Income Tax Appellate Tribunal - Lucknow
Sahara India Savings & Investment ... vs Asstt. Cit on 15 July, 2003
Equivalent citations: (2004)90TTJ(LUCK)878
ORDER
P.N. Parashar, J.M.:
The assessee has filed this appeal to challenge the order of learned Commissioner (Central), Kanpur, dated 22-3-1999, passed under section 263 of IT Act, 1961, (hereinafter referred to as the 'Act') on various grounds. Before dealing with the issues involved in the grounds of appeal, we consider it proper to briefly narrate the relevant facts leading to the passing of the order under section 263 of the Act, and subsequent thereto.
2. These facts are as under
(i) The assessee, namely, Sahara India Savings & Investment Corporation Ltd. (SISICOL), was carrying on the business of para-banking through its firm M/s. Sahara India as its agent. During assessment year 1994-95 the assessee collected deposits worth Rs. 2,89,85,79,013 under various schemes and through various branches of its agent firm.
(ii) For assessment year 1994-95, the assessee showed nil income in the return filed on 16-2-1995. This return was processed under section 143(1)(a) of IT Act, 1961, on 16-3-1995. Thereafter a notice under section 143(2) was issued and in compliance to this notice, assessee filed return showing profit of Rs. 1,41,93,275. The assessing officer made enquiries on various aspects and also sought verification from the assessee about deposits, claim of interest, expenses, service charges, liability of interest and on many other points and completed the assessment on a total income of Rs. 1,63,40,89,400 vide assessment order dated 27-3-1997 passed under section 144 of the Act. For computing this income, the assessing officer made additions and disallowances on several counts.
(iii) The assessee assailed the assessment order before the learned Commissioner (Appeals) by taking various grounds. The learned first appellate authority passed-a detailed order dt. 15-2-1998, running into 101 pages. He discussed various issues, additions and disallowances and allowed appeal partly by giving relief to the appellant against certain additions. An order under section 154, dated 21-2-1998, was also passed by him against the order of assessing officer dated 9-7-1997. Another order dated 28-12-1998, was also passed under section 154.
(iv) Thereafter, the proceedings were initiated under section 263 of the Act. The learned Commissioner issued a notice dated 29-1-1999 under section 263 of the Act. Through this notice, it was pointed out that the assessing officer did not properly adjudicate the issue relating to the genuineness of the deposits and, therefore, his order was erroneous and prejudicial to the interests of the revenue inasmuch as no addition was made by him under section 68 of the Act for ingenuine and unverified deposits. The assessee was required to offer its comments against proposal to take action under section 263 and for issuing directions to the assessing officer on the subject of verification and genuineness of the deposits under various deposit schemes. The Commissioner required the assessee to submit reply by 18-2-1999.
(v) Thereafter a second notice was issued under section 263, by the Commissioner on 22-2-1999. Through this notice, the Commissioner sought to revise the assessment order dated 27-3-1997, on another ground which related to provision of interest being at Rs. 1,38,58,194 claimed under Super 91 Scheme and Rs. 16,99,45,451 on other schemes-total amount being at Rs. 18.38 crores during the assessment year 1994-95. The assessee was required to show-cause as to why the assessment order should not be set aside on the point of allowance or disallowance of interest also.
(vi) The assessee filed a combined reply dt. 15-3-1999, against the two notices referred to above.
(vii) The learned Commissioner after considering the material and the reply of the assessee, passed order under section 263 of the Act on 22-3-1999 and set aside the assessment order on the following two issues.
a : Verification and genwneness of the deposits : His direction on this issue is as under :
"I am, therefore, of the opinion that the order of the assessing officer on the limited issues of verification and genuineness of deposits requires to be set aside so that he can arrive at the quantum of addition under section 68 of the IT Act, 196 1.
b. Liability of interest : His direction on this issue is as under :
"I, therefore, am of the opinion that the assessment made by the assessing officer on'this limited point of allowance/disallowance of interest deserves to be set aside and restored to his file."
3. In the setting of the above factual background, we proceed to deal with the grounds of appeal. The assessee filed against the order of learned Commissioner (Appeals) on 21-5-1999, by taking as many as 24 grounds. Since the elaborate grounds taken in this appeal, are argumentative and also repetitive, we do not consider it proper to burden this order by reproducing the same. However, we consider it proper to frame following issues to cover up the grounds of appeal :
A. Whether assumption of jurisdiction, by Commissioner while passing the order under section 263 without examination of record, was invalid and illegal as alleged by the assessee. (Ground Nos. 1, 3 & 24).
B. Whether assessment order dt. 27-3-1997 was not liable to be set aside under section 263 as it was neither erroneous nor prejudicial to the interests of the revenue. (Ground Nos. 2 & 5 to 13).
C. Whether no order under section 263, could be legally passed against the assessment order which had merged with the order of Commissioner (Appeals) (Ground No. 4).
D. Whether the manner in which the Commissioner exercised jurisdiction under section 263 was erroneous. If so, its effect (Ground Nos. 14 & 16).
