Madras High Court
Commissioner Of Income Tax vs Smt. D. Valliammal on 27 June, 1996
Equivalent citations: [1998]230ITR695(MAD)
JUDGMENT Thanikkachalam, J.
1. At the instance of the Department, the Tribunal referred the following two questions, for the opinion of this Court, under s. 256(1) of the IT Act, 1961, hereinafter referred to as the 'Act'.
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in setting aside the order under s. 263 of the IT Act, 1961, passed by the CIT in relation to asst. yr. 1974-75 in the assessee's case ?
2. Whether the satisfaction of the CIT as to the erroneous and prejudicial nature of the order passed by the ITO as contemplated in s. 263 of the IT Act, 1961, is confined only to the issue of notice to the assessee under that section, or should it be a must for purpose of passing an order under the said section, as has been held by the Tribunal ?
2. The assessee is carrying on moneylending business. For the asst. yr. 1974-75, the ITO determined the assessee's total income at Rs. 59,050 by his order, dt. 30th September, 1976. Later the CIT (Admn.) called for the records and scrutinised the order along with the connected records in the case of M/s. Dhandayuthapani Films. On such scrutiny, he noticed that the said M/s. Dhandayuthapani Films owed a sum of rupees one lakh to the assessee as disclosed in the details given by it, but whereas the assessee herein had not disclosed this amount in her balance sheet. The CIT held that the order passed by the ITO, without verifying this investment, was erroneous insofar as it was prejudicial to the interests of the Revenue. The CIT issued a notice under s. 263 of the Act to the assessee requiring her to show cause as to why this sum of Rupees one lakh should not be treated as her undisclosed income.
3. Before the CIT, the assessee submitted that the sum of Rupees one lakh was advanced to M/s. Dhandayuthapani Films, Coimbatore, on 7th January, 1974, for the purpose of purchasing the lease right of the film "Vellikizhamai Viradham" that before the production of the film, the assessee sold her lease rights to M/s. Fathima Trust, Madras-34, for a sum of Rs. 1.30 lakhs, that the said Fathima Trust paid a sum of Rs. 25,000 and the remaining unpaid amount of Rs. 1.05 lakhs appeared in the assessee's balance sheet, as on 31st January, 1974, and that, therefore, there was nothing due from the said Dhandayuthapani Films. On considering the explanation offered by the assessee, the CIT felt that as the sum of Rupees one lakh has been shown as a debt owned by the said M/s. Dhandayuthapani Films, the ITO should be directed to make fresh assessment after obtaining necessary clarification from the assessee in this regard. Accordingly the CIT set aside the assessment and gave a direction to the ITO in this matter.
4. Aggrieved, the assessee filed an appeal before the Tribunal, contending that in the absence of any definite conclusion arrived at by the CIT as to the erroneous or prejudicial nature of the assessment order passed by the ITO, he should not have set aside the assessment, thereby giving a direction to the ITO to make fresh assessment, and that, therefore, the order passed by the CIT under s. 263 of the Act was without jurisdiction. The Tribunal held that the CIT has merely stated that it would be fair and reasonable to have the assessment set aside and give direction to the ITO to make fresh assessment, after getting necessary clarification and he has not found that the order passed by the ITO was prejudicial to the interest of the Revenue. Therefore, the Tribunal held that the order passed by the CIT under s. 263 of the Act, was without jurisdiction.
5. The learned standing counsel appearing for the Department submitted that on a scrutiny of the order passed by the ITO along with the connected records, the CIT found that in the balance sheet belonging to the assessee, a sum of Rupees one lakh due from M/s. Dhandayuthapani Films was not shown. Therefore, the CIT came to the conclusion that there is undisclosed income of Rupees one lakh in the case of the assessee. The fact remains that the ITO has not conducted enquiry with regard to the omission of Rupees one lakh due from M/s. Dhandayathupani Films. Therefore, in order to verify the account and pass appropriate order, the CIT thought it fit to set aside the order made by the ITO and directed him to re-do the assessment on this aspect, after getting clarification from the assessee. Hence, it cannot be said that the order passed by the CIT was without any finding as to whether the order passed by the ITO is erroneous and prejudicial to the interest of the Revenue. Therefore, according to the learned standing counsel, there is no infirmity in the order passed by the CIT under s. 263 of the Act.
6. We have heard the learned standing counsel appearing for the Department and perused the records carefully.
7. A scrutiny of the income-tax records of the assessee as well as the other connected file of M/s. Dhandayuthapani Films disclosed the fact that the latter owed a sum of Rupees one lakh to the assessee as disclosed in the details filed by it. This investment as advance of Rupees one lakh did not find a place in the balance sheet and other details filed by the assessee. This sum of Rupees one lakh advanced on 7th January, 1974 appears to have been escaped from the notice of the ITO, according to the CIT. Therefore, completion of the assessment for 1974-75, without verifying this investment, which has been omitted to be shown by the assessee was considered as erroneous insofar as it is prejudicial to the interest of the Revenue. Hence the jurisdiction under s. 263 of the Act was invoked.
8. The assessee submitted before the CIT that a sum of Rupees one lakh was, in fact, advanced to M/s. Dhandayuthapani Films, Coimbatore, on 7th January, 1974, for the purpose of purchasing the lease rights of the Film "Vellikizhamai Viradham", which was then under production. However, before the production was completed, the assessee instructed the producer M/s. Dhandayuthapani Films to sell the lease rights to Fathima Trust, Madras-34, for a sum of Rs. 1.30 lakhs. The producer M/s. Dhandayuthapani Films accordingly sold the lease rights to the Fathima Trust as per the assessee's instruction. A sum of Rs. 25,000 was paid by the Fathima Trust to the assessee and the balance remaining unpaid, viz., Rs. 1,05,000 has been admitted by the assessee in her balance sheet, as on 31st March, 1974. Hence, it is clear that there is no escapement of income, inasmuch as the investment of Rupees one lakh has been admitted by the assessee not in the name of M/s. Dhandayuthapani Films, but in the name of Fathima Trust. M/s. Dhandayuthapani Films, Coimbatore, being a producer is in the practice of making adjustments in respect of advances received from distributors after the picture is released. As "Vellikizhamai Viradham" was released only in the accounting period, relevant for 1975-76 assessment in the case of M/s. Dhandayuthapani Films, this adjustments has been made only in the accounting period 1st April, 1974 to 31st March, 1975. This is the reason for the omission on the part of the assessee to admit this investment and on the part of the producer to show this amount under distributor's advance outstanding as on 31st March, 1974. This explanation offered by the assessee was accepted by the CIT. When the explanation offered by the assessee was accepted by the CIT with regard to the alleged undisclosed income of Rupees one lakh, then there is no error in the order passed by the ITO in the case of the assessee in the asst. yr. 1974-75. Therefore, in the present case, after the enquiry, the CIT has not given any categorical finding that the order passed by the ITO on this aspect was erroneous and prejudicial to the interest of the Revenue. On the other hand, the CIT set aside the order passed by the ITO on the ground that verification of account is needed, with a clarification of the assessee. This cannot be a ground for invoking jurisdiction under s. 263 of the Act. Therefore, on the factual finding, we consider that the order passed by the Tribunal in holding that the CIT has no jurisdiction to invoke the provisions of s. 263 of the Act is in order. Accordingly, we answer the question referred to us in the affirmative and against the Department. No costs.