1. Since the above appeals relate to the same assessee and involve a common contention, they are disposed of by this consolidated order for the sake of convenience.
2. The assessee, which is a firm, deals in watches, spectacles and their spare parts. Besides, it also undertakes repair works. After the original assessments had been made for all the above three assessment years, a search was conducted at the business premises of the assessee and the residences of the partners on 29-3-1976 by the income-tax and customs departments. In this search, imported wrist watches valuing at Rs. 4,165 and some cash were found. Stock of the estimated value of Rs. 60,000 was also found. Some of the above articles were also seized in the search.
3. Shri Parmeshwar Prasad Gupta, one of the partners of the assessee-firm, admitted in his statement recorded at the time of the search, that the assessee-firm had an account with Allahabad Bank, Reti Chowk, Gorakhpur. The ITO also received information that the assessee had made several remittances through the above bank to different parties at different places. On the basis of this information and on the basis of the articles found in the search, the ITO was of the view that the income of the assessee had escaped assessment for all the above assessment years by reason of omission and/or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. He, therefore, initiated proceedings under Section 147(a) of the Income-tax Act, 1961 ('the Act'). He served notices under Section 148 of the Act on 22-5-1976. Returns were duly filed by the assessee in response to the above notices declaring more or less the income originally assessed. It is not necessary to give their details as they are irrelevant for the present appeals.
4. The ITO also confronted the assessee with details of a number of drafts sent through Allahabad Bank. The drafts were of different amounts and had been sent by different persons to different parties at different places. Out of them, the assessee admitted to have sent six drafts in the assessment year 1972-73, five drafts in the assessment year 1973-74 and only one draft in the assessment year 1974-75. It was contended that the other drafts had not been purchased either by the assessee or on its behalf and that it had nothing to do with any one of them. The ITO for the reasons given below, held that the assessee was directly connected with all the drafts and that they had also been sent by it or on its behalf towards the purchase of foreign watches from different places : (i) During the search operation carried out on 29-3-1976 under Section 132, by the income-tax department and customs department it was found that the assessee was dealing in foreign watches.
(ii) 145 foreign wrist watches valued at Rs. 4,165 were found from the business premises of the assessee and the said watches were seized by the customs authorities.
(iii) Unaccounted cash amounting to Rs. 11,922 was found from the residential premises of Shri Parmeshwar Prasad Gupta, one of the partners of the assessee-firm during the search operation.
(iv) During the search operation on 29-3-1976, cash of Rs. 7,378 was found and the cash as per cash book was Rs. 11,024.
(v) Unaccounted sales to the extent of Rs. 2,572 were found from the business premises of the assessee.
(vi) Estimated stock of Rs. 60,000 approximately. was found but the same could not admit any check or verification in the absence of any day-to-day stock register.
(vii) Shri Parmeshwar Prasad Gupta, one of the partners of the firm, admitted in his statement recorded during the search operation on 29-3-1976 that the assessee-firm had account with Allahabad Bank, Reti Chowk Branch, Gorakhpur.
(viii) Some of the drafts purchased out of the total value of drafts of Rs. 5,81,551 (Rs. 5,65,284 and Rs. 7,53,476. for the assessment years 1973-74 and 1974-75) have been accepted by the assessee. There is no reason to believe that remaining drafts out of the same list of purchases of drafts was not purchased by the assessee.
(ix) Shri Parmeshwar Prasad Gupta, one of the partners of the assessee-firm, purchased draft for Rs. 15,000 on 29-1-1971 and sent the same to Bombay. During the proceedings under Section 132(5), the purchase of the draft was denied. An Inspector was deputed to examine the application for the purchase of the draft in the bank and it was reported that the signature on the back of the application was legible and was signed by Shri Parmeshwar Prasad Gupta. The amount of Rs. 15,000 was included in the order under Section 132(5) of the Income-tax Act passed in this case on 24-6-1976.
