Income Tax Appellate Tribunal - Mumbai
Vinay D. Valia vs Addl. Second Income-Tax Officer on 3 December, 1987
Equivalent citations: [1988]27ITD109(MUM)
ORDER
V. Dongzathang, Accountant Member
1. This appeal is filed by the assessee against the order of the Commissioner under Section 263 of the IT Act. In the original assessment, the ITO accepted the short-term and long-term capital gains declared by the assessee for the year under consideration. Accordingly, the ITO completed the assessment on a total income of Rs. 27,495 after taking into account long-term capital gains of Rs. 2,011 and short-term capital gains from Valia Foundation, subject to verification, at Rs. 8,891 as shown by the assessee.
2. In the meanwhile the Commissioner perused the assessment record of the assessee and it was found that the assessment as made by the ITO was erroneous insofar as it was prejudicial to the interests of the Revenue. He, accordingly, issued notice dated 16-2-1985 under Section 263. According to the Commissioner, it appears that the assessee claimed to have purchased 3,814 grams worth of National Defence Gold Bonds in 1980 at the rate of Rs. 750 per ten grams on 4-1-1980 and the same were sold on 9-1-1980 for a sum of Rs. 5,72,100. According to the Commissioner, the first transaction did not appear to be correct because the official quotation as on that date as listed by the Bombay Stock Exchange was Rs. 1,450 per ten grams. The Commissioner considered the objections of the assessee and on due consideration of the entire facts he came to the following conclusion:
(i) ShriV.D. Valia purchased the gold bonds for 3,814 gms. of gold some time around 21-1-1980 from a source other than M/s. S.D. Jhaveri and Co. because M/s. S.D. Jhaveri could not have made a delivery of this quantity to him as per their stock position as certified by the Bank of Karad Ltd.
(ii) However, even that is not material. What is material is that Shri Valia could not have purchased these bonds at a price lower than Rs. 1400 for 10 gms. He could never have purchased the same on 4-1-1980 at less than Rs. 1450 per 10 gms. A certificate from the Secretary to the Bombay Stock Exchange is the final proof of the quotations.
(iii) The existence of the gold bonds cannot be denied because copies of the same with Shri Valla's name endorsed on them have been filed. Similarly, the sale by M/s. V.B. Desai and Co. cannot be denied because they have issued a cheque for the correct amount. It is out of this amount that Shri Valia claims to have paid the purchase price.
(iv) What is wrong with the transaction is not the purchase which may have taken place from any one, but the price paid which would not have been less than what has been certified by the Bombay Stock Exchange. M/s. S.D. Jhaveri and Co. Stock Brokers, have given a havala entry to Shri V.D. Valia for the so-called purchase on his behalf. This purchase is totally unsubstantiated, is at a price which is almost 50 per cent of the regular quotations on the Stock Exchange and is not justified by the Stocks of gold bonds in their possession as certified by their Bankers.
(v) Therefore, the so-called capital gain as claimed to have been earned by Shri Valia is nothing but an introduction of his unaccounted funds into his books of account in the garb of tax-free capital gain. He purchased the said quantity of gold bonds at the market price and sold the same at the market price. The market price has been certified by the Bombay Stock Exchange. His story of the purchase at a lower rate is false and is not supported by verifiable evidence.
He, accordingly, modified the assessment order of the ITO to the above extent, and directed that the capital gains which was claimed to be tax-free should be taxed as income from undisclosed sources in the hands of Shri V.D. Valia. The learned Commissioner also directed to keep the issue open for levy of penalty for concealment of income for non-payment of self-assessment tax, for non-payment of advance tax and for filing of false estimate of advance tax, etc., under the various provisions of the IT Act, 1961. The Commissioner further directed the ITO to start prosecution proceedings against the assessee for wilful contempt to evade tax, for making a false statement in verification under the IT Act and for delivering accounts for settlement which are false, etc.
