THE issues before the Bench are - Whether the contents of a pendrive seized during a Search and its printouts constitute good enough reasons to assume jurisdiction u/s 147 and make additions; Whether the reasons for reopening the assessment recorded on the basis of these contents can be held to be valid and Whether, for valid assumption of jurisdiction to frame a reassessment u/s 147, a proper and valid service of notice u/s 148 on assessee is mandatory requirement and violation thereof will result in quashing of the reassessment proceedings. And the verdict goes against the Revenue.
The assessee filed return of income for the AY 2001-02 which was processed u/s 143(1) on the same income and no regular assessment u/s 143(3) has been made in this case. The assessee was arrested by PS Vigilance Bureau, Ludhiana pertaining to Ludhiana City Centre Scam whereby a computer pen drive was recovered from him. Print outs of the pen drive received from the Punjab Vigilance Bureau by the ADIT were forwarded to the AO. On perusal of these printouts, AO found that there were various entries in various names pertaining to financial year 2000-01, and there are credits totaling to Rs. 40,49,77,905/- on which interest of Rs 7,35,49,141/- had also been paid and an amount of Rs. 84,86, 363/- had been shown as interest payable for this financial year. However, a perusal of the return revealed that the assessee had shown salary income and income from house property and interest income from bank of Tokyo -Mitsubishi Ltd. and M/s Surya Kiran Textiles Pvt. Ltd. No balance sheet had been enclosed with the return of income. These credits appearing in the pen drive and all these activities of money lending, etc., appearing from the printouts of the pen drive had not been disclosed in income tax return filed for the AY 2001-02 and therefore the AO came to the conclusion that the assessee had, not disclosed fully and truly all material facts necessary for his assessment for this AY and income chargeable to tax had been underassessed. In view of the aforesaid reasons, the assessment of the assessee was reopened and a notice of reopening the assessment was issued.
In the wake of these observations AO proceeded to make the reassessments by holding:
(i) The reassessment proceedings were validly initiated by recording proper reasons; notices were properly issued u/s 148.
(ii) Reassessments were framed properly and 143(2) notices were properly issued.
(iii) The alleged Pen Drive and its print outs were valid and reliable evidence.
iv) Assessee was managing funds for others and serving as conduit for parking the moneys of big names.
(v) All the entries in the Pen Drive were held to be undisclosed income of the assessee rejecting the claims of the assessee to correct mistakes, reduce contra entries and work out proper peak credit amounts. The contentions of the assessee that the same funds were demonstratively used repeatedly and rolled over many times, appropriate adjustments of opening balances noted in the pen drive were summarily rejected.
The AO thus made huge additions, same were challenged by assessee in first appeal. CIT(A) by and large upheld the findings of AO on jurisdiction as well as on merits, except giving some part relief based on some calculation mistake and double additions.
On further appeal by the assessee, the Tribunal held that,
++ as regards the question as to whether there exists live nexus between the materials and reasons to come to a reasonable belief that income has escaped assessment in all the impugned years, it is apparent that many of the transactions recorded in the alleged pen drive belong to various concerns and bank accounts of the assessee. Thus prima facie the pen drive and its contents have a relationship with the assessee, the burden to disprove the same is on him. Assessee has raised various objections about the intentions and irregularities committed by Punjab Police while carrying out the search and seizure of the alleged pen drive and taking out printouts as per the Cr. P.C., IPC , Indian evidence Act and Cyber Laws, which have no effect on recordings of reasons for forming a belief about escapement;
++ income Tax proceedings are non-adversarial in nature and the entire exercise is directed to ensure a fair and proper assessment on the assessee. It is trite law that technical rules of Evidence Act and Cr. P. C. are not applicable to these proceedings. An evidence which indicates the income of the assessee is admissible in Income Tax proceedings. From the record it emerges that many of the entries mentioned in the pen drive belonged to various business concerns of the assessee in which he is associated in the capacities of director or partner. Similarly many entries pertained to his bank accounts and other persons. They are explained by the assessee though on prejudice basis, but the fact remains that the entries have correlation with assessees activities. In this view of the matter the contents of the pen drive become admissible evidence in Income Tax proceedings and form a basis for investigations and additions. Consequently, that pen drive and print outs thereof constitute admissible evidence in these proceedings. The reasons for reopening were recorded on the basis of these contents. In view of the fore goings the reasons recorded for escapement of income and the material available on record with AO have a live link with each other. Thus, the reasons for reopening the assessments were properly recorded by AO. This question is answered against the assessee;