E. Whether the order under section 263 was not justified for setting aside the issue relating to liability on account of interest on deposits (Ground Nos. 17 to 23).
The above issues have been framed for the sake of brevity and convenience. While deciding various issues involved in the ground of appeal, we shall take up the pleadings of the assessee incorporated in the grounds of appeal.
Whether assumption of jurisdiction while passing the order under section 263 without examination of record was invalid and illegal (Ground Nos. 1, 3 & 24).
4.1 Learned counsel for the assessee, Shri SE Dastur, at the outset, submitted that the issue involved in ground Nos. 1, 3 & 24 of this appeal is covered by the order of Tribunal in the case of Sahara India Mutual Benefit Co. Ltd. v. Asstt. CIT for asst. yr. 1994-95 rendered in ITA No. 509/Alld/1999 [reported at (2002) 74 TTJ (All) 67-Ed.]. In this regard, he invited our attention to the order of 'Tribunal, Allahabad Bench B, a copy of which has been placed in paper book of the assessee at pp. 253 to 350. According to the learned counsel ground Nos. 1, 3 and 13 taken in ITA No. 509/Alld/1999 are similar, rather identical to ground Nos. 1, 3 and 24 of this appeal and, therefore, the finding of Tribunal, Allahabad Bench 'B' recorded in that case on issue No. 1 formulated by that Bench should be followed in this case on the same issue and consequently the notices issued under section 263, as well as the order passed under section 263 should be quashed as the decision of the earlier Bench on the same facts and on the same issue is binding on this Bench.
4.2 Against the above submission of the learned counsel for the assessee, the learned special counsel, Shri Anand Prakash, advocate, appearing for the department, took serious preliminary objections. He pointed out that the order of Tribunal, Allahabad Bench, in ITA No. 509/Alld/1999 was not accepted by the Department as misc. application has been filed against that order by the Department. He also pointed out that while formulating issue No. 1 in ITA No. 509/Alld/1999, the Tribunal has gone beyond its power in framing an issue which did not arise from the grounds taken in that appeal by the assessee inasmuch as the assessee had not challenged the initiation of proceedings under section 263 or validity of notice issued under section 263 but only challenged the framing of order passed under section 263. The submission of learned special counsel was that since relevant facts have been placed on record in this case relating to examination of record by the learned Commissioner before passing the order under section 263, which were not placed before that Bench in that case and further since the order of Tribunal rendered in ITA No. 509/Alld/1999 in the case of "Mutual" cannot be treated to be final, as miscellaneous application has been filed against that order, the issue should be independently decided by this Bench on merits. It was further submitted by him that, since the assessee has not taken specific grounds to challenge the initiation of proceedings under section 263 in this appeal also, it should not be allowed to argue a ground which has not been taken in the appeal. It may be pointed out that the above pleas were taken by the learned counsel vide application dt. 1-11-2001, during the course of hearing of this appeal. In the written application, it has been averred that ground Nos. 1 & 24 taken in this appeal should not be decided after following the decision of Tribunal Allahabad Bench on issue No. 1 in ITA No. 509/Alld/1999, because these grounds do not, in terms, raise the question of validity of initiation of proceedings under section 263 by the Commissioner (Central), Kanpur. On this application, the Bench had passed the order to the effect that the arguments and the information contained in this application shall be considered along with the other material at the time of writing of the order. With this direction, the application has been kept on record. The learned counsel also filed a copy of application dt. 31-10-2001, which is in the form of Misc. Appln. in ITA No. 509/Alld/1999. This application has been filed to show that the order of the Bench in that case should not be provided to be a final order having binding effect, particularly on ground No. 3.
4.3 Against the above preliminary objection, the learned counsel for the assessee submitted that in ITA No. 509/Alld/1999, the assessee took similar grounds but no such objection was raised in that appeal. According to him, even in this appeal, no such objection was taken by the Department till the stage of arguments, although Department filed paper book in support of its stand much earlier.
