ORDER
K.P.T. Thangal, Vice President
1. All these appeals by the assessee and the Revenue, as well the cross-objections by the assessee, for the asst. yrs. 1988-89 to 1992-93, involving common issue, are disposed of by this consolidated order, for the sake of convenience.
2. Though the assessee has urged as many as 23 grounds, it is in fact confined to one i.e. against the order of the CGT(A) in directing the AO to redo the assessment against assessee’s contention that the proceeding itself was bad in law and without jurisdiction.
3. The facts leading to the dispute, briefly, are as under:
All these appeals, for the reasons recorded on 30th March, 1995, were reopened and notice under Section 16 of the GT Act was issued to the assessee on the same date, requiring him to furnish the return of gift. In response to the notice, assessee filed the return on 13th June, 1995, declaring gift chargeable to tax at nil and along with that assessee also furnished a letter dt. 27th May, 1995 and a note, stating that the assessee was filing the return under protest. Assessee also sought for various materials/evidences, which were relied upon by the AO for invoking the provisions of Section 16 of GT Act.
4. A letter dt. 20th Feb., 1998 along with notice under Section 15(2) was issued to the assessee. By this letter the assessee was informed of the reasons for reopening the assessment under GT Act, though it was known to the assessee already by virtue of assessment order for the asst. yr. 1992-93, dt. 16th April, 1996.
5. AO records the circumstances leading to the reopening of the assessment under the GT Act. Assessee, Shri S.K. Jain is the managing director of a company known as “M/s Bhilai Engineering Corporation Ltd., Bhilai”. Shri J.K. Jain is one of his employees, manager. The residential premises of Shri J.K. Jain was searched by CBI on 3rd May, 1991 in connection with hawala transactions. During the course of search, besides other valuables, some incriminating documents were also seized. Copies of such seized documents were received from CBI through the office of the Director of Income-tax (Inv.), New Delhi, including copies of statements of various persons recorded in this connection. On scrutiny of these papers, it transpired that the assessee had not disclosed for assessment huge amounts of gifts made to various politicians, bureaucrats and others. Under these circumstances, AO came to the conclusion that income has escaped assessment and notice under Section 16 of the GT Act was issued proposing the reopening.
6. In reply, assessee stated that no attempt has been made to verify whether any recipient has either accepted or acknowledged the gift. Assessee stated that reliance has been placed only on some alleged statements made before the CBI, but the CBI itself failed to establish any case before the Hon’ble Supreme Court. To buttress the argument, the assessee made reference to CA No. 247 to 250 of 1997 in the case of CBI v. V.C. Shukla , wherein the Hon’ble Supreme Court held that the entries in the seized documents are to be proved and that they may be used as corroborative evidence and not evidence itself against the accused. It was further stated that persons like Shri L.K. Advani, Shri P. Shiv Shankar, Shri N.D. Tiwari, Shri Madhav Rao Scindia, etc., against whom proceedings were initiated on the basis of seized material, have all denied to have received any money from the assessee. In the case of Shri Buta Singh, the amount said to have been disbursed to him, has been treated as income by the Department in his hands. Assessee stated, there cannot be any gift and at the same time that cannot be treated as income in the hands of recipients. Assessee also referred to similar proceedings initiated in the case of assessee’s brothers, Shri B.R. Jain and Shri N.K. Jain and stated that if the donors are not properly identified, then no proceeding could survive.
7. Assessments were made observing as under:
it is a fact that certain persons against whom criminal proceedings were initiated based on information gathered from the seized documents in this case have been acquitted of charges levelled against them. But there are several other persons who are yet to be tried. Even in the case of the acquittants and as very obligingly quoted by the assessee himself, the Hon’ble Supreme Court has not dismissed the entries in the diary altogether. It has been held that ‘they may be used as corroborative evidence. There are scores of such evidences which are strewn all over the seized documents. There are verifiable entries in respect of farm land, investment in construction of immovable properties, acquisition of artifacts, amounts spent on travelling, etc. There are on record statements of independent witnesses who have verified such entries. Further particulars regarding the expenses as recorded in the seized documents and the statements of various persons are available in orders of assessment passed in the assessee’s own case in reassessment proceedings under the IT Act and WT Act. For the sake of brevity they are not repeated here. Suffice it to say that they are equally relevant to the assessment made under the GT Act also. As held in the said proceedings, there are reasonable grounds to conclude that the assessee has, during the accounting period, made huge disbursements of money to several persons, the reason whereof has not yet been disclosed. The extent of such disbursements is available in several seized documents and more particularly in a diary marked as MR-71/91. As could be gleaned therefrom, the assessee over a period of time has made disbursements of money to several persons as under:
Financial year Asst. yr. Amount of
disbursement
1987-88 1988-89 41,50,000
1988-89 1989-90 2,61,22,500
1989-90 1990-91 24,31,95,000
1990-91 1991-92 22,12,96,210
1991-92 1992-93 6,90,60,000
On the above lines, the assessments were completed, fixing the disbursement of the amount as mentioned above. The assessee carried the matter before the CGT(A).
8. Before the CGT(A), the assessee first assailed the very jurisdiction of the AO to pass the order. It was contended, the belief for reopening the assessment, i.e. to say, the reasons to believe must be in ‘good faith’ and that belief must be ‘that of an honest and reasonable person based upon reasonable grounds’ and should not be on mere suspicion, gossip or rumour. In the instant case of the assessee, from the seized diary, no prudent person could infer that the alleged disbursements are in the nature of gifts because neither the donees were identifiable nor any evidence with regard to acceptance of the gifted amounts were available with the Revenue.
9. It was further submitted that initiation of reassessment proceedings had been made at the dictates of another authority, which is not permissible under the law. AO acted on the basis of discussion held by ADIT with CIT, who has administrative dominance over the AO. Therefore, the initiation as made by the AO cannot be treated for all practical purposes as that made by the AO himself. For the above proposition assessee relied upon the following decisions:
(1) S. Naiayanappa and Ors. v. CIT ;
(2) Sheo Nath Singh v. AAC ;
(3) Sirpur Paper Mill Ltd. v. CWT ;
(4) J.K. Synthetics v. CBDT 1972 CTR (SC) 252 : (1972) 83 ITR 335 (SC);
(5) Sheo Narain Jaiswal and Ors. v. ITO ;
(6) CIT v. T.R. Rajkumari (1974) 96 ITR 78 (Mad);
(7) Chunnilal Onkarmal (P) Ltd. v. ITO ;
(8) Yeshwant Talkies v. CIT (MP).
10. It was further submitted, the transactions are lacking basic facts required to define it as “gift”, as defined under Section 2(xii) of the GT Act. Gift is a bilateral transaction, existence of donor and donee is a must, property must be transferred from one person to another voluntarily and without any consideration and the property under transaction must be an existing property. In the instant case of the assessee there is neither any cogent material available to this effect nor the Department has placed any material on record. Assessee again relied upon the decision of the Hon’ble Supreme Court in the case of Goli Eswariah v. CGT and the decision of the Hon’ble Kerala High Court in the case of CGT v. R. Kesavan Nail .
11. Further, it was contended that the recipients have denied any receipt of such gifts, particularly the recipient, Shri P. Shiv Shankar, on examination by CBI on 10th June, 1996 stated as follows:
I had no dealings with any of the Jains of whatsoever nature so that I could receive the said money. If I or my wife and children have not gone abroad then why should I receive that money from any or all of them. The entries seem to be a cooked up one. It is false and baseless.
Again, Shri Arif Mohd. Khan stated on 27th May, 1996 as follows:
I have already stated that I had no financial dealings with Shri S.K. Jain. Therefore, I am in no position to comment on the contents of the above-mentioned diary or what is meant by the abbreviation AM or the figures mentioned therein.
So also Shri Balram Jhakar denied any receipts or any financial dealing with the assessee. In the case of another alleged recipient, Shri L.K. Advani, the High Court absolved the recipient, holding that there was no evidence against the person concerned except the diary, notebooks, loose sheets, which cannot be used against the accused unless there are corroborative evidences. It was further submitted that in this case the Hon’ble High Court categorically held that there was no evidence to the effect of receipts from Jains and there was no acceptance by the alleged persons. It was further submitted, there is a fundamental infirmity and fallacy in the stand of the Revenue. The infirmity is that nowhere it is mentioned that the donees have accepted the gifts. If the donees have not accepted the gifts, the gift is incomplete and gift-tax cannot be levied. It was further submitted, therefore, the assessment made by the AO under Section 15(3)/16 deserves to be quashed.
12. Coming to ground No. 1 (ground Nos. 1 to 19) before the CGT(A), with regard to reopening/initiation of proceedings under Section 16 of the GT Act, the CGT(A) relied on the order of the CIT(A), dt. 22nd July, 1997 in appeal No. 123/1996-97, wherein, for the detailed discussion, he held that the reopening was valid and in accordance with law and to come to the above conclusion he relied on the same reasoning of the CIT(A).
13. Coming to ground Nos. 22 and 23, i.e. AO should not have assumed the right side of the writing in the diary as disbursement and inferred that these are gifts and consequently he should not have levied the gift-tax, assessee contended before the CGT(A) that for a valid gift, there are essential conditions–(a) there should be a donor (payer); (b) there should be a donee (recipient); (c) property must have changed hands; and (d) there must be acceptance of gift by the donee.
14. Relying upon the decision of the Hon’ble Supreme Court in the case of Goh Eswariah (supra), CGT(A) held that the transaction is not complete under the GT Act if the act is unilateral. To this act, there must be two or more persons involved. In the instant case of the assessee, the AO has not mentioned as to who are the recipients/donees. In the very assessment order, AO has not mentioned any person as direct recipient. There should be an identifiable donee. He has calculated the gift on the basis of a diary marked MR-71/91, where names of some persons have been mentioned in the said diary in code language. He has not specified the names of donees with complete names and addresses. Relying upon the decision of the Hon’ble Kerala High Court in the case of R. Kesavan Nair (supra), wherein it was held “it, therefore, follows that there cannot be a gift in law without vesting of the property gifted in the transferee, and such vesting cannot take place without the consent or the concurrence of the donee”, CGT(A) held that the consent or concurrence of the donee is a must to complete the gift. Nowhere AO has mentioned that the donees have accepted the gift or they have given their consent or concurrence for acceptance of such gift.
15. Vide para 15 of his order, the CGT(A) records that wherein some of the persons, who claimed to have received gift from the assessee, deposed before the CBI. Shri P. Shiv Shankar has categorically stated that he had no dealing with any of the Jains of whatsoever nature and he never received any money. He further states that neither he nor his wife and children have gone abroad and there was no need of receiving any money at all. The entries, he stated, are cooked up and false. Shri Arif Mohd. Khan stated, he had no financial dealings with Shri S.K. Jain and therefore not in a position to comment on the contents of the diary and the figures mentioned therein. Shri Balram Jhakar stated, he never received any money nor had any financial dealings with Jain brothers; and mere using the code ‘JKH’ if extended stands for ‘Balram Jhakar’ is a fallacy. So also in the criminal revision petition filed by Shri L.K. Advani against the judgment of Special Judge, the Hon’ble High Court of Delhi has quashed the proceedings against him and held that there was no evidence against the petitioner (L.K. Advani) except the diaries, notebooks and loose sheets, which cannot be used against him unless there are some corroborative evidences.
16. In the light of the above, the CGT(A) set aside the assessment framed for all the years under consideration to the file of AO, with direction–(i) to identify the donees; (ii) whether the donees have accepted the gifts or not; and (iii) to make adequate enquiries from the donees regarding quantum of gift. Aggrieved by the above order, the assessee as well the Revenue is in appeal.
17. Revenue is in appeal against remanding the matter, whereas the assessee is in appeal for upholding the reasons recorded by the AO. Assessee is also in cross-objection on the same grounds.
