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.
3. 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.
4. 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.
5. It would appear that after returning from the survey operations, the ITO, Shri Dixit, made a note that the assessments which were then pending for the year 1972-73 should not be completed without taking follow up action. He had also reported to the IAC that the findings of the survey operations should be transferred to the scrutiny ITO, i.e., ITO, A-Ward, Katni.
6. The assessee had been asked to appear with the documents before the ITO on 16-1-1974. There was, however, no compliance by the assessee although Shri Badri Prasad, partner, appeared before him. He failed to produce the books of account and other documents specifically summoned.
It would appear that the ITO then directed the assessee to sign the order sheet. Shri Badri Prasad refused. The ITO then issued fresh summons under Section 131 on 21-1-1974 to enforce compliance of the summons. He had also issued warrants to the inspectors, Mr. Shrivastava and Mr. Chakravarty. However, the summons could not be served. The partners were not available.
7. On 23-1-1974, Shri Badri Prasad appeared before the ITO and filed an application for transfer of the case. He also filed an affidavit stating that he got nervous and was afraid that the officer would put him into trouble. He also stated that whatever facts had been deposed in a statement taken earlier in the shop premises were incorrect. He also made certain allegations against the ITO to his superiors.
8. There appears to be a lull in the assessment proceedings thereafter.
The ITO A-Ward, Katni, had completed the assessment for the assessment year 1974-75 on 30-10-1975 almost accepting the return filed. It would appear from the miscellaneous records pertaining to the assessment year that none of the details regarding survey were made available to the assessing ITO.9. In March 1979, further proceedings were taken. The ITO issued notice under Section 148 for reopening of the assessment under Section 147(6).
The reasoning given for the reopening, as shown in the assessment order was, that large credits were noticed in loose sheets found in the shop of the assessee at the time of survey conducted under Section 133A. A brief summary of the findings of the loose sheets can now be given. It shows entries on various dates from 28-10-1973 to 12-1-1974. An analysis of these entries shows credits as well as debits. The total of the credits amount to Rs. 4,98,774. This includes credits of Rs. 1 lakh each in the name of each of the partners. The debits in the name of various parties amounted to Rs. 1,06,325.
10. After reopening the assessment, the ITO apprised the assessee of the reasons for the reopening of the assessment. He then examined the assessee about the loose sheets. Shri Badri Prasad, the partner, denied that these loose sheets were found in the premises. He denied their very existence. His brother, Rameshwar Prasad, also denied the existence. The ITO had also examined Shri R.C. Shrivastava, who by that time had become an ITO, and was functioning at Katni itself. His examination was required, since the assessee had denied the genuineness of the loose sheets alleged to be found in his premises. After taking the evidence, the ITO came to a finding that the loose sheets were belonging to the assessee and were genuine. On the basis of the entries found there, he held that the assessee had earned income of Rs. 4,98,774. He treated the same as income from undisclosed sources. He had also invoked provisions of Section 69A of the Act for the assessment of these amounts in the assessment year 1974-75.
11. The assessee appealed to the Commissioner (Appeals). The Commissioner (Appeals) in a lengthy and very detailed order considered all the submissions made by the assessee and held against him. He, however, held that the addition to be made should not be the total of the credits. Both the credits and the debits must be taken into account. The peak credit worked out to Rs. 2,61,338. He reduced the addition to this figure.
12. The assessee is on appeal before us. The first issue is whether on the facts already narrated, the reopening of the assessment under Section 147(6) is correct or not. Shri H.S. Shrivastava the learned Counsel for the assessee, on the basis of certain authorities, submitted that what had occurred was only a change in the opinion of the ITO. So, the reopening would not be valid. Alternatively, his case was that all the information was available before the completion of the original assessment. Therefore, the reassessment was invalid. It was submitted that this would amount to piecemeal assessments, which are not permitted.
