Income Tax Appellate Tribunal - Delhi
Hindustan Marketing And Advertising ... vs Income-Tax Officer on 30 June, 1988
Equivalent citations: [1989]28ITD231(DELHI)
ORDER
--Observations made by Commissioner based on mere conjectures.
Ratio:
Where enquiry regarding facts was properly made by assessing officer and observations made by Commissioner were mere conjectures, order was not erroneous and prejudicial to interest of revenue. Held:
The assessing officer, in fact, made enquiries on various important facts of the assessment and the assessment orders show that for the assessment year 1983-84 he invoked the provisions of section 40A(5) and for the assessment year 1984-85 he added Rs. 85,221 under section 40A(5) as against Rs. 42,115 worked out by the assessee. In doing so, he considered perquisites on account of accommodation, furniture, medical reimbursement and electricity used, etc. On this ground the Commissioner could not have held that the order made by the assessing officer was erroneous so as to be prejudicial to the interests of revenue. The assessing officer made reasonable detailed enquiries and after processing the material utilised the same for completion of the assessments and, therefore, the observations of the Commissioner are in the nature of conjectures. The Commissioner made a grievance of the assessing officer not making proper detailed enquiries and verification in respects of receipts and payments relating to advertisements business. However, the details filed by the assessee show that the enquiries were made by the assessing officer and it remains only in the sphere whether he should have proceeded further. This becomes subjective standard of determining whether the assessing officer made an assessment which is erroneous and prejudicial to the interests of revenue and is not based upon any material fact, which should show that there was, in fact, an error in the assessment leading to prejudice to the interests of revenue. In consideration of the entirety of the facts and circumstances of the case, the assessments were in accordance with law and were not erroneous so as to be prejudicial to the interests of revenue.
Application:
Also to current assessment years.
Income Tax Act 1961 s.263 Revision under s. 263--ERRONEOUS AND PREJUDICIAL ORDER--Books seized by assessing officer and inquiry made.
Ratio:
Where assessing officer had seized books and also made proper enquiries, observations by Commissioner were conjectures, hence revision not justified.
Held:
The assessing officer, in fact, made enquiries on various important facts of the assessment and the assessment orders show that for the assessment year 1983-84 he invoked the provisions of section 40A(5) and for the assessment year 1984-85 he added Rs. 85,221 under section 40A(5) as against Rs. 42,115 worked out by the assessee. In doing so, he considered perquisites on account of accommodation, furniture, medical reimbursement and electricity used, etc. On this ground the Commissioner could not have held that the order made by the assessing officer was erroneous so as to be prejudicial to the interests of revenue. In so far as the Commissioner's view regarding the agreements entered into between the wholesale purchasers and the assessee are concerned, his surmise that the assessing officer did not look into them and not call for the names of the parties, does not appear to be well-found. On consideration of the entirety of the facts and circumstances of the case, the assessments were in accordance with law and were not erroneous so as to be prejudicial to the interests of revenue. The Commissioner, therefore, had no jurisdiction to make the impugned order.
Application:
Also to current assessment years.
Income Tax Act 1961 s.263 Revision under s. 263--ERRONEOUS AND PREJUDICIAL ORDER--Detailed and proper enquiries already made.
Ratio :
Where assessing officer made proper and detailed inquiry and also made seizure of books of accounts of assessee for the purpose of verification then observations of Commissioner on facts of the case were conjectures in nature, revision on such ground not justified.
Held :
The Income Tax Officer, in fact, made inquiries, on various important facets of the assessment and the assessment orders show that for the assessment year 1983-84 he invoked the provisions of section 40A(5) and for the assessment year 1984-85 he added Rs. 85,221 under section 40A(5) as against Rs. 42,115 worked out by the assessee. In doing so, he considered perquisites on account of accommodation, furniture, medical reimbursement and electricity used, etc., On this ground the Commissioner could not have held that the order made by the Income Tax Officer was erroneous so as to be prejudicial to the interests of revenue. The Income Tax Officer made reasonable detailed enquiries and after processing the material utilised the same for completion of the assessments and, therefore, the observations of the Commissioner of Income Tax are in the nature of conjectures. The Commissioner made a grievance of the Income Tax Officer not making proper detailed enquiries and verification in respects of receipts and payments relating to advertisements business. However, the details filed by the assessee show that the enquiries were made by the Income Tax Officer and it remains only in the sphere whether he should have proceeded further. This becomes subjective standard of determining whether the Income Tax Officer made an assessment which is erroneous and prejudicial to the interests of revenue and is not based upon any material fact, which should show that there was, in fact, an error in the assessment leading to prejudice to the interests of revenue. In consideration of the entirety of the facts and circumstances of the case, the assessments were in accordance with law and were not erroneous so as to be prejudicial to the interest of revenue. The Commissioner, therefore, had no jurisdiction to make the impugned order.