(x) Similarly, another draft for Rs. 4,000 was purchased by Shri Parmeshwar Prasad Gupta on 29-3-1973 and draft No. 48/239 was sent to Bombay. The purchase of this draft was also denied. An enquiry was made through the Inspector and it was reported that the signature on the back of the application was legible and was signed by Shri Parmeshwar Prasad Gupta. The Inspector's report was shown to the assessee. The assessee failed to explain the nature and source of the purchase of draft of Rs. 4,000. The amount of Rs. 4,000 was included in the total income of the assessee in the order passed under Section 132(5) of the Act on 24-6-1976.
(xi) It was found that the assessee had purchased drafts on 26-10-1970 forRs. 11,282 as under: The assessee was asked to explain as to why these drafts were not debited in the books of the assessee. The assessee came forward with the explanation that the value of draft was debited after four months on 29-3-1971.
(xii) The assessee purchased two drafts on 4-5-1970 as under : Rs. The assessee Was asked to explain as to why these drafts were not recorded in the books. The assessee came forward with the explanation that these drafts were purchased on 4-5-1970 and the amount was not withdrawn from the cash book and subsequently adjusted in the bank account with Allahabad Bank on 15-7-1970.
(xiii) The assessee has purchased draft for Rs. 6,000 on 7-11-1974 and for Rs. 2,500 on 24-12-1974. The amount was not withdrawn from the cash book on these dates and the obvious inference is that these purchases were made from undisclosed sources. No doubt the assessee came' forward with the explanation that these drafts were purchased by taking money from Smt. Rampati Devi, one of the partners of the assessee-firm.
(xiv) A draft for Rs. 6,916 was sent by Shri Bhagoti Prasad, an employee of the assessee, to one Shri Hari Shanker at Bombay on 23-2-1970 but the purchase of this draft does not find place in the books of the assessee.
(xv) The specimen signatures of the employees of the assessee, namely, Shri Vinod Kumar, Sukhdeo Pd., Bhagoti Prasad and Nand Lal in Hindi have been obtained. The signatures of Shri Parmeshwar Prasad partner has also been obtained though the application for purchase of draft has been made in different names and signed under different names, the handwriting resembles.
(xvi) The assessee made an application under Section 144A to the IAC (Central), Allahabad, on 6-3-1981 and requested the IAC to issue direction to the ITO to drop the proceedings. The IAC (Central), Allahabad, rejected the assessee's petition on 9-3-1981.
5. It was also contended before the ITO that the initiation of proceedings under Section 147(2) was invalid and also there was no valid service of any notice on the assessee under Section 148. The ITO rejected this contention.
6. The ITO also referred the matter to the IAC under Section 144B of the Act inasmuch as the difference between the returned and the assessable income exceeded the sum of Rs. 1 lakh in each of the assessment years under consideration. After receiving the instructions from the IAC, he made the assessments for all the above assessment years on 18/ 19-9-1981. In the assessment year 1972-73, the total remittances made from the bank amounted to Rs. 5,81,551. On a monthly basis, the peak of the remittances came to Rs. 1,28,270. The ITO held that the assessee had failed to explain the source of the above amount of Rs. 1,28,270. He treated it as the assessee's income from other sources. On the basis of the remittances made, he estimated the assessee's unaccounted for sales at Rs. 6,40,000. Applying a net profit rate of 10 per cent, he further held that the assessee had made a profit of Rs. 64,000 which had escaped assessment. He included this amount also in the total income of the assessee of the above assessment year.
7. In the assessment year 1973-74, the total of the remittances made worked out to Rs. 5,61,284 with the peak of Rs. 1,15,556. Since this fell short of Rs. 1,28,270 added in the assessment year 1972-73, the ITO did not make any further addition. He, however, estimated the assessee's unaccounted for sales at Rs. 6,24,000. On this, he estimated a net profit of Rs. 62,400 and included it in the assessment. In the assessment year 1974-75, the total remittances worked out to Rs. 7,53,476 with a peak of Rs. 1,50,790. Since this peak fell short of the additions made in the earlier two years, no further addition was made by the ITO. He, however, estimated the unaccounted for sales at Rs. 8,37,000. He estimated a net profit of Rs. 83,700 on these sales and included it in the assessment.
8. The assessee appealed to the Commissioner (Appeals). There were two submissions before him. The first was that the initiation of proceedings under Section 147(a) was invalid. Another connected contention that even the service of the notices under Section 148 was invalid. These submissions were rejected by the Commissioner (Appeals).
