Income Tax Appellate Tribunal - Hyderabad
A.V.R. And Co. vs Income-Tax Officer on 28 February, 1995
Equivalent citations: [1995]54ITD446(HYD)
ORDER
--Assessment in accordance with provisions of s. 143(1).
Ratio:
Assessment order made by assessing officer being in accordance with provisions contained in section 143(1), it would be wrong to call it erroneous and prejudicial to the interests of revenue merely on the ground that enquiry with return to a particular loss claimed by the assessee was not made.
Held:
(i) Two modes are provided under section 143(1) for making assessment. One is summary assessment without any enquiry and the other is scrutiny assessment making enquiry and on production of evidence. Both the options are given to the assessing officer and an order made by following one of the two alternative modes provided by the statute cannot be said to be erroneous or prejudicial to the interests of the revenue, entitling or giving jurisdiction to the Commissioner to invoke revisionary powers under section 263.
(ii) If, it is found that the assessment completed by the assessing officer was not in accordance with the provisions contained in section 143(1), it would be an erroneous order in law and could be set aside by the Commissioner by exercising the revisionary jurisdiction under section 263. That is not the case here. It is not the case of the Commissioner that while completing the assessment under section 143(1), the assessing officer had not taken into consideration the provisions of section 143(1) or had made an error in making the adjustments envisaged in clause (b) of section 143(1). The only ground on which the assessment was set aside is that the assessing officer had not made enquiries with respect to a particular loss claimed by the assessee which enquiry, is not permitted while making an assessment under section 143(1) as prescribed in Circular issued by the Directorate of Inspection (IT and Audit), New Delhi F. No. RAI/86-87/IT dt. 26-8-1987. The assessment order made by the assessing officer under section 143(1), having been made in accordance with the provisions contained in section 143(1), was not and could not be said to be erroneous or prejudicial to the interests of the revenue.--Circular No. 56 dt. 19-3-1971, Circular No. 281 dt. 22-9-1980 relied on.
Case Law Analysis:
Fisons Ispat Ltd. v. CIT (1992) 42 ITD 365 (Del-Trib)(SMC) applied.
Application:
Also to current assessment years.
Income Tax Act 1961 s.263 Income Tax Act 1961 s.143(1) Revision under s. 263--ERRONEOUS AND PREJUDICIAL ORDER--Assessment made in one of the two permissible methods.
Ratio & Held:
An assessment made by the assessing officer in one of two permissible methods prescribed under the law cannot be said to be erroneous or prejudicial to the interests of the revenue merely because adoption of the other method would have resulted in collection of larger revenue.
Case Law Analysis:
CIT v. Simon Carves Ltd. (1976) 105 ITR 212 (SC) and Venkatakrishna Rice Co. v. CIT (1987) 163 ITR 129 (Mad) followed.
Application:
Also to current assessment years.
Income Tax Act 1961 s.263 ORDER R.P. Garg, Accountant Member
1. This is an appeal by the assessee against the order of the Commissioner of Income-tax under Section 263 of the Income-tax Act, 1961, for assessment year 1985-86.
