K.S. Viswanathan, Accountant Member - (1.) THIS is an appeal by the assessee. Three issues are to be decided in this appeal (i) Whether the reopening of the assessment for the year 1974-75 under Section 147(b) of the Income-tax Act, 1961 ('the Act') is valid ? (ii) Whether the loose sheets numbering 11, on the basis of which certain additions have been made, are relatable to the assessee's activities ? (iii) If it is found that the loose sheets have a nexus with the assessee, what is the income to be included in the assessment on the basis of the loose sheets ?
(2.) We will first give a resume of the facts of the case which led to the reopening of the assessment of the assessee. The assessee is a registered firm. There are only two partners--Badri Prasad and Rameshwar Prasad with equal shares. The business is commission agency in grains and oils. The assessee-firm had been closing their books of account on Diwali. For the business, the year ending Diwali 1973 is accounting year for the assessment year 1974-75. The assessee was being assessed in the jurisdiction of ITO A-Ward, Katni. The ITO, C-Ward, Katni was in charge of Survey Operations. One of the inspectors attached to the survey operations was Shri Chakravarty. It appears that an informer told him that the books of account maintained by the assessee were not complete and many transactions were kept outside the books. Shri Chakravarty then informed the ITO on 15-1-1974 about the tip he had. The ITO issued necessary authorisation under Section 133A of the Act to survey the assessee's shop. Shri Chakravarty then visited the assessee's shop premises on the same date. He came across 32 loose sheets of paper wherein day to day transactions of the assessee, which were not incorporated in the account books, were found. The other books of account and bills found by him were signed and an inventory prepared. Shri Chakravarty was afraid that the documents found in the course of the survey operations might be snatched away by the assessee. He, therefore, rang up to ITO, C-Ward, Katni and requested him to come to the shop. Shri Dixit, the ITO, came prepared with summons under Section 131 of the Act, which were served on the assessee then and there. The assessee was asked to produce certain documents before the ITO the next day.
(3.) A statement was taken from the partners of the assessee on the date of survey operations. In that statement the partners had admitted that certain transactions are kept outside the regular books of account. They have also accepted that these amounts would be disclosed for taxation but they pleaded that no penalty proceedings should be taken. In the meanwhile, Shri Chakravarty along with the help of another inspector, Shri R.C. Shrivastava, had taken copies of 11 of the 32 loose sheets found in the business premises. Both the partners had signed these copies.;