With regard to the service of the notices, he observed as under : I have scrutinised the notice issued by the ITO. The notice does not bear status of the assessee. It does not have GIR/Pan No. It does not mention as to whether it is a case of assessment or reassessment. However, as no evidence has been led before me that there was any other assessee in the name of M/s Ram Prasad, Optician, Reti Chowk, Gorakhpur, to whom the notice could be issued, I hold that the notice issued to the assessee cannot be termed as vague and cannot be said to be suffering from any defects. The ratio of decision in ITO v. Chandi Prasad Modi  119 ITR 340 (Cal.) is not applicable to the assessee's case.
9. With regard to the initiation of the proceedings, the observations of the Commissioner (Appeals) were as under : I hold for purpose of initiation of proceeding the factual information received from the Director of Revenue Intelligence, which information was gathered by him from the bank to be prima facie correct and uphold the initiation of the proceedings.
10. With regard to the merits of the case, the findings of the Commissioner (Appeals) in the assessment year 1972-73 were as under : Coming to the merits of the case, I am of the opinion that the ITO has not been able to link 98 drafts, which are not recorded in the assessee's books of account to the assessee. There is no evidence that the assessee purchased those drafts from the bank for these purposes. The persons who could possibly throw light on the subject were banker of the assessee, person in whose names drafts were applied for, if they were real person, recipients of the drafts. No enquiries have been made from these persons. The only thing which the ITO has done is to get bank vouchers of the drafts and there is no evidence that writing thereon or signature thereon were of any person connected with the assessee. The assessee has filed on the contrary the certificate before the IAC in Section 144B proceedings in which the bank has specifically stated that drafts were not taken as per their record by Ram Nath Optician. According to the assessee, the burden to prove was on the ITO to show that the drafts related to the assessee. This burden has not at all been discharged in any way by the ITO. The very fact that the assessee had bank account with the very same bank and has purchased these drafts from the bank will not in any way link the remaining 98 drafts of the assessee.
The assessee has filed following evidence before the ITO and before the IAC in proceedings under Section 144B to prove that the drafts did not belong to the assessee :- v. Statement of Parmeshwar Prasad before the ITO dated 17-3-1981.
vi. Bank letter dated 13-10-1976 addressed to ITO, C-Ward, Gorakhpur. vii. Affidavit of Parmeshwar Prasad dated 6-3-1981 before the ITO. 13. It was specifically pointed out to me with reference to alleged purchase of drafts dated 4-6-1971 that the bank in its letter dated 13-10-1976 certainly denied its purchase by the assessee.
Thereafter, no evidence has been brought on record to link this draft with the assessee.
14. I have very carefully gone through the order of the IAC under Section 114B. There is mention in the order of the IAC that department's attempt to link the purchases of these drafts to the assessee by reference to expert opinion failed because the experts too were not in a position to pronounce on the basis of specimen signatures as to whether drafts were purchased on assessee's behalf.
Mere existence of assessee's account with the same bank and purchase of six drafts by the assessee will not link the drafts to the assessee unless there is other evidence pointing the assessee's connection with the drafts. There is no statement from the banker that the assessee applied for the drafts. There are no statements from the recipients that they received drafts on behalf of the assessee. There is no evidence of any handwriting expert that the drafts were taken by the assessee or any other person connected with the assessee. Under the circumstances, I hold that there is no legal material on record to link the assessee with the drafts allegedly purchased by the assessee. I, therefore, delete the addition of Rs. 1,28,270 made by the ITO as assessee's income from the undisclosed sources. I also delete addition of Rs. 64,000 made by the ITO as estimated profit from activities outside the account books as the same too was based upon the alleged purchases of drafts.
These findings were followed by the Commissioner (Appeals) for deleting similar additions in the assessment years 1973-74 and 1974-75.
11. The above findings of the Commissioner (Appeals), relating to the deletion of the various additions in all the above three years, have been challenged in appeal by the department. The contentions stated in these appeals are that the Commissioner (Appeals) has erred in holding that the various drafts, as pointed out by the ITO in his assessment orders, did not belong to the assessee and further in deleting the various additions made by him. The assessee, on the other hand, has taken the cross-objections challenging the initiation of the proceedings under Section 147(a) as also the validity of the service of the notices under Section 148 in all these years.