4.4 Shri Dastur thereafter, submitted detailed arguments and contended that the learned Commissioner had no opportunity to examine the assessment order and other materials before issuing notice dated 29-1-1999, nor before issuing second notice dt. 22-2-1999 and thus the assumption of jurisdiction by him under section 263 was not legally justified. In order to substantiate this argument, the learned counsel tried to demonstrate that the record was not available to the Commissioner before issuing the two notices and since the proceedings under section 263 were initiated without examining the record, the notices issued under section 263 were vitiated and consequently the order passed under section 263 is liable to be quashed. The learned counsel, in this regard, also made reference to the detailed enquiry conducted by the Tribunal, Allahabad Bench 'B', for ascertaining the fact regarding the availability of the record to the Commissioner before initiating proceedings under section 263. According to him, the relevant facts are similar in both the cases and as both of these appeals, i.e., ITA No. 509/Alld/1999 (Mutual Case) and ITA No. 510 (SISICOL), i.e., the present appeal, were being heard together, the enquiry conducted by the Bench in that case and findings recorded on this issue, have become very significant and relevant for deciding the issue. On legal plane, the contention of the learned counsel for the assessee was that a close reading of section 263 shows that before passing order under section 263, the Commissioner is required to examine and consider the 'record' and 'record' means not only assessment order but entire available material which in the present case also included grounds of appeal, submissions made by the parties before the learned Commissioner (Appeals), documents filed before him and order of learned Commissioner (Appeals), dt. 22-3-1999, as well as subsequent orders passed by him. According to him, while issuing first notice, the Commissioner has merely considered the proposal of Asstt. Commissioner and at the most assessment order and nothing more and while issuing the second notice, there was nothing before him except the proposal. The learned counsel also submitted that without examination of the record, the Commissioner cannot reach to the satisfaction that the assessment order is erroneous and prejudicial to the interests of the revenue and if the material itself is not found to be available, the question of examination and application of mind for consideration of the same, does not arise. The learned counsel vehemently reiterated that various entries on order sheets go to show that the Commissioner did not call for the record nor considered the same before issuing the notices and, therefore, the assumption of jurisdiction by him cannot be legally justified. In support of this argument, the learned counsel placed reliance on several authorities.
4.5 On the other hand, the contention of the learned special counsel for the Department was that assumption of jurisdiction under section 263 is anterior in point of time to the issuance of notice and, therefore, validity of notice cannot be challenged on this ground. According to him, as soon as the Commissioner considers that the order is erroneous and prejudicial to the interests of Revenue, he assumes jurisdiction. He further pointed out that there is no condition precedent and no notice is required to be sent to the assessee before assumption of jurisdiction. He is also not required to record reasons for satisfaction as is required while exercising jurisdiction under section 148. In support of this argument, the learned special counsel placed reliance on the following decisions
(i) CIT v. Electro House (1971) 82 ITR 824 (SC)
(ii) Renusagar Power Corporation Ltd. v. CIT (1998) 234 ITR 782 (All)
(iii) CIT v. Bhagat Shyam & Co. (1991) 188 ITR 608 (All)
(iv) Birumal Pyarelal v. Asstt. CIT (2001) 79 ITD 169 (Chd).
On facts, it was further submitted by him that vide letter dt. 14-1-1999, the assessing officer had brought to the notice of Commissioner that the order of assessment was erroneous and prejudicial to the interests of the revenue inasmuch as the assessing officer has left the enquiry into the nature and source of deposits, incomplete and failed to make any addition under section 68. According to the learned counsel, even the order of Commissioner (Appeals) was gone through while passing the order under section 263 and thereafter the opinion of senior standing counsel of the Department, namely, Shri Bharat Ji Agarwal, advocate, was obtained on the point of merger of assessment order with the order of Commissioner (Appeals) and, thus, it is clear that the learned Commissioner has considered the assessment order, the letter of assessing officer dt. 14-1-1999 containing his proposal for initiating action under section 263, the finding of Commissioner (Appeals) and the opinion of senior standing counsel and after considering this material, he assumed jurisdiction under section 263 and therefore, there is no basis for the contention made on behalf of the assessee that the record was not considered before assuming jurisdiction under section 263.
4.6 Regarding the second notice dt. 22-2-1999, it was submitted by him that the assessing officer had not considered the allowability of interest under section 36(1)(iii) in respect of unclaimed, lapsed, defaulted deposits and, therefore, on this point also show-cause notice was issued. It was contended by the learned special counsel that since Commissioner has already assumed jurisdiction under section 263 on or about 27-1-1999, he was not required to assume jurisdiction again on 22-2-1999 and all that was required at this stage was to provide an opportunity to the assessee which was done by issuing the notice dt. 22-2-1999.
5. We have carefully considered the facts and circumstances relating to this matter and entire material on record. The assessee has, in fact, challenged the order dt. 22-3-1999 passed under section 263 of the Act on facts and in law. It is clear on perusal of ground Nos. 1, 3 & 24, which are as under :
1, The Commissioner (Central), Kanpur has erred against law and facts on record in framing the order dt. 20-3-1999 under section 263 of the IT Act contrary to law and facts on record.
3. The Commissioner while framing the order under section 263 has failed to take cognisance of the record available at the time of its examination by the learned Commissioner (Central) in accordance with section 263, Explanation, clause (b), of the IT Act, 1961.
24. The Commissioner order under section 263 of the IT Act does not fulfil the jurisdictional conditions necessary for framing such order."
6. A perusal of the above grounds goes to show that the assessee has not challenged the validity of notice/notices issued by the Commissioner by taking specific grounds. Hence, the arguments of the learned counsel for the assessee that there was no valid assumption of jurisdiction for issuance of notices under section 263 of the Act is not of much relevance. As pointed out above, the learned counsel has made elaborate arguments by submitting that since the learned Commissioner did not call for record nor examined the same before issuing notice dated 27-1-1999 and second notice dated 22-2-1999, and as such assumption of jurisdiction by him under section 263 was not legally justified. The learned counsel laboured hard to demonstrate that before the issuance of these notices, the record was not available for scrutiny and examination by the Commissioner.