18. The contending parties were directed to file written submissions incorporating their respective contentions.
19. So as to appreciate the facts, it is necessary to state briefly the circumstances that led to reopening on the basis of reasons recorded under Section 16(1) of the GT Act, 1958.
20. The reasons for reopening were recorded on 30th March, 1995. There was a search operation by the CBI at the residential premises of Shri J.K. Jain, situated at G-30 Saket, New Delhi. Shri J.K. Jain is the manager of Bhilai Engineering Corporation Ltd. (‘BEC for short). Cash, valuable assets and foreign currency of UK, US, Duchmark, France and Hongkong was seized, also two diaries and files. The seized materials were received by the officer on 24th March, 1995 from CBI through DDI New Delhi, consisting of photocopies of diaries, registers, reports, etc. The materials were scrutinized. It belonged to Jain Group, assessed in Special Range, Bhilai, viz. Shri S.K. Jain, Shri B.R. Jain, Shri N.K. Jain, Smt Poonam Jain and BEC. The assessee group is engaged in the business of manufacturing of engineering structures, steel, fertilizers, processing of foodstuff, etc. The firm, viz. M/s Bharat Industrial Works, Bhilai in which Jain brothers happen to be partners is engaged in executing contracts of construction of boilers for thermal power plants throughout the country. CBI formed the opinion that they were indulged in hawala transactions for transferring money from abroad and were enjoying commission thereof. The seized diary consists information of such transactions of hawala for the period February, 1989 to April, 1991. The description of the diary is in the form of monthly summary of receipts and payments of money; whereas the source of receipts has been given by putting some code names and the payments are also mentioned in abbreviation, which was accepted as including politicians and bureaucrats.
21. The valuables found were admitted by Shri J.K. Jain as belonging to him and the diaries and registers were stated to be not belonging to him, though written in his hand at the instance of Shri S.K. Jain, managing director of BEC. The nature of writings was not explained by him. When Shri S.K. Jain was confronted by CBI, he explained that the money reflected in the diary/record represents money from Bhilai to the persons who are employed with the company at Bhilai, which was taken to Delhi and was handed over to the personnel of accounts section, to hand it over to Shri J.K. Jain for safe custody. The nature of the receipts were explained as unaccounted money generated out of sale of scrap of BEC, which was not accounted for by them in the regular books of account. It was stated that the figures were indicated in thousands and not in lakhs. He also admitted some donations and gifts to Ministers and some others given on various occasions.
22. It is recorded “when the other brothers of Jain were interrogated, S/Shri S.R. Jain and P.K. Jain also reiterated the version of Shri S.K. Jain particularly of two aspects that the money in question was representing their black money generated from various concerns of the groups mainly BEC and receipts noted in the diaries were representing the amounts only in thousands and not in lakhs”. Thereafter it is recorded how the CBI/Revenue established the figures are not in thousands but in lakhs, how they invested money in their farmhouse and its improvement, etc. It is further recorded how the actual amount received had been understated and the Revenue has estimated the probable figures of receipt by way of rent. Then it is recorded, though the money belongs to Jain brothers, to avoid legal consequences, Shri J.K. Jain filed a petition before the Settlement Commission, Delhi, etc. It further records the involvement/direction, etc. of Krishna Jain, wife of Shri N.K. Jain and Poonam Jain, wife of Shri S.K. Jain, etc. It further records “in all probability ‘C may mean ‘commission’ received by the persons of the group on account of hawala transactions since in the diary pertaining to the notings of receipt and payment of money on account of hawala transactions does not separately give the figure of commission. It has to be separately assessed in the hands of S/Shri S.K. Jain, B.R. Jain and N.K. Jain in equal proportion for want of correct bifurcation of it as per their memorandum of understanding, since no note found placed in the seized material and it is chargeable to tax for the asst. yr. 1991-92. Thus Rs. 64,97,900 is assessable in the hands of each”.
23. Then it is recorded that Shri S.K. Jain vide letter dt. 31st May, 1994 addressed to the Enforcement Directorate explained how the foreign articles were received on behalf of Shri S.K. Jain and customs duties were paid.
24. After giving the details as briefly narrated above, it is concluded as follows:
Financial affairs of this group as seen through the seized material appears to be inter wing (sic) bringing into fold the three brothers viz., S/Shri B.R. Jain, N.K. Jain and S.K. Jain and Smt Poonam Jain, wife of S.K. Jain and their company BEC Ltd. So far as the concealment of income, wealth is concerned it involves the period from financial years 1985-86 to 1991-92 relevant to asst. yrs. 1986-87 to 1992-93. In this connection, it is noticed that this group of assessees have utilised the black money in the investment by way of acquisition, renovation and modification of their immovable properties and purchasing lavish household goods. In past also Tax Evasion Petitions were made against Shri B.R. Jain on similar grounds but no actions were taken in the assessments and the matter was filed sometime in 1984. This fact has been gathered from an old file available in the office. Since the diary seized during the search reflects the payments to politicians and others for no considerations, it would attract gift-tax proceedings as well and the person who has paid the amount in respect of a particular transaction has to be treated as donor liable to gift-tax. Accordingly, there are strong reasons to believe that in this group of assessees as named above the income, wealth and gift chargeable to tax has escaped assessment by reason of failure on part of the assessee to disclose fully and truly their income, wealth and gift in their returns under the Direct taxes and on the part of the assessees to disclose fully and truly their income, wealth and gift in their returns under the Direct taxes and on account of failure on their part to file the returns of gift and wealth. The extent of income, wealth and gift has been separately given person-wise.
25. On the basis of the above, gift-tax proceedings were initiated and the entire disbursement appearing on the right side of the diaries were treated as amounts gifted by the assessee to various politicians, bureaucrats, etc. The amounts mentioned at para 7 of this order were held as taxable gifts and charged to tax in the hands of the assessee.
26. The learned Counsel for the assessee challenges the order of the AO on the following grounds/propositions:
(1) Initiation of proceedings is on dictates of higher ups (grounds of appeal No. 8).
(2) No “reason to believe” that gift of the assessee has escaped assessment (grounds of appeal Nos. 3 to 7 and 9 to 11).
(3) Assessment order dt. 30th March, 1998 was illegal and bad in law (grounds of appeal No. 22) for the reasons–
(a) the assessment was completed on the dictates of higher authorities; and/or
(b) the income-tax assessment, which was the foundation of the impugned assessment, has been declared illegal and nullity.
(4) CGT(A) erred in setting aside the assessment order dt. 30th March, 1998; whereas he should have quashed the order as such and deleted the additions (grounds of appeal No. 17 to 21).
27. The learned Counsel for the assessee briefly stated the facts as under:
The assessee, an individual, derived income, inter alia, from salary, business and other sources during the relevant period. A search and seizure operation was carried out by the Central Bureau of Investigation (CBI) on 3rd May, 1991, at the residential premises of one Shri J.K. Jain at G-36, Saket, New Delhi, an employee of M/s BEC Impex International (P) Ltd., a company in which the assessee was a director. From the residential premises of Shri J.K. Jain, some loose sheets/documents and diaries were found, which were seized by CBI. The diaries so seized from the premises of Shri J.K. Jain included one spiral bound diary, which was in the handwriting of Shri J.K. Jain and the same was marked as MR-71/91 by CBI.
28. Pursuant to warrant of authorization issued under Section 132A of the IT Act, 1961, CBI handed over photocopies of the seized documents to the Directorate of IT (Inv.), New Delhi on 7th Feb., 1995. Photocopies of part of the seized documents, out of the documents so received by the Directorate of IT (Inv.), New Delhi from CBI, were sent to the AO, i.e. Dy. CIT (Asst.), Special Range, Bhilai on 20th March, 1995, which were received by the AO on 24th March, 1995.
29. On the basis of reasons recorded on 30th March, 1995 in the ‘Jain Group of cases’ for initiating income-tax, wealth-tax and gift-tax proceedings for the aforesaid years, inter alia, in the case of the assessee, notice under Section 16 of the GT Act, dt. 30th March, 1995 was issued to the assessee. Similarly, income-tax and wealth-tax proceedings were also initiated on the basis of the seized documents for the aforesaid years in the case of the assessee. In the return filed by the assessee pursuant to notice issued by the AO under Section 16 of the GT Act, the assessee denied any connection with the diary.
30. The income-tax assessments in the case of assessee for the years under consideration were first completed vide separate orders dt. 16th April, 1996. In income-tax order it was alleged that the spiral diary marked as MR 71/91 by the CBI and recovered from the premises of Shri J.K. Jain actually belonged to the assessee. It was also alleged that the entries in the diary were relatable to the transactions carried out by the assessee.
31. As stated above, gift-tax assessment proceedings under Section 16 of the GT Act were initiated in the case of the assessee vide notice dt. 30th March 1995. Pursuant thereto, the impugned assessments were completed under Section 15(3)/16 of GT Act vide orders dt. 30th March, 1998 (i.e. original assessment) assessing substantial amounts as taxable gifts made by the assessee during the relevant previous years. In gift-tax proceedings, the entire disbursements allegedly appearing on right hand side of the above diary were treated as amounts gifted by the assessee to various politicians, bureaucrats, etc. Thus, on the basis of entries on the right hand side of the diary, substantial amounts (mentioned hereinabove at para 7 of this order) were held as taxable gifts and charged to tax in the hands of the assessee.
32. The assessee preferred appeal against the impugned/original assessment before the CGT(A) vide order dt. 3rd Aug. 1999. The CGT(A) set aside the original assessment for fresh assessment with certain specific directions to be followed while redoing the assessment. In fresh assessment vide order dt. 23rd March, 2002, AO merely repeated the additions made in the original assessment without complying with the specific directions of the CIT(A). The present cross-appeals by the assessee and the Department have been filed against the order of the CGT(A), dt. 3rd Aug., 1999.
33. With regard to proposition No. (1), i.e. initiation of proceedings on the dictates of higher ups (ground No. 8), the learned Counsel for the assessee submitted as under:
Reassessment proceedings were initiated after receipt of part of the seized documents along with letter dt. 20th March, 1995 from Dy. Director of IT (Inv.), New Delhi by the AO on 24th March, 1995 at 5.00 p.m. Prior to the receipt of the aforesaid letter by the AO, Dy. Director of IT (Inv.) had sent a letter dt. 28th Feb., 1995/1st March, 1995 to CIT, Jabalpur which contained, inter alia, the following documents/statements:
(i) Report of CBI;
(ii) Statements of the assessee before CBI; and
(iii) Report sent by Dy. Director of IT, Unit I to DI appraising about the documents.
34. It was submitted the following pertinent observations/directions in the aforesaid letter dt. 28th Feb., 1995/1st March, 1995 of the Dy. Director of IT (Inv.) to CIT, Jabalpur supports the contention of the assessee that the proceedings were initiated on dictates:
Page 2 : You are requested to kindly direct the AO of Bhilai to
consider the report sent by CBI and take action under Direct
Taxes.
Page 2/para 5 : Accordingly, the AO has to initiate proceedings to tax the
unexplained investment (or expenditure).
Page 2/para 5 : The Director General of IT (Inv.) North has desired that action
for reopening assessment be taken up at the earliest.... It is
requested that the AO be directed to handle this case on top
priority basis as Supreme Court is also seized with the
matter.