2. Assessment in this case was completed under Section 143(1) of the Income-tax Act on 25-9-1987 accepting the income declared in the return filed by the assessee. The CIT called for the record and noticed that the assessee had debited in the profit and loss account of Calcutta branch a sum of Rs. 5,56,793.80 towards loss of molasses at Ayodhya Kutch pits which was stated to be representing value of destroyed molasses. Noticing that a similar claim for subsequent assessment year 1986-87, was examined and disallowed by the Assessing Officer after establishing the same to be bogus and that as per the Central Excise Rules, the molasses was to be destroyed only under direction and supervision of the above authorities and finding that there was no such approval furnished by the assessee for the year under consideration, the CIT formed an opinion that the assessment was erroneous as it was completed without verifying the above aspect, which resulted in the assessment being prejudicial to the interests of the Revenue. After issuing a show-cause notice to the assessee, he set aside the order by observing in paragraph 3 of his order as under :
A careful consideration of the facts and circumstances prevailing in this case made me to understand that there is absolutely no case for the assessee to seek dropping of the proposed action. Molasses being an excisable commodity, the same cannot be destroyed without the knowledge of the Central Excise authorities. In the instant case, it is the assessee's claim before me that the loss was claimed on account of the destruction of molasses in view of the heavy rains. Even in such cases, it is necessary for the assessee to obtain the approval of the Excise authorities so as to make the claim of loss, which was not evidently done by the assessee. In my opinion, the observations of the CIT (Appeals) in the assessment year 1986-87 will not be helpful to the assessee in the year under consideration since the facts are different. In the case decided by the CIT (Appeals), the assessee was able to establish his stand that the destruction of the stock of molasses to the tune of M.T. 1,233.417 was subsequently approved by the Commissioner of Central Excise and in fact the appellate authority has taken note of the communications issued by the Commissioner of Central Excise. But, for the assessment year 1985-86, which is under consideration before me, there is no such approval from the Central Excise authorities. From the documents filed before me, the assessee has made a reference to the Assistant Collector of Central Excise, Calcutta, on 21-5-1987 bringing to his notice the loss of molasses of M.T. 2836.710 on 21-5-1987. It was mentioned in that letter that the assessee has paid the Duty on the quantity of M.T. 2836.710 also and requested the Excise authorities to approve this loss and refund the duty amount paid on the above quantity. In his reply dated 27-1-1988, the Asstt. Collector of Central Excise has informed the assessee that its request made in the petition dated 21-5-1987 could not be entertained since the Bond was released only after satisfying with the fulfilment of the necessary obligations. This clearly shows that the Central Excise authorities have not approved the loss claimed to have been incurred by the assessee. From this, it is clear that the facts of 1986-87 and 1985-86 were different. In view of this discussion, I hold that the action of the assessing authority in completing the assessment for 1985-86 on 21-5-1987 under Section 143(1) of the Act, without verifying the vital issue discussed above, has resulted the assessment in prejudice to the interests of revenue inasmuch as it is erroneous. I will therefore set aside the assessment for 1985-86 for being redone in accordance with law and in the light of my above observations.
3. Challenging the order of the CIT, the learned counsel of the assessee, Sri V. Seetharamaiah, contended that the initiation of the proceedings under Section 263 was based on the disallowance of similar claim for assessment year 1986-87 and the matter having been decided in favour of the assessee in that year by the CIT (Appeals), there remained nothing for exercising the jurisdiction under Section 263. He further submitted that the disallowance of a similar claim in the subsequent year did not form part of the record of the year under consideration and consequently it could not have formed the basis for initiation of proceedings under Section 263. The record of the year in dispute does not contain any such information on the basis of which it could be said that the claim made by the assessee was wrong. It was further contended that the assessment had been made by the Assessing Officer by invoking the provisions of Section 143(1) and those provisions did not permit any enquiry into the loss of this nature for completing the assessment. Under Section 143(1), the Assessing Officer has to make the assessment on the basis of the return filed by the assessee and he has been given a power to make adjustment only with respect to four items contained in Sub-clauses (i), (ii), (iii) and (iv) of Clause (b) of Sub -section (1) of Section 143. An enquiry about the claim by the assessee is not permitted thereunder. He, therefore, submitted that the exercising of jurisdiction under Section 263 by the CIT was not warranted. According to him, assessment made under Section 143(1) was final subject to proceedings initiated under Section 143(2) with the approval of the Inspecting Assistant Commissioner which were admittedly not resorted to. Reliance in this connection was placed on the decision of the Tribunal, Delhi Bench 'D' SMC, in the case of Fisons Ispat Ltd. v. Asstt. CIT [1992] 42 ITD 365, the discussion in the book "Income Tax Law by Chaturvedi and Pithisaria, 4th edition, Volume 3, page 3344, and the decision of the Patna High Court in the case of CIT v. Pushpa Devi [1987] 164 ITR 639, observation at 651, viz-, "If the rigours of enquiry and investigation had been relaxed by the scheme of the Board, the order of the Tribunal would have been perfectly justified".