7. It may be pointed out that two notices were issued in this case and if the assessee wanted to assail the validity of these two notices or alleged assumption of jurisdiction at the stage of issuance of these notices, then separate and specific grounds should have been taken to challenge the validity of each notice as such notices relate to two different matters and were issued under different circumstances. This has not been done, Since no ground is taken to challenge the validity of the notices, we are not required to give our findings on the pleas raised by the learned counsel in this regard.
8. Although, in absence of any specific plea, we are not required to adjudicate the above referred legal pleas relating to assumption of jurisdiction by the Commissioner at the stage of initiation of proceedings, but since it is a legal plea, we have considered the same and after going through the terminology adopted in section 263, we are of the view that there is no restriction on the power of Commissioner under section 263.
9. In the case of Umashankar Rice Mills v. CIT (1991) 187 ITR 638 (Ori), the objection of the assessee was that power under section 263 ought not to have been exercised, where there was exhaustive enquiry by the ITO before making assessment and, in any case, the ITO had power under section 147 to reopen the assessment for reasons as indicated in that section. The Hon'ble High Court of Orissa rejected this objection and observed that the legislature has not put any restriction to the power under section 263 of the IT Act, 1961 and the Commissioner in exercise of the power under section 263 on the basis of materials available on record.
10. In the case of CIT v. Electro House (supra), the assessee claimed to have been constituted as a firm under a deed of partnership dt. 2-1-1958. Earlier, the business was done by one Vaidyanath Gorni as sole proprietor. The partnership included his mother-in-law and son-in-law, whose shares were 40 per cent and 30 per cent respectively. The ITO granted registration for assessment year 1969-60 and renewal of registration for assessment year 1960-61. The Commissioner on examination of the records found that the order of ITO granting such registration and renewal were erroneous and prejudicial to the interests of the revenue. He, therefore, proceeded under section 33-B of the old Act. Before doing so, he issued a notice to the firm. The validity of the notice was challenged before the Tribunal which came to the conclusion that the notice issued was not one required to be issued by the Act and hence its validity or invalidity did not affect the jurisdiction of the Commissioner. But the High Court differing from the conclusion reached by the Tribunal opined that the notice was not valid and, therefore, the Commissioner had no jurisdiction to proceed with the enquiry. The other issues were not considered by the Hon'ble High Court on this ground only. The Hon'ble Supreme Court of India reversed the view taken by the Hori'ble High Court and held that section 33B unlike section 34 does not prescribe any notice to be given. It only requires the Commissioner to give an opportunity of being heard. The Hon'ble Supreme Court of India has made the following observations :
"All that he is required to do before reaching his decision and not before commencing the enquiry, is that he must give the assessee an opportunity of being heard and make or cause to make such enquiry as he deems necessary. Those requirements have nothing to do with the jurisdiction of the Commissioner. They pertain to the region of natural justice. Breach of the principles of natural justice may affect the legality of the order made but that does not affect the jurisdiction of the Commissioner. At present we are not called upon to consider whether the order made by the Commissioner is vitiated because of the contravention of any of the principles of natural justice. The scope of these appeals is very narrow.. All that we have to see is whether before assuming jurisdiction the Commissioner was required to issue a notice and if he was so required what that notice should have contained? Our answer to that question has already been made clear. In our judgment, no notice was required to be issued by the Commissioner before assuming jurisdiction to proceed under section 33B. Therefore, the question what that notice should contain does not arise for consideration. It is not necessary nor proper for us in this case to consider as to the nature of the enquiry to be held under section 33B. Therefore, the question what that notice should contain does not arise for consideration. It is not necessary nor proper for us in this case to consider as to the nature of the enquiry to be held under section 33B. Therefore, we refrain from spelling out what principles of natural justice should be observed in an enquiry under section 33B. This Court in Gita Devi Aggarwal v. CIT (supra) ruled that section 33B does not in express terms require a notice to be served on the assessee as in the case of section 54. Section 513 merely requires that an opportunity of being heard should be given to the assessee and the stringent requirement of service of notice under section 34 cannot, therefore, be applied to a proceeding under section 33B."
11. It may be pointed out that the provisions of section 263 are similar to the old provision contained under section 3313 of old Act and, therefore, the ratio of the decision of Hon'ble Supreme Court of India in this case is applicable to the provisions of section 263 of IT Act, 1961, as the language of the main provision remains the same, This decision of the Hon'ble Supreme Court has been followed in the case of Renu Sagar Power Corpn. (supra) by the Hon'ble Allahabad High Court.