35. It was further submitted, the tone and tenor of the aforesaid letter clearly establishes that the CIT, Jabalpur was directed by the investigation authorities in Delhi to direct the AO of the assessee to initiate reassessment proceedings. On 20th March 1995, the AO, surprisingly, writes a letter to the CIT, Jabalpur referring to some letter F. No. CIT/JBP/1/1994-95, dt. 7th March, 1995 informing that he is yet to receive material from Director of IT (Inv.), New Delhi. The fact that the AO writes the aforesaid letter on 20th March, 1995 clearly indicates/establishes that the directions of the investigations at New Delhi to reopen the assessments, as contained in their letter dt. 28th Feb., 1995/1st March, 1995, was duly communicated by CIT, Jabalpur to the AO, though the Department has, either deliberately or for some other reason, not brought the manner of such communications on record. Under the cover of letter dt. 20th March, 1995, the Dy. Director of IT (Inv.) sent the documents to the AO, which was received by the AO on 24th March, 1995 at 5.30 p.m. In the above letter dt. 20th March, 1995, Dy. Director of IT (Inv.) refers to discussions in the matter with CIT-Jabalpur, wherein the AO is admittedly absent and requested the AO to initiate reassessment proceedings. The AO was asked to discuss the case with the Dy. Director of IT (Inv.), if required.
36. It was further submitted, it is pertinent to note that the aforesaid letter dt. 20th March, 1995 clearly states that all the documents received from CBI were not sent by Dy. Director of IT (Inv.) to the AO. The Dy. Director of IT (Inv.) decided what material was relevant and selectively furnished the same to the AO. There was no reason/valid justification with the Dy. Director of IT (Inv.) for keeping back other documents with him, when in law he ceased to exercise jurisdiction in the matter as discussed infra. The fact that the Dy. Director of IT (Inv.) forwarded to the AO, the documents requisitioned from CBI under Section 132A much after the expiry of statutory period of 15 days provided under Section 132(9A) of the IT Act, further indicates that the Dy. Director of IT (Inv.) wanted to investigate and be involved in the matter, without having the jurisdiction to do so. In this regard, reliance was placed upon the decision of the Hon’ble Supreme Court in the case of CIT v. K.V. Kiishnaswamy Naidu & Co. .
37. Learned Counsel further submitted, the following important facts require specific mention/consideration:
(a) letter dt. 20th March, 1995 of Dy. Director of IT (Inv.) was received by the AO on 24th March, 1995 at 5.30 p.m.;
(b) 25th and 26th March, 1995, were holidays being Saturday and Sunday; and
(c) AO, thus, had only 3 working days, i.e. 27th, 28th and 29th March to go through the voluminous records, statements of the various persons, decipher the notings in the diaries which, as admitted by the AO, were in alphabets, abbreviated forms, codes, etc., examine the assessment records, form prima facie link between the diary and S.K. Jain, have reason to believe that income of the assessee has escaped assessment and quantify the same.
38. It was submitted, after receipt of the seized material, vide letter dt. 29th March, 1995, the AO informs Dy. Director of IT (Inv.), New Delhi the following:
(a) Though Set X forwarded to CIT, Jabalpur contained 258 pages, only 72 pages have been received; and
(b) In Set DC against 117 pages only 113 pages have been received. The missing pages appear to be SP’s report containing very relevant material.
Learned counsel submitted, from the aforesaid, it is clear that on 30th March, 1995, the AO did not have all the requisite documents in his possession, kept aside applying his mind to the same. In addition to the aforesaid, in the letter dt. 29th March, .1995, the AO refers to doubt regarding the entity referred to as ‘BECO’ and states that discussions have been held with Shri P.C. Chhotay, DDI (Inv.) and Shri G.P. Garg, DG on 27th March, 1995 and 28th March, 1995 and states that necessary action are in full swing. As such, the involvement of Dy. Director of IT (Inv.) and DG (Inv.) and CIT, Jabalpur is clearly established.
39. Learned Counsel further submitted, above all, a critical examination of the reasons recorded (as discussed infra) clearly reveals that there was no application of mind by the AO to reopen the gift-tax proceedings and the same were reopened merely to comply with the directions of the higher authorities. In the ten pages of the reasons allegedly recorded by the AO, valid reason for reopening the gift-tax proceedings is conspicuous by its absence.
40. It was further submitted, it is pertinent to mention that the Tribunal in income-tax proceedings held, dismissing the contentions of the assessee that there is no material to establish dictates prior to recording of reasons on 30th March, 1995. An analysis of the order of the Tribunal in this aspect clearly brings put the following:
(a) Tribunal concurred with the appellant that there can be no quarrel with the legal proposition that initiation of proceedings on dictates would be illegal.
(b) Tribunal held that there is nothing on record to suggest that directions contained in letter dt. 1st March, 1995 were ever conveyed to AO either by the Dy. Director of IT (Inv.) or CIT, Jabalpur; meaning thereby that the Tribunal did agree that this letter contained the directions for reopening the proceedings.
(c) Tribunal followed the normal presumption that official acts must be presumed to have been properly done.
41. Learned Counsel further submitted, the aforesaid finding/conclusion of the Tribunal cannot be applied to the present gift-tax proceedings for the following reasons:
(a) Letter dt. 29th March, 1995 written by the AO clearly refers to discussions on 27th March, 1995 and 28th March, 1995 with Dy. Director of IT (Inv.) and DG and the fact that the guidelines contained in letter of Dy. Director of IT (Inv.) and actions are in full swing.
(b) The order-sheet entry of April, 1995 states “reopening of the cases–reasons to work out” clearly suggesting that reasons were not worked out on 30th March, 1995 and were worked out later on.
(c) Notices issued were handed over to the Dy. Director of IT (Inv.) for service on the assessee in April, 1995.
It was further submitted, the aforesaid facts clearly establish dictates of higher authorities to the AO to reopen the cases of the assessee. The Tribunal, in the income-tax order, missed to take note of the aforesaid three vital aspects to come to the conclusion that “….there is nothing on record to suggest that directions contained in letter dt. 1st March, 1995 were ever conveyed to AO either by the Dy. Director of IT (Inv.) or CIT, Jabalpur”.
42. Learned Counsel submitted that the gift-tax proceedings were reopened pursuant to the directions of the higher authorities. The legal position that proceedings reopened on dictates is illegal and bad in law is fairly well settled and was duly accepted by the Tribunal in income-tax appeal. Learned Counsel submitted, broad principles regarding initiation and/or conclusion of proceedings on dictates/directions of other authority have been discussed in the following decisions:
(1) Purtabpur Company Ltd. v. Cane Commi. of Bihar ;
(2) State of UP v. Maharaja Dharmander Prasad Singh AIR 1989 SC 997, 1009;
(3) Arjun Singh & Am. v. Asstt, Director of FT and Ors. ;
(4) Gujarat Gas Co. Ltd. v. CIT .
Relying upon the following decisions, learned Counsel submitted, initiation of proceedings under Section 147 and other sections are clearly illegal and bad in law:
(1) Sheo Narain Jaiswal v. ITO (supra);
(2) Yeshwant Talkies v. CIT (supra);
(3) CIT v. TR Rajkumari (supra);
(4) Jawahar Lal v. Competent Authority and Ors. (1983) 32 CTR (Del) 131 : (1982) 137 ITR 605 (Del);
(5) Rajputana Mining Agencies and Ors. v. ITO .
43. Learned Counsel submitted, the diary is not in the handwriting of the assessee. It is written by Shri J.K. Jain. The total gifts treated in the hands of the assessee comes to about Rs. 52 crores; but the persons to whom the payments/gifts made include assessee’s own company, assessee’s brothers, their wives and children. Can there be a gift to assessee himself ? Most of the persons whose names have been deciphered and mentioned by the AO in his order have already been acquitted and held as not recipients of money by the High Court/Supreme Court. Inviting our attention to paper book pp. 468 to 499, i.e., (1998) 3 SCC 410, at p. 418, which reads as under:
3. The common allegations made in the above two charge sheets (from which these appeals stem) are that during the years 1988 to 1991 the Jains entered into a criminal conspiracy among themselves, the object of which was to receive unaccounted money and to disburse the same to their companies, friends, close relatives and other persons including public servants and political leaders of India. In pursuance of the said conspiracy S.K. Jain lobbied, with various public servants and Government organizations in the power and steel sectors of the Government of India to persuade them to award contracts to different foreign bidders with the motive of getting illegal kickbacks from them. During the aforesaid period the Jain brothers received Rs. 59,12,11,685, major portion of which came from foreign countries through hawala channels as kickbacks from the foreign bidders of certain projects of power sector undertakings and the balance from within the country. An account of receipts and disbursements of the monies was maintained by J.K. Jain in the diaries and files recovered from his house and the Jain brothers authenticated the same.
Learned counsel submitted, the above finding of the Hon’ble Supreme Court clearly shows that there is no evidence that the money is of assessee’s own. It is of assessee’s brothers and also belongs to other parties; why the assessee is then singled out for this assessment ? It only leads to a conclusion that initiation of reassessment is not proper. He further submitted, the Investigation Wing of New Delhi had no jurisdiction as far as Maharashtra and Madhya Pradesh are concerned. There is a separate Investigation Wing. Once the files are handed over, the Delhi Investigation Wing becomes functus officio. There are records to show that even after handing over the entire files they were subsequently sending the files and getting instructions.
44. Inviting our attention to paper book p. 125, which is the order-sheet for the period 24th March, 1995 to 25th April, 1995, learned Counsel submitted, it is clear that the reopening was done at the instance of the higher ups. Particularly, he brought our attention to reason recorded, which is marked “A” and “B” below the date mentioned as 30/3. Learned Counsel again brought our attention to paper book p. 132, copy of the order-sheet from 30th March, 1995 to 27th Nov., 1998 in respect of the income-tax proceedings, particularly the noting dt. 22nd March, 1996, wherein he was to proceed to Delhi to get the approval of the order from authorities at Delhi. In this it is further mentioned “in this connection, the CIT Jabalpur also directed that there is no need in attending the proceedings before the Hon’ble Settlement Commission in Bombay on 3rd and 4th April, 1996 which was decided to be attended earlier.”
45. Replying to the above, the learned standing counsel for the Revenue submitted, the same argument was raised in income-tax matters before the Tribunal in ITA Nos. 552 to 556/Nag/1997 for the asst. yrs. 1988-89 to 1992-93 and vide its order dt. 31st Aug., 2004, the Tribunal dismissed the assessee’s contentions, observing as under:
From the correspondence referred to above as well as the entries in the order-sheet, we do not find any such dictates to reopen as has been alleged on behalf of the assessee.”
“There is no material available on record to come to a conclusion that there was no independent application of mind by the AO before reopening the case and recording reasons for such reopening.
46. Standing counsel submitted, the order for reopening the entire matter, i.e. income-tax/wealth-tax/gift-tax is one and the same. Therefore, it cannot be said that for reopening income-tax cases there were no dictates and for reopening the gift-tax cases there were dictates of higher authorities. It is clear from the finding of the Tribunal that there was no material on record to arrive at such a conclusion. Now the assessee cannot take such a plea before the Tribunal in this matter. This belief is liable to be dismissed in limine. Standing counsel further submitted that the belief that the findings of the Tribunal in income-tax matters cannot be imported to gift-tax is a belief without merit. The order and material available are one and the same. It cannot be held that one part of the order was on the dictates of the higher authorities but other part is not so.
47. In his rejoinder, learned Counsel for the assessee submitted, the findings given by the Tribunal in the income-tax matter are not applicable to the present gift-tax proceedings. The sequence of events elaborated in the broad propositions on pp. 4 to 9 clearly establish that the gift-tax proceedings were initiated by the AO on the dictates of the higher authorities, without any independent application of mind. Learned Counsel reiterated that the reassessment proceedings were initiated on dictates of other authorities and is therefore illegal and bad in law.
48. Hearing the rival submissions and going through the orders of the Revenue authorities and the decisions cited, we are of the view that reopening was rightly done by the AO. The belief of the assessee that the reopening was done at the dictates of the higher authorities is without merit. At p. 16, para 34, we have reproduced certain observations/directions of the Dy. Director of IT (Inv.) to CIT, Jabalpur, on the basis of which the assessee contends that the very initiation of proceedings were on the dictates of higher authorities. We are unable to agree with the above view proposed by the assessee’s counsel. The observations/directions reproduced hereinabove are again reproduced here for easy reference:
Page 2 : You are requested to kindly direct the AO of Bhilai to
consider the report sent by CBI and take action under Direct
Taxes.