4. Learned Departmental representative Sri P.T.N. Chari, on the other hand, submitted that the Assessing Officer had completed the assessment in a haste without making any enquiries whatsoever and, therefore, in view of the decision of the Karnataka High Court in the case of Thalibai F. Jaia v. ITO [ 1975] 101 ITR 1, referred to in the decision of the Patna High Court in Pushpa Devi's case (supra), it was an order made without making any enquiry and accordingly erroneous and prejudicial to the interests of the Revenue. According to the learned departmental representative, the proceedings under Section 263 and under Section 143(2) are parallel, and both can be resorted to simultaneously as also alternatively. The procedure contemplated in Sub -section (2) of Section 143 had become barred by limitation and, therefore, the only recourse open to the department was to initiate proceedings under Section 263. He relied on the decision of the Patna High Court referred to above and contended that as in that case an assessment made under Section 143(1) can be set aside under Section 263 if it was erroneous in so far as it was prejudicial to the interests of the Revenue. In assessment year 1986-87, the claim of the assessee was allowed by the CIT (Appeals) as the assessee was able to establish its stand for that year that the destruction of stock of molasses was subsequently approved by the Commissioner of Excise and in fact the CIT (Appeals) had taken note of the communications issued by the Commissioner of Excise. That order, he submitted, would be of no help to the assessee. Further, there is no similar approval from the Central Excise authorities in this year. On the contrary, the assessee in this year had paid excise duty on the alleged destroyed quantity of molasses of 2,836.710 MT and its request for approval of the loss and refund of the duty paid was not entertained and the Bond was released only after the excise authority concerned was satisfied about the fulfilment of the necessary obligations. This, according to him, clearly showed that the Central Excise authorities have not approved the loss claimed to have been incurred by the assessee. He, therefore, submitted that the action of the Assessing Officer in completing the assessment without verifying the vital issue discussed in the order of the CIT had resulted in the assessment being prejudicial to the interests of the Revenue inasmuch as it was erroneous and accordingly the CIT was perfectly justified in setting aside the assessment for being redone.
5. We have heard the parties and considered their rival submissions. Section 263 provides that the Commissioner may call for and examine the record of any proceeding under the Income-tax Act and if he considers that any order passed therein by the Assessing Officer is erroneous in so far 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. To invoke the jurisdiction under Section 263, the order of the Assessing Officer should not only be found erroneous but also prejudicial to the interests of the Revenue. Both the factors must co-exist and if one of them is absent, the CIT cannot validly exercise the jurisdiction under Section 263 - Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC). Neither the term 'erroneous' nor the expression 'prejudicial to the interests of revenue' is defined in the section or the Act. A faulty or mistaken view of a particular point reached by omission or commission contrary to the provision of a law or the facts on record would be an error and any order containing such an error would be 'erroneous'. In other words, the error may be of law or of fact and on a fair reading of the provisions of Section 263 and must arise from the record of any proceeding examined by the CIT. The expression 'prejudicial to the interests of revenue' on a first blush gives an impression that it refers to monetary prejudice, i.e., lower collection of revenue by taking a particular stand. But, on a deeper thought, one finds that it need not necessarily be or at all be in monetary terms; it may be a position taken contrary to and in violation of law. In the case of Tara Devi Aggarwal (supra), income was assessed in the hands of a person other than one to whom it belonged and it was held to be an order prejudicial to the interests of the Revenue even though there was no tax effect by assessing the income in the hands of the former. It is also, on the contrary, a trite law that an assessment made without enquiry or evidence and in undue haste would be an assessment erroneous and prejudicial to the interests of the Revenue. This is in view of the decision of the Karnataka High Court in the case of Thalibai F. Jain (supra), Delhi High Court in the case of Gee Vee Enterprises v. AddL CIT [1975] 99 ITR 375, and the Patna High Court in the case of Pushpa Devi (supra).
6. It may further be noted that under Section 263, what the CIT has to consider is whether the order passed by the Assessing Officer in the proceeding under the Income-tax Act is erroneous in so far as it is prejudicial to the interests of the Revenue and not whether the Assessing Officer should have elected to pass an order under a particular section when the other mode of assessment was available under the Act. In our opinion, the CIT has no power to control the discretion of the Assessing Officer to elect one mode of assessment. His jurisdiction is to see whether an order passed by the Assessing Officer is erroneous or not. If the Assessing Officer has completed an assessment in accordance with the provisions of law, the same cannot be set aside by stating that it is erroneous or prejudicial to the interests of the Revenue.