13. We are very clear in our mind that the reopening of the assessment is perfectly valid. It would be noticed that the assessment jurisdiction was primarily with the ITO A-Ward, Katni. The survey operations, however, were conducted by a different officer, i.e., the ITO, C-Ward, Katni. There has been no occasion at all for the ITO, C-Ward, to give the information to the ITO, A-Ward, who was actually to do the assessment. As far as the assessing officer is concerned, he was not at all aware of the findings of the loose papers or their relevance to the assessment. That is why, he completed the assessment in October 1975 without making any reference to these facts. The miscellaneous records for that year bear out that the ITO was not aware of these facts. Therefore, there is no question of the ITO having these informations prior to the assessment. There is no question of the ITO coming to a different opinion on the same facts. There is no question of any piecemeal assessments. On the other hand, the ITO had received information after the completion of the assessment. This information is very relevant for the assessment. This information prima facie gives the ITO reason to believe that the income had escaped assessment.
Therefore, the reopening of the assessment is perfectly valid.
14. We would only cite the decision of the Calcutta High Court in the case of ITO v. Panama (P.) Ltd.  97 ITR 210 wherein, a summary of the requirement of Section 147(6) are given. In order to be 'information' in terms of Clause (b) of Section 147, the conditions required to be fulfilled are: 1. It must be knowledge or instruction regarding facts or particulars or the law relating to the matter bearing on the assessment.
2. Such knowledge or instruction must come into the possession of the ITO after the assessment is over.
3. The knowledge or information must be such which leads to the formation of belief that the income of a person had escaped assessment or had been under-assessed.
4. The proximate or immediate source of such information must be external.
5. Such knowledge or information could have been derived during the previous assessment year from an investigation of the materials on record but were not in fact derived.
15. The above summary of the law has underwent a slight change by the decision of the Supreme Court in the case of Indian & Eastern Newspaper Society v. CIT  119 ITR 996. That affected only item (5) of the above analysis. The Supreme Court has held that a reappraisal of materials on record would not amount to information. In this case, there is no question of the reappraisal of the materials at all. We have already made the position clear in the earlier paragraphs. Thus, we find that the reopening of the assessment is valid.
16. We now take up the next issue, i.e., whether the loose sheets, said to be found in the business premises of the assessee, are genuine or not. The case of the assessee that they are not genuine rests on the following matter: 1. The statement of the partner in 1980 before the ITO that no such loose sheets were recovered from the assessee's premises. The figures mentioned therein are fantastic. Such large amounts are not at all required for carrying on the Kachchi Adat business of the assessee.
2. Various names have been mentioned in those loose sheets. They were all businessmen in Katni. The ITO had contacted these persons but found there was no cross-verification to these entries.
3. The entire case has been fabricated because of the vindictiveness of the ITO (Shri Dixit) against the assessee.
4. The ITO had examined the partners of the assessee on the date of the survey operations. No questions had been asked about these loose sheets. Such a conduct of the ITO is contrary to nature when large amounts are said to be involved in the loose sheets.
5. It is true that on the date of survey operations, the partners had signed certain alleged copies of these sheets but these were signed because they were afraid that the officer would put them to trouble otherwise.
6. Contemporary proof to show that no such loose sheets were found is contained in the affidavit filed by Badri Prasad, the partner, before the Commissioner on 22-1-1974. Reliance is also placed on the statement given by Shri R.C. Shrivastava, who was associated in the survey operations.
17. As against this, the material with the department to show that the loose sheets existed and are connected with the assessee are the following: 1. The survey operation was conducted at the instance of Shri Chakravarty, inspector, attached to the survey squad. The assessee has not said that Shri Chakravarty bears any grudge against the assessee.
2. it was only at the instance of Shri Chakravarty that he found there were incriminating material in the shop that the ITO was requested to be present in the shop premises.
3. Copies of the loose sheets had been signed voluntarily by the partners.
4. The denial by the partners later, is only a device to save their skin.
5. The conduct of the partners are not consistent. On 15-1-1974, when the inspector was present in the shop premises when the assessee was surrounded by his own people, he had signed the copies of the loose sheets. There could not be any compulsion under these circumstances. The assessee's conduct on 21-1-1974 before the ITO in the office of the ITO that he would not sign the order sheet shows an entirely different conduct. These two conducts are not consistent. The only explanation could be that there was no compulsion but the assessee realised the implications of the signatures at a later stage and in order to save the consequences started totally denying existence of the loose sheets.