Application :
Also to currens assessment years.
Income Tax Act 1961 s.263 ORDER S.K. Chander, Accountant Member
1. These appeals by the assessee are directed against the consolidated order made by the Commissioner of Income-tax, Delhi-II, New Delhi under Section 263 of the Income-tax Act, 1961 for the assessment years 1983-84 and 1984-85 on 11-3-1987. The factual backdrop leading to the impugned order requires to be kept in focus to appreciate as to how the Commissioner made the impugned order. This background is as under.
2. The assessee-company was incorporated on 4-4-1981 with the object of carrying on the business of marketing agents and to render marketing services, etc., as per its Memorandum and Articles of Association. The previous year of the assessee, which ends on 30th September, for the first assessment year under appeal ended on 30th September, 1982. During this accounting period, the assessee-company entered into agreement with the wholesale purchasers of Godfrey Phillips India Ltd. for the promotion and sale of different brands of cigarettes manufactured by that company. The original return for the assessment year 1983-84 was filed on 14-10-1983 disclosing an income of Rs. 2,92,860. The Income-tax Officer has recorded in the impugned assessment order for this year made on 18-6-1985 that a duplicate return has been filed on 12-2-1985. In the impugned assessment order dated 18-6-1985 for the assessment year 1983-84, the ITO has recorded that the company filed before him copies of identical agreements entered into with the wholesale purchasers (WPs) of Godfrey Phillips India Ltd. and that as per Clause IX of the said agreement, the assessee-company is . obliged to spend at least 90 per cent of the total contributions accrued during the year on advertising to the promotion and other related services in such areas and in such a manner and on such brand of cigarettes as the assessee-company may deem fit. The balance of the 10 per cent of the contributions was to be earmarked to cover the assessee-company's administrative cost under the other heads including the margin of profit. The ITO has also recorded that the total contribution received from (WPs) during the year was Rs. 3,19,46,018 out of which the amount of Rs. 31,94,606 being 10 per cent of this amount was disclosed as service charges.
3. It appears that on 27-12-1984, the ITO while dealing with the assessment for the assessment year 1982-83/1983-84/1984-85 asked the assessee to file/to produce the following information/ documents :
(i) Name of business activity this year ;
(ii) Details of unsecured loans of Rs. 4,10,463 along with the confirmations ;
(iii) Details of balances of banks with certificates from the banks concerned ;
(iv) Details of current liabilities ;
(v) Details of sundry creditors and sundry debtors ;
(vi) Details of loans and advances ;
(vii) Copies of Directors accounts with PA numbers and ward where assessed.
4. The ITO also asked for details of additions to assets along with the description, date of receipt on balance sheet, bill No. and date of delivery challan and freight, bill, if any. The assessee was required to file the name of the trader from whom purchases were made and the date of installation of the machinery and the date on which, it was brought into use.
5. With regard to the profit and loss account, the ITO, inter alia, asked for details of purchases and sales trader wise. This letter, which was dated 27-12-1984 was replied to by the assessee by letter dated 12th Feb., 1985. In this letter, the assessee gave the necessary details required with a brief history along with the details of the various items in the balance sheet required by the ITO, such as, that of unsecured loans, balances with banks details of current liabilities, details of current assets and loans and advances, list of additions to fixed assets and details with regard to profit and loss account on staff welfare expenses, rent, miscellaneous expenses, salaries, legal expenses, etc.
6. Letter dated 12th March, 1985 was filed by the assessee before the ITO in continuation of the letter dated 12-2-1985 and. the discussion which the chartered accountants of the assessee-company had with the ITO on the last date of hearing. In this letter, the assessee projected to the ITO that in terms of the agreement with the various wholesale purchasers (WPs) of Godfrey Phillips India Ltd., the assessee-company at the instance of wholesale purchasers had undertaken the programme for advertising and marketing the products for the promotion of sales of cigarettes of brand names manufactured by Godfrey Phillips India Ltd. It was also pointed out to the ITO that as per Clause IX of the agreement, the assessee-company was liable to spend at least 90 per cent of the total contribution accrued during the year on advertising promotional and other related services, in such areas and in such manner and on such brands of cigarettes, as the assessee may deem fit. The balance 10 per cent of the contribution shall be earmarked to cover the expenses of the assessee's personnel and other administrative cost including profit margin. These percentages were to be worked out on the total of contribution accruing from "wholesale purchasers with whom identical agreements for similar services had been entered into by the assessee. The attention of the ITO was also drawn to the fact that as per Clause X of these agreements, the assessee-company is obliged to ascertain the total expenditure incurred on advertising, promotional and other related services as aforesaid and in any case, if the same works out to be lower than 90 per cent of the total contribution for the relevant year, such shortfall in expenditure shall be carried over to next year. The assessee shall be liable to spend such carried over shortfall in expenditure within a period of six months from the date of close of each such financial year or such other period further extended, as may be mutually agreed from time to time.
