1. These appeals relate to the assessment years 1978-79 and 1979-80. In both the matters the points in question are similar. So, all the appeals are being disposed of by a common consolidated order.
2. Shri Vardhman Pukhraj filed returns declaring a total income of Rs. 10,090 and Rs. 10,440 in respect of the assessment years 1978-79 and 1979-80 respectively. The assessee is said to derive income from dalali in cloth textiles. He was also getting interest on deposits. The ITO required the assessee to produce evidence in support of his claim. The statement of the assessee was also recorded. The ITO, after considering all the evidence produced before him, was of the view that the evidence produced by the assessee was in the nature of self-serving document. He was of the view that the returned income really did not belong to the assessee in both the years. The ITO further pointed out that the assessments will not confer any rights on the assessee to utilise the income so assessed protectively. According to him, the returned income shall be added in the appropriate hands on substantial basis.
Consequently, the ITO completed the assessments on protective basis.
3. Similarly, Shri Dilipkumar Jain, for the assessment years 1978-79 and 1979-80 filed the returns declaring income of Rs. 10,220 and Rs. 12060 respectively. The ITO required the assessee to produce evidence in support of his claim. In respect of his contention, he filed letters from Shri Balaji Trading Co., Sukhlal Pannalal Nagori, Shri Krishna Cloth Company, Vijay Textiles, Sanjiv Traders, Jaikishan Govinddas and Phoolchand Nathulal Patwa. In these letters it was stated that Shri Dilipkumar used to do dalali business for the last five or six years.
The ITO also recorded the statements of Shri Dilipkumar and Shri Anandilal, partner of Shri Balaji Trading Company and also of Shri Manohar, proprietor of the cloth business under the name and style of Tated Stores, Indore. The copies of their statements are in the paper book. In these statements, the said persons did say that Shri Dilipkumar has been carrying on dalali business for the last five or six years and he is known to them. Even Shri Dilipkumar in his statement stated that he has been carrying on the business as alleged by him.
4. The ITO was not satisfied with the said material and he was of the view that mere confirmation by the traders of that market regarding the assessee's activities cannot substantiate the fact that the assessee has been doing the said business. According to him, there was no convincing evidence on record to show that really the i ncome was earned by the assessee. So he completed the assessments for both the years on the disclosed income on protective basis. He further pointed out that it shall not give any right to the assessee or anybody else to claim acceptance or recognition of anything contained in the returns.
5. The assessee took up the matter in appeal before the AAC. The learned AAC, after considering the contentions of the appellants and the evidence on record, was of the view that the ITO had every right to complete the assessments on protective basis. According to him, the assessees were not aggrieved by the assessment orders. Consequently, he agreed with the finding of the ITO.6. Before the Tribunal, on behalf of the appellants, it was submitted that the findings of the authorities below that there was no cogent material to show that really the income was earned by the assessee is not supported by any evidence on record. Neither the ITO nor the learned AAC brought on record any material till this date, that really the said income was earned by anybody else. The ITO, while completing the assessments, never started any proceedings against any person showing that that person is the real owner of the income. When no such proceedings were started by the department till this date, it was incorrect on the part of the authorities below, to show that the assessment orders were on protective basis. It was further contended that the learned AAC had no power to say that the assessments were rightly made on protective basis. The learned AAC was wrong in holding that the assessees were not aggrieved with the finding of the ITO. The assessees filed the returns for both the years stating that they earned income in the said two years. In the returns there was declaration that the contents of the returns were correct. The assessees produced overwhelming evidence in support of their claims. The authorities below, after rejecting the said evidence, did not collect any other material till this date to show that really that income was earned by anybody else. The learned counsel further contended that there could be no dispute to the proposition that the ITO has right to complete the assessments on protective basis, but before completing the assessments, on protective basis, he is required under the law to start proceedings against somebody else, who may be, in the opinion of the ITO, was the real owner of such income. Under the circumstances, it is not correct to say that these assessments are on protective basis. In the absence of any other material and any proceedings which could be started against anybody else in respect of the ownership of such income, it may be taken that the assessments in question were on substantive basis and the findings of the authorities below, to the contrary, may be set aside accordingly. Reliance was also placed on the ratio of the decision of State of Orissa v. Maharaja Shri B.P. Singh Deo  76 ITR 690 (SC).
