Income Tax Appellate Tribunal - Ahmedabad
Naklank Diamonds C. vs Assistant Commissioner Of Income Tax on 10 May, 1999
Equivalent citations: (2000)67TTJ(AHD)388
ORDER
Lack of proper enquiry by the assessing officer Catch Note:
On receipt of the notice under section 263 the assessee represented to the Commissioner stating various objections to each of the items mentioned in the notice--In short, the submissions made before the Commissioner were to the effect that the assessee had furnished explanation in respect of each and every relevant item in the assessment proceedings and the assessing officer having accepted most of the explanations, after finding them to be correct, the recourse to section 263 was uncalled for-- Moreover, the assessee was not at all concerned with some of the items as alleged in the show-cause notice, as they pertained to other parties--After considering the specific objections to each of the items mentioned in the show-cause notice, the Commissioner passed an order under section 263 setting aside the assessment order and directing a fresh assessment to be made--The assessee has now filed present appeal and challenged the order of the Commissioner passed under section 263--Not sustainable--The very fact that the assessing officer did not make enquiries on certain points itself will be sufficient justification for the Commissioner to pass a revision order directing that enquires be held because as a superior authority vested with the powers of revision, the Commissioner enjoys the statutory right.
Held:
In the light of the legal provisions it is clear that the Commissioner has rightly invoked the powers vested with him under section 263 in the present case. He has called for and examined the case records of the assessee-firm for assessment year 1988-89. He considered the assessment order to be erroneous and prejudicial to the interests of the revenue on certain points as enumerated in the show-cause notice issued to the assessee, he has considered the specific objections raised by the assessee during the proceedings before him and passed a speaking order setting aside the assessment order directing a fresh assessment.
From the order it is clear that the Commissioner has pinpointed the various defects or omissions noticed by him in the assessment order before coming to the conclusion that the assessment order was erroneous and prejudicial to the interests of revenue . Since the Commissioner has passed a speaking order giving solid reasons, the objection made by the assessee is devoid of merits.
That apart, it is pertinent to observe that the Commissioner has not given any specific direction to the assessing officer to make an addition to the returned income on any of the specific issues referred to in the show-cause notice. The entire matter is left open before the assessing officer. If it is the assessee's case that the necessary explanation was furnished before the assessing officer in the initial proceedings, the assessee is free to reiterate the submissions in the fresh proceedings before the assessing officer. In respect of all items which are not pertaining to the assessee it is also open to the assessee to reiterate its stand. The very fact that the assessing officer did not make enquiries on certain points itself will be sufficient justification for the Commissioner to pass a revision order directing that enquires be held because as a superior authority vested with the powers of revision, the Commissioner enjoys the statutory right. Since the Commissioner has only set aside the assessment with a direction to do it afresh no prejudice is caused to the assessee, as stated earlier because in the new assessment proceedings, the assessee is free to argue its case on the basis of evidence already furnished and to furnish any other evidence which it may rely on in response to the queries to be raised by the assessing officer in the light of the Commissioner's directions.
Case Law Analysis:
Addl. CIT v. Mukur Corporation (1978) 1 ITR 312 (Guj), CIT v. M. M. Khambliatwala (1992) 198 ITR 144 (Guj) relied on.
Application:
Also to current assessment year.
Decision:
In favour of revenue.
Income Tax Act 1961 s.263 In the Income Tax Appellate Tribuna Ahmedabad C Bench H.L. Karwa, J.M. & T.J. Joice, A.M. ORDER T.J. Joice, A.M. This appeal filed by the assessee is directed against the order of CIT, Surat dated 22-1-199 1 passed under section 263, for assessment year 1988-89.
2. The following are the grounds of appeal in this case :
1. The learned Commissioner (Appeals), Surat erred in passing order under section 263 when the order was not erroneous inasmuch as prejudicial to the interest of the revenue .
2. The appellant submits that the learned Commissioner has wrongly held that the assessing officer ought to have made inquiries about investments, etc., of outsiders in case of the appellant firm and recorded the finding made in those cases in the case of the appellant firm.