18. We have to preface our findings by admitting that the issue is difficult to resolve. If the alleged sheets were made available to us, certain other lines of investigations could have been taken up to come to a finding on the issue. Whether they were genuine or fabricated, there were some loose sheets. At the time of hearing, we had asked the counsel for the assessee to make them available. He, however, could not help us. He filed an affidavit from one of the partners, but we find that the affidavit did not make us any the wiser. So that line of investigation is closed. We have to give a finding on the materials made available.
19. Now, the assessee's case is that the sheets were fabricated. If we must accept this contention, all facts found should be in harmony to this finding. Assuming it is fabricated, let us recapitulate the facts.
The search was conducted initially by Shri Chakravarti, the inspector attached to the survey squad. So, either Shri Chakravarti fabricated the papers or he was entrusted with the fabricated papers by some one.
Now, Shri Chakravarti could fake those papers if the assessee had been in his bad books. He might attempt to wreck vengeance on them. But, that is not possible, because, admittedly, the assessee has no complaints against him. In the complaints made later against the departmental officials, the assessee does not say anything against him.
We see no reason at all to hold that Shri Chakravarty had himself fabricated these papers.
20. In the alternative, it is possible that someone would have entrusted him those papers. Now, it appears that the assessee has some complaint against the ITO in charge of survey. He could possibly be the person who could have done it. We have to leave out any other third person entrusting the papers to Shri Chakravarty because if that were so, Mr. Chakravarty would have straightaway made that as part of his report. What the third person had given him would amount to information coming in possession before the survey operation itself and his main object would be to confront the assessee with it. But what actually happened on 15-1-1974 did not accord with this hypothesis. So, if anyone else had fabricated, it could be only Shri Dixit, the ITO.21. But this hypethesis Shri Dixit being at the bottom of it--can be accepted only if all the known facts could fit into it. We do not find it to be so. Firstly, the inspector, Mr. Chakravarti, in his report (this is incorporated in the Commissioner (Appeals)'s order at para 6), had stated: "in the course of survey, we 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 account books and bill books, etc., found by us and signed have been listed in the inventory which is enclosed herewith". Now, the only evidence of transactions outside the books noted in the survey report are those noted in loose sheets. Corroborate evidence was found in blank bills but that only corroborated the finding of transactions outside the books. Now, when we turn to the statement given by Shri Badri Prasad on the date of search, we find admission of dealings outside the books.
His statement is in the assessment order at para 9. It is in Hindi.
Therein he admits that there were such transactions. Since there were no other material found by Shri Chakravarty of the dealings outside the books, the admission by the partner was only on the face of the loose sheets found. Thus, the partner has accepted the existence of such sheets without actually referring to it.
22. At this stage, it would be convenient to consider a submission on the evidentiary value of the partner's statement. According to the assessee, the statements were taken on coercion and, therefore, it does not amount to any evidence at all. Now, it is for the assessee to show by some evidence that would lead to an inference of coercion. The time, the place, the duration of the search, etc., are other corroborative factors. It is laid down by the Supreme Court in Hem Raj Denial v.State of Ajmer AIR 1954 SC 462 that a mere bald assertion that the party was threatened cannot be accepted as true without more. There is nothing else brought on record to prove coercion. So, we should see how far the background facts corroborate this submission.
23. We first take the place of the statement. It was in the business premises of the assessee. Both the partners were there as well as the employees. Presumably, the customers were also there but no one had referred to their presence. Three departmental officials were there.
The time, as given in the statement, was 5-30 p.m. There is no evidence to show the duration but it could not have taken more than a couple of hours. The report of Shri Chakravarti is dated 15th and so the search must have been over that day itself to leave him sufficient time to make his report. Initially, only Shri Chakravarti had come; he had called Shri Dixit, later. This is a bit unusual. Normally, an ITO is not present in a search under Section 133A. He was called by the inspector since he 'apprehended that the assessee will snatch away the documents found'. Why did he have his apprehension That shows something had happened, which made Shri Chakravarty feel that the search would not proceed normally. He was alone in the business premises of the assessee where the assessee had all his men around.