7. The assessee filed details of the expenses incurred on behalf of the clients towards advertisement, promotional and other related services for the sum of Rs. 1,92,89,971. In addition to this, the details of repairs and maintenance expenses were also enclosed. The assessee filed other details as required by the ITO.
8. On 19th April, 1985, the chartered accountants of the assessee wrote letter to the ITO in continuation of the earlier letters and discussions, which they had with the ITO and filed further details and information as required by the ITO. In this letter details of incentive bonus, fixed assets purchased, miscellaneous expenditure incurred, conference expenses, details of unsecured loans and details of expenses incurred on behalf of the clients were filed. From these letters, it is apparent that when the ITO required details, the assessee responded positively and the ITO had discussions with the representatives of the assessee on the details filed.
9. It becomes clear from letter dated 11th June, 1985 from the assessee to the ITO that this process of discussion and clarification of various facets of the assessment was going on in the assessment proceeding's for the assessment year 1983-84 along with the proceeding's for the assessment year 1984-85. In the letter, appearing at pages 50 and 51 of the paper book of the assessee relating to assessment year 1983-84, it was pointed out to the ITO as to the modus operandi of the assessee in its business and the necessary wherewithal required in this show business of marketing and advertising.
10. It appears, the ITO was carrying on assessment proceedings for the assessment years 1983-84 and 1984-85 simultaneously. This becomes clear from the letter dated 12th February, 1985 written by the chartered accountants of the assessee-company to the Income-tax Officer in response to his letter dated 24th December, 1984 as for the assessment year 1983-84. The letter for the assessment year 1983-84 was filed by the chartered accountants as appearing at pages 44.1 to 44.3 and for the assessment year 1984-85 it appears at pages 53 to 55 of the paper book. The details asked for by the ITO were filed by the assessee. In letter dated 4th November, 1986, the ITO asked the assessee to produce, inter alia, complete details of expenses on behalf of the clients, and complete details of recovery made from clients. The ITO also required the assessee to give details on the basis of which the amounts thus recovered were worked out. He also wanted the assessee to give photostat copies of agreement, if any, with the clients of third parties. The letter of the ITO required the assessee to produce details of various expenses. The assessee by letter dated 19th November, 1986 responded to this letter. The assessee in particular replied to the query raised by the ITO with regard to the details of expenses incurred on behalf of the clients and complete details of recovery made from the clients. A statement of expenditure amounting to Rs. 3,47,19,345 on advertisement and publicity on behalf of the dealers was enclosed for the ITO. The assessee also projected to the ITO that as regards the details of recovery from the clients was concerned, complete details thereof were in general customers' ledgers which were in the custody of the ITO himself. The assessee further pointed out that the recovery from the clients is being made in terms of the agreement which was in identical terms. A copy of the agreement dated 17-9-1981 with M/s. Ram Prasad Prakash Chand, Mukatsar was filed as a sample. This agreement was w.e.f. 1-9-1981 and was valid till its termination by either party. In this letter, the assessee projected to the ITO that in terms of this agreement, the assessee-company has to make arrangements for effective advertising of the various brands of cigarettes manufactured by Godfrey Phillips India Ltd. and the advertisements will be carried out on behalf of the various customers including placements of boardings as well as advertising materials. The rates of advertising as agreed to were intimated being 3 per cent on filter cigarettes and 2 per cent on plain cigarettes of the maximum retail selling price exclusive of local tax as printed on the packets of different brands of cigarettes. The assessee further gave details as required by the ITO by letter dated 12th December, '86 for the assessment year 1984-85. In this letter, the assessee enclosed a summary with complete details of the opening balance of each client with contributions during the" year of recovery/adjustments and closing balances. Break-up of the promotion expenses incurred on behalf of the clients amounting to Rs. 3,47,19,344.71, it was pointed out, had already been furnished at page 1A of the assessee's letter dated 19th November, 1986. The assessee filed details of commission expenses and other details required by the ITO.
