Per R.S. Syal, AM. - Under section 255(3) of the Income-tax Act, 1961, the President of the Income-tax Appellate Tribunal, has constituted the present Bench and referred the following questions :

(i)"Whether in the facts and circumstances of the case, the reassessment proceedings initiated by the Assessing Officer and confirmed by the CIT(A) are valid?

(ii)If answer to Question No. 1 is in affirmative as to whether the cash credits introduced by the assessee(s) are genuine?"

As the basic facts in all these cases are common, we are, therefore, proceeding to dispose of them by a consolidated order for the sake of convenience.

2. The facts of these cases lie in a narrow compass. Original assessment in the case of Assam Tea Co., Moga, was completed under section 143(1) on returned income of Rs. 73,030. The assessment was reopened on a receipt of information that the search conducted on the residential and business premises of Sh. Parshotam Dass and his allied concerns like M/s. Ram Kumar Parshotam Dass (hereinafter called RKPD), Jaitu etc. and other related persons and further coupled with enquiries made by the Department had revealed that the assessee had introduced a bogus cash credit of Rs. 40,000 on 28-2-1984 in the name of RKPD who was not the actual money lender but was engaged in the racket of name lending only. Notice under section 148 was issued. The assessee objected to the legality of initiation of reassessment proceedings on the plea that subsequent information to the Assessing Officer that the money lenders were not genuine did not justify the re-assessment proceedings. The contention of the assessee was negatived. The Assessing Officer called upon the assessee to prove the genuineness of the alleged loan transaction, in response to which an affidavit of Sh. Parshotam Dass, partner of M/s. RKPD, Jaitu, confirming deposits was filed. The assessee was further required to produce the creditor which was not done. On these facts, it was opined that Sh. Parshotam Dass and his other related concerns were only name-lenders. The said sum alongwith interest of Rs. 1,920 was treated as income of the assessee. The first appeal did not change the fortune of the assessee.

3. Before us Mr. V.P. Vijh, the learned counsel for the assessee vehemently argued that the orders of the authorities below were not in accordance with law inasmuch as the Assessing Officer had no reason to believe that the income chargeable to tax had escaped assessment. It was pointed out that since the basic ingredients of section 147 remained uncomplied with, the initiation itself was not valid. While inviting our attention towards the reasons recorded by the Assessing Officer for issue of notice under section 148, copy placed at page 1 of the paper book, it was stated that the Assessing Officer had recorded satisfaction that the cash credit from RKPD was for Rs. 3.91 lakhs and odd. However, it was shown that actual cash credit was only for Rs. 40,000 and the department made addition for this amount. As there was variation in the figure of cash credit as recorded in the reasons for issuance of notice under section 148 and the assessment order, the learned counsel for the assessee asserted that no cognizance could have been taken of such invalid reasons to initiate reassessment. The further contention of Mr. V.P. Vijh was that the department had initiated reassessment proceedings on the premise that Sh. Parshotam Dass was not the name-lender but in fact there was no evidence to show that the said Sh. Parshotam Dass at any stage confessed that the loan transaction with the assessee was ingenuine. It was stated that search proceedings under section 132 were taken up against Sh. Parshotam Dass on 31-1-1989 and no statement of Sh.Parshotam Dass was ever recorded. While taking us through pages 2 to 5 of the paper book, namely, the preliminary and concluding statements of Smt. Savitri Devi W/o Sh. Parshotam Dass, it was pointed out that there was no reference of the loan transaction with the assessee and as such it was not open to the department to initiate reassessment proceedings. Reliance was placed on certain authorities to buttress the point that a general statement made by a person disowning loan transactions with certain parties, not including the name of the assessee, could not empower the Assessing Officer to initiate reassessment proceedings. On merit, it was stated that the assessee had established the genuineness of the transaction, insofar as the burden of proof rested on it.

4. Mr. R.S. Bansal, CA, appearing for M/s. Ashoka Industries, Jaitu, stated that the facts in this case were similar to that of M/s. Assam Tea Co. and the deposits were accepted from M/s. RKPD, the same partnership firm in which Sh. Parshotam Dass was partner. It was contended for the appellant that the assessment for the assessment year 1984-85 was framed under section 143(3) whereas in the other two years, the returns were processed under section 143(1). It was explained that during the course of assessment proceedings under section 143(3), the Assessing Officer investigated the genuineness of loan transaction with M/s. RKPD and got satisfied with the explanation tendered at the assessment stage. Having done so, the ld. A.R. stated that the Assessing Officer was not justified in enquiring about the same transaction in the reassessment proceedings. He relied on various decisions to bring home the point that the Assessing Officer was not competent to draw adverse inference against the assessee on similar set of facts which were examined by him at the time of original assessment. Other contentions raised by Mr. Bansal, were the reiteration of the arguments of Mr. Vijh tendered earlier.