Page 2/para 5 : Accordingly, the AO has to initiate proceedings to tax the
unexplained investment (or expenditure).
Page 2/para 5 : The Director General of IT, (Inv.) North has desired that
action for reopening assessment be taken up at the earliest....
It is requested that the AO be directed to
handle this case on top priority basis as Supreme Court is
also seized with the matter.
49. The underlined portion clearly indicates that the CIT was requested to direct the AO to consider the report. Again the CIT was requested that the AO be directed to handle this case on top priority basis. In other words, there was no direction to reopen the assessment. There was a direction to consider the report sent by the CBI and to take action under Direct Taxes and also to deal with the matter on top priority basis. The choice was AO’s.
50. Another contention of the learned Counsel (see para 37) is that only three working days were left for the AO to go through the voluminous records, statements, decipher the notings in the diaries and to examine the assessment records for forming a prima facie link between the diary and Shri S.K. Jain and this period was not sufficient to apply the mind properly and to come to a right conclusion. Again, we are unable to agree with the above proposition. There is nothing on record to show that AO has not applied his mind before recording the reasons. The mere doubt expressed by the AO in the letter with regard to entity referred as “BECO” is not sufficient to hold that there was no application of mind. The correspondence between the officers is internal machinery process. The contention of the learned Counsel that in the entire 10 pages of reasoning recorded by the AO there is no valid reason for reopening the gift-tax proceedings cannot be accepted. AO came to a prima facie conclusion, which is possible. Sufficiency or insufficiency of that cannot be looked into by the Tribunal.
51. Now coming to the argument of the learned Counsel that the decision of the Tribunal in income-tax appeal cannot bind the Tribunal, we agree with the above proposition. But at the same time, since the facts are interlinked and ascertained out of the same set of papers, the relevancy or irrelevancy deserves to be considered. In the income-tax proceedings, after considering the issue elaborately, reopening was upheld by the Tribunal. The stand of the assessee now in these proceedings is that the conclusion arrived at by the Tribunal in income-tax proceedings cannot be taken note of for the reason that the Tribunal had not considered the importance and consequence of letter dt. 29th March, 1995 written by the AO, referring to discussions he had with Dy. Director of IT (Inv.) and DG and the guidelines were given by Dy. Director of IT (Inv.) how to proceed. Another argument advanced by me, learned Counsel is that the Tribunal had not also considered the order-sheet entry of April, 1995 (exact date is not clear), which states that “reopening of the cases–reasons to work out” clearly suggest that as on 30th March, 1996 the reasons were not actually recorded and it was worked out in April or still later. The notice was handed over to the Dy. Director of IT (Inv.) for service to the assessee in April, 1995.
52. Coming to the order-sheet entry and the contention that the reopening of the case was done subsequently, we are unable to accept the same for the reasons recorded in Jain Group of cases under Section 148(2) of the IT Act, 1961/17(1) of the WT Act, 1957/16(1) of the GT Act, 1958 dt. 30th March, 1995. We have to go for guesswork. The reasons recorded are already before us, which is dt. 30th March, 1995. Argument of the learned Counsel is that we should presume and should come to a conclusion that no reasons were really recorded on 30th March, 1995 and it was done subsequently putting a date anterior. We are unable to accept the above proposition. The next objection of the assessee is that the notices issued were handed over to Dy. Director of IT (Inv.) for service to the assessee in April, 1995. It is to be seen that the assessee was having a residence in Delhi, where the notices were to be served.
53. Coming to the decision relied upon by the assessee in the case of Arjun Singh & Am. v. Asstt. Director of IT (supra), the facts are distinguishable. This was a case wherein the assessment was completed accepting the valuation report in respect of house constructed by three persons jointly. Subsequently, criminal proceedings were initiated against one of them on the ground that he had accepted unaccounted money. Criminal proceedings were dropped. Income-tax enquiry was conducted after 10 years and obtained report of officer on revaluation. The Hon’ble High Court held, this cannot be a basis for reopening the assessment. Hence this decision is not applicable.
54. The decision relied upon by the learned Counsel in the case of Gujarat Gas Co. Ltd. v. Jt. CIT (supra) is also distinguishable on facts. This was a case wherein Board’s instructions to its subordinate authorities were challenged on the ground that independent power exercised by quasi-judicial authority has been curtailed by this instruction. Instruction directed the AOs that in scrutiny assessment, the assessment cannot be made at a figure lower than that returned. The Hon’ble High Court held, this is ultra vires because the independent power of the officer discharging with the quasi-judicial function has been curtailed. In the instant case of the assessee there is no evidence to show that the power of the AO has been curtailed by a direction.
55. Coming to the decision relied upon by the assessee in the case of Yeshwant Talkies v. CIT (supra), this decision is also on facts identifiable. This was a case wherein the proceedings were initiated on the basis of audit objection. In the order-sheet, AO recorded that on direction from the CIT he was satisfied that income had escaped assessment. There is no such recording in the instant case. The assessee is trying to establish that the reasons were recorded by the AO without application of mind and on the basis of the directions of the higher authorities. We have already hereinabove noted that there was no such direction. The CIT was requested to direct the AO to initiate proceedings. That does not mean that AO has lost his independence to decide.
56. Coming to the decision relied upon by the assessee in the case of CIT v. T.R. Rajkumari (supra), the facts are clearly distinguishable. This was a case wherein the AO was directed by the CIT under Section 33A(2) of 1922 Act, to delete the additions made for the asst. yr. 1952-53 and to include the same for asst. yr. 1955-56. The Hon’ble High Court held, AO had no reason to do so because there was a clear.-cut direction. Hence, with regard to the belief of the assessee that there was a direction from the higher authorities to reopen the assessment, we are of the view that there is no evidence to show that there was a direction from the higher authorities to reopen the assessment and further there is no reason to come to the conclusion that the reasons were not recorded by the AO independently.
57. For the above reasons and also in view of the order of the Tribunal in assessee’s own case in income-tax appeal, reported in Surendra Kumar Jain v. Dy. CIT (2004) 85 TTJ (Nag) 285, wherein the Tribunal on identical facts came to the conclusion that there is nothing on record to suggest that there was any direction from any quarter to reopen the assessment, we reject assessee’s contention on this point.
58. Now coming to the second proposition, learned Counsel submitted, in the entire reasoning recorded running into 19 pages, the only observation regarding payment of gift and donation to Ministers is confined to only four lines, which reads as under:
…Since the diary seized during the search reflects the payments to politicians for no considerations, it would attract gift-tax proceedings as well, and the person who has paid the amount in respect of a particular transaction has to be treated as donor liable to gift-tax. Accordingly….
The rest of the reasons recorded are only around reopening of the income-tax and wealth-tax proceedings.
59. Learned Counsel submitted, on the basis of the aforesaid reasons, it cannot be said that a reasonable/prudent person will come to a reasonable, prima facie belief that any gift chargeable to tax has escaped assessment in the hands of the assessee on the facts in the instant case of the assessee. In the aforesaid observations it is alleged that since the diary also reflects payments to the politicians, it would attract gift-tax. The assessee is unable to appreciate, counsel submitted, as to how merely on the basis of some payment allegedly coming to the notice of the AO he could directly come to a conclusion that the same would attract gift-tax proceedings. Learned Counsel further submitted, it is noticed that the main focus/allegation in the reason is that the assessee and his brothers are involved in hawala transactions as is evident from the following:
Page References in the reasons recorded Prima facie indication
No. that follows
69 As per CBI report, appellant, Shri J.K. Jain and Indication towards
Sh. B.R. Jain were indulging in 'hawala business' hawala transactions
and were enjoying 'commission' income.
71 On some pages there is working showing Indication towards
conversion into Indian currency. This therefore hawala transactions
represents nothing but foreign currency brought
in India.
71 It is stated "I find that in fact the transaction Indication towards
recorded in these diaries were pertaining to hawala transactions
assessee's business of hawala transaction, the
exact mechanism of which has not come on
record.
73 Refers to some monthly cash flow chart of the Indication towards
hawala business hawala transactions.
75 Commission is to be separately assessed in the Indicates hawala
hands of the "Jain Brothers" in equal proportion business
for want of correct bifurcation.
60. Learned Counsel submitted, if the allegation of the AO in the reasons recorded is that the assessee is involved in hawala transactions, then it is not possible to conclude that the payments in the diary were taxable as gift. A reasonable person would have, in such circumstances, concluded that the payments recorded in the diary were payments forming part of the hawala transactions and definitely not a gift. Learned Counsel further submitted, it is also noticed that in the reasons recorded there were reference to transactions being in the nature of sale of scrap as is evident from the following:
Page References in the reasons recorded Prima facie indication
No. that follows
70 Nature of transactions were stated by J.K. Jain as Transactions related
money generation from sale of scrap B.R. Jain to some company
stated that black money of group companies. and not the assessee
It was submitted, no part of the reasons recorded reflects any application of mind which will lead to a conclusion and to belief that gift of the assessee had escaped assessment. The allegations/observation in the reason that the payments were without consideration is de hors any material/information recorded to have been found by the AO. Reliance placed on the statements before CBI could not also have led to the conclusion of escapement of gift since the payments were allegedly stated to have been made for furthering business interests. Thus, a judicious comparison between the material allegedly available with the AO and the inference drawn therefrom did not have live nexus/rational connection with the prima facie conclusion that gift chargeable to tax had escaped assessment. It could not, thus, be said that there was any ‘reason to believe” that the assessee’s gift had escaped assessment.
61. Learned Counsel further submitted that the order of the Tribunal in income-tax proceedings upholding the initiation cannot be applied in the present gift-tax proceedings. As highlighted above, the AO cannot be said to have arrived at any prima facie belief that gift of the assessee has escaped assessment. It was submitted, the considerations that weighed upon the Tribunal while upholding of initiation of income-tax proceedings were totally different since : (a) firstly, whether it was hawala transactions or unexplained cash credit, the Tribunal held that it pointed towards escaped income, which is not so when gift-tax proceedings are concerned; and (b) secondly, the Tribunal noted that the AO also noted/found certain other transactions pointing towards unexplained expenditure/investments, e.g. alleged transactions of investment in farmhouse, purchase of furniture, investment in property, etc. that by itself justified initiation of reassessment proceedings.
62. Learned Counsel further submitted, it is settled law that the reasonable belief of the AO that ‘gift of the assessee has escaped assessment’ is a condition precedent to exercise jurisdiction under Section 16 of the GT Act. The belief of the AO is available in the form of reasons recorded by him, which should reflect process of reasoning that led to the belief and such belief should have a rational connection or a live link with the materials on the basis of which the belief was arrived at. Thus, on an examination of the reasons recorded one must be able to reasonably determine that there was application of mind by the AO on the material available on record. Further, the conclusion arrived at must reflect honest and reasonable belief based on available material and the proceedings cannot be initiated on suspicion, gossip or pretence.
63. Construing the expression ‘reason to believe’, learned Counsel submitted, the Hon’ble Supreme Court in the case of Sheo Nath Singh v. AAC (supra) observed : “There can be no manner of doubt that the words ‘reason to believe’ suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the ITO may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The ITO would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The Court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the Court”.
64. Relying upon the decision of the Hon’ble Supreme Court in the case of Ganga Saian & Sons (P) Ltd. v. ITO , learned Counsel submitted, their Lordships observed as under:
The important words under Section 147(a) are ‘has reason to believe’ and these words are stronger than the words ‘is satisfied. The belief entertained by the ITO must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. The Court, of course, cannot investigate into the adequacy of sufficiency of the reasons which have weighed with the ITO in coming to the belief, but the Court can certainly examine whether the reasons are relevant and have a hearing on the matters in regard to which he is required to entertain the belief before he can issue notice under Section 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 facts 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 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 and the notice issued by him would be liable to be struck down as invalid.