12. The learned departmental representative at fist submitted that the Commissioner (Appeals) had not correctly gone into the ownership of the various drafts and had wrongly held that they did not represent the remittances made by the assessee. In this connection, he invited our attention to the original application dated 26-10-1972 requesting the bank to issue a draft of Rs. 4,000. This application like all other applications, is in the handwriting of some clerk of the bank itself.
It no doubt bears the name of Ram Prasad which also happens to be the business name of the assessee. The assessee has denied that it had sent any such draft to Bombay. The learned departmental representative then invited our attention to another application dated 14-5-1973 to point out that the draft in question was issued, amongst others, in the name of one Pradeep Kumar. He submitted that Pradeep Kumar was the son of partner, Parmeshwar Prasad Gupta. He then pointed out that on the applications dated 10-8-1973 and 16-8-1973, requesting the bank for issuing two drafts of Rs. 7,000 and Rs. 10,000, respectively, payable at Bombay, originally the name of Ram Prasad, optician, was mentioned but subsequently it was changed to Ram Ashray and Krishna Nand, respectively. He pointed out that under the circumstances, Ram Ashray and Krishna Nand could be none else except the assessee's own representatives or nominees. His further contention was that although the application dated 14-5-1971, admittedly made by the assessee for issue of a draft in favour of Ajoy Brothers, Delhi was for a sum of Rs. 1,000 but on the back of it details of Rs. 6,500 were mentioned indicating that the assessee had paid the entire amount. His submissions, therefore, were that the above were indicative of the fact that all the drafts had been issued either at the request of the assessee or on its behalf and, therefore, it was the assessee who was to explain the sources of the remittances. He, of course, admitted that the handwriting expert was unable to give any opinion about the signatures attributable to any of the persons connected with the assessee.
13. On behalf of the assessee, it was submitted that Pradeep Kumar could not necessarily refer to the son of partner of the assessee and that the scoring off of the name of Ram Prasad, optician, did not by itself go to suggest that those applications were by the assessee or that the mention of the larger amount on the back of the application showed that the assessee had obtained drafts of higher amounts. About the name of Ram Prasad appearing on the application dated 26-10-1972, the submission of the learned counsel for the assessee was that the bank had denied having issued any such draft as was clear from the bank's letter dated 14-8-1981 appearing at serial No. 121 of the paper book. The learned counsel for the assessee also submitted that there was no evidence on record to show that either Krishna Nand or any other persons, who had signed the various applications for securing the drafts, were either the assessee's persons or its employees. He also referred to a number of decided authorities on the issue of benami and regarding the nature of the evidence required for the purpose.
14. We have carefully considered the submissions placed before us. The application dated 26-10-1972 refers to some draft having been obtained by Ram Prasad, that is attributable to the assessee, of a sum of Rs. 4,000. This particular draft has been denied by the bank to have been purchased by the assessee vide its letter dated 14-8-1981, referred to above. Similarly, we agree with the submission of the learned counsel for the assessee that Pradeep Kumar, the payee for the draft, purchased on 14-5-1973 could not necessarily refer to a son of one of the partners of the assessee-firm. This relates to two drafts of Rs. 10,000 and Rs. 8,000 issued in favour of Pradeep Kumar, Gyan Prakash and Vishwa Prakash. There is no evidence to connect Gyan Prakash and Vishwa Prakash with the assessee. Scoring off the name of the assessee from the applications dated 10-8-1973 and 16-8-1973 is also of no consequence and cannot bind the assessee. It is possible that either the assessee or some of his representatives might have gone to purchase the draft on that day but might have decided not to do so which might have led the clerk of the bank to score out the name. In any case, there is no evidence on record to suggest that the drafts purchased through the above applications related to the assessee. Similarly, in our view, the assessee cannot be held responsible if the clerk of the bank has given details of some higher amount on the back of any application. That by itself can also not suggest that any of the drafts was purchased by the assessee, particularly when the department has not been able to get any such application from the bank also. Our finding, therefore, is that there is no material on record to connect the assessee with any of the disputed drafts purchased from the branch of Allahabad Bank.