7. A similar situation came up for discussion before their Lordships of the Supreme Court in the context of reopening under Section 147(b) of the Act in the case of CIT v. Simon Carves Ltd [1976] 105ITR 212. In that case, the Income-tax Officer completed the original assessment in the case of a person residing outside the taxable territory, by adopting one of the methods prescribed in rule 33 of the Indian Income-tax Rules, 1922. Subsequently, the ITO reopened the assessment under section 147(b) of the Income-tax Act, 1961, and applying a different method permissible under the said rule, determined the income of the assessee at a higher figure. Referring to the provisions of rule, their Lordships of the Supreme Court held that the said rule made it clear that if other conditions mentioned in the rule were satisfied, it would be open to the ITO in computing the income, profits or gains to apply one of the three methods mentioned in the rule. Noticing the fact that there was nothing to show that the discretion was not exercised by him in a proper or judicious manner nor was it suggested that the ITO was actuated by some oblique motive, their Lordships held that from the mere fact that the method selected by him was such as resulted in lower tax liability to the assessee compared to the liability which would have resulted from the adoption of other method, it would not follow that the discretion was not exercised in a proper and judicious manner. The order made by the ITO at the time of original assessment was held to be a legally correct order and not vitiated by any error. Their Lordships further held that the absence of an error in that order would justify the inference that the case before them was not a case of income escaping assessment. The ITO ordering reassessment, it was held, does not sit as a court of appeal over the ITO making the original assessment, nor is it open to the ITO ordering reassessment to substitute his own opinion regarding the method of computing the income for that of the ITO who made the original assessment, especially when the method of computation adopted at the time of original assessment was permissible in law. The taxing authorities, their Lordships observed, exercise quasi-judicial powers and in doing so they must act in a fair and not a partisan manner. Although it is part of their duty to ensure that no tax which is legitimately due from an assessee should remain unrecovered, they must also at the same time not act in a manner as might indicate that scales are weighted against the assessee.
8. A similar type of case came up before the Madras High Court in VenkatakrishnaRiceCo.v. CIT [1987] 163 ITR 129 under Section 263 itself. In that case, it was held that under the scheme of the Income-tax Act, an association of persons and its members are two distinct entities and the Income-tax Officer has a choice of either assessing the association as a whole on its total income or alternatively assessing the respective share income of the individual members. Therein, the ITO made an assessment on the share income of the assessee-firm from a joint venture by exercising his option of assessment which was valid in law and in accordance with law. The order was set aside by the Commissioner of Income-tax by invoking the provisions of Section 263 on the score that the ITO's action in so far as he brought to charge the assessee's share income from the joint venture was prejudicial to the interests of the Revenue, which according to him, the ITO should have assessed in the hands of the AOP as a whole. On these facts, the Madras High Court held that they failed to understand how an assessment, which was in accordance with the law, could at all be regarded as erroneous, let alone prejudicial to the interests of the Revenue. Their Lordships thought it axiomatic that any assessment, which was in accordance with law, could not, in the same breath, be regarded as erroneous, and if the assessment was not erroneous, it could not be prejudicial to the interests of the Revenue or for that matter to the interests of the assessee as well. This is, their Lordships clarified, on the principle that nothing can be prejudicial either to the Department or to the assessee if it is in accordance with the law, unless it be that the law itself is being questioned on some ground or other, which objection is available under some provision or other of the Constitution. In the said judgment, the scope of interference under Section 263 was stated in the following words (from head notes) :
The scope of interference under Section 263 is not to set aside merely unfavourable orders and bring to tax some more money to the treasury nor is the section meant to get at sheer escapement of revenue which is taken care of by other provisions in the Act. The prejudice that is contemplated under Section 263 is prejudice to the income-tax administration as a whole. Section 263 is to be invoked not as a jurisdictional corrective or as a revenue of a subordinate's order in exercise of the supervisory power but it is to be invoked and employed only for the purpose of setting right distortions and prejudices to the Revenue which is a unique conception which has to be understood in the context of and in the interest of revenue administration. Such a power cannot in any manner be equated to or regarded as approaching in any way the appellate jurisdiction or even the ordinary revisional jurisdiction conferred on the Commissioner under Section 264.
