previous year and the assessee has shown all the details in the regular assessment also, therefore, no presumption could be drawn against the assessee that the assessee would not disclose the dealings with the customers and karigars in its return for the purpose of the Income Tax Act. The scope of Section 158BC is to assess undisclosed income not recorded in the books or documents maintained in the ordinary course of business relating to previous year. Since all the entries were found to have been mentioned, therefore, it was beyond the scope of Section 158BC to take out discrepancy in the statement of the customers to make addition by way of undisclosed income which might be the subject-matter of regular assessment. The Assessing Officer acted beyond his jurisdiction. The reasons given by the Assessing Officer to disbelieve the statement of the customers and Shri Ashok Kumar, partner of the assessee-firm are highly imaginary and without any supportive evidence or material. The discrepancies as stated by the Assessing Officer are not vital and material to reject the explanation of the assessee. The assessee has been able to prove that the gold jewellery entered in the books of account or other documents maintained in the normal course relating to the previous year. The Assessing Officer has tried to make out a case of undisclosed income on presumption and discrepancies only but he has failed to satisfy the requirement of the definition of the undisclosed income as provided u/s 158B(b) of the Income Tax Act. The case of the assessee is squarely covered by Section 158BA(3) of the Income Tax Act and the Central Board of Direct Taxes Circular No. 717(supra) and as such, the said income cannot be included in the block period.

During the search and seizure operation, Rs. 3,16,400 was found from the business premises of the assessee. In the initial statement of Shri Ashok Kumar recorded on date of the search, i.e., November 3, 1996, he has surrendered Rs. 1,89,880 voluntarily, but he did not include the same in the return filed subsequently. The Assessing Officer found mentioning of reconciliation of the cash on November 3, 1996, and as per the pukki rokar annexure ''A'' written up to October 17, 1996, cash balance of Rs. 57,960 was found. In the kachi rokar written from October 17, 1996 to October 25, 1996, the balance of Rs. 56,520.10 was found. The assessee has given in-flow and out-flow of cash from October 16, 1996 till November 2, 1996, i.e., prior to the search. The Assessing Officer rejected the in-flow and out-flow of the cash as explained by the assessee as the same was not supported by any documentary evidence, except of Rs. 50,000 withdrawn on October 26, 1996, from District Co-operative Bank by Ashok Kumar, partner. The Assessing Officer accordingly found that the assessee was having Rs. 3,34,550 and out of which Rs. 1,06,520 was reduced which was mentioned in the kachi rokar and withdrawal from the bank and treated Rs. 2,28,030 as unexplained cash in the assessment year 1997-98 till the date of the search. The learned Counsel for the assessee has filed a copy of the reconciliation of the cash till November 3, 1996, at pages 59 and 60 in the paper book. The Assessing Officer has accepted the details of the cash available up to October 24, 1996 in a sum of Rs. 56,520.10p. A further sum of Rs. 50,000 was believed to have been withdrawn on October 26, 1996. Thereafter, in the cash reconciliation the assessee has shown cash sale of gold ornaments (150.300 gms) in a sum of Rs. 82,316 on November 1, 1996 and on the same date, cash sale of silver in a sum of Rs. 4,508.50. On that date, some petty cash was also recovered from M/s. Roopanjali Swarn Kala Kendra against sale and trade tax. Certain expenses are also shown. The account on November 2, 1996, cash sale of gold ornaments (161.130 gms) in a sum of Rs. 83,787.60 is shown. The remaining small details are also mentioned with regard to the petty sales and cash recovered from M/s. Roopanjali Swarn Kala Kendra. The major items are the sales of gold ornaments in a sum of Rs. 82,316 and Rs. 83,787.60. The Assessing Officer believed that only gold weighing 5090.110 gms. was to be explained, though the entries in the stock register were found of 7,134,780 gms. of gold ornaments. The remaining items were the gold ornaments sold on November 1, 1996 and November 2, 1996, which is reconciled from the cash reconciliation. If the Department has accepted the sales of Rs. 11.96 and November 2, 1996 of gold ornaments then the cash available out of these sales should also have been believed by the Department. The only objection of the Assessing Officer had been that the cash in flow and out flow are not supported by documentary evidence is itself contradictory from the above facts. The assessee has given all the details of the reconciliation and given the details from where cash came into but the Assessing Officer has failed to make out any investigation on this issue and rejected the case of the assessee without assigning any reasons. The argument of the learned Departmental representative had been that Ashok Kumar partner has surrendered cash of Rs. 1,89,880 at the time of statement on November 3, 1996, therefore, the same cannot be reconciled now. The learned Departmental representative argued that the same statement would be the basis of addition in the hands of the assessee in the block period. The learned Departmental representative relied upon the judgment of Allahabad High Court in the case of DR. S.C. GUPTA Vs. COMMISSIONER OF INCOME TAX, , in which it was held:

Held, that a statement made voluntarily by the assessee could form the basis of assessment. The mere fact that the assessee retracted the statement could not make the statement unacceptable. The burden lay on the assessee to establish that the admission made in the statement at the time of survey was wrong and in fact there was no additional income. This burden was not even attempted to be discharged. The order of the Tribunal was based on the facts and no question of law arose from it.

There is no dispute about the legal proposition that the statement made voluntarily could form the basis of the assessment. However, the hon''ble High Court further held that the burden lay on the assessee to establish that the admission made in the statement at the time of survey was wrong and in fact there was no additional income. (1994) 50 ITD 524 in the matter of Mrs. Sushila Devi S. Agrawal has held:

Section 132 of the Income Tax Act, 1961-Searches and seizures- Whether where assessee has retracted from statement given on search day, Assessing Officer is justified in drawing adverse inference-Held, No.

The Income Tax Appellate Tribunal, Delhi Bench in the case of Ashok Kumar Agrawal reported in [1990] 38 TTJ 189 (Delhi) has held:

Where the cash recovered from the assessee''s possession did in fact belong to his brother as evidenced by confirmation of the affidavits of the lending parties, the Income Tax Officer was not justified in treating the amount as income from undisclosed sources of the assessee.

It was further held:

Suspicion, though a ground for scrutiny of evidence cannot be made the foundation of decision. Conjecture is not a substitute for legal proof. Suspicion, however strong, cannot take the place of proof.

Though Ashok Kumar, partner of the assessee-firm has surrendered cash of Rs. 1,89,880 in his initial statement on November 3, 1996 but in the same statement, Ashok Kumar partner has specifically stated that he was not sitting in the shop for the last ten days and therefore, he is not aware of the cash details. We have already stated above that though Ashok Kumar has surrendered the cash of Rs. 1,89,880 but subsequently, Ashok Kumar had been able to explain the inflow and out flow of cash. The major difference was of the sales made on November 1, 1996 and November 2, 1996. Ashok Kumar has explained that he was not sitting in the shop for the last ten days, therefore, his retraction from the earlier statement was quite normal and supported by evidence of the sales which were admitted by the Department. The assessee has been able to explain the discrepancy in the cash from the reconciliation, which is supported by the documents and as such in our considered view, no addition could be made on the basis of the statement of Ashok Kumar by which he has surrendered cash of Rs. 1,89,880. The assessee has been able to prove the reasons for retractions from the earlier statement, which is also found supported from the explanation given by Ashok Kumar in his initial statement as well as from the explanation given in the reconciliation before the Assessing Officer. The Assessing Officer has also made addition of Rs. 18,150 in respect of unaccounted cash recovered and seized from the residential premises of Ashok Kumar. The Department itself has admitted that Rs. 18,150 was recovered from the residential premises of Ashok Kumar, as such, the same cannot be connected with the transaction of the business activity of the asses-see-firm and as such cannot be made the basis for making addition in the hands of the assessee-firm. The recovery from the residence of Ashok Kumar cannot be treated as undisclosed income of the assessee. As a result, we find that the entire addition in respect of the unexplained cash deserves to be deleted, which we do accordingly and delete the addition. This issue is also decided in favour of the assessee and against the Department.

Unexplained investment in silver ornaments, silver coins, silver brick and silver utensils;