15. Before dealing with the legal issues on the subject, we will like to briefly comment on the 16 reasons given by the ITO for coming to the conclusion that the drafts in question were purchased and/or related to the assessee. The mere fact that the assessee was found dealing in foreign watches is no ground to hold that it had also made large scale remittances for their purchase without recording them in its books of account. It was admitted before us that the assessee had been dealing in watches, including foreign watches, since 1910 and that its books of account had always been accepted in the past and even originally at the time of making the first assessment. The finding of 145 foreign wrist watches at the time of the search also does not indicate anything relating to remittances. Out of these, 133 watches were released by the customs. Only 12 watches could not be released at the time the assessments were made for some technical reasons. The value of 145 watches was only Rs. 4,165, that is, on an average Rs. 30 per watch. It was submitted before us that these were old discarded watches, lying as dead stock and, therefore, they could not lead to the conclusion that the assessee had been indulging in illegal activities by sending drafts in lakhs year after year. In our opinion, there is considerable merit in this contention looking to the estimated value of the watches.
Regarding the cash found at the search, the assessee has been able to give satisfactory explanation which was also accepted by the Tribunal vide its order dated 14-7-1981, in IT Appeal Nos. 1693 and 1694 (All.) of 1980, relating to the assessment years 1975-76 and 1976-77. There, therefore, remains no unaccounted for cash to implicate the assessee.
Similarly, the assessee had also been able to account for unrecorded sales of Rs. 2,572. They were the sales of the watches of the day before the search took place. The finding of the stock at the business premises of the assessee is a normal feature of the business and cannot be used as an argument against the assessee. Similarly, the ITO has unnecessarily held that maintenance of a bank account with Allahabad Bank was a factor against the assessee.
16. About the drafts mentioned by the ITO in his order, one of Rs. 15,000 was attributed to Parmeshwar Prasad Gupta on 29-1-1971. It was submitted before the lower authorities, as also before us, that this draft was purchased by Parmeshwar Prasad Gupta and not the partner of the assessec. In any case, this was purchased in the assessment year 1971-72 and, therefore, it could not be taken as a ground for making any addition in either of the assessment years under appeal. The other draft of Rs. 4,000 is also attributed to Parmeshwar Prasad Gupta having been purchased on 29-3-1973. The bank vide its letter dated 13-10-1976, appearing at pages 38 and 39 of the paper book, submitted by the assessee, has denied the sale of this draft to the assessee. The other drafts valuing Rs. 11,282 were purchased by the assessee on 26-10-1970.
It was submitted that these drafts were purchased by debit to the assessee's current account with the bank. The debit was given to that account on 29-3-1971. Similarly, the other two drafts of Rs. 14,000 purchased on 4-5-1970 were also by debit to the assessee's current account on 15-7-1970. Besides the satisfactory proof of the source of their purchase, they were purchased in the assessment year 1971-72 and had nothing to do with either of the assessment years under appeal. The drafts of Rs. 6,000 and Rs. 2,500, stated to have been purchased on 7-11-1974 and 24-12-1974, fall for consideration in the assessment year 1975-76 and, therefore, also cannot form acceptable evidence for making any addition in the assessment years under consideration. The draft of Rs. 6,916 claimed to have been purchased by Bhagwati Prasad on 23-2-1970, also falls for consideration in the assessment year 1971-72.
According to the bank, the draft was purchased on 1-5-1971 by somebody else and not by the assessee. The assessee also denied that it had any employee of the name of Bhagwati Prasad at the relevant time. None of the facts mentioned by the ITO, therefore, stand the test of either legal or factual scrutiny so as to support the additions made by him in all the above assessment years.