3, The appellant submits that the assessing officer had made inquiries in respect of several items mentioned by the CIT, Surat but since they were not relevant for the purpose of assessment of the appellant firm, they were not so recorded in the assessment order and therefore, order cannot be considered to be erroneous.
4. On the facts and the circumstances of the case, the order of the Commissioner under section 263 may be cancelled.
5. The appellant craves leave to add, alter or vary any of the grounds of appeal.
3. It is found that for the assessment year 1988-89 the Assistant Commissioner, Inv. Cir. 2(1), Surat, completed the assessment in the case of the assessee-firm by an order under section 143(3), dated 20th June, 1989. As per this order the total income of the assessee comes to Rs. 6,90,750 as against the total income declared in the return of income filed on 29th Aug., 1988 amounting to Rs. 6,80,000. Later on the CIT, Surat called for and examined the case records of the assessee-firm and thereafter he formed an opinion that the order passed by the assessing officer was erroneous and prejudicial to the interest of the revenue , The following are the reason given by the Commissioner while issuing notice under section 263 to the assessee :
"Assessment made by the assessing officer under section 143(3) of the Act on 20th June, 1989, is erroneous insofar as it is prejudicial to the interest of revenue . Item No. 1 to 13 of the enclosed Annexure W were not verified by the assessing officer at the time of assessment proceedings under section 143(3) of the Act.
(i) Investment in factory premises jointly with Ramjibhai Chhagarilal & Kantilal Nagjibhai.
(ii) Source of acquisition and utilisation of total withdrawal of Rs. 8,28,000 from various banks.
(iii) Source of valuable found from the locker No. 443 with Surat Co-operative Mercantile bank in the name of Nagjibhai.
(iv) Source of acquisition of gold ornaments of Rs. 3,23,733.
(v) Verification of passport of Shri Nagjibtiai and his foreign tour expenses.
(vi) Investment in purchase of plots by Balubhai Bhimjibhai at Kailashnagai Society, Adajan Patia & Palanpur Patia.
(vii) Source of investment of Rs. 10,000 in NSC by Shri Balubhai. His account with bank of Baroda, Khan Seheb Dello.
(viii) Investment in two factories at Vishavadar society.
(ix) Payment of insurance premium by him and his wife.
(x) Investment in Omkar Chambers by Mathubhai Bhimjibhai.
(xi) Investment of Rs. 1,50,000 in factory building with Kantibhai at Vishavadar.
(xii) Verification of passport in the name of Karitibhai and source of foreign tour expenses.
(xiii) Deposit receipts of Godrej safe in the name of others.
Thus, the assessment finalised by the assessing officer under section 143(3) of the Act erroneous and prejudicial to the interests of revenue which requires to be revised under section 263 of the Income Tax Act."
4. On receipt of the notice under section 263 the assessee represented to the Commissioner stating various objections to each of the items mentioned in the notice as indicated above. The specific objections to each of the items are mentioned in para 2 of the impugned order under section 263. In short of the submissions made before tile Commissioner were to the effect that the assessee had furnished explanation in respect of each and every relevant item in the assessment proceedings and the assessing officer having accepted most of the explanations, after finding them to be correct, the recourse to section 263 was uncalled for. Moreover, the assessee was not at all concerned with some of the items as alleged in the show-cause notice, as they pertained to other parties.
5. After considering the specific objections to each of the items mentioned ill the showcause notice, the Commissioner passed an order under section 263 setting aside the assessment order and directing a fresh assessment to be made.