7. The learned departmental representative supported the orders of the authorities below. He further submitted that the ITO had every right to complete the assessments on protective basis where he was not satisfied on the basis of the material on record that really the returned income was earned by the assessee. In the present cases the ITO was not satisfied with the material produced by the assessee, and, as such, he had every right to complete the assessments on protective basis. Thus, it was submitted that the finding of the learned AAC may be sustained.
8. I have considered the rival submissions and perused the entire evidence on record. There could be no dispute to the proposition that the ITO had jurisdiction to complete the assessments on protective basis. In cases where it appears to the income-tax authorities that certain income has been received during the relevant assessment year but it is not clear as to who has received that income, and, prima facie, it appears that the income may have been received either by A or by B or both together, it would be open to the appropriate authority to determine the said question by taking appropriate proceedings both against A and B. Reference may be made to the ratio of decision in the case of Lalji Haridas v. ITO  43 ITR 387 (SC). I may state at this stage that there is no specific provision in the Indian Income-tax Act, 1922 regarding making the assessments on protective basis. Such concept has been borrowed from law and practice as prevalent in England. The leading case on the subject is Attorney-General v. Aramayo  1 KB 86 (CA). Similar matter came before the Calcutta High Court in the case of B.V. Bagchi v. Ladhuram Taparia [Appeal from the original order No. 71 of 1951, dated 17-1-1952]. In the said decision, his Lordships Harries, CJ., while deciding the controversy observed as under : The income-tax authorities also made an alternative assessment, assessing each of the firms separately and this was what is referred to as a protective assessment and is permissible in order to prevent assessment being barred by limitation.
Reference may be made to the ratio of decision in the case of Jagannath Hanumanbux v. ITO  31 ITR 603 (Cal.). The Hon'ble Calcutta High Court, while deciding the said case made observations as under : ...It is also true that there cannot be any assessment excepting of an assessee and there can be no doubt that the income-tax authorities must confine themselves within the four corners of the statute and not invent new procedures outside the limits of the Indian Income-tax Act....(p. 609) If we read those decisions carefully, it would be clear that before completing the assessments on protective basis, the ITO is supposed to point out the name of the assessee who may be the owner of such income.
It is common ground that in the present cases, till this date, the authorities below did not bring on record any material to show that the declared income in question really belongs to some other assessee. The learned departmental representative frankly conceded that till this date no proceedings in respect of the disputed income have been started against any other assessee.
9. The learned counsel for the assessee contended that the income-tax authorities have no right to call the present assessments as protective because till this date they have not started any proceedings against the alleged real owner of such income. In my opinion, the contention of the assessee has substance. No doubt, the income-tax authorities has the right to make the assessments on protective basis, but while doing so they are supposed to point out the name of the real owner of such income. At least some proceedings should be [commenced] against such assessee. Under the circumstances, in my opinion, the present assessment orders cannot be called the protective assessments. The learned AAC, without bringing on record any evidence, was of the view that the assessments were rightly made on protective basis. Even the learned AAC did not point out that who was the real owner of such income. When the matter came before the learned AAC, at least he should have come to a conclusion that really such income belonged to somebody else. Even if the ITO can blow hot and cold, it is certainly not open to the learned AAC or the Tribunal to blow hot and cold. Again it might be open to the ITO to make the protective assessments, but it is certainly not open to the AAC and the Tribunal to make a protective order. When the assessments are completed on protective basis and the appeals are pending before the Tribunal, in such situation the Tribunal ought to have decided both the appeals together and finally determined as to whether the said sum was, if at all, the income of the assessees or somebody else. Reference may be made to the ratio of the decision in the case of Smt. Hemlata Agarwal v. CIT  64 ITR 428 (All.).