17. We will now deal with the legal position. The Supreme Court in the case of Kishinchcmd Chellaram v. CIT  125 ITR 713 held that merely because some of the drafts were purchased by an employee of the assessee, the latter could not be held responsible to show their sources. The Court held that the burden was on the department to show that the money belonged to the assessee by bringing proper evidence on record and the assessee could not be expected to call the employees in evidence to help the department to discharge the burden that lay upon it. The Allahabad High Court in the case of CST v. Sheonath Prasad Ayodya Prasad 1982 UPTC 154 also took the same view. The Madras High Court in A.S. Sivan Pillai v. CIT  34 ITR 328, held that there was no presumption in favour of the illegality of a transaction, in faet the presumption was the other way about.
18. The Allahabad High Court in the case of Prakash Narain v. CIT  134 ITR 364, have dealt with the issue of benami in great detail. The Court has quoted from a decision of the Supreme Court in the case of Jaydayal Poddar v. Mst. Bibi Hajra AIR 1970 SC 171, as under : It is well settled that the burden of proving that a particular sale is benami and the apparent purchaser is not the real owner, always rests on the person asserting it to be so. This burden has to be strictly discharged by adducing legal evidence of a definite character which would either directly prove the fact of benami or establish circumstances unerringly and reasonably raising an inference of that fact. The essence of a benami is the intention of the party or parties concerned ; and not unoften such intention is shrouded in a thick veil which cannot be easily pierced through. But such difficulties do not relieve the person asserting the transaction to be benami of any part of the serious onus that rests on him ; nor justify the acceptance of mere conjectures or surmises, as a substitute for proof. The reason is that a deed is a solemn document prepared and executed after considerable deliberation and the person expressly shown as the purchaser or transferee in the deed, starts with the initial presumption in his favour that the apparent state of affairs is the real state of affairs. Though the question, whether a particular sale is benami or not, is largely one of fact and for determining this question, no absolute formulae or acid test, uniformly applicable in all situations, can be laid down ; yet in weighing the probabilities and for gathering the relevant indicia, the Courts are usually guided by these circumstances : (1) the source from which the purchase money came ; (2) the nature and possession of the property, after the purchase ;(3) motive, if any, for giving the transaction a benami colour ; (4) the position of the parties and the relationship, if any, between the claimant and the alleged benamidar ; (5) the custody of the title-deeds after the sale and (6) the conduct of the parties concerned in dealing with the property after the sale.
The above indicia are not exhaustive and their efficacy varies according to the facts of each case. Nevertheless No. 1, viz., the source whence the purchase money came, is by far the most important test for determining whether the sale standing in the name of one person, is in reality for the benefit of another.(p. 172) The above principle was also approved by the Supreme Court in Krishnanand Agnihotri v. State of M.P. AIR 1977 SC 796. The Bombay High Court in Sukhdayal Rambilas v. CIT  136 ITR 414 has held that where it was contended that what was apparent was not real, the burden to establish this was on the person who alleged this.
19. In the light of the above principles, the burden to show that the drafts were purchased by the assessee or the persons who had made the applications for their issue were either the benamidars of the assessee or its representatives or nominees lay on the department. The department has not collected any evidence to discharge that burden and to prove that the drafts in question, other than those admitted by the assessee itself, issued by the Allahabad Bank, related to it. The Allahabad Bank has issued instructions to its officers regarding the checking of the remittances. One of the instructions is that if the demand draft is uncrossed and presented for cash payment, payee must be identified. The department has not made any efforts to make enquiries from the bank and find addresses of the payees and then make further enquiries to establish the link between those payees and the assessee.
The department must, therefore, fail in its approach.
20. The learned counsel for the assessee also cited before us two other authorities, one of the Rangoon High Court in P.R.M.P.R. Perchiappa Chettyar v. Muniyandi Servai AIR 1932 Rangoon 97 and the other of the Allahabad High Court in Jhandu Mal & Sons v. Official Liquidators of the Dehra Dun Mussoori Electric Tramway Co. Ltd. AIR 1930 All. 778, to show that unless a person signed on somebody's behalf, it could not bind the principal. The applications, though signed by certain persons, are not on behalf of the assessee, and, therefore, the assessee could not be bound by such applications. We have already in this connection referred to the decision of the Supreme Court in the case of Kishinchand Chellaram (supra) which fully supports the stand of the assessee.