++ as regards the question as to whether service of notice u/s 148 is a mandatory condition for assumption of jurisdiction by AO u/s 147 read with sec 148 to frame a valid reassessment for A.Y. 2001-02, it is by now settled by various courts including jurisdictional high court and apex court that for proper assumption of jurisdiction by AO, a valid service of notice in terms of sec 282(1) is a mandatory legal requirement;
++ in view of the above, for valid assumption of jurisdiction to frame a reassessment, a proper and valid service of notice u/s 148 on assessee is mandatory requirement violation thereof will result in quashing of the reassessment proceedings;
++ coming now to the question as to whether there is proper service of 148 notice on the assessee in AY 2001-02. Assessee has demonstrated that the notice was issued/sent at an address different than the one mentioned in his return of income. Department also admits that the notice was served not on assessee but on one Shri Ved Prakash who according to AO is a responsible person working for the group entities of assessees family and this amounts to a proper service on assessee. These facts are admitted by the department which are evidenced by the remand report and field correspondence mentioned above;
++ assessee’s contention that Said Ved Prakash is neither his employee nor his authorized agent, remains uncontroverted. Merely because he appeared in some other group entities will not detract the fact that notice was not served on assessee. During the course of reassessment AO was intimated about non service of notices u/s 148 and 143(2) but AO failed to take cognizance of assessee’s intimation and objections. From the assessment record, remand reports, field correspondence and oral contentions, department could not demonstrate before us that notice u/s 148 was served on the assessee for A.Y. 2001-02. In view of these facts and circumstances and keeping in view the binding decisions of Delhi High Court in Hotline International and Supreme Court in the case of Hotel Blue Moon, we are left with no choice but to respectfully follow them and hold that in the absence of a valid service of notice u/s 148 on the assessee the reassessment proceedings for AY2001-02 are bad in law, consequently they are quashed;
++ Since the reassessment proceedings for AY 2001-02 have been quashed, there is no necessity to go into the other issues about service of notice u/s 143(2) and merits of additions for AY 2001-02.
Facts of the case
The assessee filed return of income for the AY 2001-02 which was processed u/s 143(1) on the same income and no regular assessment u/s 143(3) has been made in this case. The assessee was arrested by PS Vigilance Bureau, Ludhiana pertaining to Ludhiana City Centre Scam whereby a computer pen drive was recovered from him. Print outs of the pen drive received from the Punjab Vigilance Bureau by the ADIT were forwarded to the AO. On perusal of these printouts, AO found that there were various entries in various names pertaining to financial year 2000-01, and there are credits totaling to Rs. 40,49,77,905/- on which interest of Rs 7,35,49,141/- had also been paid and an amount of Rs. 84,86, 363/- had been shown as interest payable for this financial year. However, a perusal of the return revealed that the assessee had shown salary income and income from house property and interest income from bank of Tokyo -Mitsubishi Ltd. and M/s Surya Kiran Textiles Pvt. Ltd. No balance sheet had been enclosed with the return of income. These credits appearing in the pen drive and all these activities of money lending, etc., appearing from the printouts of the pen drive had not been disclosed in income tax return filed for the AY 2001-02 and therefore the AO came to the conclusion that the assessee had, not disclosed fully and truly all material facts necessary for his assessment for this AY and income chargeable to tax had been underassessed. In view of the aforesaid reasons, the assessment of the assessee was reopened and a notice of reopening the assessment was issued.
In the wake of these observations AO proceeded to make the reassessments by holding:
(i) The reassessment proceedings were validly initiated by recording proper reasons; notices were properly issued u/s 148.
(ii) Reassessments were framed properly and 143(2) notices were properly issued.
(iii) The alleged Pen Drive and its print outs were valid and reliable evidence.
iv) Assessee was managing funds for others and serving as conduit for parking the moneys of big names.