11. The ITO in his assessment order for the assessment year 1983-84 made on 18-6-1985 has recorded that the chartered accountants of the assessee attended before him and produced cash book, ledger, vouchers, etc., which were examined by test check and the case was discussed with him. In the impugned assessment order, the ITO also records and indicates that printed annual report of the company was filed before him and was examined. Thereafter, the ITO records that from the profit and loss account at pages 10 and 11 of the annual report, there was a net profit declared. He has also recorded that the assessee had entered into identical agreements with the wholesale purchaser copies of which have been filed and thereafter, he had made observations about Clause X of the agreement, under which the assessee-company was liable to spend at least 90 per cent of the total contribution accrued during the year on advertising and promotional expenses and other services on behalf of the clients. There is also discussion with regard to other items of expenditure in the assessment order.
12. Similarly, in the assessment order for the assessment year 1984-85, the ITO has recorded that the chartered accountants of the assessee appeared before him and despite the fact that the books of account of the assessee were seized by the Deptt. under Section 132 of the Income-tax Act, 1961 yet the vouchers which were in possession of the assessee-company were produced before the ITO and were examined on test check basis. In this order, which is made under Section 143(3) on 30th December, 1986, the ITO has again recorded that the assessee-company is carrying on advertisement and sales promotion business for M/s. Godfrey Phillips India Ltd. and for this purpose it had entered into agreements with wholesale dealers of Godfrey Phillips India Ltd. to handle all the advertising activities. The ITO has then recorded that the dealer would pay 3 per cent of the printed price of the filter cigarettes and 2 per cent of the printed price of the plain cigarettes purchased by the dealer from M/s. Godfrey Phillips Pvt. Ltd. The ITO appears to have examined this account in detail because he has observed that out of the total receipts on the basis of cigarettes sold by M/s. Godfrey Phillips India Ltd. 90 per cent of the amount was required to be spent by the assessee-company and balance 10 per cent was to be retained by it on account of service charges. He further records that certain wholesale dealers gave contributions to the assessee for carrying out additional advertisement in their areas of operation on similar terms because no separate agreements were existing for additional advertisements. The ITO found that total contribution on account of normal sale on cigarettes made by M/s. Godfrey Phillips India Ltd., and the additional advertisement on due basis during the year amounted to Rs. 3,40,80,99. According to the ITO, on the basis of agreement, the assessee-company's share of service charges should come to Rs. 34,08,099 as against total service charges declared by the assessee at Rs. 33,92,847. The ITO was of the opinion after examination of this account in complete detail that there was understatement of service charges to the extent of Rs. 15,252. The assessee explained that the service charges, in fact, amounted to 9.09 per cent on the basis of arrangement made as mentioned supra but the ITO did not accept this argument as sound and correct because the assessee was not declaring service charges on the total amount of contribution received during the year but was working out such charges on due basis. He, therefore, made the addition of Rs. 15,252 out of this account.
13. After the above assessments were completed by the ITO, the Commissioner of Income-tax called for the record and on examination thereof formed an opinion that the assessments so made by the ITO for the assessment years 1983-84 and 1984-85 were erroneous so as to be prejudicial to the interests of revenue. He, therefore, issued under Section 263 of the Act a show-cause notice to the assessee to indicate objection, if any, why appropriate orders regarding these asst. orders including an order, which may be in the nature of an order setting aside the assessment for being made de novo by the ITO need not be passed. This show-cause notice dated 13-2-1987 is for both the years and it appears at pages 1 to 7 of the assessee's paper book.
