Delhi High Court
The Commissioner Of Income Tax-Xiii vs Shri Ashish Rajpal on 14 May, 2009
Author: Rajiv Shakdher
Bench: Vikramajit Sen, Rajiv Shakdher
+* THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on : 14.05.2009
+ ITA No 485/2008
THE COMMISSIONER OF INCOME TAX-XIII ..... Appellant
versus
SHRI ASHISH RAJPAL ..... Respondent
Advocates who appeared in this case:
For the Appellant : Mr. Sanjeev Sabharwal, Advocate
For the Respondent : Mr.B B Bhagat with Mr Amit Bhagat & Mr Pulkit
Gupta. Advocates
CORAM :-
HON'BLE MR JUSTICE VIKRAMAJIT SEN
HON'BLE MR JUSTICE RAJIV SHAKDHER
1. Whether the Reporters of local papers may
be allowed to see the judgment ? Yes
2. To be referred to Reporters or not ?
3. Whether the judgment should be reported Yes
in the Digest ?
RAJIV SHAKDHER, J
1. The Revenue has preferred the present appeal under Section 260A
of the Income Tax Act, 1961 (hereinafter referred to as the „Act‟)
against the judgment of the Income Tax Appellate Tribunal (hereinafter
referred to as the „Tribunal‟) dated 16.11.2007 passed in ITA No.
759/Del/2007.
2. The Revenue is aggrieved by the impugned judgment of the
Tribunal by which it has set aside the order of the Commissioner of
Income Tax (hereinafter referred to as the „Commissioner‟) dated
ITA 485-08 Page 1 of 25
18/19.01.2007 whereby he in turn cancelled the assessment order dated
24.03.2005 and directed the Assessing Officer to make a fresh
assessment after considering all the aspects of the case including various
discrepancies pointed out by him in his order.
3. In order to adjudicate upon this appeal the following facts require
to be noticed:-
4. The assessee is a builder engaged in the business of construction
of properties on a collaboration basis with the owners of the properties.
The assessee filed a return dated 31.10.2002 in respect of assessment
year 2002-03 declaring a total income of Rs 2,69,210/- The assessee‟s
case was picked up for „compulsory scrutiny‟ under Instruction No.
11/2003 of Central Board of Direct Taxes (C.B.D.T.). Accordingly, a
notice under Section 143(2) of the Act was issued to the assessee.
During the course of scrutiny it transpires that several queries were
raised by the Assessing Officer. In response thereto, the assessee sent
communications dated 27.12.2004, 22.02.2005, 28.02.2005 and
18.03.2005.
5. A perusal of the assessment order dated 24.03.2005 would show
that the Assessing Officer made specific enquiries with respect to a
collaboration project situated at E-5/1, Malviya Nagar, New Delhi-
110017 (hereinafter referred to as the „Malviya Nagar property‟). The
assessment order also indicates that the assessee had furnished copies of
ITA 485-08 Page 2 of 25
various agreements executed in respect of the Malviya Nagar property
as well as the valuation report. Significantly, in response to a query as
regards the cost of purchase and construction incurred by the assessee
on the Malviya Nagar property, the assessee indicated that it had
purchased the Malviya Nagar property on 05.10.2000 for a total
consideration of Rs 16,00,000/- and had also incurred expenditure of
Rs 4,50,000/- on renovation of the Malviya Nagar property. The
assessee, thus, indicated that its total investment on the Malviya Nagar
property was Rs 20,50,000/-. It was also indicated that the said property
was sold (it seems floor wise) between 19.01.2001 to 17.10.2001 to
various parties for a total sum of Rs 20,90,000/-. The communication
which is referred to in the assessment order shows that the assessee
offered an additional income of Rs 8,00,000/- purportedly earned from
the Malviya Nagar property to buy "peace with the Department".
6. The Assessing Officer, thus, considering the material on record
and the submission of the assessee, included the additional income of
Rs 8,00,000/- offered by the assessee with respect to the Malviya Nagar
and proceeded to tax the said sum alongwith income already declared
that is a sum of Rs 2,69,210/-. By the said order a total income of
Rs 10,69,210/- was brought to tax. Interest under Section 234A, 234B
and 234C was also imposed. In addition, penalty proceedings under
Section 271(1)(c) of the Act was also initiated.