Learned counsel also relied upon the following decisions in support of the above proposition:
(1) ITO v. Lakhmani Mewal Das ;
(2) Arjun Singh & Am. v. Asstt. Director of IT and Ors. ;
(3) Sheth Brothers v. Jt. CIT ;
(4) Bombay Pharma Products v. ITO
(5) Lokendra Singh Rathore v. WTO ;
(6) United Electrical Co. (P) Ltd. v. CIT (2002) 178 CTR (Del) 192 : (2002) 258 ITR 317 (Del);
(7) Asstt. CIT v. Malli Chand Baid (2006) 99 TTJ (Nag) 1016.
65. Learned Counsel submitted, the Hon’ble Gujarat High Court in the case of Birla VXL Ltd. v. Asstt. CIT observed that the reasons recorded should clearly reflect the reasoning of the AO to arrive at a belief as under:
Another requirement which is necessary for assuming jurisdiction is that the AO shall record his reasons for issuing notice. This requirement necessarily postulates that before the AO is satisfied to act under the aforesaid provisions, he must put in writing as to why in his opinion or why he holds the belief that income has escaped assessment. ‘Why’ for holding such belief must be reflected from the record of reasons made by the AO. In a case where the AO holds the opinion that because of excessive loss or depreciation allowance income has escaped assessment, the reasons recorded by the AO must disclose by what process of reasoning he holds such a belief that excessive loss or depreciation allowance has been computed in the original assessment. Merely saying that excessive loss or depreciation allowance has been computed without disclosing the reasons which lead the assessing authority to hold such a belief, in our opinion, does not confer jurisdiction on the AO to take action under Section 147 and 148 of the Act.
66. Relying upon the decision of the jurisdictional High Court in the case of Hindustan Lever Ltd. v. R.B. Wadkar , learned Counsel submitted that the reasons should not be vague and should be clear and unambiguous and should not suffer from any vagueness. The reasons are manifestation of the mind of the AO. The reasons recorded must disclose mind of AO. The opinion of the AO must be in black and white. Relying upon the decision of the Hon’ble Patna High Court in the case of Shambhu Nath Sheo Prasad v. CIT (1993) 113 CTR (Pat) 166, learned Counsel submitted, it is well settled that reasons must disclose prima facie facts which would justify issuance of the notice and to any person perusing the reasons it should be obvious as to how the mind of the AO worked when he issued the notice. Learned Counsel further submitted, it is also settled legal position that proceedings cannot be initiated to conduct further enquiry. For the above proposition, he relied upon the decision of the Hon’ble Patna High Court in the case of Chunnilal Suiajmal v. CIT , wherein the Hon’ble High Court observed that “the question of investigation should have arisen before the initiation of the reassessment proceeding. The Department cannot, it was held, be allowed to initiate a proceeding which is not in conformity with law and then start a fishing enquiry”. Learned Counsel submitted that there was no prima facie belief that gift of the assessee had escaped assessment. The proceedings were initiated on suspicion and not prima facie belief, which is not permissible in law.
67. In reply to the above, the learned standing counsel for the Revenue submitted, the contention of the assessee that there was no “reason to believe” that the gift chargeable to tax had escaped assessment in the hands of the assessee, is a proposition which cannot be accepted. The contention of the assessee that the reasons for reopening the gift-tax proceedings were limited to a simple observation and, therefore, it would not be sufficient reason, is incorrect. He further submitted that it is now settled law that it is open to the AO to arrive at a conclusion and unless it is shown that the conclusion reached is perverse or without any material, such a conclusion cannot be set aside or questioned. The AO has clearly come to a conclusion that there have been gifts which have been given to various politicians because there were no considerations. It is thus clear that the AO has prima facie reached a conclusion that certain gifts were given which would have attracted gift-tax but on which gift-tax has not been paid. AO has also seen that before the CBI the assessee has admitted that gifts were sometimes given to bureaucrats and politicians, which statement is corroborated by the assessee’s elder brother before the CBI as well before the AO. This is reflected in para 5.2 of the assessment order. It is, therefore, clear that there was sufficient material before the AO for him to have a ‘reason to believe’ that there were gifts which were chargeable to tax but which had escaped assessment.
68. Learned standing counsel further submitted, it is the contention of the assessee that the main focus was on hawala transactions and, therefore, it was not possible to conclude that the payments reflected in the diary were taxable as gifts. It was submitted, the conclusions drawn by CBI are not binding on the AO. AO is performing a statutory duty on which he is entitled to reach to an independent conclusion. Such a conclusion has been clearly reached by him on the basis of material available on record that there were certain payments which were made to politicians and bureaucrats which were without considerations and thus amounted to gifts chargeable to gift-tax. It cannot be said that a reasonable person could not have, in the circumstances, reached a conclusion that these transactions were not gifts but were hawala transactions only. AO had reached a belief that there were gifts which had escaped assessment and had rightly exercised the jurisdiction under Section 16 of the GT Act for reopening the assessment, contended the standing counsel.
69. Standing counsel submitted, the contention of the assessee that the findings of the Tribunal while upholding the reopening of the income-tax assessment are not applicable is also not correct. There existed material to arrive at honest and bona fide belief entertained by the AO about certain gifts having escaped assessment. The AO had scrutinized the entire material received by him at the time of reopening of the assessment and from the record it was clearly seen that payments had been made to various politicians as reflected in the diary, as such this is sufficient material to come to a conclusion that there were gifts which had escaped assessment at the hands of the assessee. Standing counsel further submitted, all these aspects are already considered by the Tribunal in the earlier order and there is nothing to show that the circumstances for reopening of the gift-tax assessment cases are different from those of the reopening of the income-tax cases.
70. In his rejoinder, learned Counsel submitted, the Revenue has clearly missed the import and the substance of the assessee’s arguments. It is well settled, by plethora of judicial precedents elaborated in the broad propositions, that the reasons recorded must reflect application of mind and entertainment of bona fide prima facie belief before reopening the concluded assessment. As such, the justification for reopening the proceedings therefore is to be tested only in the light of the reasons recorded. It was further submitted, on a judicious consideration of the reasons recorded by the AO, it is evident that the reasons primarily focused on the allegations that the assessee and his brothers were involved in hawala transactions. It is also noticed that the reasons primarily focused on escapement of income taxable under the provisions of the IT Act, 1961. Learned Counsel vehemently contended that there is no recording of the prima facie belief purported to be entertained by the AO that any gift chargeable to tax under the provisions of the Act had escaped assessment in the hands of the assessee. With regard to alleged escapement of gift, in the reasons recorded, there is merely a simple observation (p. 70 of the paper book), which has been incorporated in the broad propositions filed with the Bench. The said observation could not be regarded as the prima facie belief of the AO since the same is vague and ambiguous. The said observation of the AO does not reflect any process of reasoning and the application of mind by the AO before reopening the gift-tax proceedings. There was no prima facie belief entertained by the AO prior to reopening the gift-tax proceedings and therefore the initiation of reassessment proceedings is bad in law.
71. Learned Counsel submitted, the Revenue is blowing hot and cold at the same breath by relying upon the statements purportedly recorded by CBI but distancing itself with the conclusions drawn by CBI based on such statement. The contention of the Revenue that the AO, in the gift-tax proceedings, was not bound by the conclusions drawn by CBI is misplaced for further reason that the said conclusions were actually adopted by the AO in the reasons recorded. In the reasons recorded, the AO had time and again referred to the transactions recorded in the seized diary indicating towards hawala transactions. Therefore it is incorrect to contend that the AO is not bound by the conclusions of CBI regarding the nature of the transactions in the diary to be hawala transactions when the AO has in fact levelled similar allegations against the assessee in the reasons recorded.
72. Learned Counsel further submitted, as regards the alleged statement of the assessee recorded by CBI, the assessee had never explained the contents of the diary before CBI, as alleged. In fact, not only in the return filed by the assessee in response to the notice issued by the AO and also in the statement of the assessee recorded by the AO on 7th Feb., 2003, the assessee had categorically denied any connection with the diary. The assessee has also denied making any such statement before CBI explaining the contents of the diary; as such the reliance placed on the statements allegedly recorded by CBI is totally misplaced. The decision of the Tribunal in the income-tax proceedings is not applicable in the gift-tax proceedings for the reasons already stated. Learned Counsel reiterated that the gift-tax proceedings were initiated by the AO without there being “reasons to believe” that any gift chargeable to tax has escaped assessment in the hands of the assessee; as such the proceedings initiated under Section 16 of the GT Act are illegal and without jurisdiction.
73. Hearing the rival submissions and going through the orders of the Revenue authorities, we are of the view that though on merit, assessee may have a case, in these appeals the assessee is contesting only the reopening, since the CGT(A) has not decided the issue on merit and he remanded the issue to decide on merit. One of the contentions of the assessee is that the Revenue authorities ignored the fact that the statements recorded by CBI, which are not admissible evidence, being barred by Section 162 of the CrPC; hence, reliance placed by the AO on the statement of Shri J.K. Jain and others for initiation of the proceedings under Section 147 is not in accordance with law. This belief of the assessee is to be rejected. After the completion of the original assessment, AO came to the conclusion that income has escaped from the tax net, on the basis of information received/statements recorded by CBI. Hence, the assessee’ s plea that this record cannot be accepted as evidence is to be rejected. On merit, as we have noted above, we may come to a different conclusion, but for the purpose of reopening this is definitely information available with the Revenue. From the diary seized from the possession of one of the employees of the assessee, Revenue noticed that the assessee made certain payments to some politicians/bureaucrats etc., apparently without any consideration. Even the assessee has admitted to certain extent these facts. Now the assessee is objecting to the reopening on the ground that Revenue itself is not certain whether the amounts said to be gifted to politicians/bureaucrats, etc. were either coming from abroad through hawala transactions or the income generated from assessee’s factory; as such, according to the assessee, no prudent man will come to a conclusion that taxable gift has been escaped. It is also the case of the assessee that apparently none of the recipients had admitted the receipt. On the contrary, subsequent to the reopening in income-tax proceedings, it is proved that all the recipients either denied the receipt or in the case of some like Shri Buta Singh, the Revenue itself has treated the amount said to be received from the assessee as their income and assessed as such. Again, on the basis of above facts, it is the submission of the learned Counsel that no prudent man will come to a conclusion that the assessee made any gift. All these are the points to be considered on merit. But the fact is that from the diary seized it was found that the assessee made certain gifts. On questioning the assessee also admitted that he made some gifts to politicians/bureaucrats, etc. This itself indicates that there was reason to believe for the AO to come to a conclusion that taxable gift has escaped the net. It is not for the Tribunal to see adequacy or inadequacy of the materials for reopening. We have already stated that there was reason and material before the Revenue authorities to come to such a conclusion. On merit may be a different case.
74. The facts narrated and recorded vide para 59, pp. 28 and 29, indicates that even according to assessee’s own submission, there was prima facie indication from the references recorded that the assessee has indulged in hawala transactions. Assessee made certain gifts and this was sufficient reason for reopening. At p. 29 we have recorded assessee’s submission assailing the reasons recorded. One of the reasons recorded, from the nature of transactions stated by Shri J.K. Jain, it is clear that money was generated from the sale of scrap, which amounted to black money of assessee’s group and from this money assessee made gifts to politicians/bureaucrats, etc. Again, these are facts to be considered on merit but not for the reasons recorded for reopening.
75. Coming to the decision relied upon by the assessee in the case of Sheo Nath Singh v. AAC (supra), wherein the Hon’ble Supreme Court held that the ITO would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. But the very next sentence, which reads as under, makes the point clear that adequacy or inadequacy of the reason cannot be investigated by the Court:
The Court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the Court.