5. In the oppugnation, Mr. Jayant Kumar, the learned senior D.R. strongly relied on the impugned orders. It was stated that Sh. Parshotam Dass and the other related concerns in which he was proprietor or partner were engaged in the name lending to different concerns and the transactions routed through bank or otherwise, in fact, represented only the black money of the assessees introduced in their books of account through medium of Sh. Parshotam Dass and his concerns. It was argued that the search conducted at his residential and business premises divulged that he was a man of little means, basically working as part-time accountant having negligible net worth. It was stated that the said Sh. Parshotam Dass had advanced his name to various concerns, one of which was M/s. Gopi Chand Ram Kumar, whose case came up before the Tribunal and on there being a difference of opinion between two members, the Ld. Third Member justified the re-opening of the assessment under section 147(a). Our attention was invited towards the said order of the Tribunal in Gopi Chand Ram Kumar v. ITO [2001] 77 ITD 43 (Asr.) (TM). It was, therefore, stated that the Assessing Officer was well within his jurisdiction to initiate the reassessment proceedings and eventually including the said amount in total income. On a specific query raised from the Bench, it was conceded by the learned D.R. that no statement of Sh. Parshotam Dass was ever recorded either during the course of search proceedings or thereafter in assessment. It was also fairly agreed that no summons under section 131 was issued to Sh. Parshotam Dass to verify the genuineness of the loan transaction with these assessees. It was, however, maintained that the assessee was directed to produce Sh. Parshotam Dass but in the absence of the compliance, the department was entitled to draw adverse inference. It was finally stated on behalf of the Revenue that the Assessing Officer was competent to examine the facts in the reassessment proceedings even if those were considered at the assessment stage and were found to be correct.

6. We have considered the rival submissions in extenso in the light of material placed before us and precedents relied upon. The primary question that falls for our consideration is to decide as to whether the reassessment proceedings initiated by the Assessing Officer and confirmed in the first appeal were valid or not. Before going into this question, it would be apposite to deal with the contention raised by Mr. Bansal to the effect that the Assessing Officer having accepted the transaction in original assessment proceedings could not have initiated the reassessment proceedings on the same facts. Section 147, prior to its substitution by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 had two clauses, namely (a) and (b ). In the present appeals, we are concerned with the unamended provisions. Relevant portion of clause (a) of section 147, empowers the Assessing Officer to assess or re-assess any income, where he has reason to believe that by reason of the omission or failure on the part of assessee to disclose fully and truly all material facts necessary for assessment, any income chargeable to tax has escaped assessment. It shows that the proceedings under section 147(a) read with section 148 can be initiated if two conditions are satisfied, namely, (i) the Assessing Officer must have reason to believe that the income chargeable to tax has escaped assessment and (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 to disclose fully and truly material facts necessary for his assessment for that year, or to make a return under section 139 for the assessment year to the Assessing Officer. Both the conditions should be cumulatively satisfied to confer Jurisdiction with the Assessing Officer to initiate the proceedings. The key words used in this clause are "to disclose fully or truly all material facts". So long as the disclosure made by the assessee is full and true of all the material facts, the intention of the assessee cannot be questioned. If, however, the subsequent events, after the completion of the assessment, belie the claim of the assessee made at the assessment stage, it cannot be said that the disclosure earlier made was "full and true". Any information coming to the possession of the Assessing Officer which is specific, reliable and relevant that was not previously disclosed or which exposes the untruthfulness of the facts given by the assessee at the assessment stage, certainly empowers the Assessing Officer to start reassessment proceedings subject to the provision of this Act. It is immaterial that the Assessing Officer at the time of making original assessment could have found on further inquiry or investigation that the transaction was genuine or not. This is the mandate of the decision of the Hon’ble Apex Court in the case of Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456¹ . This leads us to an irresistible conclusion that there are no fetters on the power of the Assessing Officer to initiate reassessment proceedings in respect of transaction which was examined by him at the time of original assessment, if the subsequent events lead him to believe that any income chargeable to tax has escaped assessment by reason of non-disclosure or wrong disclosure of the primary facts at the assessment stage.