9. On a careful reading of the two decisions referred to above, we are of the opinion that an assessment made by the Assessing Officer in one of the two permissible methods prescribed under the law cannot be said to be erroneous or prejudicial to the interests of the Revenue merely because adoption of the other method would have resulted in collection of larger revenue. We have, therefore, to see whether the assessment made by the Assessing Officer by having resort to the provisions of subsection (1) of Section 143 was erroneous in so far as it was prejudicial to the interests of the Revenue.
10. The provisions of Section 143, laying down the procedure for assessment, stood originally as under :
143. Assessment.(1) Where a return has been made under Section 139 and the Income-tax Officer is satisfied without requiring the presence of the assessee or the production by him of any evidence that the return is correct and complete, he shall assess the total income or loss of the assessee, and shall determine the sum payable by him or refundable to him on the basis of such return.
(2) Where a return has been made under Section 139 but the Income-tax Officer is not satisfied without requiring the presence of the assessee or the production of evidence that the return is correct and complete, he shall serve on the assessee a notice requiring him, on a date to be therein specified, either to attend at the Income-tax Officer's office or to produce, or to cause to be there produced, any evidence on which the assessee may rely in support of the return.
(3) On the day specified in the notice issued under Sub -section (2), or as soon afterwards as may be, the Income-tax Officer, after hearing such evidence as the assessee may produce and such other evidence as the Income-tax Officer may require on specified points, and after taking into account all relevant material which the Income-tax Officer has gathered, shall, by an order in writing, assess the total income or loss of the assessee, and determine the sum payable by him or refundable to him on the basis of such assessment.
Under these provisions, two modes of assessment are provided : one is without requiring the presence of the assessee or the production of evidence when the Income-tax Officer is satisfied about the correctness and completeness of the return and such an assessment to be made on the basis of the return; the other is to issue notice under Sub -section (2) and make the assessment under Sub -section (3) after taking into consideration the material brought on record. An assessment under the first mode can be made only when the officer was satisfied about the correctness and completeness of the return, and for that the officer has to arrive at satisfaction about the correctness and completeness of the return. The application of mind was envisaged and an opinion was required to be formed about the correctness and completeness of the return. If obvious errors were noted, the officer could not proceed under Section 143(1) and was obliged to issue a notice under Section 143(2) and make an assessment under Section 143(3) of the Act.
11. With a view to rationalising the procedure and enabling the administration to speed up the work of regular assessment in the bulk of cases which do not involve any substantial point of dispute, this section was recast by Section 30 of the Taxation Laws (Amendment) Act, 1970, with effect from 1-4-1971 as under :
143. Assessment.(l)(a) Where a return has been made under Section 139, the Income-tax Officer may, without requiring the presence of the assessee or the production by him of any evidence in support of the return, make an assessment of the total income or loss of the assessee after making such adjustments to the income or loss declared in the return as are required to be made under Clause (b), with reference to the return and the accounts and documents, if any, accompanying it, and for the purposes of the adjustments referred to in Sub-Clause (iv) of Clause (b), also with reference to the record of the assessments, if any, of past years,and determine the sum payable by the assessee or refundable to him on the basis of such assessment.
(b) In making an assessment of the total income or loss of the assessee under Clause (a), the Income-tax Officer shall make the following adjustments to the income or loss declared in the return, that is to say, he shall,
(i) rectify any arithmetical errors in the return, accounts and documents referred to in Clause (a);
(ii) allow any deduction, allowance or relief which, on the basis of the information available in such return, accounts and documents, is, prima facie, admissible, but is not claimed in the return;
(iii) disallow any deduction, allowance or relief claimed in the return which, on the basis of the information available in such return, accounts and documents, is, prima facie, inadmissible;
(iv) give due effect to the allowance referred to in Sub -section (2) of Section 32, the deduction referred to in Clause (ii) of Sub -section (2) of Section 33 or Clause (n) of Sub -section (2) of Section 33A or Clause (i) of Sub -section (2) of Section 35 or Sub -section (1) of Section 35A or Sub -section (1) of Section 35D or Sub -section (1) of Section 35E or the first proviso to Clause (ix) of Sub -section (1) of Section 36, any loss carried forward under Sub -section (1) of Section 72 or Sub -section (2) of Section 73 or Sub -section (1) of Section 74 and the deficiency referred to in Sub -section (3) of Section 80J, as computed, in each case, in the regular assessment, if any, for the earlier assessment year or years.