14. In this show-cause notice, the Id. Commissioner recorded the factum that assessment year 1983-84 was the first year of assessment of the company and the company had been converted from Private Limited Company to a Public Limited Company with the main object of planning advertising campaigns and effectively carrying them out for various promotional activities for its clients so as to assist them for promoting their sales. The Id. Commissioner refers to the identical agreements with the various wholesale purchasers of Godfrey Phillips India Ltd. and the manner in which the assessee was required to conduct publicity campaign on their behalf for the sale of cigarettes manufactured by M/s. Godfrey Phillips India Ltd. He has then recorded that by virtue of these agreements between the assessee-company and the wholesale purchasers, the company had shown the following receipts and expenditure in its published accounts :-
(i) Eecoveries towards advertisement and Rs. P. promotional expenses 1,92,89,979.00 Less : Expenses incurred on behalf of clients towards advertising, promotional and other related services 1,92,89,979.00
The Commissioner further records that the details filed at the time of assessment show the following positions regarding contributions received, expenditure incurred and shortfall, which was carried over and incurred by 31-3-1983. "Unspent portion of the advertising contribution as on 30-9-1982 :
Contribution during the period 2,87,52,452.68 Less : expenditure during the period 1,92,89,973.65 Shortall to be incurred up to 31-3-1983 94,61,474.00
The Id. Commissioner also noted down the details filed by the assessee before the ITO of the amount of Rs. 1,92,89,979. These details are as under :-
(i) Design & Art work expenses 8,60,862.00 (ii) Local sales promotion expenses 26,32,636.00 (iii) P.O.P. materials expenses 38,48,605.00 (iv) Press advertisement expenses 25,44,951.00 (v) Boarding expenses 21,82,522.00 (vi) Film expenses 43,68,592.00 (vii) Miscellaneous outdoor display expenses 13,18,327.00 (viii) Pestering expenses 11,76,485.00 (ix) Market research expenses 3,04,420.00 (x) Conference promotion expenses 52,529.00 Total : Rs. 1,92,89,979.00
15. According to the Id. Commissioner, it was strange that under the above 10 heads, the assessee had not given as meticulously details as given for various other expenses. According to him, the ITO also did not call for a list of persons from whom payments to the extent of 2.88 crores (round figures) were received. There is nothing on record to indicate that he in any manner applied his mind to all receipts and payments relating to this matter and accepted what was stated by the assessee. The Id. Commissioner, therefore, further observed that the ITO had erroneously and to the prejudice of the revenue accepted the above position that the assessee was under a legal obligation to spend 90 per cent of the contributions received from the wholesale purchasers. According to him, the ITO had left even the manner of spending the money to the assessee-company.
16. The Commissioner has also observed that the ITO also did not care to find out whether the obligations cast upon the assessee under Chapter XXII, Section-B relating to deductions at source had been complied with and whether the assessee had discharged its liability relating to payment of taxes at source and filing of relevant certificates, etc. According to him, the ITO had not examined whether the sum of Rs. 94,61,474 being the surplus of receipts over the expenditure as worked out by him ante could attract tax for the year under consideration in view of various deficiencies attached to the so-called agreement which did not provide for any satisfactory right or checks to the traders.
17. According to the Id. Commissioner against the service charges, the assessee had claimed a number of expenses about which no enquiries had been made by the ITO. In this regard, he cited the example of claim of rent amounting to Rs. 5.32 lakhs shown to have been paid for hiring charges for properties in the nature of residential properties. According to him, these properties were given by the assessee to its Executives after furnishing by spending considerable expenditure and the ITO did not make any enquiries regarding that. Similar fault was found by the Commissioner with the Officer not looking into the claims of repairs to buildings (rented) and expenses on mosaic tiles on laying electrical cables amounting to Rs. 60,000 which according to the Id. CIT, prima facie, gave to the assessee benefits of an enduring nature.
18. For the assessment year 1984-85, he observed that, "for this year also the assessment is deficient in the same manner as have been stated earlier in respect of the assessment year 1983-84". In this regard, the Id. Commissioner examined the position regarding expenditures and receipts relating to advertisements, promotional and other related services from clients of the assessee. as shown in the profit and loss account. According to him, for this year there had been an additional contribution of Rs. 16,77,765 from the so-called clients even though there was no need for the same, inasmuch as the expenditure made, did not exceed the contributions taking into account the last years carry forward. According to him, the ITO failed to examine the circumstances under which additional contributions were received in violation from - the dealers. He surmised that, "It could be that these contributions were in the nature of special bounty received by the company".
19. When the above show-cause notice was received for these years, the assessee responded by a reply dated 5th March, 1987 and refuted all the allegations made by the learned CIT in the show-cause notice. However, the Commissioner after considering the reply and giving the assessee an opportunity of being heard made the impugned order under Section 263 on 11-3-1987.
20. In this order, the Commissioner has first referred to the orders of assessment made by the Income-tax Officer, for these two years. The Commissioner has also examined the scope of Section 263 as appreciated by him in the context of various judicial pronouncements. He has considered some of the judgments which have a bearing on the powers vested in the CIT under Section 263 of the Act. Thereafter, he has pointed out what he thought to be the errors in the assessments made by the ITO which, according to him, made these assessments prejudicial to the interests of revenue. In this regard, he has referred to various points mentioned in the show-cause notice and has held that he was of the view that ITO had completed the assessments for these two years, "in hurry, without proper enquiries and investigations. His failure in this regard has led to making of erroneous assessment, which have caused prejudice to the revenue". He, therefore, set aside these assessments with the directions to the ITO to take up the assessment from the stage of filing of the return and pass orders again, "after proper, adequate and detailed investigations and after giving the assessee an opportunity of being heard and having his full say in the matter". Hence the present appeals.
