Allahabad High Court
Swarup Vegetable Products Industries ... vs Commissioner Of Income-Tax on 22 August, 1990
Equivalent citations: (1990)90CTR(ALL)113, [1991]187ITR412(ALL)
Author: B.P. Jeevan Reddy
Bench: B.P. Jeevan Reddy
ORDER--Absence of enquiry by ITO--Order of ITO accepting assessee's claim that particular receipt was assessee's taxable income without making proper inquiries HELD: It may be noticed that the petitioner did in fact receive the amount during the previous year relevant to the assessment year concerned. The mere fact that a writ petition was pending or a suit was pending wherein a third party had claimed a portion of the amount could not have been a valid ground for claiming that the said amount should not be treated as the assessee's income. The ITO had accepted the claim erroneously and that too without making proper enquiries. In view of these circumstances the Commissioner came to the conclusion that the ITO's order was erroneous inasmch as it was not passed after a full enquiry and a proper investigation and that it is also prejudicial to the interests of the Revenue. Commissioner therefore, was justified in directing fresh assessment. Income Tax Act 1961 s.263 JUDGMENT B.P. Jeevan Reddy, C.J.
1. At the instance of the assessee, the following question is stated by the Tribunal under Section 256(1) of the Income-tax Act, 1961 :
"Whether, on the facts and in the circumstances of the case, the Commissioner had validly set aside the order of the Income-tax Officer under Section 263 of the Income-tax Act and was correct in directing him to make a fresh assessment ?"
2. The assesses is carrying on business in vegetables, ghee and Indian made foreign liquor. The assessment year in question is 1978-79. During the relevant previous year, the assessee received a sum of Rs. 31,79,427 by way of refund of excise duty. The assessee claimed in the return filed by him that he has placed this amount in suspense account and not in the profit and loss account and accordingly claimed that this amount should not be included in his income. He stated before the Income-tax Officer that a large part of this amount was claimed by Ganga Sugar Mills Ltd. who have filed a suit and also a writ petition in this court in that behalf. It was also stated by the assessee that he was allowed to withdraw the said amount only on furnishing a bank guarantee which he has done. His case was that because of the pendency of the said claim of Ganga Sugar Mills, the amount does not constitute his income and should not be included in his taxable income. This was accepted by the Income-tax Officer, However, when the matter came to the notice of the Commissioner, he invoked his power under Section 263 of the Act and gave a notice to the petitioner proposing to set aside the Income-tax Officer's order to the extent of the said deduction. The petitioner submitted his explanation. After considering the same, the Commissioner passed orders holding that :
"As far as the second point is concerned, I feel that the enquiries necessary to determine whether this amount was taxable in the hands of the assessee or not were not made by the Income-tax Officer while completing the assessment. The assessment order is clearly erroneous and also prejudicial to the Revenue inasmuch as the claim of the assessee that this amount was not taxable was accepted without proper enquiries. In this connection, it is also relevant to mention that the entire amount is still lying with the assessee and no part of it has been refunded so far to any of the clients. The Income-tax Officer should have made proper enquiries before accepting the claim of the assessee. This was not done."
3. Accordingly, he set aside the order of assessment and directed a fresh assessment to be made after making proper enquiries and recording a proper finding.
4. The assessee filed an appeal before the Income-tax Appellate Tribunal. The Tribunal dismissed the appeal holding that the exercise of power of revision was proper and that there was nothing illegal about it.
5. The first contention urged by Sri Vikrani Gulati, learned counsel for the assessee, is that the Commissioner had not recorded a finding that the Income-tax Officer's order was erroneous and that unless he records that finding as well as an additional finding that the order of the Income-tax Officer is prejudicial to the interests of the Revenue, he cannot invoke his power under Section 263 of the Act. As a proposition of law, the contention is correct but we are not satisfied that the order of the Commissioner in this case is not in accordance with or does not satisfy the requirements of Section 263. We have already referred to the findings of the Commissioner. It may be noticed that the petitioner did in fact receive the said amount during the previous year relevant to the assessment year concerned. The mere fact that a writ petition was pending or a suit was pending wherein a third party had claimed a portion of this amount could not have been a valid ground for claiming that the said amount should not be treated as the assessee's income. The Income-tax Officer had accepted the claim erroneously and that too without making proper enquiries. In view of these circumstances the Commissioner came to the conclusion that the Income-tax Officer's order was erroneous inasmuch as it was not passed after a full enquiry and a proper investigation and that it is also prejudicial to the interests of the Revenue.
6. We do not see any error in the exercise of the court's power or in the finding of the Commissioner that the Income-tax Officer's order is prejudicial to the interests of the Revenue.
7. Learned counsel for the assessee relied upon the decision of this court in J. K. Synthetics Ltd. v. O. S. Bajpai, ITO [1976] 105 ITR 864. That was a case where certain refund was received by the assessee in pursuance of an order of the learned single judge of the Delhi High Court. But, an appeal was filed against that order and the appeal was pending. It is in those circumstances that it was held that since there is a possibility of the liability being revived in future and also because the cessation of the liability is not complete, Section 41(1) is not attracted. But that is not the case here. This is a case where a third party claims a part of this amount. It cannot be said on that ground that Section 41(1) is not attracted.
8. Learned counsel also relied on the decision given in J. P. Srivastava and Sons (Kanpur) Ltd. v. CIT [ 1978] 111 ITR 326. All that this decision says is that, under Section 263, the Commissioner must not only be of the opinion that the order is erroneous but also that it is prejudicial to the interests of the Revenue.
9. It is beyond dispute that, under Section 263 of the Income-tax Act, the Commissioner does have the power to set aside the assessment order and send the matter for a fresh assessment if he is satisfied that further enquiry is necessary, and that the order of the Income-tax Officer is prejudicial to the interests of the Revenue.
10. For the above reasons, the question referred is answered in the affirmative, i.e., in favour of the Revenue and against the assessee. No costs.