12. In the case of Renu Sagar Power Co. Ltd. v. CIT (supra), the Hon'ble Allahabad High Court has held that for assuming jurisdiction under section 263, it was necessary for the Commissioner to give an opportunity of being heard to the assessee. The Hon'ble Court has observed as under :
"From a reading of section 263 of the Act, it is manifest that the Commissioner may make inquiry to find out whether an order passed by the assessing authority is erroneous and prejudicial to the interests of the revenue without giving any notice to the assessee. Having assumed jurisdiction under section 263 for which no condition precedent is prescribed, the Commissioner before making an order under section 263 should give an opportunity of being heard to the assessee. It means no enforceable order could be made by the Commissioner without hearing the assessee. But opportunity of hearing is not a condition precedent to assume the jurisdiction under section 263. "
13. In the case of CIT v. Bharat Shyam & Co. (supra) also the validity of the revisional powers was challenged. In that case, the Income tax officer approached the Commissioner and asked him to invoke his powers under section 263 and the Commissioner initiated proceedings under section 263. The objection of the assessee was that the Commissioner had initiated the proceedings under section 263 without applying his mind to the facts of the case and without being satisfied that the fact of the case did not warrant the exercise of his powers. under section 263. The Tribunal had accepted this contention and observed that the Commissioner had practically abdicated his function to the Income Tax Officer inasmuch as he acted upon his request. In the reference preferred by the assessee the submission on behalf of the Department was that there was nothing wrong in Income Tax Officer approaching the Commissioner with certain information and the exercise of power under section 263 was not improper. The Hon'ble High Court although decided the issue in favour of the assessee by holding that the Commissioner did not properly consider all the facts and circumstances and did not apply his mind but on the initiation of proceedings the following observation was made :
"We agree with Mr. Katju (Now Hon'ble Justice Katju) to this extent that merely because the Income Tax Officer placed certain information or material before the Commissioner and the Commissioner invoked his power under section 263, it cannot be said that the Commissioner has initiated the proceeding without applying his mind or that he has abdicated his function. After all, someone has to place the relevant material or information before the Commissioner. There is no bar to the Income Tax Officer bringing that material to the notice of the Commissioner. What cannot, however, be denied is that the Commissioner must apply his mind to the material placed before him and satisfy himself that it is a case where he ought to exercise his revisional power. Then he may issue a show-cause notice and, after affording an opportunity to the affected parties, pass final orders.
According to this decision also, the proceedings can be initiated even at the request or proposal from the Income Tax Officer. What is necessary for the Commissioner is that he should apply his mind and provide opportunity of being heard to the assessee before passing the order.
14. In the case of Oil India Ltd. v. CIT (1982) 138 ITR 836 (Cal), the Hon'ble High Court of Calcutta after referring to the decision in the case of Electro House v. CIT (1968) 70 ITR 421 (Cal), observed as under :
"The second question deals with the vagueness of the notice. It is true that the second aspect of the matter is on the question whether the notice was proper in this case. It has to be borne in mind that section 263 of the IT Act, 1961 or section 33B of the previous Indian IT Act, 1922, it does not require that any specific notices is to be given. All that is required is that reasonable opportunity should be given. In this case, it was emphasised on behalf of the assessee that the opportunity to be reasonable must be an effective and real opportunity."
15. There is another aspect of the matter. As pointed out by the learned special standing counsel for the department, the provisions contained under section 263 do not require issuance of mandatory notice before passing of order-under section 263. As also pointed out by the learned special standing counsel, the learned Commissioner is not required to record reasons before issuing notice for providing opportunity of being heard to the assessee. Thus, the provisions contained in 263 are different from the provisions contained under section 147/148, which required both recording of reasons as well as issuance of mandatory notice.
16. In view of the above also, it is found that there is no mandatory requirement of issuing the notices under section 263. What is, in fact, essential is that the assessee should be provided full opportunity of being heard before taking any action under section 263. Such opportunity can be afforded by adopting any mode and not necessarily by issuing a notice. Had it been the intention of the legislature that notice should be issued, then such condition could have been incorporated in the provision itself. The fact that there is no specific requirement for issuance of notice under section 263 goes to show that the notice is not mandatory.
17. In view of the above, the preliminary objections of the learned counsel for the assessee (do not) carry much force, since issuance of notice is not the statutory requirement, the question of examining the validity of assumption of jurisdiction at the stage of issuance of notice does not become relevant. Hence, we are unable to appropriate the contention of the learned counsel that the notices issued by Commissioner without examination of record are not legally sustainable and consequently the order passed under section 263 becomes invalid on that basis.
18. It was pointed out by the learned special standing counsel that in ITA No. 509/All/1999 also, no ground was taken by the assessee to challenge the validity of the notice and, therefore, the findings recorded on plea, which was not raised, should not be treated as binding. Without expressing any opinion on this plea, we may observe that in view of the facts and circumstances, which are in a way distinguishable from the facts of ITA No. 509/All/1999 and also in view of the specific ground taken in this appeal, we have to say that the findings of the Bench on this issue are not binding in this case.