3. The assessee is aggrieved and has come up in appeal before us. Shri S.E. Dastur, learned, counsel appeared for the assessee. According to him, the assessee in this case purchased 8,814 grams worth of National Defence Gold Bonds, 1980 at the rate of Rs. 750 per ten grams on the basis of the agreement entered into by the assessee in 1979. Though the actual purchase and delivery was made on 4-1-1980, the contract price entered into by the assessee in June 1979 was the correct price on the basis of which the transaction was concluded. The assessee in this case sold these gold bonds on 9-1-1980 for a sum of Rs. 5,72,100 and declared a net capital gains of Rs. 2,86,050 which was claimed exempt. The ITO fully considered the details of the purchase and after due consideration allowed the claim of exemption. It is, therefore, submitted that there is no basis for treating the order of the ITO as erroneous.
4. Elucidating further Shri S.E. Dastur submitted that the Commissioner has not properly assumed the jurisdiction. According to him, the basis on which the Commissioner relied for issue of the notice under Section 263 was the quotation of the Bombay Stock Exchange. This quotation of 4-1-1980 of the Bombay Stock Exchange, which listed Defence Gold Bonds, 1980 at the rate of Rs. 1,450 per ten grams was not part of the assessment record. Secondly, the learned Commissioner relied on the statement of Shri Pradeep Jhaveri, partner of M/s. S.E. Jhaveri and Co. which was made at the time of the survey under Section 133A of the IT Act on 27-2-1985. This statement of Shri Pradeep Jhaveri is neither contemporary nor part of the record of the assessment year under consideration. Similarly, the statement of M/s. V.B. Desai and Co., Stock Brokers, dated 21-3-1985 is not at all part of the assessment record, though the Commissioner heavily relied, on these evidences while assuming jurisdiction under Section 263 of the Income-tax Act. According to Shri S.E. Dastur, the Commissioner has not properly assumed jurisdiction. According to him, the Calcutta High Court in the case of Ganga Properties v. ITO [1979] 118 ITR 447 fully considered the concept of the record and the jurisdiction of Commissioner under Section 263. In that case, it has been held that the word 'record' in Section 263(1) could not mean the record as it stood at the time of examination by the Commissioner, it did mean the record as it. stood at the time the order was passed by the ITO. If the evidences on which the Commissioner relied for assuming jurisdiction under Section 263 are not in existence at the time the ITO passed his order, then it could not and did not form part of the record on which the ITO's order was based and the proceedings initiated by the Commissioner under Section 263(1) of the IT Act was without jurisdiction and invalid. The learned counsel also cited the following Tribunal decisions in support of the above proposition:
(i) Shrinivas Pictures v. ITO [1932] 1 ITD 574 (Bang.).
(ii) Jolly Engineers & Contractors (P.) Ltd. v. ITO [1982] 2 ITD 92 (Asr.).
(iii) Export House v. ITO [1985] 13 ITD 687 (Asr.) (TM). 5. The learned counsel also cited the decision of the Punjab and Haryana High Court in the case of GIT v. Electric Supply and Industrial Co. (sic) for the proposition that the Tribunal cannot buttress or improve upon the order of the Commissioner. In other words, the Tribunal cannot uphold the order of the Commissioner on any other ground which in its opinion was available to the Commissioner as well. It is, therefore, submitted that the Commissioner in this case did not assume proper jurisdiction as the Commissioner found the assessment order of the ITO to be erroneous on the basis of subsequent evidences which were not part of the record as explained above. It is, therefore, submitted that the order is illegal and invalid and is liable to be quashed.
6. In so far as the merit is concerned, the learned counsel submitted that the price paid by the assessee at the rate of Rs. 750 per 10 grams was not unreasonable as the contract for purchase was made in June 1979. Due to frequent shifting of the offices, the copies of the agreement were not traceable. However, keeping in view the rate of fluctuation as evident from the extract given at page 35 of the Paper Book, it is submitted that the price paid by the assessee at Rs. 750 is reasonable as the market price in 1979 was around Rs. 800 only. Further, Shri S.E. Dastur, the learned counsel submitted that if the capital gains is to be treated as undisclosed income under Section 69B, then the year of assessment would be the assessment year 1980-81 relevant for the financial year ending 31st March, 1980 and, therefore, the amount cannot be assessed in the assessment year 1981-82.