6. Aggrieved by the order of the Commissioner under section 263, the assessee has filed the present appeal before us. The learned counsel for the assessee has vigorously pleaded for quashing the order of the Commissioner under section 263 on the ground that the older passed by the assessing officer is not erroneous or prejudicial to the interest of the revenue as alleged by the CIT. The mere fact that some items were not mentioned in the assessment order, does not mean that they were not by the assessing officer before passing the assessment order. In fact the assessee did furnish explanations in respect of various items called for by the assessing officer and these explanations were accepted, the assessing officer deemed it fit to complete the assessment without mentioning these details in the assessment order. Moreover, certain points which were not relevant for the assessment of the assessee-firm, were not mentioned in the assessment order erroneous so as to justify the action under section 263, it is stated by the learned counsel. The learned counsel further referred to a voluminous paper book filed before us containing the details of various orders passed by the authorities below at various stages of the proceedings and the correspondence between the assessee and the authorities in this connection. He has also filed a chart showing itemwise details with a specific reference to the items mentioned in the notice under section 263. In the chart the specific replies given by the assessee at various stages of the proceedings are referred to and it has been pointed out that in respect of the certain items the matter is not relevant for the purpose of assessment of the assessee as it pertains to others. After drawing our attention to the various pages of the paper book the learned counsel relied on a number of case laws reports at 218 ITR 108 (Sic), CIT v. Smt. Prakashwati (1995) 124 CTR (All) 83 : (1994) 210 ITR 567 (All), CIT v. Smt. D. Valliammal (1997) 140 CTR (Mad) 433: (1997) 230 ITR 695 (Mad), Lok Nath & Co. v. CWT (1996) 130 CTR (SC) 152 : (1996) 217 ITR 310 (SC), 112 ITR 312 (sic). He also referred to various Tribunals decisions reported at 55 ITD 350 (sic), 20 ITD 231 (sic), Smt. Sushila Devi v. CWT (1987) 34 Taxman 4 (Raj), N.S. Ichapani v. Assistant Commissioner (1997) 58 TTJ (Chd) 73 . (1995) 55 ITD 88 (Chd), Amar Nawar Lal v. Assistant Commissioner (1997) 57 TTJ (Ahd) 454, Kusumben Kantilal Shah v. Income Tax Officer (1996) 56 ITD 476 (Ahd), Asstt, CIT v. Badri Marayan Govind Narayan & Kamal Kishore (1997) 58 M (Bang) 219 (1997) 61 ITD 1 (Bang) and Jagjit Industries Ltd. v. Assistant Commissioner (1995) 60 ITD (Del') 544 : (1997) 60 ITD 295 (Del). On the basis of these decisions, the learned counsel submitted that the Commissioner has wrongly invoked the powers under section 263 for setting aside the assessment order. In the circumstances, it has been pleaded that the impugned order under section 263 may be quashed.
7. On the other hand, the learned departmental Representative supported the order of the CIT, with equal vehemence. The learned departmental Representative pointed out that this was a search and seizure case and the Commissioner after calling for the records and examining the case found that the assessment order wa,: erroneous and also prejudicial to the interests of the revenue , in that the assessing officer did not examine in depth the contents of the statement made by the assessee at the time of search and did not examine the seized materials in proper perspective. The learned departmental Representative also objected to the explanation said to have been filed by the assessee at the assessment proceedings. There is no clear indication in the assessment records as to whether the explanation was properly considered by the assessing officer and found acceptable. The mere filing of the explanation does not necessarily indicate application of mind on the part of the assessing officer. The assessment order does not show that, the assessing officer considered all the relevant materials before passing the assessment order. The learned departmental Representative also referred to a number of decisions, such as Sunanda Rani Jain v. Union of India (1975) 99 ITR 391, 395 (Del) (sic), CIT v. M.M. Khambatwala (1992) 198 ITR 144 (Guj), CIT v. Emery Stone Mfq. Co. (1995) 126 CTR (Raj) 345 : (1995) 213 ITR 843 (Raj), Taralan Tea Co. (P) Ltd. v. CIT (1994) 117 CTR (Gau) 179 : (1994) 205 ITR 45 (Gau), etc. The learned departmental Representative further pointed out that the Commissioner has only set aside the assessment order with a direction to do the assessment afresh and hence the order of the Commissioner does not deserve to be quashed but has to be by the Tribunal.
8. We have considered the rival submissions and the evidence on record, The provisions of section 263 insofar as it is relevant for the purpose of deciding the present -appeal reads as under :
"Sec 263(1) : The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the assessing officer is erroneous insofar as it is prejudicial to the interests of the revenue , he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment."