6.1 Adverting to the facts of the cases under consideration, it is seen that the reassessment proceedings were initiated on the strength of some material gathered during the course of search at the residential and business premises of Sh. Parshotam Dass, on the basis of which the Assessing Officer came to the conclusion that the credits introduced by these assessees in their books of account in the name of M/s. RKPD were bogus as Sh. Parshotam Dass was only a name-lender. The stand of the aforesaid two assessees is that the amounts were received through banking channels from M/s. RKPD which was a firm and the statement of Smt. Savitri Devi. W/o Sh. Parshotam Dass, a stranger to the firm was inconsequential insofar as the transactions of the assessee with the said firm were concerned.

6.2 At this juncture, it would be relevant to get enlightened from certain judicial precedents on this point. In the case of Kashmiri Lal Kasturi Lal & Co. v. CIT [1989] 177 ITR 477¹ (Punj. & Har.), the Income-tax Officer found in the account books of the assessee that firm ‘G’ had advanced a sum of Rs. 20,000 to the assessee by way of cash credit. At the time of original assessment, it did not come to light whether ‘G’ had really advanced by way of cash credit or was merely a bogus firm lending its name. Later on when the assessment proceedings were initiated against ‘G’, it transpired that it had indulged in Hawala business with various parties including the assessee and that firm merely lent its name to the assessee and no amount was in fact advanced. In this case, the Tribunal found that the ITO had reason to believe on the basis of subsequent information that the assessee had earlier failed to disclose the material facts and hence the reassessment proceedings were held to be valid. It was held by the Hon’ble High Court that the Tribunal was right in holding that the action under section 147(a) of the Act was rightly taken by the ITO against the assessee.

6.3 In the case of Kirpa Ram Ramji Dass v. ITO [1982] 135 ITR 68² (Punj. & Har.), the assessee had shown a sum of Rs. 95,000 as having been borrowed from five persons and the assessment was completed. Subsequently, as a result of investigation and raids carried out by the Income-tax Deptt., it came to light that numerous parties including five parties mentioned in assessee’s return were engaged in the Hawala business. The ITO issued notice under section 147(a) and the assessee filed a writ petition to quash the notice. In this case, it was contended on behalf of the petitioner that in the statements of the persons there was no reference of the name of the petitioner firm and, therefore, the said statement should be taken to be not relevant material. This contention was repelled by observing that "when the bogus Hawala Hundi proprietors, namely, Meghraj, etc., in categorical terms stated that they did not advance loans to any person whatsoever, it would automatically mean that no loan was advanced to the petitioner and the loans shown in their names were in fact bogus transactions brought on record" [Emphasis supplied by us]. In the light of these facts, reassessment proceedings were held to be validly started.

6.4 In yet another case, Hazi Amir Mohd. Mir Ahmed v. CIT [1977] 110 ITR 630 (Punj. & Har.), the Assessing Officer inquired about the genuineness of certain cash credits found in the assessee’s books at the assessment stage and accepted them as true and completed the assessment. Later on, Hundi racket operating on all India basis was unearthed and some of the creditors shown in the balance sheet of the assessee made confessional statements to the effect that they were lending names and not money. The Assessing Officer re-opened the assessment of the assessee and added a sum of Rs. 1,60,000 to his income. The appeals before the AAC and the Tribunal were unsuccessful. When the matter travelled to the Hon’ble High Court, it was observed that even though breaking of a Hawala racket on all India basis could not have a rational connection with the loans of the assessee, yet confessional statements of the creditors might have a rational connection with the loans of the assessee. It was found that the material was not available in the order of the Tribunal as to whether the confessional statements related in any manner with the loans to the assessee or not. It was finally held that the Tribunal would be justified in upholding the re-opening of the assessment under section 147(a), if the confessional statements were in any manner related to the assessee; otherwise not.

6.5 In the case of Phool Chand Bajrang Lal (supra), the assessee had claimed that it had borrowed a sum of Rs. 50,000 from a Calcutta Company. Such loan was stated to have been raised and returned in cash though interest on such loan was paid by cheque/bank draft. During the assessment proceedings, the ITO finalised the return by allowing deduction of such interest. Thereafter, he entertained some doubts about the genuineness of the loan transaction. An enquiry from his counterpart at Calcutta revealed that the Calcutta Company had not advanced any loans to any person. The ITO of the assessee examined the Managing Director of the Calcutta Company who admitted that he had made a confession to the ITO at Calcutta, that the Company had not advanced any loan to any person. It was on the basis of these facts that the Hon’ble Summit Court held that the initiation of re-assessment proceedings as valid.