7. On the other hand, the learned Departmental Representative Shri M. Subramanian vehemently supported the order of the Commissioner. According to him, from the facts brought on record by the Commissioner at para 2 of his order, it is apparent that the ITO in this case failed to make even the preliminary enquiry necessary for completing the assessment. The assessee stated to have purchased 3,814 grams National Defence Gold Bonds, 1980 at the rate of Rs. 750 per ten grams on 4-1-1980. These bonds were sold within a week on 9-1-1980 at the rate of Rs. 1,500. It was necessary for the ITO to see the facts and circumstances under which the assessee could purchase the Gold Bonds at Rs. 750 and re-sell the same at double the price within a week. Since the ITO failed to make the necessary inquiries, the Commissioner assumed the jurisdiction under Section 263 of the IT Act. Such assumption of jurisdiction is valid and for this proposition, reliance was placed on the decision of the Madras High Court in the case of Indian Textiles v. CIT [1986] 157 ITR 112 and that of CIT v. Pushpa Devi [1987] 164 ITR 639 (Pat.) and the decisions cited therein. Since the assessment is completely silent about the nature of the transaction and the circumstances in which the assessee earned the capital gain, such failure to make inquiry is sufficient reason for the Commissioner to assume jurisdiction. It is further submitted that the additional materials brought on record by the Commissioner were supporting materials and did not constitute the basic ground on which the proceedings under Section 263 were initiated. In so far as the decision of the Calcutta High Court in the case of Ganga Properties (supra) relied upon by the learned counsel of the assessee, it is submitted that that decision is distinguishable. According to him, in the Calcutta case, the Commissioner relied upon certain documents which did not form part of the record for the year under consideration. In the instant case, the Commissioner assumed jurisdiction on the finding that the ITO did not make even preliminary inquiry. As submitted earlier, the additional materials brought on record by the Commissioner were only supporting materials and did not constitute the basic ground for initiating the proceedings under Section 263. Therefore, these documents cannot go against the Commissioner so as to vitiate the proceedings rightly initiated by him. In so far as the merit is concerned, the learned Departmental Representative relied on the order of the Commissioner. Since the Commissioner has fully rejected the existence of the agreement of 1979 and worked out the quantum of investment on the basis of contemporaneous documents, no interference is called for and his order is liable to be upheld. In so far as the year of assessment is concerned, it is submitted that there was no such claim before the ITO and in fact the assessee declared the income from the transaction during 1981-82. In that view of the matter, the claim of the assessee to assess the amount in any other assessment year is to be rejected.
8. We have carefully considered the rival submissions in the light of the material placed on our record. The assessee in this case filed a return of income for the assessment year 1981-82. The order of the ITO is completely silent about the nature of exemption claimed by the assessee in regard to the transaction of the National Defence Gold Bonds, 1980. The ITO made certain remarks about share of short-term capital gains and long-term capital gains and assessed these items. The Commissioner of Income-tax perused the record and found that the assessee in this case claimed to have purchased 3,814 grams worth of National Defence Gold Bonds, 1980 at the rate of Rs. 750 per 10 grams on 4-1-1980. These Bonds, were later sold on 9-1-1980 for a sum of Rs. 5,72,100 which is double the price. The Commissioner, therefore, in exercise of his power under section 263 took upon himself to make further inquiries. On inquiry, it was found by him that the rate of National Defence Gold Bonds, 1980 on the material date, i.e., 4-1-1980 was around Rs. 1,450 as against Rs. 750 per 10 grams shown by the assessee. The Commissioner also took into account the statements of Pradeep Jhaveri made on 27-2-1986 under Section 133 of the IT Act. The assessee in this case claimed that the transaction was made on the basis of the agreement made some time in 1979. However, the assessee was not able to substantiate the claim and no copy of the agreement could be produced. The Commissioner accordingly recorded a finding to the effect that the purchase of gold bonds on 4-1-1980 could not be at a price less than Rs. 1,450 per 10 grams and the assessee in this case was making purchase from out of his unaccounted money. Treating this amount of difference between the cost price declared and the market price quoted by the Bombay Stock Exchange as unexplained investment, the learned Commissioner directed the ITO to re-do the assessment by treating this amount as income from undisclosed sources and initiate various penalty proceedings applicable under the IT Act.