The Assessing Officer found that silver ornaments weighing 8.212.9 kgs. as unexplained at the time of search. The assessee claimed to have made purchases on November 2, 1996 in the quantity of 8050.000 and sales of 77.000 on October 22, 1996 vide bill No. 144. The assessee has tried to explain the difference by this explanation. The details are mentioned at page 61 in the paper book. However, the Assessing Officer did not agree as no purchase bill was found at the time of search. Similar is the case in the case of silver coins as the assessee has explained the difference by making purchases on November 2, 1996 from M/s. Vikas Jewellers in the quantity of 390 coins, 20 coins purchased on November 1, 1996, and as such, the same was fully reconciled. However, the Assessing Officer disbelieved as no purchase voucher was found at the time of search and no payment was made and no supporting evidence was found available. Similarly, addition was made in respect of silver brick in a sum of Rs. 39,433 as no evidence of silver brick taken on loan on November 1, 1996 from Smt. Radha Devi was found. Lastly, the addition of Rs. 20,611 was made in respect of silver ornaments as no supportive evidence was found. The Assessing Officer made the addition as no evidence to the so-called loan was found at the time of search. As far as the silver ornaments are concerned, purchase bill is a document. The Assessing Officer failed to make any enquiry with regard to this purchase. Nothing is mentioned in the assessment order whether the Assessing Officer has made any enquiry from any of the dealers from whom the purchases are made by the assessee. The details of the bill were produced before the Assessing Officer. No reasons were given by the Assessing Officer that the assessee would not disclose some purchases in the return for the purpose of the Income Tax Act which is a condition precedent to treat the same as undisclosed income. Once the bill is produced, such presumption should not have been drawn by the Assessing Officer against the assessee. The assessee has shown the purchases in the regular assessment and no defect was found by the Department. The assessment is framed after the end of the previous year, i.e., the end of March, 1997 at the time everything was available with the Assessing Officer, therefore, the Assessing Officer should have made enquiry into the evidences filed by the assessee instead of rejecting the explanation of the assessee summarily. Similarly, for silver coins bill was produced, details were furnished before the Assessing Officer but he did not make any enquiry about the purchases, rather he has disbelieved the purchases as no payment was made. There is no bar to purchase the goods on credit. As far as the silver brick and silver utensils are concerned, the Assessing Officer has disbelieved as no evidence of loan was found at the time of search. The assessee has filed all the details before the Assessing Officer. We have already taken up this point at the stage of the decision in respect of gold jewellery and we were of the view that, according to Section 158BA(3), if the transaction relates to such income recorded on or before the date of the search in the books of account or documents maintained in the normal course relating to such previous year then such income cannot be included in the block period. It was a case when search was conducted before the end of the previous year. The assessee has produced all the bills of purchases and furnished the details of the loans in respect of silver brick and utensils, but the Assessing Officer has not made any enquiry into the matter and disbelieved the same as no voucher was found at the time of search. The definition of undisclosed income has not been satisfied in this case. On the other hand, the assessee has been able to explain the above items from the reconciliation which is supported by various bills and details. In the absence of any enquiry by the Assessing Officer, no addition could be made in the hands of the assessee on account of unexplained investment in the silver items. The entire additions available to be deleted, which we accordingly do so. This issue is also decided in favour of the assessee and against the Department.

Unexplained deposit in the bank account of Ashok Kumar (HUF)

The Assessing Officer made an addition of Rs. 5,000 in the hands of the assessee, though it was found to have been deposited on different dates on August 13, 1996, August 14, 1996 and August 20, 1996 in the bank account in the name of Ashok Kumar (HUF) in Oriental Bank of Commerce. The Assessing Officer did not find any evidence that this amount belongs to the assessee-firm. The Assessing Officer on the same reasons did not make addition in respect of the bank account of Smt. Vimla Devi and Gajendra Kumar. In the case of these persons, the bank pass book was found at the time of search in the business premises of the assessee in respect of Smt. Vimla Devi and Gajendra Kumar. The assessee explained that the bank account did not belong to the assessee-firm and as such, the Assessing Officer did not take any adverse view against the assessee and did not make any addition in the hands of the assessee-firm. On the same reasons, the Assessing Officer should have believed the statements of the assessee. In the case of Ashok Kumar (HUF), it is very clear that the account did not belong to the assessee-firm. No evidence is found that the assessee-firm has deposited this amount in the account of Ashok Kumar (HUF). Admittedly, this account in the name of Ashok Kumar (HUF) did not belong to the assessee-firm, therefore, the Assessing Officer himself contradicted by his own observation from the observation made in the case of Smt. Vimla Devi and Gajendra Kumar. The entire addition is made without any basis and is liable to be deleted. We accordingly delete the addition in the hands of the assessee-firm. This issue is also decided in favour of the assessee against the Department.

Heard Sri S. K. Garg, learned Counsel for the petitioner and Sri Sham-bhu Chopra, learned standing counsel.