(2) Where a return has been made under Section 139, and
(d) an assessment having been made under Sub -section (1), the assessee makes within one month from the date of service of the notice of demand issued in consequence of such assessment, an application to the Income-tax Officer objecting to the assessment, or
(b) whether or not an assessment has been made under Sub -section (1), the Income-tax Officer considers it necessary or expedient to verify the correctness and completeness of the return by requiring the presence of the assessee or the production of evidence in this behalf, the Income-tax Officer shall serve on the assessee a notice requiring him, on a date to be therein specified, either to attend at the Income-tax Officer's office or to produce, or to cause to be there produced, any evidence on which the assessee may rely in support of the return :
Provided that, in a case where an assessment has been made under Sub -section (1), the notice under this sub-section [except where such notice is in pursuance of an application by the assessee under Clause (a)] shall not be issued by the Income-tax Officer unless the previous approval of the Inspecting Assistant Commissioner has been obtained to the issue of such notice :
** ** ** Under this amended procedure, the Assessing Officer is given a discretion to complete the assessment without requiring the assessee's presence or the production of evidence and without even being satisfied that the return was correct or complete. The Assessing Officer has to apply his mind only with regard to four adjustments as mentioned in Clause (b) of Sub -section (1) of Section 143 aforesaid. An assessment made under this amended procedure can be opened and remade at the instance of the assessee objecting to the assessment within one month. It can also be opened at the proposal of the Assessing Officer but subject to approval by the Inspecting Assistant Commissioner. In other words, subject to these two exceptions, the assessment so made is final.
12. The scope of the amended provision is stated in Circular No. 56 dated 19-3-1971 in the following words :
4. With a view to enabling the administration to speed up the work of regular assessments in the bulk of cases which do not involve any substantial point of dispute, while guarding against leakage of revenue in cases where the income declared in the return happens to be grossly understated, Section 143 of the Income-tax Act has been replaced by a new section. Under Sub -section (1) of Section 143 as substituted, it will be open to the Income-tax Officer, after receipt of the return of income, to make a regular assessment without requiring the presence of the assessee or the production by him of any evidence in support of the return, and without being satisfied that the return is correct and complete in all respects. In making such a 'summary' assessment, the Income-tax Officer will have the authority to make certain adjustments to the income or loss declared in the return. These adjustments will be by way of:
(i) rectifying any arithmetical errors in the return and the accounts and documents, if any, accompanying it;
(ii) allowing any deduction, allowance or relief which, on the basis of the information available in such return, accounts and documents, is, prima facie, admissible though not claimed in the return; and
(iii) disallowing any deduction, allowance or relief claimed in the return but which, on the basis of the information available in such return, accounts and documents, is, prima facie, inadmissible.
The Income-tax Officer will also be required, in making a summary assessment, to give due effect to the deduction on account of unabsorbed depreciation brought forward from the preceding assessment year under Section 32(2); unabsorbed development rebate brought forward under Section 33(2)(ii); unabsorbed development allowance under Section 33A(2)(ii); the appropriate instalment of capital expenditure incurred on scientific research prior to 1-4-1967 under Section 35(2)(i); capital expenditure on acquisition of patent rights and copyrights under Section 35A(1); certain preliminary expenses which are amortisable against profits under new Section 35D(1); expenditure on prospecting for or development of specified minerals amortisable against profits under new Section 35E(1); capital expenditure on family planning incurred by an Indian company under the first proviso to Section 36(l)(ix); unabsorbed losses brought forward from the earlier years which are admissible as a set off under Section 72(1) or Section73(2) or Section 74(1); and the deficiency in 'tax holiday' profits which is eligible for set off under Section 80J(3). The amount to be allowed in the summary assessment in regard to these items is to be based on the computation made in the regular assessment, if any, for the earlier assessment year or years. [It may, however, be noted that in making a summary assessment, the record of past assessments in the case of the assessee may be referred to only for the purpose of making the adjustments mentioned in Section 143(l)(b)(iv), and these cannot be made use of for any other purpose. For instance, it is not open to the Income-tax Officer to make an addition to the profit by applying a higher rate of gross profit than that shown in the books, even though in the earlier year's assessment the profit was estimated in this manner and was confirmed in appeal. Similarly, it will not be open to the Income-tax Officer while making a summary assessment to disallow any claim in respect of interest on loans even though the amounts on which interest is claimed to have been paid were added to the assessee's income in a past assessment as unexplained cash credits.] The assessment made under Section 143(1) will be final, except where proceedings are initiated under Section 143(2) for making a fresh assessment.