The term "record" is defined in clause (b) of Explanation to section 263 as under as under :
"(b) "record" shall include and shall be deemed always to have included all relating to any proceeding under this Act available at the time of examination by the CIT.
9. In the light of the above legal provisions it is clear that the Commissioner has rightly invoked the powers vested with him under section 263 in the present case. He has called for and examined the case records of the assessee-firm for assessment year 198889. He considered the assessment order to be erroneous and prejudicial to the interests of the revenue on certain points as enumerated in the show-cause notice issued to the assessee as cited by us in para 3 above. He has considered the specific objections raised by the assessee during the proceedings before him and passed a speaking order setting aside the assessment order dated 20-6-1989, directing a fresh assessment. It is necessary to quote the findings recorded by the Commissioner in the impugned order under section 263 :
"3. I have very carefully gone through the case records of the assessee, including the folder containing information collected during the search and seizure operation under section 132(1) of the Act and through the submissions made on behalf of the assessee-firm and given my careful consideration to the matter 1 am of the view that the assessment order passed by the assessing officer is required to be set aside for re-completion of the assessment de novo in accordance with law, taking into account and evaluating all the incriminating evidences gathered against the assessee during the search and seizure operation under section 132(1) of ,he Act. This is so as the assessing officer had failed to consider all the incriminating evidences and information gathered against the assessee during the search and search and seizure operation under section 132(1) of the Act while passing the assessment order, which an act erroneous on the part of the assessing officer as also prejudicial to the of revenue . In the case of the assessee-firm and its partners a search and seizure operation was carried out under section 132(1) of the Act on 3rd Dec., 1987, during which besides various books of accounts and incriminating documents, the following unexplained cash and valuables were seized :
Particulars From business premises Quantity Valued at (in Rs.) Rough diamonds 4,271.66 cts.
9,87,642 Polished diamonds 214.68 cts.
6,44,000 Cash 20,000 From residential premises Diamondrough 104.00 cts.
5,200 Cash 97,448 Total 17,54,290 Subsequent to the search and seizure operation the ADI (Inv)-III Surat had prepared a detailed appraisal note which was forwarded to the assessing officer for consideration and action while completing the assessment, by the DDI (Inv.), Surat under his letter dated 29-2-1988, and one month thereafter an order under s 132(5) of the Act dated 30-3-1988, was passed by the assessing officer. The final assessment order under section 143(3) of the Act was passed by the assessing officer on 20th June, 1989, in which the assessing officer had completed the total income at Rs. 6,90,750 as against the returned income of Rs. 6,80,000. On going through the case records of the assessee it is seen that the assessing officer did not make any inquiry whatsoever in relation to various important issues necessary for completion of assessment, even though incriminating informations with documentary support were forwarded to the assessing officer by the ADI (Inv.) on those important issues. As discussed above in the submissions of the assessee-firm, the assessing officer had not examined the issues relating to investment in two factories at Vishavadar society Issue No. (viii) to the show-cause notice under section 263 of the Act) and issue relating to investment of Rs. 1,50,000 in factory building with Kantibhai at Vishavadai society issue No. (xi) to the show-cause notice under section 263 of the Act even though highly incriminating evidence and information on those issues were forwarded to the assessing officer by the ADI (Inv.). It is interesting to note that on these two issues the assessee-firm did not make any submission or offered and explanation even during the course of proceedings under section 263 of the Act, in its written submissions or orally and avoided the twine issues entirely. On this score alone the assessment order passed by the assessing officer is required to be set aside, for re-completion of the assessment de novo, in accordance with law. It was incumbent on the part of the assessing officer to have gathered and collected all the necessary information and clarifications from the assessee on various incriminating issues coming to the notice of the department during the course of the search operation and after affording the assessee a reasonable opportunity of being heard on those issues the assessing officer ought to have taken decision on the said issues fir accordance with law under a speaking order. On going through the case records of the assessee it is seen that the assessing officer has not even maintained an order sheet regarding the progress of assessment proceedings, indicating various inquiries made, if any. In absence of order sheet in the case filed and as there is no other document in the case file of the assessee indicating that the assessing officer had made inquiries on various issues raised in the show-cause notice under section 263 of the Act, it is evidently clear that the assessing officer had acted carelessly and without concerned for the interest of revenue , while completing the assessment. During the course of proceedings under section 263 of the Act the assessee filed voluminous documents exceeding 100 pages, only to the issues raised during the proceedings under section 263 of the Act but these documents filed during the proceedings under section 263 of the Act are not available in the case records of the assessee, which in term indicates that the assessee's explanation were not called for on those issues during the course of the assessment proceedings. The omission in making inquiry and negligence in completion of assessment by the assessing officer was an act erroneous and prejudicial to the interest of revenue and in view of this the assessment order passed by the assessing officers required to be set aside for recompletion of the assessment de novo, in accordance with law, and assessment order is accordingly set aside.