ITA 485-08 Page 3 of 25
7. It is important to note at this stage that in the interregnum i.e.,
during the course of scrutiny, the Assessing Officer had issued
summons under Section 131 of the Act to purchasers of various
properties in order to satisfy himself as regards the genuineness of the
transactions in issue. It would also be pertinent to take note of the fact
that in the communications dated 27.12.2004 and 28.02.2005 the
assessee gave details with respect to other projects i.e., the properties
located at Gitanjali Enclave and Defence Colony. Copies of the
collaboration agreements, important details with respect to the
agreements, area of construction and sale price as also details of receipt
of Rs 26 lacs with respect to the property located at Gitanjali Enclave
were supplied by the assessee through communication dated 27.12.2004
and 28.02.2005. Similarly, relevant details with regard to the Defence
Colony property was furnished by the assessee in a letter dated
28.02.2005. Despite, the disclosure by the assessee of details with
respect to all three projects i.e., the Malviya Nagar property as also
properties located at Gitanjali Enclave and Defence Colony - a fact
which was ascertained by the Tribunal and finds mention in the
impugned judgment: the Commissioner issued a notice dated
11.05.2006 to the assessee on the ground that he was of the view that
the assessment made in the case of the assessee was both erroneous and
prejudicial to the interest of the Revenue. The reasons which found
favour with the Commissioner were as follows:-
ITA 485-08 Page 4 of 25
"(i) No examination of books of account was made;
(ii) No verification were made from the persons to whom
summons under Section 131 were issued and no
statements were recorded on oath;
(iii) The surrender of Rs 8 lacs was made on agreed basis,
on the sale of project of Malviya Nagar, other projects,
which were also in posh colonies of South Delhi,
remain untouched and unverified.
(iv) No proper recordings were made on the order sheet."
8. At this stage it would be important to note that we had called
for record, in particular, the order sheets maintained by the
Commissioner. The relevance of this exercise would be clear as
we proceed further with our narrative. Suffice it to state that a
scrutiny of the order sheets of the Commissioner showed that on
29.05.2006 the assessee was represented by an Advocate, one Mr
M K Gandhi and the case was simply adjourned to 15.06.2006. On
15.06.2006 the case was again adjourned, when one Mr B. B.
Bhagat appeared for the assessee and sought one week‟s
adjournment which was allowed by the Commissioner and the case
was adjourned to 26.06.2006. There is no order sheet for
26.06.2006, however, there is an order sheet for 28.06.2006 which
indicates that Mr B B Bhagat, Advocate who represented the
assessee on the previous date appeared and filed submissions.
There is also reference to the fact that he was heard in support of
his submissions. The order sheet entries read as follows:-
ITA 485-08 Page 5 of 25
" 29.05.2006
Mr M.K. Gandhi, Adv. attended. The case is
adjourned for 15th June, 2006.
Sd/-
15.06.2006
Shri B.B. Bhagat (Adv.) appeared, seeking a weeks‟
adjournment. Allowed & adjourned to 26.06.2006.
Sd/-
28.06.2006
Sh. B.B. Bhagat (Adv.) appeared and filed
submission. He is heard.
Sd/-"
9. The Commissioner, as mentioned above, by his order dated
18/19.01.2007 evidently revised the assessment order and crystallised
nine issues which, according to him, require enquiry and investigation.