Then why did he have a fear Obviously, the partners must have adopted a belligerent attitude. This could have been only generated by something found by Shri Chakravarti which was inconvenient to them.
That could be only the loose sheets.
24. Another abnormality is the service of summons under Section 131 by the ITO in the assessee's premises. This is also odd. This also shows that Shri Chakravarty found something which was of great evidentiary value. Under Section 133A he cannot seize it. The assessee has to be compelled to produce the same only by serving summons. What he found was important enough to require service of summons on that day itself.
Taking these facts together, it would be safe to presume that Shri Chakravarti found something valuable as evidence. The submission of coercion has to be considered against this background.
25. We think it is quite possible that the partners would have done something to cause apprehension in Shri Chakravarti's mind. Later, when Shri Dixit arrived, it is also possible that some heated words were exchanged culminating in the serving of the summons under Section 131.
Those words could have included some threats from the officer.
26. Now, if we are considering an assessment based merely on the statement taken down from the partners after the threat, perhaps the admissions contained in the statement will have no evidentiary value.
But what we are called upon is not to fasten a liability on the basis of the statement. Our task is to ascertain something different--the genuineness of the loose sheets. The statement is being considered only to throw any light on that issue. As far as that issue is concerned, we do not think the part therein which refers to certain transactions outside the books should be ignored. It is corroborative evidence; further the conduct of the partners shows something was found which could only be the loose sheets under issue.
27. We may also refer to another incident which took place in the Income-tax office on 23-1-1974. Shri Badri Prasad was called to the ITO's chamber, where he was asked to sign certain statement. Shri Badri Prasad flatly refused. Now, his refusal took place in the ITO's own ground, where he was far from his own men. Could a person, who was supposed to be intimidated on 15-1-1974 when he was in his own premises surrounded by his own men, stick up to his rights in the ITO's office where he was alone in alien surroundings It would appear to be contradictory in character.
28. We will now consider the submissions against this hypothesis that the loose sheets are genuine. It is submitted that the figures mentioned therein are fantastic and such large amounts are not all required for carrying on the type of business the assessee does. From this, it is required of us to draw an inference against the genuineness. Now, we should make it clear that our immediate task is to rule out the possibilities that the loose sheets are fabricated by an outsider. For ruling out that possibility, the writings found therein, though has some evidentiary value, cannot be attributed that much probative value, as to tilt the scale in favour of the assessee. Even if the loose sheets were genuine and found in the premises of the assessee, there may be a hundred explanations to show how it has nothing to do with the assessee's business. Therein, we would be going into the issue of the explanation to those figures found written there.
That is an entirely different issue to be dealt with later. The second submission of the assessee, recorded in para 16 of this order, is relevant only on the point of explanations to the entries found therein and not to the genuineness of the sheets themselves. The third submission, that it is the result of the vindictiveness of the officer, has already been dealt with in the earlier paragraphs.
29. Now, fourth submission is on a piece of circumstantial evidence--that no questions were put to the partners regarding the transactions recorded in the papers. It is a fact that no direct question has been put to them. But, for this omission, there is an explanation. The explanation is this: first, certain questions regarding dealings outside the books have been put. Such questions could only refer to these papers. Second, detailed question has to be only after the papers are officially in seizure of the department.
Since the search was under Section 133A, any seizure of the papers was not possible. We find this explanation acceptable. In fact, it is in harmony with the conduct of the ITO in serving summons under Section 131 on that date itself requiring the assessee to produce these sheets next day in the office.
30. The other two points made out in para 16 of this order have already been dealt with by us. So, we give a finding that the papers were not fabricated and were genuinely found in the assessee's premises.
31. Now, we come to the third issue. Do these papers show any income earned by the assessee-firm There is no income as such shown in the loose papers. The department has only picked up certain credits found and treated those credits as investments. Now, the ITO has totalled up all the credits and treated them as cash credits. The Commissioner adopted the same basis but reduced the addition to the peak amount.