10. Looking to the aforesaid facts, evidence on record and the provisions of the Act, on the facts of the present cases, it cannot be said that really the assessments were on protective basis. At least the Tribunal on the basis of the material on record is unable to say that such assessment orders are on protective basis. In the absence of any material on record, the assessments in question should be treated as substantive assessments.
11. I may also point out that both the assessees have produced sufficient material, copies of which are in the paper book. The statements of Shri Dilipkumar and Wardhman Pukhraj were also recorded.
Their statements are quite consistent. In their statements they have clearly stated that they are carrying on the business and the returned income was really earned by them. I have gone through their statements very carefully. On material points their statements are consistent.
While recording the statements of both the assessees, the ITO never suggested that really such income belongs to some other assessee. In the case of Dilipkumar, many certificates from the traders were produced showing that Shri Dilipkumar has been carrying on the business in question. The ITO never gave finding that such material was bogus or sham. The ITO did not collect further material to show that such material was not genuine.
12. Under the law, as it stands, in proceeding under Section 143(3) of the Income-tax Act, 1961, the ITO is bound to consider such evidence as the assessee may produce in support of his return and if after considering the evidence, so produced, he still thinks that he is not satisfied on any particular point, he can require the assessee to produce further evidence on that point. To that extent he may be taken to proceed quasi-judicially, but his quasi-judicial functions begin and end here. If not satisfied with the character of the evidence produced by the assessee, he is bound to lead evidence on his own account with a view to rebutting it. He may gather information in any manner he likes and utilise it against the assessee even if it does not in all respects satisfy the requirements of the Indian Evidence Act. The very nature of the proceedings conducted by him necessitates the use of such media for collecting information as he may not like to disclose to the assessee and he is perfectly within his right if on enquiry by the assessee he refuses to disclose the source of his information. But if he makes up his mind to reject the evidence of the assessee on any grounds which appeal to him to be sufficient for that purpose, it is but fair and just that he should acquaint the assessee with those grounds so as to enable him to disabuse his mind, if possible, by explaining them away as baseless or untenable. It is, however, impossible to hold that if once the assessee under Section 143(3) leads evidence, whether reliable or unreliable, or produces any document, whether genuine or fictitious, the ITO must base his decision on that evidence unless he is in a position to bring on the record any definite evidence to the contrary.
Reference may be made to the ratio of decision in the case of Seth Gurmukh Singh v. CIT  12 ITR 393 (Lahore). The proposition of law laid down by the Hon'ble High Court was approved by their Lordships of the Supreme Court in the case of Dhakeswari Cotton Mills Ltd. v. CIT  26 ITR 775. Their Lordships of the Supreme Court pointed out as under : ...The rule of law on this subject has been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Singh v. CIT, Punjab....
13. In the present cases the assessees produced overwhelming evidence as discussed above. The ITO, after rejecting the said evidence, did not collect any evidence to show that really the disputed income belonged to some other assessee. After going through all the evidence on record I am fully satisfied that on the basis of the material on record, it is fully established that the returned income in both the years under consideration was earned by both the assessees. There is no material on record till this date that the di sputed income belongs to somebody else.
14. The learned AAC while deciding the appeals pointed out that in the present cases the assessees were not aggrieved because the assessments were completed on protective basis. In my opinion, this finding is legally not correct. The ITO has clearly held that the said income belongs to somebody else. Against that order, the appeals were preferred. Under the circumstances, it is quite clear that the appellants before the AAC were aggrieved.
15. Looking to the aforesaid facts and evidence on record, in my opinion, the finding of the learned AAC, in all the years under consideration, is not legally maintainable. It is also not supported by evidence on record. Accordingly, it is set aside. The ITO is directed to treat all the four assessments as substantive assessments.