and also in circular No. 281 dated 22-9-1980, para 27.2 of which reads as under:
27.2 The assessment made under the summary assessment scheme in the aforesaid manner is final except where the proceedings are initiated for making a fresh assessment. Where an assessee objects to the summary assessment made by the Income-tax Officer by making an application within the specified period of one month, it is incumbent on the Income-tax Officer to reopen the assessment by issuing the necessary notice calling upon the assessee to produce the books of account and other evidence in support of the return. The Income-tax Officer is also empowered to issue a notice in cases where an assessment has been completed under Section 143(1). However, the issue of a notice in such cases is subject to the requirement that prior approval of the Inspecting Assistant Commissioner has been obtained. The basis for the issue of such a notice is that the Income-tax Officer considers it necessary or expedient to verify the correctness and completeness of the return by requiring the presence of the assessee or the production of evidence in this behalf.
13. Sub-clauses (ii) and (iii) of Clause (b) of Sub -section (1) of Section 143 were deleted by Finance Act, 1980, with effect from 1-4-1980 and the object of this was explained in circular No. 281 dated 22-9-1980 in paragraphs 27.3 and 28.1 as under :
27.3 The revised procedure of assessment known as 'summary assessment scheme' has been in operation for the last one decade. It was felt that the objective of making the assessment without requiring the presence of the assessee to produce the books of account and other evidence in support of the return of income and thereby ensuring expeditious completion of the bulk of assessment has not been fully realised. This can be ascribed to two main reasons, namely :
(i) In some cases, returns of income are not properly filled in and are not accompanied by all documents necessary for the completion of assessments.
(ii) Considerable time is taken in determining whether adjustments of the nature referred to in items (i) to (iv) of paragraph 27.1 are required to be made.
In order to speed up the completion of assessments, the Finance (No. 2) Act, 1980, has amended Section 139 and Section 143 of the Income-tax Act. The amendment to Section 143(1) is discussed in paragraph 28.
28.1 As stated in paragraph 27.3, one of the main icasons for the inadequate success of the 'summary assessment scheme' is that considerable time is taken in determining whether adjustments of the nature referred to in Sub-clauses (i) to (iv) of Clause (b) of Section 143(1) are required to be made. Experience has also shown that while there are number of cases which require rectification of arithmetical errors in the return or the proper adjustment of brought forward allowances or losses, only in a very few cases, the deductions admissible to the assessee were not claimed or that incorrect deductions or allowances were claimed. The Finance (No. 2) Act, 1980, has omitted the requirement of making adjustments under Sub-clauses (ii) and (iii) of Clause (b) of Section 143(1). It will, therefore, not be open to the Income-tax Officer to make adjustments in respect of any deduction, allowance or relief which, although admissible, is not claimed or having been claimed is, in fact, not admissible. The existing provisions in Sub-clauses (i) and (iv) of the said Clause (b) requiring rectification of arithmetical errors in the return and accompanying documents, as also the provisions in regard to proper deduction of brought forward losses and allowances have, however, been retained.
Sub-section (9) was introduced in Section 139 as a sequel of this, whereunder the Assessing Officer has been given power to get defective returns rectified by calling upon the assessee to do so, and if the defect is not rectified, consider the return as invalid. The defects which are required to be rectified by the assessee are given in the Explanation thereunder. We are not concerned with the details of such items. They are, therefore, not being reproduced or discussed here.