Again, the same view has been expressed by the Hon’ble Supreme Court in the case of Ganga Saran & Sons (P) Ltd. v. ITO (supra). The Hon’ble Supreme Court held “The belief entertained by the ITO must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. The Court, of course, cannot investigate into the adequacy of sufficiency of the reasons which have weighed with the ITO in coming to the belief, but the Court can certainly examine whether the reasons are relevant and have a hearing on the matters in regard to which he is required to entertain the belief before he can issue notice under Section 147(a)”. Precisely, assessee is now seeking the same from the Bench.
76. The decision relied upon by the assessee in the case of Hindustan Lever Ltd. (supra), cannot be applied in the instant case of the assessee. In this case the Hon’ble Bombay High Court held that unless any income chargeable to tax has escaped assessment for any assessment year by reason of assessee’s failure to disclose material facts necessary for his assessment of that year, reopening cannot be done. The reasons recorded must be, the Hon’ble High Court held, based on evidence and the AO must be able to justify the same from the material available on record. The Hon’ble High Court in this case found that in the reasons recorded by the AO, nowhere he stated that there was failure on the part of the assessee to disclose fully and truly material facts necessary for assessment. Coming to the instant case of the assessee, we have already held that there was reason and material before the AO to come to such a conclusion. Again, the decision relied by the assessee in the case of Chunnilal Surajmal v. CIT (supra), is also distinguishable on facts. In this case the Hon’ble High Court held that the Department cannot be allowed to initiate proceedings and then to conduct fishing enquiries. We find considerable force in the contention of the learned standing counsel for the Revenue with regard to the reasons for reopening of the gift-tax proceedings were limited to a simple observation and that was not sufficient to come to a conclusion that taxable gift has escaped assessment; that it is difficult to hold that the conclusion arrived at by the AO is perverse or without any material. AO reached a prima facie conclusion that gifts escaped assessment from gift-tax.
77. Coming to the third proposition, learned Counsel submitted, the original gift-tax assessment order dt. 30th March, 1998 merely followed the findings/conclusions arrived at in the income-tax assessment order dt. 16th April, 1996 and there is no independent finding in the order on the basis of the diary seized from Shri J.K. Jain was held to be that of the assessee and the transactions recorded in the said diary were held to be belonging exclusively to the assessee.
78. Learned Counsel further submitted, the Tribunal, vide order dt. 31st Aug., 2004 was pleased to annul the income-tax assessment dt. 16th April, 1996 passed in the case of the assessee since it was established on facts that the assessments were completed by the AO on the dictates/directions of the higher authorities, without independent application of mind. The pertinent findings of the Tribunal are given at para 104, p. 460 onwards. Learned Counsel submitted, the following facts primarily noted by the Tribunal, which clearly established the dictates:
Dy. Director of IT (Inv.) continued to carry out investigations in the matter though not competent to do so. In para 105 it was noted that Dy. Director of IT (Inv.), New Delhi issued letters to the assessee calling for explanation and recorded statements though not competent to do so.
In conference held in New Delhi on 22nd Dec, 1995, proceedings whereof are borne out by the letter dt. 30th Jan., 1996 of the AO to CIT, Jabalpur, directions were issued to the AO with regard to the manner in which assessment has to be completed. In that letter dt. 30th Jan., 1996, AO clearly stated that he is acting on directions of the seniors.
Statutory notices were approved by the Dy. Director of IT (Inv.) though there is no legal requirement to do so.
In letter dt. 10th March, 1996, AO informed Dy. Director of IT (Inv.) that the assessee is seeking cross-examination and adjournment. AO opined that the assessee should be allowed one month as requested. Dy. Director of IT (Inv.), New Delhi, however directed the AO not to allow further time to the assessee. As directed, AO declined further opportunity to the assessee on 25th March, 1996. Further, despite resistance, AO, on the directions of CIT, Jabalpur, proceeded to Delhi to complete the assessment. These sequence of events clearly establish that AO did not act independently.
Assessment orders were similar to notices issued by Dy. Director of IT (Inv.).
It was submitted, the Tribunal also took note of the order-sheet entries which clearly establishes that at every stage, viz. issuing of notices, considering replies of assessee, request for adjournment, etc, AO merely followed the directions.
79. Learned Counsel submitted, the impugned gift-tax assessment order dated 30th March, 1998 was also completed as had been directed by the other authorities and therefore, in the order the AO merely followed the findings/conclusions of the assessment order dt. 16th April, 1996. No independent finding/conclusion was arrived at by the AO while completing the gift-tax assessment. It was further submitted, in the gift-tax proceedings as well, the Dy. Director of IT (Inv.) issued show-cause notice dt. 8th Dec, 1995 to the assessee to explain why disbursements as recorded in the diary may not be charged to gift-tax. A bare perusal of the said notice clearly reveals that the Dy. Director of IT (Inv.) confronted the assessee with various enquiries/ investigations illegally conducted by him and relied in the income-tax assessment. Learned Counsel submitted, it is pertinent to note that even the delay in finalising the gift-tax assessment was a well planned strategy of the higher authorities, which was blindly followed by the AO. The following facts clearly demonstrate/establish such directions:
(a) In the conference held in New Delhi on 22nd Dec, 1995, proceedings whereof are borne out by the letter dt. 30th Jan., 1996, AO was directed not to proceed with the gift-tax assessment.
(b) In order-sheet entry dt. 27th Feb., 1996, AO recorded the directions of the higher authorities that gift-tax assessment is to be kept pending.
It was submitted, AO obediently followed the aforesaid directions and kept the gift-tax assessment pending till the decision of the Supreme Court in connection with the proceedings initiated by CBI against various bureaucrats and politicians under the Prevention of Corruption Act and IPC for the reason that in the charge sheet filed by CBI it was alleged that the payment was made for undue/illegal favours. When the gift-tax assessment proceedings were resumed by the new incumbent, he merely followed the findings given in the assessment order dt. 16th April, 1996, which is evident from the following:
(a) In the first show-cause notice dt. 20th Feb., 1998, AO refers to and relies upon the findings in the assessment order dt. 16th April, 1996.
(b) In the impugned order dt. 30th March, 1998, AO clearly and categorically stated that the findings/conclusions arrived in the income-tax assessment order dt. 16th April, 1996 for the asst. yr. 1992-93 are being relied upon as under:
–Page 2/para 3 refers to show-cause notice issued to the assessee duly informing that facts and circumstances are similar to income-tax proceedings.
–Page 3/para 5.2 AO relies upon statements recorded and referred in the assessment order, particulars of expenses recorded and discussed therein and thereafter observes : “…Suffice it to say that they are equally relevant to the assessment made under the GT Act also. As held in the said proceedings, there are reasonable grounds to conclude that the assessee has…
Learned counsel submitted, it is pertinent to mention that the AO, thus, relied upon the statements and enquiries conducted by Dy. Director of IT (Inv.), who was held to be incompetent to do so and it is clearly noted in the gift-tax assessment order that the findings in the income-tax order are being followed.
80. Learned Counsel further submitted, had the gift-tax assessment been completed independently, without following the income-tax assessment order, which was completed merely on directions/dictates of the higher authorities, the AO would have–(a) independently conducted enquiries/investigations to connect the diary with the assessee; (b) allowed cross-examination to the assessee; (c) ignored the enquiries/investigations/statements recorded by the Dy. Director of IT (Inv.), which are nullity in the eyes of law; and (d) come to an independent conclusion as to how disbursements recorded in the diary were ‘gift’ chargeable to tax. It was further submitted that in the income-tax proceedings the AO in letter dt. 30th Jan., 1996 opined that assessee would have to be allowed cross-examination. However, subsequently the AO took a complete round turn based on the directions of the higher authorities and denied/rejected the demand to the assessee vide letter dt. 27th March, 1996, which clearly showed dictates and in the gift-tax proceedings this illegality was continued, which clearly established that the AO blindly followed the income-tax assessment order. It was further submitted, the order of the Tribunal in income-tax case of the assessee thus squarely applies and the impugned gift-tax order having been completed on the directions/dictates of the higher authorities must be annulled and declared nullity in the eye of law. For the above proposition, reliance was placed upon the decision of the Hon’ble Calcutta High Court in the case of ITO v. Eastern Scales (P) Ltd. and the decision of the Hon’ble Allahabad High Court in the case of J.K. Synthetics Ltd. v. ITO .
81. Without prejudice to the aforesaid, learned Counsel submitted that the aforesaid facts, even otherwise clearly establish that the fundamental basis of the gift-tax assessment was the findings/conclusions/investigations/enquiries conducted to frame the income-tax assessment order dt. 16th April, 1996. Since the income-tax assessment order has been held to be nullity in the eye of law, the entire basis of the impugned gift-tax assessment order has diminished and the impugned order has no legs to stand. The impugned gift-tax assessment must, therefore, be held to be nullity even on this count. For the above proposition reliance was placed upon the following decisions:
(1) CIT v. Somani Pilkingtons Ltd. ;
(2) Fanukhabad Giamin Bank v. ITO ;
(3) Assam Co. Ltd. v. Union of India ;
(4) Sagai Enterprises v. Asstt. CIT .
82. Replying to the above, learned standing counsel submitted, the assessee has contended that the assessment is invalid as the AO has not reached an independent finding but has merely followed the conclusions in the income-tax assessment order, which has now been nullified by the Tribunal. Standing counsel submitted, this proposition is not correct. If the wordings of the assessment order are read, it will be clear that what has been relied upon by the AO are statements of independent witnesses and the particulars regarding the expenses recorded in the seized documents and statements of various persons. The assessee is trying to give a picture that the AO has merely followed the assessment in the income-tax proceedings. This is not correct. What has been relied upon by the AO is the material, which was available before the income-tax AO, and not the assessment order. This is clear from para 5.2 of the assessment order. The contention of the assessee is not based on facts and is seeking to mislead the Tribunal. Merely because the assessment orders are set aside on certain grounds does not mean that the material on which income-tax assessment orders were based is without substance or cannot be relied upon. In the instant case of the assessee the AO has relied upon the material, which was available, and not upon the assessment orders in the income-tax proceedings. Hence, the standing counsel submitted, this contention of the assessee also deserves to be rejected. In any case the Revenue has challenged the finding of the Tribunal before the Hon’ble High Court and the appeal is pending, submitted the standing counsel.
83. Standing counsel further submitted, the second portion of the third proposition, that the assessment order is passed on the dictates of the higher authorities is also without any basis. The findings, which are given by the Tribunal in respect of the income-tax assessment proceedings that they were at the dictates of the higher ups, are on the basis of the order-sheets recorded in those proceedings. A perusal of the order would show that the Tribunal has specifically referred to certain order-sheets and letters which were received by the AO as well as the conduct of the AO in the income-tax proceedings in going to New Delhi for the purpose of framing the assessment orders. Those findings are not at all applicable to the facts of the present case because the orders in the present proceedings have been passed much subsequently after a lapse of long period of time. Hence the order-sheets of the income-tax proceedings cannot be made applicable in the present case. So also there is nothing in the order-sheets and the correspondence in the present case to come to any conclusion that the orders of assessment passed in the present case are on the dictates of any higher authorities. The attending circumstances in the income-tax assessment proceedings and in the present proceedings are totally different and no parallel can be drawn in this regard. Hence, the standing counsel submitted, this contention of the assessee is also without any basis and deserves to be rejected in limine.