Briefly, these being:-
(i) that the Assessing Officer had not carried out an examination of
the books of accounts of the assessee. He also noted that despite
various communications the assessee had not appeared and no penalty
proceedings under Section 271(1)(b) had been initiated for non-
compliance with statutory notices;
(ii) the Commissioner also raised concerns with respect to the failure
on the part of the assessee to examine parties who had been summoned
under Section 131 of the Act;
ITA 485-08 Page 6 of 25
(iii) the fact that the assessee had voluntarily offered an additional sum
of Rs 8 lacs as income derived from the Malviya Nagar property ought
to have made the Assessing Officer mindful of the fact that the matter
required further enquiry. The Commissioner was of the view that the
Assessing Officer should have called upon the assessee to disclose the
basis for arriving at the figure of Rs 8 lacs as the additional income with
respect to sale of the Malviya Nagar property;
(iv) there is nothing on the assessment record which would reveal the
basis on which the Assessing Officer accepted the correctness of the
income declared with respect to other two properties located at Gitanjali
Enclave and Defence Colony;
(v) the Commissioner‟s refrain was the same as in the case of
Malviya Nagar property that the books of accounts and vouchers had
not been examined by the Assessing Officer with respect to the Gitanjali
Enclave and Defence Colony properties and that the Assessing Officer
had simply accepted the assessee‟s claim of expenditure in respect of
construction of the said properties amounting to Rs 52.77 lacs;
(vi) the Commissioner also referred to expenses payable by the
assessee to the tune of Rs 11,00,734/- which the assessee claimed were
payable as on 31.03.2002. It was pointed out that there was no query
raised and the books were not examined with reference to the said issue;
ITA 485-08 Page 7 of 25
(vii) a reference was also made to a Bank Reconciliation Statement
found on the record and the fact that queries with respect to issues
emanating therefrom had not been raised;
(viii) there was also an issue about sale of Shop No 5 in Malviya Nagar,
the consideration for which found mention in the books of accounts but
the bank statement showing clearance of cheques upto July i.e., a period
of six months made no reference to the cheque evidently received with
respect to sale of the said shop. The Commissioner was of the view that
this issue ought to have been examined;
(ix) the Assessing Officer had dropped penalty proceedings under
Section 271(1)(c) after taking on record a single letter of the assessee.
10. Based on the aforesaid, the Commissioner formed an opinion that
the assessment order required to be cancelled and accordingly, the
Assessing Officer was directed to make a fresh assessment. In coming
to the said conclusion, the Commissioner articulated the following
reasons in his order:
"I am not convinced with the submission of the assessee.
The facts of the instant case are not identical to the facts of
the cases on which reliance was placed by the counsel of the
assessee. Moreover, there is absolutely no evidence that the
Assessing Officer called for the books of accounts other
than certain details recorded at page 2 of the order sheet.
There is also no evidence whatsoever that the assessee
produced the books of accounts as stated in the submission.
It is evident that the Assessing Officer considered the offer
of Rs 8 lakh from the Malviya Nagar project only that too
without any basis and without any inquiry and application
ITA 485-08 Page 8 of 25
of mind on the other projects and other aspects of this case.
In view of the various discrepancies pointed out above,
passing an assessment order without proper verification of
the issues that too without even examining the books of
accounts is definitely erroneous and prejudicial to the
interest of revenue."
11. Being aggrieved, the assessee preferred an appeal to the Tribunal.
The Tribunal by the impugned judgment set aside the order of the
Commissioner under Section 263 of the Act. While doing so, the
Tribunal made the following observations and findings of fact:-
(i) that they had examined the assessment record on their own. From
the record, it was revealed that the assessee had filed copious details
covering various aspects of the matter. It noted that by a letter dated
27.12.2004 the assessee had given details regarding unsecured loans,
taken by him; justification for claiming depreciation on car; investment
in fixed deposit with Canara Bank; details of loan given to one Pradeep
Arora; Reconciliation Statement in respect of the savings account with
Canara Bank, Malviya Nagar Branch; details regarding the names and
addresses of persons from whom total construction and consultancy
receipts of Rs 75.61 lacs were received; and the explanation as to why
no work-in-progress at the end of the year had been shown ;
(ii) reference to a letter dated 14.02.2005 wherein details with respect
to Malviya Nagar property were given, in particular, cost and expenses
incurred on the Malviya Nagar property, as also copies of sale deeds of
two properties in the same locality were filed;
ITA 485-08 Page 9 of 25
(iii) referred to letter dated 28.02.2005 which gave details with respect
to property located at Gitanjali Enclave. Details with respect to Shop
No 5 and 6 in the Malviya Nagar property and copies of relevant
agreements as also sale deeds in respect of portions of said property
which the assessee had been asked to submit. Details of salary
expenses, accounting charges, vehicle maintenance account,
entertainment expenses, telephone expenses etc. were also given;
(iv) the confirmation of unsecured loan in the earlier years taken from
one Shri Jagdish Chander;
(v) in the very same letter dated 28.02.2005 details were also given
regarding the construction and labour charges in the sum of
Rs 52,77,094/- debited to the profit and loss account;
(vi) a chart was filed to demonstrate that the value of work-in-progress
and the cost of construction was comparable to the valuation
certificates. Reference was also made to a letter dated 22.03.2005
wherein the assessee had conceded that it would surrender an additional
income of Rs 8 lacs with respect to the Malviya Nagar property in order
to buy peace with the Department in lieu of the penalty proceedings
being dropped;
(vii) it is also mentioned that the record contained notices issued under
Section 131 of the Act in respect of various persons. The Tribunal also
seems to have made the effort of going through the order sheet entries of
ITA 485-08 Page 10 of 25
the Assessing Officer which demonstrated that details were sought from
the persons summoned.