21. Before us, the Id. counsel for the assessee, Shri O.P. Vaish submitted that the Id. Commissioner had not shown what prejudice had been caused by the assessments made by the ITO which had been completed after thorough enquiries as is apparent from the letters issued by, the ITO and the replies thereto filed by the assessee. He emphasised that by merely saying that proper enquiries have not been made by the ITO, the orders made by the ITO could not be said to be erroneous so as to be prejudicial to the interests of the revenue. He submitted that in the ordinary course the ITO would have asked the assessee to produce the books of account and these were with the Officer himself as these had been seized and the ITO asked the assessee for various details which the assessee hastened to supply as and when required. The various letters written by the ITO and the replies thereto by the assessee show that the ITO made consciously enquiries so as to satisfy himself about the various claims made by the assessee and the genuine- ness therefrom the ITO had reached judicial satisfaction only then he completed the assessments. In the process, the ITO had not only examined the account books of the assessee but the modus operandi of the carrying on of the business and the terms and conditions of the agreements that had been entered into by the assessee with the wholesale purchasers of the products of M/s. Godfrey Phillips India Ltd. It was submitted by him that the learned Commissioner appeared to have proceeded to examine the assessments with a prejudiced mind as is clear from the various observations made by him in his order under Section 263. He cited one of such examples as the Commissioner's reference to the ITO's failure to examine whether the assessee had complied with the provisions of Chapter XXII. He submitted that that has nothing to do with the assessments made and that enquiry need not be made during the course of assessment because those are independent items. It would show that the Id. CIT was not proceeding strictly in accordance with law.
22. The ITO, according to the Id. counsel for the assessee, had made necessary enquiries and completed the assessment on proper examination of the seized accounts of the assessee and material gathered after enquiry. The auditors of the assessee had examined the various facts of the problem which the Commissioner is projecting and had given unqualified report to the assessee that the accounts maintained reflected true and correct position of the affairs of the company. The Id. counsel submitted that the Commissioner has made conjectural observations about the various expenditures being capital or revenue in nature and has invoked the provisions of Section 263 without justification. In this regard, he submitted that the ITO did not make the assessment for the year 1983-84 in isolation because he was simultaneously examining the assessment years 1983-84 and 1984-85. The assessments made were after thorough enquiries and the ITO cannot be said to have proceeded either with haste or with hurry to complete the assessments.
23. He submitted that the authorities cited by the CIT in his impugned order do not apply to the facts of the case of the asses-see because each authority turns on its facts and, therefore, by merely laying down propositions on the basis of such authorities the Commissioner's procedure to apply the same was like putting the cart before the horse. With regard to the judgment of the Hon'ble Delhi High Court in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 submitted that in that case, the ITO had granted registration to the firm for the first year by accepting the statements made by the assessee in the return only. But in the case of the present assessee, the ITO had made detailed enquiries, had seized the books of account in his possession, which he examined and made speaking orders. The ITO is not required under law to give reasons for each and every enquiry and its result in the asst. order. Therefore, if the ITO had not recorded any detailed discussion about the enquiries made by him on the points that the Commissioner has referred to in his order under Section 263, the orders of the ITO for that matter could not be said to have been made in an erroneous manner so as to be prejudicial to the interests of revenue. He submitted that as held by the Allahabad High Court in J.P. Srivastava & Sons (Kanpur) Ltd. v. CIT [1978] 111 ITR 326, the Commissioner was under an obligation in law to show as to what prejudice had been caused by the assessments made by the ITO which he has failed to do. He submitted that unless there is material to show that the prejudice has been caused to the revenue, the order under Section 263 made by the Commissioner, as held by the Karna taka High Court in the case of CIT v. T. Narayana Pal [1975] 98 ITR 422, is bad in law. It was submitted by the Id. counsel that it is not only that the Commissioner should issue notice under Section 263 to the assessee but he should also indicate as to how the order of the ITO is erroneous and prejudicial to the interests of revenue and what the basis for such a conclusion was. In this regard, he submitted that but for the various observations made by the Commissioner, there was no material on the basis of which he could hold that the assessments framed by the ITO were erroneous so as to be prejudicial to the interests of revenue. The order made by him may, therefore, be cancelled.
24. The revenue, on the other hand, supported the order made by the Commissioner and submitted that the ITO had completed the assessments without application of his mind and, therefore, the assessments were not only erroneous but resulted in prejudice to the revenue, The Commissioner, therefore, made lawful orders under Section 263 for both years under appeal. The appeals filed, it was contended, may, therefore, be rejected because no case has been made out for an interference in the impugned order of the Commissioner.