9. It is the contention of the learned counsel of the assessee that the Commissioner did not assume proper jurisdiction as he relied on the material which did not form part of the record. In this regard, and at this stage we need not go into the question whether evidences relied upon by the Commissioner form part of the record of the assessment for the assessment year under consideration. Apparently, the ITO failed to make proper inquiry regarding the claim of exemption made by the assessee. This failure of the ITO to make necessary inquiry itself is sufficient ground for the Commissioner to assume jurisdiction as held by the Supreme Court and the High Courts in the decisions cited by the learned Departmental Representative. The Patna High Court decision in the case of Pushpa Devi (supra) relied upon by the learned Departmental Representative fully considered the decisions of the Supreme Court in the cases of Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323, Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 and Mehta Parikh and Co. v. CIT [1956] 30 ITR 181. After considering all these decisions, the Hon'ble Patna High Court held that the Commissioner was justified in assuming the jurisdiction under Section 263 as there had been no inquiry regarding the source of funds for the business introduced by the assessee. Similar is the view of the Madras High Court in the case of Indian Textiles (supra). The Delhi High Court went slightly further in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 and it has further elaborated by holding as follows:
The position and function of the Income-tax Officer is very different from that of a civil court. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word 'erroneous' in Section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct.
Having regard to the above decisions and the ratio of the decisions of the Supreme Court on the basis of which the above rulings are rendered, we are of the view that the Commissioner was fully justified in taking up the case of the assessee under Section 263 of the IT Act.
10. In so far as the evidences collected by the Commissioner with regard to the share market quotation of the Bombay Stock Exchange, the statement of Shri Pradeep Jhaveri, etc., of M/s. S.D. Jhaveri and Co., we are of the view that these evidences are only in the nature of supporting materials and do not constitute the basic ground on which the proceedings under Section 263 were initiated. In so far as the conclusion arrived at by the Commissioner is concerned, it is well accepted principle of law that the Commissioner can either make direct inquiry or remand the matter to the ITO for necessary inquiry. If the Commissioner decides to conduct the inquiry himself, that will not make the order illegal or against the principles of law.
11. Coming to the merit of the case, the main submission of the learned counsel of the assessee Shri S.B. Dastur has been that the transaction was done by the assessee on the basis of the contract entered into by the assessee with Shri Valia in 1979. This plea was taken before the Commissioner also. However, the Commissioner rejected this plea on the reasoning that no evidence could be produced in support of such claim. The assessee has not been able to produce any further evidence to substantiate this claim. In this view of the matter, we see no reason to give benefit of the rate prevailing in 1979. The Commissioner was, therefore, justified in taking the market rate as on 4-1-1980 as the cost price and treating the difference as undisclosed income introduced in his books of account in the firm.
12. With regard to the claim of year of assessment, we are of the view that this issue is totally new and this point should go back to the ITO for careful consideration and decision in accordance with law. This is because the order of the ITO is completely silent regarding the method of account and the accounting period adopted by the assessee. It appears the assessee claimed this amount to be relevant for and assessable in this assessment year. It is not very clear on what basis this claim was made and how it was accepted. As pointed out by the learned counsel of the assessee, the transaction in this case was completed before the end of the financial year ending 31st March, 1980. In such a case, if the amount is to be treated as undisclosed income, then it could be the income of the financial year in which it was introduced which means financial year 1979-80. Consequently, the year of assessment will be assessment year 1980-81. However, since no indication about the accounting period of the assessee is available for this year or for the earlier year, we set aside this issue and restore the matter to the file of the ITO with a direction that he will decide this issue in accordance with law after giving full opportunity of hearing to the assessee.
13. For statistical purpose, the appeal shall be treated, as partly allowed.