11.1 Based on the aforesaid, the Tribunal came to the conclusion that
looking at the voluminous record filed with the Assessing Officer it
could not be said that the books of accounts were not examined, when
the assertion of the assessee was that they were produced before the
Assessing Officer for examination; merely on the basis that there is no
such reference of examination of books of accounts in the order sheet
entries maintained by the Assessing Officer. The Tribunal also
observed that a perusal of the summons issued under Section 131 by the
Assessing Officer indicated that each one was required to furnish details
and documents and that it is not the requirement under Section 131 that
the Assessing Officer should record statements of persons who were
summoned to give evidence or produce documentary evidence. The
Tribunal also concluded that the assessee had furnished details with
regard to properties located at Gitanjali Enclave as well as Defence
Colony. In this regard, the Tribunal noted the contents of the assessee‟s
letter dated 27.12.2004 and 28.02.2005 filed with the Assessing Officer.
The Tribunal was, thus, of the view that the Assessing Officer had taken
care to collect details and facts, and put them on the record; and hence it
could not be said that the Assessing Officer‟s order was without basis.
The Tribunal was of the view that having found the details satisfactory,
the mere fact that what had been accepted by the Assessing Officer as
ITA 485-08 Page 11 of 25
satisfactory did not find mention in the assessment order would not
render the assessment order liable for a revision by the Commissioner in
exercise of power under Section 263 of the Act.
11.2 The Tribunal was also of the view that the order of the
Commissioner deserved to be set aside in view of the fact that the final
order dated 18/19.01.2007 proceeded to set aside the assessment based
on certain grounds which did not find mention in the initial notice dated
11.05.2006. The Tribunal observed that the Commissioner has
mentioned as many as nine grounds in his order dated 18/19.01.2007
justifying the cancellation of the assessment order some of which had
not been addressed in the initial notice. It was, thus, of the view that
since several reasons have been adverted to in Paragraph 2 of the order
of the Commissioner dated 18/19.01.2007 some of which did not find
place in the initial notice dated 11.05.2006, it would be difficult to
determine as to what role they played in the decision arrived at by the
Commissioner. It observed that when an authority passes an order for
reasons, some of which are valid and some invalid, it would be difficult
to sustain the same, as the Court has no means to find out how much
influence the invalid reasons wielded on the ultimate decision of the
Commissioner.