25. We have given careful consideration to the rival submissions. We have very carefully perused the orders of the assessment made for the assessment years 1983-84 and 1984-85 along with the impugned order made under Section 263 by the Commissioner and the other material, which is relevant for the determination of the issue before us. Section 263 empowers revision of orders prejudicial to the interests of revenue. The Commissioner may call for and examine the record of any proceedings under the Act and if he considers that any order passed thereon by the ITO is erroneous in so far as it is prejudicial to the interests of revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such enquiries as he deems necessary, pass such order thereon as the circumstance of the case justify. The Income-tax Act being a self-contained code the ITO as well as the Commissioner have to work within the circumscription of law laid down therein. Therefore, in the context of invoking of the provisions of Section 263 by the Commissioner a reference by him to the Directive Principles of State Policy as enshrined in the Constitution of India to us appears to be incongruous. We have to examine whether it can be said that the impugned assessment orders made in the case of the assessee are erroneous so as to be prejudicial to the interests of revenue. In order to see this we have examined and incorporated in paras 2 to 12 supra in this order, albeit, briefly, to see what the ITO did when he made the impugned assessments. We have also recorded in paras 13 to 18 as to how the Commissioner looked at the orders and what show-cause notice he gave to the assessee on the basis of which he proceeded to make the impugned order for setting aside the assessments for the two years under appeal. We have appreciated the submissions made by the parties and we find that we cannot support the order made by the Id. Commissioner for the following reasons.
26. The Hon'ble Supreme Court in the case of Jain Bros. v. Union of India [1970] 77 ITR, 107 laid down that there is no presumption that Officers or authorities who are entrusted with responsible duties under the Taxation Laws would not discharge them properly and in a bona fide manner. In other words, for examination of the record, to see whether Section 263 applies one has to proceed with the presumption that the Officers involved in making the assessment acted in a bona fide manner. The record is to be examined to see whether in the discharge of duties in this manner there has been an error which has resulted in prejudice to the revenue and has, thus, made the order erroneous so as to be prejudicial to the interests of revenue.
27. When we examine the assessments made by the Income-tax Officers for the assessment years 1983-84 and 1984-85 we find that in so far as the assessment year 1983-84 is concerned, the assessment was framed on 18-6-1985. This order was thus, made prior to the action under Section 132 taken in the case of the assessee on 20th January, 1986. The assessment order for the assessment year 1984-85 is made on 30th December, 1986. In this order, the ITO refers to the books of account seized by the Department under Section 132 of the Act. However, when we come to the impugned order of the Id. Commissioner, we find that he has observed that, "not even a mention has been made in the order about the search operations". This observation of the Id. Commissioner is apparently in contradiction with the facts stated in the assessment order for the assessment year 1984-85. When the ITO referred to books of account having been seized by the Department under Section 132 of the Act, he was apparently referring to search and seizure under Section 132 and, therefore, that cannot be said to be an error clothing the Commissioner with power under Section 263 to set aside the asst. We also find that this was not projected in the show-cause notice to the assessee and the observations have been made only in the order, which was finally passed.
28. We also find that the Id. Commissioner has recorded that he communicated to the assessee an important aspect of the assessment to show how prejudice was caused to the revenue by non-compliance of the provisions of Chapter XXII, Section-B relating to deduction of tax at source. In this regard, we find that the reference by the Id. Commissioner was apparently to the provisions of Section 276B which deals with failure to deduct or pay tax and falls under Chapter XXII of the Act. We are inclined to accept the contention made on behalf of "the assessee that this is not and cannot be the basis for considering an assessment erroneous so as to be prejudicial to the interests of revenue because these are independent proceedings and the ITO is at liberty to take action in accordance with law for failure to deduct or to pay the same at any time. The reference to this, therefore, in the order under Section 263, in our considered opinion, was not in the context justified to hold the order erroneous and prejudicial to the interests of revenue.
29. A perusal ,of the assessment orders made by two different ITO's shows that the Officers were conscious of their responsibilities and made enquiries from the assessee on the various facets of the assessment in each year, as in brief set out by us, in paras 2 to 12 supra. We find that the ITO had the seized books of account with him. He, therefore, made queries from the assessee on various items contained in the profits and loss account and balance sheet filed before him duly audited by chartered accountants. The correspondence between the Income-tax Officer and the assessee shows that each time, the ITO called for the evidence he gave an opportunity to the assessee to satisfy him and this was done in a discussion to which there is a reference by the chartered accountants of the assessee in replies to the further queries raised in the discussion. This is very clear from the facts we have recorded in paras 2 to 12 above. In other words, the Income-tax Officers collected evidence, sifted it, discussed the points with the representatives of the assessee, got clarifications from them and, thereafter, drew certain conclusions to make the impugned assessments. It would have been a matter entirely different if the Officers had not made any enquiries and had accepted the returns without making enquiries in which case the judgment of the Hon'ble Delhi High Court in Gee Vee Enterprises' case (supra) would be applicable. But this is the case where enquiries were made, the material gathered was examined and assessment framed. Therefore, it cannot be said that the ITO did not make necessary enquiries for making the impugned assessments.