6.6 The legal principles, relevant to the issue in question, that can be culled from the survey of the aforenoted Apex Court and the jurisdictional High Court decisions can be summed up as under:

(a)In general, if the events subsequent to the completion of the assessment show that the assessee had recorded false entries in its account books, the Assessing Officer would be justified under section 147(a) to initiate reassessment proceedings provided the information gathered after the completion of the assessment is specified, reliable and relevant.

(b-i)In particular the initiation of re-assessment proceedings would be valid if the alleged creditor confesses that the so-called loan transaction with the assessee was ingenuine and he acted merely as a name-lender.

(b-ii)The initiation of the reassessment proceedings would be invalid where the alleged creditor confesses or states that he was a name-lender to some parties but the name of the assessee is not appearing in such list.

6.7 Now we will move ahead in testing the instant cases on the touchstone of the above-extracted principles. Reverting to the facts under consideration, there is no quarrel on the point that the entries in the name of M/s. RKPD were appearing in the books of account of the assessees in question which was a partnership firm in which Sh. Parshotam Dass was partner and the said firm was dissolved on 31-3-1987. Search proceedings were taken against Sh. Parshotam Dass on 31-1-1989 on the basis of which the department has made out a case that the transactions appearing in the books of these assessees are ingenuine as the said Sh. Parshotam Dass was a man of little means, hardly having any capacity to advance the loans and he, ergo, acted only as a name-lender to these parties. It is an admitted position on behalf of the Deptt. that no statement of Sh. Parshotam Dass was recorded either at the time of search at his premises or during the course of assessment proceedings. The entire case of the Revenue is erected on the edifice of the small capacity of Sh. Parshotam Dass. It is true that Smt. Savitri Devi, W/o Sh. Parshotam Dass in her statement recorded on the occasion of search of her husband categorically stated that she had never advanced any loan to anybody during the last 8 years. She was asked if she knew Sh. Sushil Kumar, Ashok Kumar, Bhagwati Devi, in response to which she stated that neither she knew these persons nor any loan was advanced to them. It was further inquired whether she knew Parkash, Mahavir Pd. S/o Sh. Devi Dayal, Krishan Goel S/o Sh. Krishna Murari Goel and whether she had any transaction with them for the last 3 years, it was stated that she did not know these persons nor any transaction was made with them. On an examination of her preliminary and concluding statements, it becomes abundantly clear that no question was asked regarding financial transactions of her husband with any party. Nothing was placed on record by the Revenue to show that the search unearthed any specific incriminating material casting doubt over the genuineness of the transactions of M/s. RKPD with these assessees. No statement, much less the confessional statement of Sh. Parshotam Dass, was recorded at any stage that could show that he had lent his name or of his associated concerns to the assessees in question. The department swung into action by initiating the reassessment proceedings only on the basis of all the entries in the books of account of Sh. Parshotam Dass and his allied concerns, without establishing any clear-cut connection of name lending by Sh. Parshotam Dass with the assessees in question. It is pertinent to note that M/s. RKPD was a partnership firm. Neither statement of Sh. Parshotam Dass nor that of any other partner of the said firm was recorded which could justify the initiation of reassessment proceedings. It is true that the attending circumstances such as the small financial capacity of Sh. Parshotam Dass to lend huge money create a strong suspicion in the minds of the Officers of the Department, but the suspicion however strong can’t take the place of the reasons to believe about the escapement of income. As a matter of fact it provides a valuable clue for the detailed and deep investigation that the assessee had not made a full and true disclosure of his income. Unfortunately the steps of converting suspicion into belief about the escapement of income in the instant cases, were completely lost sight of. Except for the statement of Smt. Savitri Devi, denying her involvement in any genuine loan transactions, there is no material with the Department to justify the initiation of the reassessment proceedings in the cases under scrutiny, which in our considered opinion is not sufficient to sustain the reassessment for the manifest reason that the credits in the books of these assessees were appearing in the name of M/s. RKPD, in which Smt. Savitri Devi was not a partner. The position would have been otherwise calling for further examination at our end if the credit entries had been appearing in her own name. A minimum that was required was to record the statement of Sh. Parshotam Dass during the course of his assessment proceedings or in the cases of these assessees if he was not available during the course of search on 31-1-1989. Under such circumstances, we are not persuaded to uphold the initiation of the reassessment proceedings, which are hereby quashed. We, therefore, answer first question in negative. In view of our answer to question No. 1, the second question becomes academic only.