12. Aggrieved by the impugned judgment of the Tribunal, the
Revenue has preferred the present appeal before us. Mr Sanjeev
ITA 485-08 Page 12 of 25
Sabharwal, Senior Standing Counsel for the Revenue has submitted that
it is quite evident from the order of Revision passed by the
Commissioner that the Assessing Officer had failed to make any
enquiry and/or investigation with respect to many aspects of the
assessee‟s business, in particular, with respect to the properties located
at Gitanjali Enclave and Defence Colony. The learned counsel laid
great stress on the discrepancies referred to in Paragraph 2 of the
Commissioner‟s order dated 18/19.01.2007. It was learned counsel‟s
submission that on this short ground alone the impugned judgment of
the Tribunal ought to be reversed. He further submitted that the
Tribunal‟s conclusion that the order of revision was bad in law in view
of the fact that the initial notice dated 11.05.2006 referred to only four
issues whereas the final order of revision dated 18/19.01.2007 referred
to nine grounds is untenable in view of the fact that there is no
requirement under Section 263 of the Act to issue a notice, as against a
situation in which the Revenue seeks to exercise powers under Section
147 read with Section 148 of the Act, where a notice must necessarily
precede initiation of proceedings under the Act. In support of his
submission, reliance was placed on the judgments of the Supreme Court
in the case of CIT, West Bengal II vs Electro House (1971) 82 ITR 824
and Gita Devi Aggarwal vs CIT, West Bengal & Ors. (1970) 76 ITR
496 (SC). He further submitted that in view of the fact that there is no
requirement of a notice being issued by the Commissioner in order to
ITA 485-08 Page 13 of 25
initiate proceeding under Section 263 of the Act. All that an assessee
can demand in terms of the said provision is an opportunity of being
heard in consonance with the principles of natural justice with respect to
these issues with which assessee was not confronted. He contended that
even if such an opportunity was not granted to the assessee while the
order-in-Revision was passed the same could be accorded to the
assessee even at this stage i.e., by the Assessing Officer when he
proceeds to make a fresh assessment.
13. In response, the learned counsel for the assessee Mr Amit Bhagat
submitted that the impugned judgment deserves to be sustained for the
reasons that the assessee had submitted the books of accounts for
examination; he had filed each and every detail sought for by the
Assessing Officer with respect to the queries raised in particular with
respect to three property projects in issue i.e., the Malviya Nagar
property and the properties located at Gitanjali Enclave and Defence
Colony. He further submitted that the fact that the assessment order
made no reference to the properties located at Gitanjali Enclave and
Defence Colony or in respect of other issues which find reference in the
Commissioner‟s order could not lead to the conclusion that no
enquiry/investigation had been made by the Assessing Officer merely
by virtue of the fact that there is no discussion in the assessment order.
He contended that the record would show that there was application of
mind by the Assessing Officer. He further contended that it is a general
ITA 485-08 Page 14 of 25
practice adopted by Assessing Officers that when they accept an
explanation in respect of a query raised during the course of scrutiny the
same generally does not find a mention in the assessment order. He
further submitted that as a matter of fact, the Commissioner in his notice
dated 11.05.2006 had shown a concern with regard to four issues and in
response, the assessee had filed written submissions with respect to the
issues raised in the said notice. It was the learned counsel‟s assertion
that no opportunity whatsoever was granted by the Commissioner with
respect to other issues which form the basis of the order passed under
Section 263 of the Act. The learned counsel submitted that in view of
this fact situation, the order-in-Revision passed in breach of the
principles of natural justice was bad in law and hence rightly set aside
by the Tribunal.
14. Before we advert to the submissions made by the learned counsels
appearing for the parties, it would be wise to recall the parameters and
principles laid down by the Courts which govern the exercise power by
the Commissioner under the provisions of Section 263 of the Act.
(i) The power is supervisory in nature, whereby the Commissioner
can call for and examine the assessment records.
(ii) The Commissioner can revise the assessment order if the twin
conditions provided in the Act are fulfilled, that is, that the
assessment order is not only erroneous but is also prejudicial to
ITA 485-08 Page 15 of 25
the interest of the Revenue. The fulfilment of both the
conditions is an essential prerequisite. [See Malabar
Industrial Co. Ltd vs CIT (2000) 243 ITR 83(SC)]
(iii) An order is erroneous when it is contrary to law or proceeds on
an incorrect assumption of facts or is in breach of principles of
natural justice or is passed without application of mind, that is,
is stereo-typed, in as much as, the Assessing Officer, accepts
what is stated in the return of the assessee without making any
enquiry called for in the circumstances of the case, that is,
proceeds with „undue haste‟. [See Gee Vee Enterprises vs
ACIT, Delhi-I & Ors. (1975) 99 ITR 375]
(iv) The expression "prejudicial to the interest of the Revenue"
while not to be confused with the loss of tax will certainly
include an erroneous order which results in a person not paying
tax which is lawfully payable to the Revenue. [See Malabar
Industrial Co. Ltd. (supra)].