19. We have considered the above grounds on merits also.
20. It is to be pointed out that in the instant case, the order under section 263 is in relation to two points passed by the learned Commissioner (Appeals) by issuing two separate notices for each of such point and, thus, we are required to examine the background as well as the consideration of the material on record for issuing such notices separately. On examination of the relevant material in relation to these two notices the following position emerges :
"a. Notice dated 29-1-1999 The Asstt. Commissioner, CC-I, Lucknow, Shri R. Das Gupta submitted a proposal under section 263 vide his letter dt. 14-1-1999 to the Commissioner, Central, Kanpur. This letter was sent through Addl. Commissioner (Central), Lucknow, and as noted below this letter, a copy of assessment order was to be annexed. The letter is available on pp. 1 to 4 of the paper book of the department. On perusal of various endorsements made by the authorities on this letter, it is found that the letter did not accompany enclosure, i.e., the assessment order which must have been sent later on. On p. 40 of the paper book of the Department, there is a copy of the letter dt. 21-1-1999, from the office of Commissioner, (Central), Kanpur, for calling the assessment order which shows that the exercise by the Commissioner was not mechanical as he wanted to see the assessment order. In the note of Addl. Commissioner given on the same, letter, it is pointed out to the Commissioner that the issue has been discussed with senior standing counsel of the Department on 9-1-1999. A perusal of notice dt. 29-1-1999, also reveals that the learned Commissioner had perused the record. As in this notice dt. 29-1-1999, it is mentioned that "perusal of the record shows ......."
The other details given in the notice also suggest that the assessment order and other material was examined and considered by the Commissioner while issuing this notice.
21. In view of the above factual position, it is clear that while issuing notice dated 29-1-1999, on the point relating to genuineness and verification of deposits, etc., the Commissioner had considered and examined the record before issuing the notice and, thus, the assumption of jurisdiction by him for this purpose is legally justified.
22. So far as the second notice dt. 22-2-1999, is concerned, we have thoroughly examined the entire material relating to this notice and the circumstances under which the same was issued. After going through the entire relevant correspondence, We find that this notice was issued only on the basis of letter faxed to the Commissioner on the same date and, thus, there was no other material except the faxed letter for issuing this notice. Thus, it may be said that the second notice was issued at the instance of the assessing officer and without examination of the assessment order or any other record. In fact, such a conclusion was drawn by Allahabad Bench after examining the facts on this issue in ITA No. 509/All/1999. However, since, in our view notice is not mandatory under section 263 and further since assumption of jurisdiction under section 263 is not to be decided by examining such notice, these conclusions are rendered of little relevance.
23. It may also be pointed out that there is nothing wrong in taking cognisance of the matter on the letter or proposal of the assessing officer or any subordinate officer. However, what is necessary is that after taking cognisance on the basis of such proposal, the Commissioner should apply his mind and examine the facts himself,
24. In view of the above, various pleas taken before us by the learned counsel to challenge the validity of notices or assumption of jurisdiction by the Commissioner without examining record before issuance of notices are rejected.
25. So far as the grounds Nos. 1, 3 and 24 are concerned, we have also examined these grounds on the basis of pleas contained therein. A perusal of the order passed under section 263 goes to show that the learned Commissioner has examined and considered the entire material in detail before passing the order. The impugned order makes detailed reference to the written reply of the assessee on both the points, i.e., on the points relating to verifiability of the deposit and the point relating to provision of interest. The learned Commissioner has also made reference to the order of Commissioner (Appeals), which shows that even the order of first appellate authority was considered by him before passing the order. Thus, it cannot be said that the Commissioner did not assume jurisdiction properly for framing the order under section 263. Thus, we are not convinced with the arguments of the learned counsel that order under section 263 has been passed by the Commissioner without examination of the records. The cases on which the reliance has been placed by the learned counsel for the assessee are not applicable to the facts of the present case.
26. In the case of CIT v. R.K. Metal Works (1978) 112 ITR 445 (P&H), on which reliance has been placed by the learned counsel for the assessee, the Commissioner concluded that for asst. yr. 1968-69, the order of the AO was erroneous and prejudicial to the interests of the Revenue inasmuch as he did not disallow the interest attributable to that part of the capital borrowed by the firm, which was not utilised for the purposes of the firm's business and was advanced indirectly to the two, partners for investment in the properties. The Commissioner issued a notice to the two partners. They filed written statement raising objections, without dealing with such objections, the Commissioner held that the order of the Income Tax Officer was erroneous and prejudicial to the interests of the revenue and directed the Income Tax Officer to reframe the assessment after giving the assessee necessary opportunities to adduce evidence to prove the point raised by the assessee. The assessee preferred appeal before the Tribunal against the order of Commissioner (Appeals). The Tribunal took the view that the Commissioner had failed to indicate the material or the nature of evidence before him on the basis of which he came to the conclusion that the order of the Income Tax Officer was erroneous and prejudicial to the interests of the Revenue. The Tribunal also observed that the Commissioner had not given any reasons to justify his satisfaction and, thus, the order passed by the Income Tax Officer was erroneous and prejudicial to the interests of the revenue. At the instance of the Revenue, the question was referred to the Hon'ble High Court. The Hon'ble High Court upheld the view taken by the Tribunal. In the present case, the position is different, inasmuch as the Commissioner has dealt with the written reply of the assessee and has also assigned reasons to justify his conclusions. Hence, this case is distinguishable on facts and is not applicable.