6.8 M/s. Ashoka Industries, the appellant in three years has also challenged the levy of interest under sections 139(8) and 215 in the reassessment proceedings. As the proceedings and the consequential assessment under section 148 are annulled, there cannot be any question of charging interest under these sections.

6.9 In the result, the appeal(s) of M/s. Assam Tea Co. and those of M/s. Ashoka Industries are hereby allowed.

7. The Revenue has come up in appeal against the orders passed by the DCIT(A) on 10-1-1994 in the case of M/s. Bant Ram & Co., another connected assessee, for the assessment year 1983-84 holding that the notice issued was barred by time limitation. The assessee, in cross-objection is, however, supporting the impugned order and praying, in the alternative, for deletion of addition on merits.

7.1 The facts of this assessee are that it had shown cash credit in the name of M/s. RKPD for Rs. 35,000 and a sum of Rs. 1,112 was shown to have been paid as interest to the said concern. The Assessing Officer issued notice under section 148 on similar facts as taken note of above and made the addition of Rs. 36,112 being the principle amount and interest paid to M/s. RKPD. In the first appeal, a preliminary objection was raised on behalf of the assessee that notice under section 148 was bad in law and beyond time, inasmuch as it was dated 19-3-1991 for the assessment year 1983-84 which was served on the assessee on 22-3-1991. As it was after the end of four years from the end of the relevant assessment year, it was contended that according to the provisions of section 149(1) no notice could have been issued unless income chargeable to tax which had escaped assessment was likely to amount to Rs. 50,000 or more. The ld. Dy. CIT(A) concurred with the submissions advanced on behalf of the assessee and held that the notice issued was barred by time. Resultantly the re-assessment proceedings were held to be bad in law.

7.2 It was contended by the ld. D.R. that the reasons for re-opening of the assessment categorically stated that a sum of Rs. 35,000 from RKPD was not genuine and the assessee had wrongly introduced Rs. 20,467 in the name of another party from Jaitu, M/s. Jai Ram Dass Tarsem Lal and Rs. 14,593 from M/s. Bhim Singh Bhola Singh. It was contended that since the total amount of these three transactions exceeded Rs. 50,000, the Assessing Officer had jurisdiction to initiate reassessment proceedings.

7.3 In the opposition, Mr. Bansal, the learned counsel for the assessee strongly relied on the impugned order.

7.4 Having heard the rival submissions and perused the relevant material on record, it is found at para-11 of the reasons recorded by the Assessing Officer that a transaction of Rs. 35,000 coupled with interest of Rs. 1,112 as appearing in the name of M/s. Ram Kumar Parshotam Dass was found to be bogus. Other two transactions from M/s. Jai Ram Dass Tarsem Lal and M/s. Bhim Singh Bhola Singh of Jaitu, were also doubted by the Assessing Officer on the ground that such parties also belonged to Jaitu,from where the bogus cash credits in the name of M/s. RKPD was introduced. On a specific query raised from the Bench, it was stated on behalf of the assessee that the said two concerns had no connection with Sh. Parshotam Dass or any of his concerns which were the subject-matter of scrutiny by the department. The learned D.R. did not controvert this assertion made on behalf of the assessee. We are really surprised at the way in which reasons for reopening of the assessment have been recorded in this case. The department had set up a case that Sh. Parshotam Dass and his allied concerns were only name-lenders. But to say that each and every party from Jaitu, which is appearing in the books of account of the assessee, having no nexus with the said Sh. Parshotam Dass, is also name- lender, is wholly irrelevant. In the absence of any material worth the name showing any connection of these two concerns with Sh. Parshotam Dass, it could not have been said that they were also name-lenders. It is further noted that when the Assessing Officer completed reassessment under section 143(3), read with section 148, no addition was made in respect of credits appearing in the names of these two concerns. Only an addition of Rs. 36,112 pertaining to M/s. RKPD was made which goes to show that the transactions with the other two concerns were found to be genuine in the eyes of the department. In our considered opinion, the learned Dy. CIT(A) rightly appreciated the facts in coming to the conclusion that that amounts in relation to the other two creditors could not have been considered while applying the provisions of section 149(1)(a). In the foregoing paras, we have quashed the initiation of the re-assessment proceedings in other cases discussed supra. The reasons stated therein would fully apply to this case as well. We accordingly uphold the impugned order on a different score.

7.5 The Cross-Objection of the assessee, being in support of the impugned order is hereby allowed. The alternative prayer for deletion of addition on merits has become infructuous in the light of our setting aside the very initiation of reassessment proceedings.

7.6 In the result the assessee succeeds and the appeal of the Revenue stands dismissed.

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