(v) All the entries in the Pen Drive were held to be undisclosed income of the assessee rejecting the claims of the assessee to correct mistakes, reduce contra entries and work out proper peak credit amounts. The contentions of the assessee that the same funds were demonstratively used repeatedly and rolled over many times, appropriate adjustments of opening balances noted in the pen drive were summarily rejected.
The AO thus made huge additions, same were challenged by assessee in first appeal. CIT(A) by and large upheld the findings of AO on jurisdiction as well as on merits, except giving some part relief based on some calculation mistake and double additions.
On further appeal by the assessee, the Tribunal held that,
++ as regards the question as to whether there exists live nexus between the materials and reasons to come to a reasonable belief that income has escaped assessment in all the impugned years, it is apparent that many of the transactions recorded in the alleged pen drive belong to various concerns and bank accounts of the assessee. Thus prima facie the pen drive and its contents have a relationship with the assessee, the burden to disprove the same is on him. Assessee has raised various objections about the intentions and irregularities committed by Punjab Police while carrying out the search and seizure of the alleged pen drive and taking out printouts as per the Cr. P.C., IPC , Indian evidence Act and Cyber Laws, which have no effect on recordings of reasons for forming a belief about escapement;
++ income Tax proceedings are non-adversarial in nature and the entire exercise is directed to ensure a fair and proper assessment on the assessee. It is trite law that technical rules of Evidence Act and Cr. P. C. are not applicable to these proceedings. An evidence which indicates the income of the assessee is admissible in Income Tax proceedings. From the record it emerges that many of the entries mentioned in the pen drive belonged to various business concerns of the assessee in which he is associated in the capacities of director or partner. Similarly many entries pertained to his bank accounts and other persons. They are explained by the assessee though on prejudice basis, but the fact remains that the entries have correlation with assessees activities. In this view of the matter the contents of the pen drive become admissible evidence in Income Tax proceedings and form a basis for investigations and additions. Consequently, that pen drive and print outs thereof constitute admissible evidence in these proceedings. The reasons for reopening were recorded on the basis of these contents. In view of the fore goings the reasons recorded for escapement of income and the material available on record with AO have a live link with each other. Thus, the reasons for reopening the assessments were properly recorded by AO. This question is answered against the assessee;
++ as regards the question as to whether service of notice u/s 148 is a mandatory condition for assumption of jurisdiction by AO u/s 147 read with sec 148 to frame a valid reassessment for A.Y. 2001-02, it is by now settled by various courts including jurisdictional high court and apex court that for proper assumption of jurisdiction by AO, a valid service of notice in terms of sec 282(1) is a mandatory legal requirement;
++ in view of the above, for valid assumption of jurisdiction to frame a reassessment, a proper and valid service of notice u/s 148 on assessee is mandatory requirement violation thereof will result in quashing of the reassessment proceedings;
++ coming now to the question as to whether there is proper service of 148 notice on the assessee in AY 2001-02. Assessee has demonstrated that the notice was issued/sent at an address different than the one mentioned in his return of income. Department also admits that the notice was served not on assessee but on one Shri Ved Prakash who according to AO is a responsible person working for the group entities of assessees family and this amounts to a proper service on assessee. These facts are admitted by the department which are evidenced by the remand report and field correspondence mentioned above;
++ assessee’s contention that Said Ved Prakash is neither his employee nor his authorized agent, remains uncontroverted. Merely because he appeared in some other group entities will not detract the fact that notice was not served on assessee. During the course of reassessment AO was intimated about non service of notices u/s 148 and 143(2) but AO failed to take cognizance of assessee’s intimation and objections. From the assessment record, remand reports, field correspondence and oral contentions, department could not demonstrate before us that notice u/s 148 was served on the assessee for A.Y. 2001-02. In view of these facts and circumstances and keeping in view the binding decisions of Delhi High Court in Hotline International and Supreme Court in the case of Hotel Blue Moon, we are left with no choice but to respectfully follow them and hold that in the absence of a valid service of notice u/s 148 on the assessee the reassessment proceedings for AY2001-02 are bad in law, consequently they are quashed;
++ Since the reassessment proceedings for AY 2001-02 have been quashed, there is no necessity to go into the other issues about service of notice u/s 143(2) and merits of additions for AY 2001-02.
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