27. The other cases are also distinguishable.
28. Ground Nos. 1, 3 and 24 are rejected. Whether assessment order dt. 27-3-1997 was not liable to be set aside under section 263 as it was neither erroneous nor prejudicial to the interests of the revenue : (Ground Nos. 2 & 5 to 13).-
29. The learned counsel for the assessee submitted that in order to invoke jurisdiction under section 263 of the Act, the Commissioner has to be satisfied that the order of Income Tax Officer is erroneous insofar as it is prejudicial to the interests of the revenue. After making reference to the decision of Hon'ble Supreme Court of India in the case of Malabar Industrial Corpn. Ltd. v. CIT (2000) 243 ITR 83 (SC), the learned counsel pointed out that the twin conditions, namely, (i) the order of the assessing officer sought to be revised is erroneous, and (ii) it is prejudicial to the interests of the revenue and if one of them is absent, i.e., if the order of the Income Tax Officer is erroneous but it is not prejudicial to the interests of the revenue, recourse cannot be held to section 263(1) of the Act. It was further submitted that provision under section 263(1) cannot be invoked to correct each and every type of mistake. The learned counsel thereafter submitted that in the instant case, the assessing officer had considered all aspects of the matter and had also taken into account the assessment orders passed earlier. It was also pointed out that even the verification made in the case of the firm was taken into account and after conducting detailed enquiry about the deposits etc., the assessing officer after following the assessment orders in asst. yrs. 1982-83 and 1983-,84 made addition by taking 15 per cent of the opening balance of the deposits and 30 per cent of the collections made during the year which shows that he had duly considered the entire relevant material, for deciding the issue. The learned counsel further contended that to show the order is erroneous, there must be something in the order itself that the assessing officer has not applied his mind properly. According to him, on perusal of the assessment order it cannot be said that the conclusion drawn by him was improper or perverse and, therefore, the order of the assessing officer cannot be treated to be erroneous. The learned counsel also pointed out that merely because the assessing officer did not make addition under section 68 and did not use the material collected by him for making such addition is! not sufficient to treat his order erroneous. It was also contended that if the order is not erroneous, the question of the same being prejudicial to the interests of the revenue does not arise.
30. Regarding the issue relating to interest or provision for interest, it was submitted that on this issue also the assessing officer did not make any disallowance as he did not consider the same to be necessary. 'It was also pointed out that the assessee had himself made a lesser claim and therefore the assessing officer felt satisfied on the claim of the assessee. In view of this, there cannot be any finding that his order was erroneous.
31. In support of the above submissions, the learned counsel also placed reliance on the following decisions :
(i) CIT v. Late Sunderlal (1974) 96 ITR 310 (All)
(ii) CIT v. Gabriel India Ltd. (1993) 203 ITR 108 (Bom)
(iii) CIT v. R.K. Metal Works (supra)
(iv) CIT v. Goodricke Group Ltd. (1994) 116 CTR (Cal) 625
(v) J.P. Sethi v. ITO (1989) 33 TTJ (Pune) 576.
32. We have considered the entire material on this issue. The Income Tax Officer made a detailed and thorough enquiry on the issue relating to verifiability and genuineness of the deposits. He adopted various modes during the course of such enquiry and also considered the earlier orders of appellate authorities including the order of Tribunal on the issue relating to nature of income. He, thereafter, also made addition on account of deposits although such addition was not made specifically under section 68. It, therefore, cannot be said that the Income Tax Officer did not consider the issue or did not conduct inquiry into the matter or did not decide the issue. On perusal of his order, therefore, it cannot be said that he committed any factual or legal error in deciding the issue. It cannot be said that there was incorrect assumption of facts or incorrect application of law by him.
33. In the case of CIT v. Late Sunderlal (Through Bankey Behari Lal) (supra), the assessee claimed that a sum of Rs. 1,02,500 received by him on retirement from a firm was not includible in his income. The Income Tax Officer did not include that income in that year on the ground that it was received in April in the next year. The Commissioner invoked power under section 33B and issued a notice to the legal heir of the deceased assessee. The exercise of power was challenged and it was alleged that the Commissioner had not applied his mind inasmuch as he had relied solely on the order of the AAC for passing the order. The Hon'ble Court after considering the provisions of section 33B held that Commissioners revisional jurisdiction being quasi judicial, he must give reasons for his satisfaction.
34. In the case of CIT v. Gabriel India Ltd. (supra), it was held that the Commissioner can revise the order only when conclusion arrived by the Income Tax Officer is erroneous and he. cannot revise his order because he disagrees with the Income Tax Officer. In this case the Income Tax Officer made enquiries in regard to the nature of expenditure incurred by the assessee and allowed the claim of the assessee after being satisfied with its explanation. The Commissioner was of the view that Income Tax Officer committed error in allowing the deduction to the assessee. He observed that the order of the Income Tax Officer did not contain discussion in regard to the allowability of the claim for deduction, which indicated nonapplication of his mind. According to him, the claim of the assessee required examination as to whether the expenditure in question was revenue or capital nature. In that view of the matter, he cancelled the order of the Income Tax Officer and directed him to make a fresh assessment.