84. In his rejoinder, learned Counsel submitted, the gift-tax assessment order was also passed on the dictates of the higher authorities. To buttress this proposition, learned Counsel submitted, the sequence of events and the recordings in the impugned gift-tax assessment order clearly establish that the AO had simply followed the findings/enquiries illegally conducted by the authorities, who had no jurisdiction in the matter, as were followed in the income-tax order. In the gift-tax assessment, the AO merely followed the findings/conclusions arrived at in the income-tax assessment order, without any independent finding/conclusion in the impugned assessment. The findings/conclusions in the income-tax assessment have been held to be that of higher authorities by the Tribunal in the income-tax proceedings since the entire assessment was completed on dictates. Learned Counsel submitted, the reason for delay in completing the impugned gift-tax assessment, which is sought to be relied upon by the Revenue, is also borne out from the record. The records clearly establish that even the delay in completing the impugned gift-tax assessment was on account of directions to do so by the higher authorities. It was submitted, the contention of the Revenue that in the impugned assessment the AO merely followed the findings and material available at the time of income-tax assessment and not the assessment order, is fallacious and deserves to be rejected. What has to be seen is whether while completing the impugned gift-tax assessment, the AO independently conducted enquiries and arrived at independent conclusion without being influenced by any directions of any higher authorities. The findings in the income-tax assessment were on the dictates of higher authorities, which were blindly followed by the AO in the impugned assessment, as is evident from the facts already pointed out. It was submitted that the impugned gift-tax assessment order was passed on dictates of the higher authorities and is therefore illegal and bad in law.
85. Without prejudice to the above, learned Counsel also reiterated that since the income-tax assessment, which is the foundation of the gift-tax assessment order has been held to be nullity in the eye of law, the basis of the impugned order has diminished and therefore the impugned order has no legs to stand and the Revenue has not commented on this contention of the assessee, thereby impliedly agreeing with the same.
86. We have heard the rival submissions. The third proposition of the assessee is that the Revenue has merely relied upon the income-tax order to come to the conclusion that gift-tax also escaped assessment. We have already dealt with the assessee’s contention that the order passed was on the basis of directions/dictates of higher authorities without application of mind. One of the contentions taken by the assessee (para 78) is that “in letter dt. 10th March, 1996, AO informed Dy. Director of IT (Inv.) that the assessee is seeking cross-examination and adjournment. AO opined that the assessee should be allowed one month as requested. Dy. Director of IT (Inv.), New Delhi, however directed the AO not to allow further time to the assessee. As directed, AO declined further opportunity to the assessee on 25th March, 1996.” But in the instant case of the assessee, it is gift-tax proceedings. This contention was perhaps available to the assessee in the proceedings before the IT authorities. There is nothing on record to show that this kind of direction was also given in the gift-tax proceedings. We are aware that the opportunity for cross-examination to be given or not to be given, and adjournment etc. is at the discretion of the officer and it cannot be done on the basis of the direction of the higher authorities. But this plea at least is not available to the assessee in the gift-tax proceedings.
87. Coming to assessee’s contention that Dy. Director of IT (Inv.) confronted the assessee with various enquiries/investigations illegally conducted by him and relied on the income-tax assessment, this is not sufficient to hold that the reopening itself is bad in law. Whether the enquiries conducted illegally or not, that will not affect the proceedings as such. To our mind, even if information is gathered illegally but if the information is correct, such information can always be used. It is the truth of the affair and not the manner of getting the materials that is to be taken note of.
88. Coming to assessee’s next contention that even the delay in finalising the gift-tax assessment was well planned strategy of higher authorities, so as not to weaken CBI case before the Hon’ble Supreme Court, we are afraid, cannot go against the assessment proceedings. That was an administrative decision and not interference with the independence of AO’s assessment proceedings as such.
89. Again, coming to assessee’s contention that the gift-tax proceedings were not independently completed and no independent enquiries/investigation made and cross-examinations were conducted or allowed, etc., we are of the view, cannot be considered at this stage, where the assessee is only challenging the reasons recorded for reopening.
90. Coming to the next contention of the assessee that in the income-tax proceedings the AO vide letter dt. 30th Jan., 1996 opined that the assessee should be given opportunity to cross-examine the parties concerned but subsequently denied it etc., is not material in the gift-tax proceedings. The assessee’s contention that income-tax order since been held to be nullity, the entire basis of the gift-tax assessment as well stands without legal base, has no merit.
91. Coming to the decision relied upon by the assessee in the case of Farrukhabad Gnamin Bank v. ITO (supra), it has no application in the instant case of the assessee. This was a case, wherein on the basis of a decision of the Hon’ble Supreme Court, proceedings were reopened by the AO but subsequently the decision was overruled by the Hon’ble Supreme Court. On the basis of the above facts, the Hon’ble Allahabad High Court held that the reopening is not valid. Not so in the instant case of the assessee. Assessee’s case is that the Tribunal, in the income-tax proceedings, set aside the assessment and therefore it also should set aside on the same reason the gift-tax assessment as well. This proposition of the assessee cannot be accepted. If there is no material for reopening in the income-tax proceedings, ipso facto it does not lead to conclusion that there cannot be wealth-tax or gift-tax proceedings as well.
92. Coming to the decision relied upon by the assessee in the case of Assam Co. Ltd. v. Union of India (supra), again, the decision strictly cannot be imported to the case of the assessee. This was a case wherein the assessee filed the return and the assessment was completed. Subsequently reassessment proceedings were initiated on the ground that decision of the jurisdictional High Court in another case showed that assessee’s income had escaped assessment. In the decision which Revenue relied, viz., Joiehaut Group Ltd. v. Agil. ITO , there was no clear finding that cess was allowable’ only on 60 per cent of income from tea and precisely on this reason the proceedings were initiated by the Revenue. Hon’ble High Court held that there was no failure on the part of the assessee to disclose any material facts necessary for assessment. Again, this decision has no applicability in instant case of the assessee.
93. Again, the decision relied upon by the assessee in the case of Sagar Enterprises v. Asstt. CIT (supra), has no applicability in the case of the assessee. This was a case wherein the reopening was done on the ground that assessee had not filed the return and also on the ground that some of the income has not been disclosed. Hon’ble High Court found that material on record shows that the return had been in fact filed by the assessee and also the Revenue was not certain whether any income-taxable has escaped assessment for the year under consideration. The Hon’ble High Court particularly noted an observation “to cover up that probability, protective addition was made in the asst. yr. 1992-93”. The Hon’ble High Court held that the AO was not certain whether the income taxable has escaped assessment or not.
94. Again, the decision relied upon by the assessee in the case of CIT v. Somani Pilkingtons Ltd. (supra), has no applicability. This was a case wherein additions were made on the basis of excise duty proceedings with regard to false sale price and the Hon’ble High Court set aside the order of the excise duty authorities. The Tribunal hence deleted the additions made on that ground in the income-tax proceedings as well. The Hon’ble High Court held that the Tribunal was justified. This decision also does not further assessee’s case.
95. On the other hand, we find considerable merit in the contention of the learned standing counsel for the Revenue that the AO only relied upon the materials, which were also used by the AO in the income-tax proceedings but he has not adopted the reasons of the AO that he made during the income-tax proceedings. He has not followed the income-tax assessment order as such. AO evaluated the materials. Such a proceeding cannot be held as invalid. As rightly contended by the standing counsel, merely because the assessment orders are set aside on certain grounds, it does not mean that materials on which income-tax assessment orders were based is without substance or cannot be relied upon in the gift-tax proceedings as well.
96. The contention of the standing counsel for the Revenue that the order-sheet entries reflected in the income-tax proceedings cannot be made applicable in the gift-tax proceedings now before the Tribunal, this issue we have already dealt with hereinabove. Hence this proposition by the assessee also fails and it is dismissed.
97. Coming to the last proposition, learned Counsel submitted, before fastening the assessee with huge tax liability on the basis of some diary seized from the possession of a third person, viz. Shri J.K. Jain, it was incumbent on the AO to have established that, firstly, the diary seized belonged to the assessee or not and, secondly, the entries in the diary narrate/record any taxable gifts made by the assessee. It was submitted, the CIT(A) erred in setting aside the impugned gift-tax assessment order dt. 30th March, 1998 instead of deleting the additions, without appreciating that the diary did not belong to the assessee and/or the ingredients of the gifts were not satisfied.
98. Learned Counsel submitted, in the impugned gift-tax assessment order there is no finding that the diary seized from Shri J.K. Jain was of the assessee. The AO clearly ignored the fact that the diary found/seized from Shri J.K. Jain was in his handwriting and not the assessee and the assessee denied the ownership of the diary in the statement recorded by the AO on 7th Feb., 2003. It was further submitted, in the income-tax assessment order, the diary marked MR 71/91 was held to be of the assessee on the basis of the statements of the following persons:
Shri J.K. Jain recorded by Dy. Director of IT (Inv.) and CBI;
Shri B.R. Jain recorded by CBI and the AO; and
Shri Daniel P. Rambal/Shri P. Ghoshal & Shri H.P. Guha Roy recorded by Dy. Director of IT (Inv.).
Learned counsel submitted, reliance placed on the aforesaid statements to hold that the entries in the diary relate to the assessee is not correct and proper since–(a) the statements were recorded by Dy. Director of IT (Inv.), an authority not competent to do so; (b) the exparte statements were relied upon without allowing opportunity of cross-examination to the assessee and therefore be excluded from consideration; (c) the statements do not connect the diary exclusively with the assessee; and (d) credibility of various witnesses is in doubt. Relying upon the various decisions of the High Courts/Supreme Court, learned Counsel submitted that the diary did not belong to the assessee and on this ground itself the CIT(A) should have deleted the additions made in the impugned gift-tax assessment.
99. Without prejudice to the aforesaid, learned Counsel submitted, the CIT(A) erred in not deleting the additions without appreciating that the ingredients of gifts were not satisfied and no taxable gift had escaped assessment. It was submitted, under Section 3 of the GT Act, for a gift the following conditions must be satisfied:
(a) there must be a donor;
(b) there must be identified donees;
(c) there must be voluntary transfer of moveable/ immoveable property;
(d) the transfer must be either without consideration or without adequate consideration;
(e) and there must be acceptance/consent/concurrence of the donees of having received the gift.
Learned counsel submitted, neither of the aforesaid conditions were satisfied in the instant case. Since the diary did not belong to the assessee, the assessee was not the alleged donor of the gifts and thus the gifts were not taxable in the hands of the assessee. The alleged donees have denied receipt of any amount/gift, as is evident from the respective statements of Shri N.D. Tiwari, Shri Balram Jhakar, Shri P. Shiv Shankar, Shri Arif Mohd. Khan, Shri Prem Prakash Pande and Shri Ravi Chandra Arya. It was submitted, in the absence of any confirmation of receipt of money by other persons having been brought on record, though the onus was on the AO, it must be held that even the donees are not identified. Relying upon the decisions and CTO v. P.J. Kurian (2005) 93 TTJ (Coch)(TM) 1061 : (2005) 94 ITD 44 (Coch) (TM), it was submitted, in addition to identification of donees, consent/concurrence of donee must also exist to constitute a ‘gift’, which is not there in the instant case of the assessee.
100. Without prejudice, learned Counsel submitted, in order to constitute a gift, transfer of property must be either without consideration or without adequate consideration. It was further submitted, the allegations against the assessee were in total contrast to the ingredients which exist in a gift. The circumstances/allegations against the assessee do not in any way point to taxable gift, as is evident from the following:
Proceedings were initiated by the CBI and other authorities against various recipients alleging “bribes”, which necessarily involves an element of quid pro quo/consideration. If that be so, the payments cannot be regarded as ‘gift’.
In the reasons recorded, the AO recorded at various places that the entries in the diary pertained to hawala transactions. Again, if that is assumed to be correct, then payments cannot be regarded as ‘gift’.
In the only show-cause notice dt. 20th Feb., 1998 issued by the AO, the allegation of the AO was that payments were made to politicians and bureaucrats to further business interest. If the payments were assumed for furthering business interest, then since consideration was involved, the payments cannot be regarded as ‘gift’.