14. From the above, it is clear that the two modes are provided under the Act for making an assessment - one is on the basis of the return under Section 143(1) without any enquiry or production of evidence on any issue, and the other by issuing notice, making enquiry and on production of evidence. In the first category, no satisfaction about the correctness or completeness of the return is to be formed and the assessment is to be completed only on the basis of the return subject to certain adjustment under Clause (b) of Section 143(1). In the second category, however, the assessment is to be made by issuing notice and upon satisfaction reached after calling for, and on the basis of, evidence adduced by the assessee. Both the options are given to the Assessing Officer and, therefore, in view of the two decisions in the cases of Simon Carves Ltd. (supra) and Venkatakrishna Rice Co. (supra), an order made by following one of the two alternative modes provided by the statute cannot be said to be erroneous or prejudicial to the interests of the revenue, entitling or giving jurisdiction to the CIT to invoke revisionary powers under Section 263.
15. If, however, it is found that the assessment completed by the Assessing Officer was not in accordance with the provisions contained in Section 143(1), it would be an erroneous order in law and could be set aside by the CIT by exercising the revisionary jurisdiction under Section 263. That is not the case here. It is not the case of the CIT that while completing the assessment under Section 143(1), the Assessing Officer had not taken into consideration the provisions of Section 143(1) or had made an error in making the adjustments envisaged in Clause (b) of Section 143(1). The only ground on which the assessment was set aside is that the Assessing Officer had not made enquiries with respect to a particular loss claimed by the assessee which enquiry, in our opinion, is not permitted while making an assessment under Section 143(1). We may, in this connection, refer to the circular issued by the Directorate of Inspection (IT and Audit), New Delhi, F. No. RAI/86-87/IT dated 26-8-1987, referred to in the decision of the Delhi Bench of the Tribunal in the case of Fisons IspatLtd. (supra), relied upon by the learned counsel of the assessee. It reads as under :
This Directorate had received several references from different Commissioners seeking guidance as to whether remedial action under Section 263 could be taken in cases completed under 'Nummary Assessment Scheme' where glaring and apparent mistakes in computation of income have been detected resulting in substantial loss of revenue. For instance, CIT Poona had cited a case where partnership firm had claimed a wrong deduction of Rs. 2.34 lacs in respect of medical expenses on the treatment of a partner. In another case a totally incorrect deduction in respect of investment allowance was claimed by a firm and allowed under Section 143(1). On a reference made by the Directorate to the Board seeking clarification as to whether provision of Section 263 should be invoked in such cases, the Member (R & A) has observed as under:
No remedial action is necessary in summary assessment cases, as the revenue loss if any is consciously suffered by the Government to utilise resources for scrutiny and investigations of larger cases. In such cases, CIT should only inform Audit that the cases are completed under the Summary Assessment Scheme.
The above observations of the Member (R & A) reflect the views of the Board on the subject and are being brought to the notice of all the Commissioners of Income-tax for their information and guidance.
A perusal of this circular shows that this reflected the view of the CBDT about the provisions of Section 143( 1) - a view which we have taken in our order. A remedial action is provided in Section 143(2) itself and is to be taken by the Assessing Officer with the approval of the Inspecting Assistant Commissioner. That action has not been taken in this case nor is it a subject-matter of our consideration. Suffice it to say for disposal of this case that the assessment order made by the Assessing Officer under Section 143(1) having been made in accordance with the provisions contained in Section 143(1) as they stood at the relevant time, was not and could not be said to be erroneous or prejudicial to the interests of the revenue.
16. Before parting with the case, it may be stated that we, on a careful reading of the order of the CIT under Section 263, found that the assessment was set aside by him, not on the ground that a similar claim was disallowed in the subsequent assessment year or that the subsequent year's information formed part of the record for the year under consideration, but on the ground that the assessment was made by the Assessing Officer without making any enquiry regarding the claim of loss of molasses destroyed. Reference to the proceedings for assessment year 1986-87 was only by way of information to call for the record and examine whether a similar enquiry was made in the year by the Assessing Officer or not. The objection of the assessee challenging the order of the CIT on this score, therefore, has no force.
17. In this view of the matter, we need not go into the merits of the case whether the loss claimed by the assessee is allowable as a deduction.
18. We accordingly set aside the order of the CIT and restore that of the Assessing Officer.
19. In the result, the appeal is allowed.