Learned counsel for the petitioner submitted that action can be taken u/s 147 of the Act after expiry of four years from the end of the relevant assessment years only in case the income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return u/s 139 of the Act or in response to a notice issued under Sub-section (1) of Section 142 of the Act or Section 148 of the Act or to disclose fully and truly all material facts necessary for his assessment for that assessment year as contemplated under the first proviso to Section 147 of the Act. He submitted that in the present case the notices have been issued after expiry of four years from the end of the relevant assessment years. Therefore, the assessing authority ought to have recorded the finding in the reasons recorded that there was failure on the part of the assessee to make a return u/s 139 of the Act or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 of the Act or to disclose fully and truly all material facts necessary for his assessment, but no such finding has been recorded. He further submitted that no such case has been made out by the respondent and, therefore, the action taken u/s 147 of the Act is barred and wholly illegal. In support of the contention, he relied upon the decision of the Madras High Court in the case of Fenner (India) Ltd. Vs. Deputy Commissioner of Income Tax, He further submitted that the amount which has been said to be the escaped income in the reasons recorded has been considered in detail in the block assessment order dated November 27, 1997. The assessing authority has treated the said amount as undisclosed income. However, in appeal, the Tribunal has held that these amounts are not the undisclosed income of the assessee. He submitted that once the said amount has been held as not undisclosed income of the assessee then for the purpose of Section 147 of Act the said amount cannot be treated as the escaped income, inasmuch as those amounts have already duly considered and held to be not undisclosed income.

Sri Shambhu Chopra, standing counsel, submitted that the amounts, which are said to be escaped income in the reason recorded, have not been assessed to tax either in the original proceeding or in the block assessment and, therefore, the said income have escaped to be assessed. Therefore, the initiation of proceeding u/s 148 read with Section 147 of the Act are legally correct. He, however, could not able to explain what material facts, which the petitioner ought to have disclosed in the return or in the original proceeding, have not been disclosed believing that there was escaped assessment.

Having heard learned Counsel for the parties, we have given our anxious consideration to the rival submissions and perused the documents on record. Section 147 of the Act reads as follows:

If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year):

Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return u/s 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:

Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.

Explanation 1.-Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.

Explanation 2.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:

(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to Income Tax;

(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;

(c) where an assessment has been made, but:

(i) income chargeable to tax has been ''underassessed''; or

(ii) such income has been assessed at too low a rate; or

(iii) such income has been made the subject of excessive relief under this Act; or

(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.

Explanation 3.-For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under subsection (2) of Section 148.

For the assessment year 1996-97, four years expired on March 31, 2001, 10 and for the assessment year 1997-98, four years expired on March 31, 2002. The notices u/s 148 of the Act were issued on March 20, 2003, i.e., after expiry of four years. The notices u/s 148 of the Act could be issued beyond the period of four years from the end of the relevant assessment year only in case where the income chargeable to tax has escaped assessment by reasons of failure on the part of the assessee to make a return u/s 139 of the Act or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 of the Act, or to disclose fully and truly all material facts necessary for his assessment. In the present case, neither any finding in this regard has been recorded in the reasons recorded nor any such case has been made out. Therefore, on the facts and circumstances, we are of the view that the initiation of proceeding u/s 148 read with Section 147 of the Act for the assessment years 1996-97 and 1997-98 were barred.

In the case of Fenner (India) Ltd. Vs. Deputy Commissioner of Income Tax, the Madras High Court has held that in case where the initiation of proceeding is beyond the period of four years from the end of the assessment year, the assessing authority must necessarily record not only his reasonable belief that the income has escaped assessment, but also the default or failure committed by the assessee and failure to do so would vitiate the notice and the entire proceeding.

Further, u/s 147 of the Act the assessing authority can assess or reassess only that income which has escaped assessment, inasmuch as for taking the action there must be a reason to believe that such income has escaped assessment which comes to his notice subsequently. In the instant case, the amounts, which are alleged as an escaped income, have been duly considered in the block assessment. In the block assessment such amounts have been assessed to tax as undisclosed income. In appeal, the Tribunal has held that such amounts are not undisclosed income. Once the Tribunal has arrived at the conclusion that the alleged amounts are not the undisclosed income, it cannot be treated as the escaped income, chargeable to tax, under the provision of Section 147 of the Act. It is not open to the assessing authority to circumvent the order of the Tribunal and to take a different view. The order of the Tribunal is binding on the assessing authority. Moreover, once the alleged amount has been considered in the block assessment, it cannot be treated as the escaped income, chargeable to tax.

For the aforesaid discussions, we are of the view that initiation of proceeding u/s 147 read with Section 148 of the Act for the assessment years 1996-97 and 1997-98 are barred, erroneous and bad in law. The writ petition is, accordingly, allowed. The impugned notices dated March 20, 2003, issued u/s 148 of the Act for the assessment years 1996-97 and 1997-98 and the proceeding in pursuance thereof, are hereby quashed.