30. We have examined the Commissioner's observation that the Income-tax Officers did not make sufficient enquiries or did not make further enquiries. We are of the opinion that these observations can lead to very subjective standards and it would be difficult to say as to where sufficiency of enquiry begins and where it ends. Every case would have to be examined on its own facts and when we do so, we find that in these cases, necessary queries have been made by the Officers who made the assessments and, therefore, it cannot be said that for lack of enquiries by them or for lack of sufficient enquiries by them any prejudice had resulted to the Revenue. Such orders cannot fall within the ambit of Section 263 of the Act.
31. We find that the ITO made enquiries about the agreements entered into between the assessee and the wholesale purchasers or dealers of the products of M/s. Godfrey Phillips India Ltd. The assessee had entered into agreements with the wholesale purchasers for advertisement and publicity of the goods of M/s. Godfrey Phillips India Ltd. on terms and conditions contained in the agreements. The observations made by the Commissioner about the agreements are contradictory in terms because he has himself recorded that the ITO called for and the assessee supplied the details in respect thereof. The grievance of the Commissioner is that the ITO did not proceed further to make investigation. In this regard, we find that when the sums involved were huge the break-up thereof also involved substantial amounts. This is apparent from the details filed by the assessee and abstracted by the Commissioner in the show-cause notice as reproduced by us in para 14 supra.
32. The ITO, in fact, made enquiries on various important facets of the assessment and the assessment orders show that for the assessment year 1983-84 he invoked the provisions of Section 40A(5) and for the asst. year 1984-85 he added Rs. 85,221 under Section 40A(5) as against Rs. 42,115 worked out by the assessee. In doing so, he considered perquisites on account of accommodation, furniture, medical reimbursement and electricity used, etc. On this ground also, the Commissioner could not have held that the order made by the ITO was erroneous so as to be prejudicial to the interests of revenue.
33. In so far as the Commissioner's view regarding the agreements entered into between the wholesale purchasers and the assessee are concerned, his surmise that the ITO did not look into them and did not call for the names of the parties, does not appear to be well founded because the assessee's books of account including the general ledgers were seized and according to the assessee, complete details of the parties, their addresses and the amounts received were recorded in this general ledger on the basis of which the ITO asked for further enquiries.
34. From the assessment order for 1984-85, it is clear on a simple reading of the same that the ITO dealt with this issue in detail. The Commissioner is merely observing that, "the above observations of the ITO are only in the nature of cosmetic treatment and even for this year also ITO made no specific or detailed enquiries or proper investigations pertaining to this business". In our considered opinion, by these observations the CIT is not pointing out any flaw in the assessment made as such but is expecting the ITO to have gone deeper into the matter. We have observed that the ITO made reasonable detailed enquiries and after processing the material utilised the same for completion of the assessments and, therefore, these observations of the CIT are in the nature of conjectures. The Id. Commissioner made a grievance of the ITO not making proper detailed enquiries and verification in respect of receipts and payments relating to advertisement business. However, the details filed by the assessee show that the enquiries were made by the ITO and it remains only in the sphere whether he should have proceeded further. We have observed supra that this becomes subjective standard of determining whether the ITO made an assessment, which is erroneous and prejudicial to the interests of revenue and is not based upon any material fact, which should show that there was, in fact, an error in the assessment leading to prejudice to the interests of revenue
35. Dealing with the agreements, which the wholesale purchasers had entered into with the assessee, the CIT has found fault with the impugned assessments on the ground that the wholesale purchasers who made the contributions for advertisement and publicity had no control over the same and had not even a say as to how the money provided by them would be sent. According to him, "a situation cannot be ruled out when some of them may be required to provide money even when the cigarettes sold by them are not advertised at all". In our considered opinion, such observations not based upon the facts of the case can only qualify as a high profile surmise and do not in any way show that the orders made by the assessing officer were erroneous or prejudicial to the interests of revenue.
36. On consideration of the entirety of the facts and circumstances of the case, we are of the opinion that the assessments were in accordance with law and were not erroneous so as to be prejudicial to the interests of revenue. The Commissioner, therefore, had no jurisdiction to make impugned order. It is cancelled.