In the hands of the various persons who allegedly received money, the amount so received was treated as income on account of work done/services rendered. In the assessments of Shri Buta Singh, Shri Ravi Chand Arya, Shri Motilal Vohra, Shri Vidya Charan Shukla, Shri Balram Jakhar, etc. the amount allegedly received were treated as income by the Department. A ‘gift’ cannot be income in the hands of the recipient.
In the case of Shri Prem Prakash Pandey, despite denial, income was assessed on account of work done.
In the wealth-tax assessment of the assessee, some of the amounts found recorded on the right-hand side of the diary were treated as unexplained investment on farmland and investment in construction of farmhouse. Such amounts could not again have been treated as ‘gift’.
In the diary itself there are indications of certain transactions being in the nature of loan. Such payments could not be gift.
Even on the basis of decoding of the diary by the AO, the diary records substantial payments to the assessee itself. One cannot think of making gift to oneself.
Similarly, the diary allegedly records substantial payments to the group companies in which the assessee was a minority shareholder. The question arises – why would a reasonable person think of making gift to a company in which he is merely a minority shareholder ?
If the allegations of the Revenue were to be accepted, the entire income, as was assessed in the income-tax assessment, was paid by the assessee as gift to others, which is totally absurd and against human probabilities.
Learned counsel submitted, since the ingredients of the gifts were not satisfied in the instant case of the assessee, the CIT(A) should have deleted the additions in toto instead of setting aside the order of the AO.
101. Replying to the above, learned standing counsel submitted, the last proposition of the assessee that the CIT(A) erred in not deleting the additions is also without any basis. It was submitted, normally the Tribunal would not entertain an appeal against remand of a matter for consideration since no prejudice would be caused to the assessee if a fresh look is taken by the AO on the basis of the directions given in the remanding order and the material available on record. If according to the assessee, there is no material on record to come to a conclusion that gifts had escaped assessment, then there should be no grievance to them to face the assessment in the light of the directions given by the CIT(A). Standing counsel submitted, further contention of the assessee that the CIT(A) did not appreciate the fact that the diary did not belong to the assessee is totally incorrect. Shri J.K. Jain stated in his deposition before the CBI as under:
Today, I have been shown two spiral notebook and two files marked as (MR-208), 209, 325 and 326/93. The notebook and the files mentioned above have been impugned from the search of my house conducted by the CBI/SIC-II, New Delhi on 3rd May, 1991. In the notebook marked as (M-209/93), the details of credit/debit have been mentioned from the month of February, 1988 to April, 1991. This bears my writing. The entry relates to receipt of various amounts and their disposal month-wise and this has been written on the instruction/direction of Shri S.K. Jain, the managing director of Bhilai Engineering Corporation, the same were being shown to him regularly from time to time. The details as mentioned in coded words in abbreviated forms, have been written as per the instruction of Shri S.K. Jain, aforesaid.
Standing counsel further submitted, so also the assessee has in his statement before the CBI on 17th Sept., 1993 stated as under:
Today I have been shown two notebooks bearing Malkhana Nos. 208 and 209, 03 reported to have been impugned from the house of Shri J.K. Jain. These notebooks have been written in the writing of Shri J.K. Jain which I identified. There are details of credits and the debits in these diaries from the month of February, 1998 to April, 1991. In Alishaan spiral notebook, marked as M-209/93, there is an entry at page one on the both sides containing certain details beginning from April, 1988 to April, 1991. This entry relates to trading activities such as selling of scraps such as copper, zinc, coal, steel and prime materials and connected with certain purchases and sales. The entry at serial No. 1 of page No. 1 overleaf for the month of April, 1988 to the effect “4 x 16.5 ton and 1 x 17.00 = 66.00 and 17.00” means that 16.50 metric tons of scrap was sold at Rs. 1,000 per ton of BEC Group in cash. There is no accounting of this type of transaction as mentioned in page one and 1 overleaf as aforesaid anywhere in the books of account of M/s Bhilai Engineering Corporation and its group. These receipts have been given a code word as ‘A’ by Shri J.K. Jain on my instruction and the money received from time to time from April, 1988 to April, 1991 from ‘A’ (BEC Group) are mentioned in the said notebook in the respective months beginning from April, 1988 to April, 1991, on receipt of the amount by us at Delhi. This amount was delivered to Shri J.K. Jain and accounts section of our Delhi office by the various executives of BEC Group coming to Delhi from Bhilai on various occasions and this amount has been handed over to him headed by Shri Pramod Jain, director. The aforesaid amounts were sent by him through different executives from time to time to our account section namely by Shri Anand Ballabh, Shri R.S. Pandey and thereafter these were being sent to Shri J.K. Jain for safe custody on my instructions. The aforesaid Shri Anand and Shri Pandey working in BEC, New Delhi since 1985-86 so far I remember. The aforesaid facts can be verified from them.
102. Standing counsel submitted, in various statements given by the assessee before the CBI, he has explained in detail the nature of the entries recorded by his employee, Shri J.K. Jain. It will be clear that most of these entries relate to business dealings of the assessee and even the deposition of the other employees make it clear that these dealings are as per the instructions given by the assessee. Besides this, there are certain entries in respect of payments made which have been admitted to be correct. All these aspects are extensively discussed in the order of the Tribunal in income-tax proceedings and it is clear from the discussion therein that the contention of the assessee that the diary did not belong to him is not accepted. A perusal of para 87 of the order of the Tribunal makes this position very clear. It was further submitted, the last contention of the assessee that the ingredients of the gift have not been satisfied is also without any basis. The ingredients of the gift have been made out and the assessment order is correct. Assuming, though not admitting that certain details are required for this purpose, if the Tribunal reaches such a conclusion, then the order of the CIT(A) in remanding the matter for reconsideration would also take care of the matter; as such no prejudice would be caused to the assessee in any case.
103. In his rejoinder, learned Counsel submitted, it is incorrect to contend that no prejudice is caused to the assessee since the CGT(A) merely remanded the matter to the AO for fresh consideration. The remand by CGT(A) proceeds on the basis that the diary and the entries recorded therein belonged to the assessee. The said basis of the remand, which is perverse, clearly causes prejudice to the assessee and therefore learned Counsel submitted, the Tribunal should independently consider whether such remand was proper or not. It was further submitted, the contention that the assessee and Shri J.K. Jain in their statements before the CBI admitted that the diary belonged to the assessee is not correct. The assessee did not own the diary before the CBI. In fact, the assessee categorically denied ownership of the diary in the return filed pursuant to the notice issued by the AO. The assessee also denied ownership of the diary in his statement recorded by the AO on 7th Feb., 2003 and also denied having made any statement owning the diary before the CBI. Learned Counsel submitted, the Tribunal in the income-tax proceedings has nowhere held that the diary belonged to the assessee. The Tribunal did not go into the merits of the appeal in the income-tax proceedings after having annulled the income-tax assessment order, which is evident from para 115, pp. 466 and 467 of the paper book. The ingredients of the gift are not satisfied in the instant case of the assessee. Learned Counsel further submitted, the CIT(A) clearly erred in setting aside the gift-tax assessment order and in not deleting the additions made by the AO.
104. We have heard the rival submissions. Coming to the fourth proposition of the assessee that before the assessee is fastened with huge tax liability on the basis of some diary seized from the possession of a third person, i.e. Shri J.K. Jain, it was incumbent on the Revenue to establish firstly, that the diary belongs to the assessee or not, and secondly, the entries in the diary narrate/record taxable gifts made by the assessee. The diary whether exclusively belongs to the assessee or to all the brothers, is not necessary to be considered at this stage. The matter was remanded by the CGT(A) and he has not decided the issue on merit. Hence, we reject assessee’s this contention to bypass the CGT(A), at this stage. The diary was written by an employee, at the insistence of managing director–assessee. It is another matter of getting it approved by other directors, who are assessee’s brothers/relatives.
105. Again, coming to the contention of the learned Counsel that the statements recorded by Dy. Director of IT (Inv.), an authority outside the jurisdiction cannot be utilised in these gift-tax proceedings, is to be rejected for the same reasons mentioned hereinabove. Further, the ex parte statements were used against the assessee; all this has to be considered on merit, on an appeal against the decision of the CGT(A) on that point.
106. Coming to the contention of the assessee that no findings were given anywhere in the assessment order that the diary belongs to the assessee and the allegation of the Revenue that the diary was written by Shri J.K. Jain at the instance of the assessee had always been denied, as evidenced at pp. 115 to 118 and also pp. 238 to 240 of the paper book; and also the contention that the statements recorded by officers [Dy. Director of IT (Inv.) and CBI] cannot be used against the assessee since they were outside the jurisdiction of the AO and no matter was pending before them and no opportunity was extended to the assessee to cross-examine the persons who had given statements against the assessee, such as Shri J.K. Jain, Shri B.R. Jain, Shri Daniel P. Rambal, Shri P. Ghoshal, Shri H.P. Ghua Roy, etc., we are of the view that it is not necessary for us now, to decide the issue, at this juncture, for the reason that the CGT(A) remanded the matter back to the file of AO without deciding the issue on merit.
107. Assessee has relied upon the decision reported in (2004) 85 TTJ (Nag) 285 [assessee’s own case in income-tax proceedings); the case of Arjun Singh & Am. v. Asstt, Director of IT and Ors. (supra) in the case of Late Shri Mukund V. Kapadia v. ITO (2002) 77 TTJ (Mumbai) 595 : (2002) 82 ITD 489 (Mumbai) and catena of other cases for the proposition that reopening was bad in law for the reason that statement recorded by Dy. Director of IT (Inv.) is invalid and cannot be used against the assessee. In the instant case of the assessee the gift-tax order was passed on 30th March, 1998. Relevant papers were made available to the Officer and the assessee was provided the copies. At the assessment stage there was no interference with the judicial process at least in this case in gift-tax. Not affording an opportunity to cross-examine the parties of whose statements were used against the assessee, of course, is fatal. However, at this stage, we do not express any view on this point, considering the contention of the learned standing counsel for the Revenue that the CGT(A) has remanded the matter to the file of AO to pass fresh order in accordance with law.
108. Again coming to the contention of the learned Counsel that ingredients of the gift has not been satisfied, suffice it to say that the issue has also been remanded to the file of AO by the CGT(A) for passing fresh order in accordance with law. Of course, it is the contention that there must be a donor, and identifiable donees, and the transfer of moveable or immoveable property must be voluntary, and without consideration. These are the ingredients and if none of these ingredients are complied with or satisfied, the gift as such cannot be treated as a genuine gift. This has to be seen, again at appropriate stage. The matter has been remanded to the file of AO to pass order in accordance with law. We are aware that most of the donees have denied the receipt of gift and in some cases the amount alleged to be gifted has been assessed in the hands of the recipients as their own by the Revenue itself. The CGT(A) has not expressed any view on merit but he set aside the entire matter to the file of AO to pass fresh order in accordance with law. In view of the above, we do not express any opinion on merit at this stage. Assessee is at liberty to challenge the issue on merit against the remand order. With the above observation we dismiss the assessee’s alternative contention that the CGT(A) was not justified in remanding the matter back to the file of AO.
109. Coming to Revenue’s appeals, the only objection of the Revenue is directed against the order of the CGT(A) in setting aside the assessments with direction to make fresh assessments after making necessary enquiries.
110. Suffice it to say that all the appeals by the Revenue are liable to be dismissed since while dealing with assessee’s appeals, we have already upheld the view taken by the CGT(A).
111. Coming to cross-objections by the assessee, since we have already dismissed Revenue’s appeals, cross-objections are also dismissed as infructuous.
112. In the result, all the appeals by the assessee as well by the Revenue stand dismissed, the cross-objections by the assessee stand dismissed as infructuous.