Now, Shri Shrivastava had strenuously argued that no addition at all is to be made since these are only meaningless jottings of someone. "We are unable to dismiss them in that fashion. They do appear to be records of transactions. In the absence of any other explanations, we should accept that they represent money transactions. We can also dismiss another contention that the quantum of moneys noted therein is fantastic and for the type of business assessee does, such large funds are not required. Now, there is no evidence to show that the dealings in loose sheets represent their commission agency business. They could very well represent certain other dealings, like money-lending or sarafi business.
32. A submission made against any addition is: at best, addition could be only as unexplained investments. Such an addition can be made under Section 69 only. Section 69A was not in the statute. Now, Section 69 deals with unexplained investments. Those investments, contemplated under Section 69, should be tangible investments. What is shown in the loose papers cannot be considered such an investment. There is no case for invoking Section 68 of the Act since no cash credit has been found in the regular books of account.
33. In our opinion, this submission has no force. As Shri Kapila, the departmental representative, pointed out, Section 69 did not bring in any new dimension to the law. It only gave statutory recognition of what was already accepted by the Courts. Section 68 can also be invoked since the loose sheets record transactions and what is required of account books is precisely that.
34. The next issue to be considered is the addition to be made. Now, the loose sheets show credits as well as debits. The department has added the credits. According to them, the credits represent undisclosed income. We are unable to accept this approach as correct. Now, the loose sheets have been found to be genuine. If they be genuine, the credit entries found there are also genuine. It cannot be otherwise.
These transactions have been deliberately kept outside for the purpose of avoiding the tax liabilities . Unless they were genuine entries, there was no point in this subterfuge. The very purpose of making these entries in loose sheets and not in books is to keep away these transactions from the prying eyes of the ITO. So, we must accept that the credit entries are genuine and they do not represent any undisclosed funds.
35. To this rule, however, we will make one exception. That is, the credits in the name of the partners. The partners could be credited with the funds either of their own or what has been generated outside the regular books. We will have to consider both the possibilities before a decision could be given. Now, let us assume that the funds belong to the partners. Then, what has been credited to their names has to be considered in their individual assessment. Now, the department did attempt to tax them in the partner's hands. But the partners successfully appealed and had got the additions deleted. So, it is now not possible to hold that the credits appearing in their names belong to them. It that does not belong to them, then the only other alternative is the firm, i.e., the assessee. There is one further clue to it. The two partners have been given equal credit of Rs. 1 lakh each. Such equal credit could mean (we are not saying that is the only inference) that the credit represented moneys generated by the firm which had been divided among them on the profit-sharing ratio.
36. Now, the credits amounted to Rs. 2 lakhs. This has been credited on 28-10-1973. Now, the question would arise, in which assessment year this amount has to be considered. The assessee's disclosed business follows the Diwali year. If that is taken as the basis, the correct assessment year would be 1975-76 since this would be considered as the cash credit found in the books maintained. So, the addition made in 1974-75 would be erroneous. Now, this line of argument has no proper factual basis. There is nothing to show that the loose sheets represented a conscious design by the assessee to have the Diwali year as the previous year in respect of the business outside the books. It does not follow that the same accounting year should be adopted in respect of the business recorded in loose sheets. It is open for the assessee to have a different year. Indeed, there is nothing in the loose sheets to show that the business outside the books to be the same. There is no entry therein to justify such a finding. For all that we know, it could be just short-term money-lending business. If there is nothing to show that the assessee has consciously chosen any particular previous year, then the financial year should be considered as the previous year. It is open for the firm to have the Diwali year as the previous year for the commission business and financial year for any other business.
37. It is also possible to justify the addition from the angle of Section 69. The entries in the loose sheets could be understood to mean the assessee invested Rs. 2 lakhs in some business. They had also taken some loans from others who appear on the credit side in those sheets.
These funds have been advanced to the persons shown on the debit side.
What has been shown as Rs. 2 lakhs received from partners is the investment made during the year in business. Since the investment was made in the financial year 1973-74, it is properly assessable for the year 1974-75.
38. We, therefore, hold that an addition of Rs. 2 lakhs has to be sustained.
39. The appeal is, therefore, partly allowed. The addition is reduced to Rs. 2 lakhs.