4. I consider it necessary to point out here that the order passed under section 132M/13202) is not conclusive to the proceedings under section 143(3) of the Act an() the assessing officer shall be at liberty to re-evaluate those decisions, in the light of informations gathered during the proceedings under section 143(3) of the Act. This is so as the order passed under section 132(5)/132(12) of the Act is in an interlocutory proceedings and as an order passed in an interlocutory proceedings cannot be conclusion to the final proceedings. Thus, the assessing officer shall be entirely at liberty to conduct all the necessary inquiry for re-completion of the set aside assessment.
5. As discussed above the assessment order passed by the assessing officer is set aside for re-completion of the assessment de novo, in accordance with law, after affording assessee a fair and reasonable opportunity of being heard. The assessing officer shall recomplete set aside assessment within a reasonable time, cutting short avoidable delays, so that, no undue financial hardship is caused either to the assessee or to the revenue .
6. In the result the assessment order passed by the assessing officer under consideration is set aside."
10. From the above it is clear that the Commissioner has pinpointed the various defects or omissions noticed by him in the assessment order before coming to the conclusion that the assessment order was erroneous and prejudicial to the interests of revenue . Since the Commissioner has passed a speaking order giving solid reasons, the objection made by the learned counsel for the assessee is devoid of merits.
11. That apart, it is pertinent to observe that the Commissioner has not given any specific direction to the assessing officer to make an addition to the returned income on any of the specific issues referred to in the show-cause notice. The entire matter is left open before the assessing officer. If it is the assessee's case that the necessary explanation was furnished before the assessing officer in the initial proceedings, the assessee is free to reiterate the submissions in the fresh proceedings before the assessing officer. In respect of all items which are not pertaining to the assessee it is also open to the assessee to reiterate its stand. The very fact that the assessing officer did not make enquiries on certain points itself will be sufficient justification for the Commissioner to pass a revision order directing that enquires be held because as a superior authority vested with the powers of revision, the Commissioner enjoys the statutory right. This legal principle is recognised in the various pronouncements of the High Courts and the Supreme Court in this context of examining the revisional powers of the Commissioner. In the interest of brevity, it is not necessary for us to go into the details of the various case laws cited before us by the learned counsel for the assessee and the learned departmental Representative. However, it would be pertinent to observe that our conclusion in the present appeal is fortified by the decision of the Jurisdictional High Court in Addl. CIT v. Mukur Corporation (1978) 111 ITR 312 (Guj) and CIT v. M.M. Khambhatwala (supra). Since the Commissioner has only set aside the assessment with a direction to do it afresh no prejudice is caused to the assessee, as stated earlier because in the new assessment proceedings, the assessee is free to argue its case on the basis of evidence already furnished and to furnish any other evidence which it may rely on in response to the queries to be raised by the assessing officer in the light of the Commissioner 's directions.
12. In the light of the foregoing discussions and in view of the legal principles enunciated in various reported decisions, we have no hesitation in upholding the order of the Commissioner.
13. In the result, the appeal is dismissed.