21. The learned departmental representative next contended that if the ITO had failed to make proper enquiries and investigation into the matter and bring sufficient evidence on record to hold that the various drafts related to the assessee, it was the duty of the Commissioner (Appeals), as an appellate authority to either himself make those enquiries and investigation or direct the ITO to conduct them. He, therefore, urged that we should remand the case to either of the lower authorities for further enquiries and proper assessment in accordance with law. In this connection, besides referring to the decision of the Supreme Court in Guduthur Bros. v. ITO  40 ITR 298, he also relied on the decision of the Supreme Court in the case of ICT v.Kanpur Coal Syndicate  53 ITR 225. It was held in this case that the AAC has plenary powers in disposing of an appeal. The scope of his powers is coterminous with that of the ITO. He can do what the ITO can do and can also direct him to do what he has failed to do. The Court has further held that the Tribunal has ample powers to set aside an assessment and direct amendment of the assessment.
22. On behalf of the assessee a number of authorities were cited to show that the above powers of the appellate authorities were not to be exercised arbitrarily and that the power of remand should be exercised only in deserving cases. He will deal with these authorities a little later in this order. The learned counsel for the assessee submitted that if the ITO wanted the Commissioner (Appeals) to exercise his power of remand, then it was his duty to place before the Commissioner (Appeals) the relevant evidence which required further investigation.
His submission was that nothing of the sort was done and, therefore, the Commissioner (Appeals) could not be expected to make enquiries of his own or the Tribunal should set aside the assessment directing the ITO to make a fresh assessment. His main contention was that if the appellate authorities could decide an appeal on the material available on record, it was no part of their duly to make roving enquiries and collect additional evidence to strengthen the order of the ITO.According to him, the power vested in an appellate authority could be exercised only if that authority was unable to come to a decision on the material available on the record.
23. We entirely agree with the submission of the learned counsel of the assessee in view of the various authorities already available on the subject. The Bombay High Court in Velji Deoraj & Co. v. CIT  68 ITR 708 had held as under : ... The admission of additional evidence at the appellate stage is not referable to any right of the party to produce the evidence but is dependent solely on the requirement of the Court and it is for the Court to decide whether for pronouncing its Judgment or for any other substantial cause it is necessary to have the additional evidence before it. The mere fact that the evidence sought to be produced is vital and important does not provide a substantial cause to allow its admission at the appellate stage especially when the evidence was available to the party at the initial stage and had not been produced by him . . . (p. 713) The Allahabad High Court in the case of Gopinath Naik v. CIT  4 ITR 1 observed as under : ... Similarly, the enquiries made by the Assistant Commissioner during the hearing of the appeal behind the back of the appellant were not justified by the provisions of Sub-section (3) and the result of such private enquiries should not have been made the basis of any assessment.(p. 23) A similar view was expressed by the Allahabad High Court in the case of Blradhmal Lodha v. CIT  2 ITR 164 in the following words : I consider that the section means that the assessment could be set aside on the ground that it is defective on record as it stands and not that it should be set aside on the ground that new evidence if heard and accepted would prove that the assessment was defective. It is only after the assessment is set aside that further enquiry would be made, for the purpose of making a fresh assessment. But apart from this view of the wording of Section 31 (3)(b), I consider that on general principles of the law of procedure the question is one which in the circumstances of the present case should not be entertained by the Assistant Commissioner in appeal. The assessees had ample opportunity to raise the matter before the Income-tax Officer ; the order of the Income-tax Officer in the previous year had given them ample notice that the Income-tax Officer expected evidence to be supplied on such a matter ; and the Income-tax Officer had issued a notice to them under Section 23(2) putting them to the proof of the correctness of their return which omitted the income from these shares. When in the face of all this the assessees neglect to produce any evidence on the point before the Income-tax Officer. I consider that they should not be allowed to raise the matter for the first time on appeal and expect that a further opportunity will be afforded to them to produce evidence . . . (p.