(v) Every loss of tax to the Revenue cannot be treated as being
"prejudicial to the interest of the Revenue". For example,
when the Assessing Officer takes recourse to one of the two
courses possible in law or where there are two views possible
and the Commissioner does not agree with the view taken by
the Assessing Officer which has resulted in a loss. [See CIT vs
Max India Ltd. (2007) 295 ITR 282 (SC)]
ITA 485-08 Page 16 of 25
(vi) There is no requirement of issuance of a notice before
commencing proceedings under Section 263 of the Act. What
is required is adherence to the principles of natural justice by
granting to the assessee an opportunity of being heard before
passing an order under Section 263. [See Electro House
(supra)].
(vii) If the Assessing Officer acts in accordance with law his order
cannot be termed as erroneous by the Commissioner, simply
because according to him, the order should have been written
„more elaborately‟. Recourse cannot be taken to Section 263 to
substitute the view of the Assessing Officer with that of the
Commissioner. [See CIT vs Gabriel India Ltd (1993) 203 ITR
108(Bom)]
(viii) The exercise of statutory power under Section 263 of the Act is
dependent on existence of objective facts ascertained from
prima facie material on record. The evaluation of such
material should show that tax which was lawfully exigible was
not imposed. [See Gabriel India Ltd (supra)]
15. Let‟s examine the facts of the present case in the light of the
aforesaid principles. From the facts obtained it is quite clear that after
the assessee had filed his return on 31.10.2002, a notice under Section
143(2) of the Act was issued for the purposes of carrying out a scrutiny
in respect of the return of income filed by the assessee. In the course of
ITA 485-08 Page 17 of 25
scrutiny, as indicated in the impugned judgment of the Tribunal, several
communications were addressed by the assessee to the Assessing
Officer whereby, the information, details and documents sought for,
were adverted to and filed. The Tribunal in order to satisfy itself, as to
whether the Assessing Officer had sought for details and carried out an
enquiry in respect of transactions which were entered into by the
assessee in the course of his business, called for the assessment record
and scrutinized the same. The Tribunal returned a finding of fact that
the assessee had submitted copies of documents and details with regard
to various matters, including, in particular, with respect to the properties
at Malviya Nagar as well as those located at Gitanjali Enclave and
Defence Colony. The issue that has been raised before us is that, since
the assessment order adverted to only Malviya Nagar property and was
silent with respect to the properties located at Gitanjali Enclave and
Defence Colony; on this short ground alone the Revisional order of
Commissioner ought to be sustained. It would be important to remind
ourselves that while the supervisory power of Commissioner is wide, it
cannot be invoked to substitute the view of the Assessing Officer. If
upon a perusal of the record filed with the authorities below the
Tribunal formed a view that there had been an enquiry which had not
been conducted with „undue haste‟ surely we would be slow to hold
otherwise. More so when, this conclusion, the Tribunal had arrived at
after examining the record which the assessee filed with the Assessing
ITA 485-08 Page 18 of 25
Officer during the course of scrutiny. The point to be noted is that on a
perusal of the record the Tribunal observed, by reference to a general
practice in vogue, that merely because the assessment order did not refer
to the queries raised during the course of the scrutiny and the response
of the assessee thereto, it could not be said that there was no enquiry and
hence the assessment was erroneous and prejudicial to the interest of the
Revenue. This observation of the Tribunal, according to us, deserves
due weight, as in its vast experience it would have come across several
such orders. In almost similar situation the Division Bench of the
Bombay High Court in Gabriel India Ltd (supra) made the following
observation:-
"From the aforesaid definitions it is clear that an order
cannot be termed as erroneous unless it is not in
accordance with law. If an Income-tax officer acting in
accordance with law makes a certain assessment, the same
cannot be branded as erroneous by the Commissioner
simply because, according to him, the order should have
been written more elaborately. This section does not
visualise a case of substitution of the judgment of the
Commissioner for that of the Income-tax Officer, who
passed the order, unless the decision is held to be
erroneous. Cases may be visualised where the Income-tax
Officer while making an assessment examines the accounts,
makes enquiries, applies his mind to the facts and
circumstances of the case and determines the income either
by accepting the accounts or by making some estimate
himself. The Commissioner, on perusal of the records,
may be of the opinion that the estimate made by the officer
concerned was on the lower side and left to the
Commissioner he would have estimated the income at a
figure higher than the one determined by the Income-tax
Officer. That would not vest the Commissioner with power
to re-examine the accounts and determine the income
himself at a higher figure. It is because the Income-tax
ITA 485-08 Page 19 of 25
Officer has exercised the quasi-judicial power vested in
him in accordance with law and arrived at a conclusion
and such a conclusion cannot be termed to be erroneous
simply because the Commissioner does not feel satisfied
with the conclusion......
