IMPORTANT POINT
The court held that reassessment proceedings initiated under the Income Tax Act were invalid due to the Assessing Officer acting under the dictates of higher authorities, violating principles of independent adjudication and natural justice.

JUDGMENT :

GOUTAM BHADURI, J.

1. Five appeals filed by the assessee against the order passed by the Commissioner of Income Tax (Appeals) [for brevity ‘the CIT(A)’] before the Income Tax Appellate Tribunal, Nagpur (for brevity ‘the ITAT’). Since common issue was involved, all the appeals were considered and decided by the ITAT by a consolidated order dated 31-8-2004 by which the appeals preferred by the assessee were partly allowed whereas the appeal preferred by the Revenue was dismissed. Against the order passed by the ITAT, the Revenue preferred these appeals and the assessee has preferred the cross appeal.

2. Since all the appeals are arising out of same order dated 31-8-2004 passed by the ITAT they are being heard and decided together by this common judgment along with cross-objection.

3. In order to avoid repetition of facts and for the sake of convenience, the documents annexed in ITA No. 6 of 2005 are being referred.

4. The facts of the case are that:

(a) The assessment year pertains to 1988-89, 1989-90, 1990-91, 1991-92 and 1992-93. Initially Surendra Kumar Jain (since deceased) filed the aforesaid returns; the same were accepted and intimations were issued under Section 143(1)(a) of the Income Tax Act, 1961 (for brevity ‘the IT Act’).

(b) Original assessee derived income from salary as Managing Director of M/s Bhilai Engineering Corporation Limited, share profits from firm in which he is partner and other sources.

(c) Search and seizure operations were carried out by the Central Bureau of Investigation (for brevity ‘the CBI’) on 3-5-1991 at the residential premises of one J.K. Jain at Delhi, who was an employee of M/s BEC Impex International Pvt. Ltd., in which the assessee was also a Director. During such search operation certain documents were found apart from Indian currency of Rs. 58.5 lacs and foreign currency were found. It was also found one Shambhudayan Sharma, Hawala Operator, who had allegedly channelized funds. Photocopies of seized documents were handed over by the CBI to the Income Tax Department in February, 1994 for enquiries and investigation. Subsequently, the remaining seized documents were handed over by the CBI to the Directorate of Income Tax (Investigation) [for brevity ‘the DIT (Inv.)’] New Delhi, in the month of February, 1995, which was in response to warrant of authorisation issued by the DIT (Inv.) under Section 132A of the IT Act. On 2-3-1995 statement of J.K. Jain was recorded by the DDIT (Inv.) under Section 131 of the IT Act. Letter sent by the DDIT (Inv.) Delhi, to the DCIT (Deputy Commissioner of Income Tax), Special Range, Bhilai, who is the Assessing Officer (for brevity ‘the AO’) for initiating reassessment proceedings. The relevant seized documents and set of papers were sent to the Commissioner of Income Tax (CIT), Jabalpur on 1-3-1995.

(d) The documents so received by the AO at Bhilai included one spiral bound diary, which was marked as MR-71/91. In the said diary certain receipts and disbursement of money was found to be recorded. Statement of J.K. Jain from whose possession the said diary found was recorded by the CBI as well as Additional DIT (Inv.), New Delhi and according to the AO the said diary found in possession of J.K. Jain belonged to the assessee S.K. Jain and was maintained as per direction of the assessee.

(e) Subsequently, the directions were received from the higher authorities. On the strength of the photocopies of aforesaid documents, notices were issued by the AO under Section 148 of the IT Act for the assessment year 1988-89 to 1992-93.

(f) The proceeding under Section 143(3) read with Section 147 of the IT Act were completed and following income was assessed as under:

(g) Being aggrieved by the assessment order the assessee preferred an