171) The above principle equally applies to the ITO who is also a party to the assessment. In the case of L.H. Sugar Factories & Oil Mills v. CIT  124 ITR 58 also, the Allahabad High Court held as under ; It is not the function of the Tribunal to assist an assessee who has not placed on the record relevant facts, by launching a fact finding inquiry on its own. For, it is no part of the Tribunal's function to act as an investigative agency either for the assessee or the department in cases where ample particulars have not been given by parties.(p. 59) The decision of the Allahabad High Court in Hind Vastra Bhandar v. GST  23 STC 311 which is in the following words, also supports the stand of the assessee : The power to remand a case has been conferred upon the Judge (Appeals) by Section 9(3)(b) of the U.P. Sales Tax Act which empowers the appellate authority to 'set aside the assessment and direct the assessing authority to pass a fresh order after such further enquiry as may be directed'. The statute does [not lay down the grounds upon which the appellate authority may remand the case.
No limitations have been prescribed restricting the power. The appellate authority exercises quasi-judicial functions and there can be no dispute that the power to remand must be exercised by it, not according to whim or humour but in accordance with sound judicial principles. And it is a power which must be used with circumspection. The appellate authority functions as an impartial authority adjudicating upon rights and liabilities between the dealer and the revenue. That adjudication must be effected through a procedure informed by the interests of justice. It is to do justice in accordance with law that the appellate authority exists. It departs from its function when it permits the influence of partisan considerations.
The above view was reiterated by the Court in the case of Jain Sudh Vanaspati Ltd. v. CST [ 1980] UPTC 1097. The observations of the Court appear in the following words : Despite all this, it has remanded the case to the assessing authority on the ground that proper investigation had not been made.
The question arises whether such remand order can be upheld as valid and legal 13. In the first instance, the appellate authority was not justified in fishing out material from the record in an attempt to justify the action of the assessing authority in reopening the assessment for this year. Apart from that the appellate authority itself did not find that material as relevant for this purpose and even then remanded the case on the ground that proper investigation had not been made. It is difficult to uphold such an order as being valid in law.(p. 1103) To the same effect is the view of the Hon'ble Court in the case of Sola Mal Jalim Singh v. CST  40 STC 166. The view has been expressed in the following words : The Assistant Commissioner (Appeals) appears to have understood the aforesaid observations as enabling him to give a direction to the Sales Tax Officer to find out. some new grounds for rejecting the books of account. This view of the Assistant Commissioner is wholly unsustainable. If the grounds on which the Sales Tax Officer had rejected the books of account are not sustainable, the Assistant Commissioner cannot remand the case to the Sales Tax Officer to find out whether there are other grounds for rejecting the books of account. In that view of the matter the order of the remand by the Assistant Commissioner was wholly unjustifiable. It follows that the remand of the appeal by the Judge (Revisions) to the Assistant Commissioner to give more intelligible directions to the Sales Tax Officer was equally unsustainable.(p. 168) The Patna High Court has also dealt with the issue in the case of Maharani Kanak Kumari Sahiba v. CIT  28 ITR 462 in the following words : ... Mr. Dutt made the submission that the material on the point was already before the Appellate Tribunal and there was no warrant on the Tribunal's part for remanding the case to the Income-tax Officer to make a further investigation on the same point. In our opinion, the argument of Mr. Dutt is correct and the Appellate Tribunal had no justification for making the order of remand to the Income-tax Officer to bring on record further evidence on the same point. It is true that Section 30(4) has granted a very wide statutory discretion to the Income-tax Appellate Tribunal in disposing of an appeal but the discretion given under this section to the Income-tax Appellate Tribunal is a judicial discretion which must be exercised in accordance with legal principles and not in an arbitrary or capricious manner . . . (p. 471) 24. On the basis of the above principles, we are firmly of the opinion that the Commissioner (Appeals) was within his powers not to make further enquiries either himself or direct the ITO to make such enquiries with a view to strengthen his order. Similarly, we also cannot allow the department that liberty and direct the ITO to make roving enquiries against the assessee in order to implicate it now which he failed to do at the assessment stage. We, therefore, uphold the deletions of the various additions by the Commissioner (Appeals) in all the above three assessment years.
25. In the view we have taken, we do not consider it necessary either to go into the question of the validity of the proceedings initiated under Section 147 or in the validity of the service of the notices under Section 148 raised in the cross-objections by the assessee.
26. In the result, the appeals by the department are dismissed while the cross-objections by the assessee are dismissed as infructuous.