...... We may now examine the facts of the present
case in the light of the powers of the Commissioner set out
above. The Income-tax Officer in this case had made
enquiries in regard to the nature of the expenditure
incurred by the assessee. The assessee had given detailed
explanation in that regard by a letter in writing. All these
are part of the record of the case. Evidently, the claim was
allowed by the Income-tax Officer on being satisfied with
the explanation of the assessee. Such decision of the
Income-tax Officer cannot be held to be "erroneous"
simply because in his order he did not make an elaborate
discussion in that regard."
(emphasis is ours)
16. The fact that a query was raised during the course of scrutiny
which was satisfactorily answered by the assessee but did not get
reflected in the assessment order, would not by itself lead to a
conclusion that there was no enquiry with respect to transactions carried
out by the assessee. The fact that there was an enquiry can also be
demonstrated with the help of the material available on record with the
Assessing Officer. The material, to which a reference has been made in
the impugned judgment, would show that there was no „undue haste‟ in
examining the material prior to the passing of the assessment order
dated 24.03.2005. At least four letters dated 27.04.2004, 22.02.2005,
28.02.2005 and 18.03.2005 were addressed by the assessee to the
Assessing Officer giving details, documents and information pertaining
ITA 485-08 Page 20 of 25
to various queries raised by the Assessing Officer. These have been
examined by the Tribunal. We have no reason to believe that
examination was less than exacting. Therefore, the conclusion of the
Commissioner that there was "lack of proper" verification is
unsustainable.
17. This brings us to another aspect of the matter, which is that even
though the notice dated 11.05.2006 issued by the Commissioner before
commencing the proceedings under Section 263 of the Act referred to
four issues, the final order dated 18/19.01.2007 passed referred to nine
issues, some of which obviously did not find mention in the earlier
notice and hence resulted in the proceedings being vitiated as a result of
the breach of the principles of natural justice.
17.1 As observed by us above, there is no requirement under Section
263 of the Act to issue a notice before embarking upon a revisionary
proceedings. To that extent the submission of the learned counsel for
the Revenue Mr Sanjeev Sabharwal has to be accepted. What is
mandated under Section 263 of the Act is that once the Commissioner
calls for and examines the record, pertaining to the assessee, and forms
a prima facie view that the order passed by the Assessing Officer is both
erroneous and prejudicial to the interest of the Revenue, he is obliged to
afford an opportunity to the assessee before passing an order, to the
prejudice of the assessee. In the instant case, the Commissioner sought
ITA 485-08 Page 21 of 25
to accord such an opportunity to the assessee by putting him to notice as
regards aspects which the Assessing Officer had failed to scrutinize.
During the course of the revisionary proceedings this was conveyed to
the assessee by way of a notice dated 11.05.2006. It is not disputed that
in the order dated 18/19.01.2007 the Commissioner has referred to
certain other issues which did not form part of the initial notice dated
11.05.2006. To our minds it was always open to the Commissioner to
put such issues/discrepancies, found by him based on material on
record, to the assessee. It is to be noted, however, that the learned
counsel for the assessee vehemently denied that the assessee had been
given any opportunity to meet issues other than those to which reference
has been made in the Commissioner‟s notice dated 11.05.2006. For this
purpose, the learned counsel for the assessee sought to place reliance on
the impugned judgment passed by the Tribunal, wherein this aspect of
the matter has been discussed elaborately. In order to satisfy ourselves
we called upon learned counsel for the Revenue Mr Sanjeev Sabharwal
to place on record any communication, order or any other document
which would show that the assessee had been given an opportunity to
deal with those aspects which did not form part of the initial notice
dated 11.05.2006, but were taken into account by the Commissioner
while passing his order dated 18/19.01.2007. In this regard, the learned
counsel for the Revenue placed on record order sheet entries of the
proceedings conducted by the Commissioner. We have already
ITA 485-08 Page 22 of 25
extracted the order sheet entries commencing from 15.06.2005 to
28.06.2006. A perusal of those entries would clearly demonstrate that
there is nothing on record which would show that the assessee was
given an opportunity to respond to these discrepancies which formed
part of the order-in-Revision dated 18/19.01.2007 but were not part of
notice dated 11.05.2006. This was put to the learned counsel for the
Revenue, who in response fairly conceded that there was nothing on
record which would establish the contrary. It was, however, urged by
the learned counsel for the Revenue Mr Sanjeev Sabharwal that the
assessee would have his opportunity to give satisfactory replies to the
discrepancies raised in the Revisional Order before the Assessing
Officer and that such an opportunity would meet the requirements of the
provision. We are afraid that that is not the position envisaged in law.
If one were to permit correction of such a grievous error in the manner
suggested it would tantamount to, in a manner of speaking, closing the
stable doors after the horse has bolted. The assessments, unless
reopened by paying faithful obeisance to statutory provisions and
conditionalities provided therein, attain finality on their conclusion. The
provisions of Section 263 mandate that an order for enhancing, or
modifying the assessment, or cancelling the assessment and directing a
fresh assessment can only be passed after giving the assessee an
opportunity of being heard and after making or causing to be made such
enquiry as is deemed necessary. The threshold condition for reopening
ITA 485-08 Page 23 of 25
the assessment is that before passing an order an opportunity has to be
granted to the assessee and, such an opportunity granted to the assessee
is a necessary concomitant of the enquiry the Commissioner is required
to conduct to come to a conclusion that an order for either an
enhancement or modification of the assessment or, as in the present
case, an order for cancellation of the assessment is called for, with a
direction to Assessing Officer to make a fresh assessment. This defect
cannot be cured by first reopening the assessment and then granting an
opportunity to the assessee to respond to the issues raised before
Assessing Officer during the course of fresh assessment proceedings.
To buttress his submission the learned counsel for the Revenue has
relied upon the judgment of the Supreme Court in the case of Rampyari
Devi Saraogi vs CIT, West Bengal & Ors. (1968) 67 ITR 84. This is a
case in which, the order issued by the Commissioner, itself revealed that
the assessment was being reopened based on an additional supporting
material. The Supreme Court in such fact situation thus ruled that non
supply of additional supporting material would not effect the basic issue
of assessment being carried out without adequate investigation. In the
instant case the Order-in-Revision refers to issues and discrepancies
which did not find mention in the initial notice dated 11.05.2006 and not
to additional or supporting material as in the case of Rampyari Devi
(supra). Therefore, to suggest that it would be sufficient compliance of
the provisions of Section 263 of the Act, if an opportunity to respond to
ITA 485-08 Page 24 of 25
the discrepancies mentioned in the Order-in-Revision is given to the
assessee in reassessment proceedings before the Assessing Officer, is
according to us is completely untenable. It is the requirement of Section
263 of the Act that the assessee must have an opportunity of being heard
in respect of those errors which the Commissioner proposes to revise.
To accord an opportunity after setting aside the assessment order, would
in our view not meet the mandate the Section 263 of the Act. If such an
interpretation is accepted it would make light of the finality accorded to
an assessment order which cannot be reopened unless due adherence is
made to the conditionalities incorporated in the provisions of the Act in
respect of such powers vested in the Revenue.
18. In view of our discussion above, we are of the opinion that
impugned judgment passed by the Tribunal deserves to be sustained.
The findings returned by the Tribunal are pure findings of fact. No
substantial question of law has arisen for our consideration.
Resultantly, the appeal is dismissed. No order as to cost.
RAJIV SHAKDHER, J.
May 14, 2009 VIKRAMAJIT SEN, J. mb/da ITA 485-08 Page 25 of 25