35. Against the order of Commissioner, the assessee went in appeal before the Tribunal, which held that the action of the Commissioner was not in conformity with the requirement of section 263. Aggrieved by the order of the Tribunal, the Department filed a reference before the Hon'ble High Court. After considering various decisions, the Hon'ble Court held that the Income Tax Officer had made enquiry in regard to the nature of expenditure and allowed the claim of the assessee. His decision, according to the court, cannot be held to be erroneous simply because in his order, he did not make an elaborate discussion in that regard. It was also held by the Hon'ble court that further enquiry and/or fresh determination can be directed by the Commissioner only after coming to the conclusion that the earlier finding of the Income Tax Officer was erroneous and prejudicial to the interests of the revenue and without doing so he does not get the power to set aside the assessment. The Hon'ble Court has held as under :
"The Income Tax Officer in this case 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. Moreover, in the instant case, the Commissioner himself, even after initiating proceeding for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income Tax Officer to re-examine the matter. That, is not permissible. Further inquiry and/or fresh determination can be directed by the Commissioner only after coming to the conclusion that the earlier finding of the income tax officer was erroneous and prejudicial to the interests of the Revenue. Without doing so, he does not get the power to set aside the assessment. In the instant case, the Commissioner did so and it is for that reason that the Tribunal did not approve his action and set aside his order. There is not any infirmity in the above conclusion of the Tribunal."
36. In the case of CIT v. Goodricke Group Ltd. (supra) also a similar view was taken by the Hon'ble Calcutta High Court, wherein it was held that if the matter was considered by the Income Tax Officer and Commissioner (Appeals), then Commissioner cannot exercise revisional jurisdiction.
37. In the case of J.P. Sethi v. ITO (supra), the issue related to the applicability of provisions of section 68. The assessee had shown some cash credit in his books from his father. The ITO did not make any addition and directed that in case the assessee failed to produce the evidence within the stipulated time, the assessments for the relevant years would be reopened. The CIT observed that the ITO was not satisfied about the explanation of the assessee and in terms of section 68 the amount of cash credit should have been assessed to tax as income of the assessee. According to him, the provisions of s. 68 were mandatory in nature. He, therefore, issued a show-cause notice to the assessee and after considering the matter set aside the assessments with the directions to complete the same de novo. The order of the CIT(A) was challenged. The Pune Bench of Tribunal set aside the revisional order of the CIT and restored the matter to the ITO by observing as under :
"13. In our view, the CIT is not correct in his interpretation given to section 68 of the IT Act, 1961. Section 68 uses the word 'may' and not the word 'shall' as it was contained in the Bill introduced in the Parliament. At the instance of the select committee, if there was evidence to show that the amount belongs to some other person, the ITO should have power to assess that person, It is for this reason that the select committee observed that the fact that the explanation offered by the assessee is not satisfactory should not invariably force the ITO to treat it as income of the assessee. In other words, the use of the word 'may' gives discretion to the assessing authority to consider all the circumstances and to decide whether or not the particular cash credit in question is the income of the assessee, vide Commentary on the Law of Income-tax by Shri A. C. Sampath lyengar 7th Edn. Vol. III, p. 2466.
"14. There is another aspect to which we should address ourselves before disposing of this matter. In section 263 of the IT Act, 1961. Explanation has been substituted by Finance Act, 1987, with effect from 1-4-1989. As per clause (b) of the Explanation 'record' includes all records relating to any proceeding under this Act available at the time of examination by the Commissioner. Obviously this Explanation has been introduced to get over the decisions of the courts to the effect that the record could be such that which were available at the time of making assessments and not thereafter. Consequently, the Explanation now substituted explains the records to include all records relating to any proceedings under this Act at the time of examination by the Commissioner. Though this Explanation is with effect from 1-6-1988, it is clarificatory in nature because the Explanation states that for removal of doubts the Explanation has been introduced."
On the facts in the case before us also the position is that the Income Tax officer did not prefer to make any addition under section 68, because he was not obliged to do so. Even the learned first appellate authority did not do so. The order of the learned CIT(A) was available to the Commissioner before passing order under section 263 and this order formed part of the record, which was to be considered by him. Thus, in view of the entire material available on record, it cannot be said that the order of the ITO was erroneous and prejudicial to the interests of the Revenue in relation to the aspect of deposit. To this extent and on this point the order passed by the learned Commissioner under section 263 cannot be upheld.
38. The learned special counsel for the department on the other hand supported the order of the Commissioner and submitted that since the AID had not utilised the material collected by him and left the issue undecided relating to genuineness of the deposits, etc., the order was erroneous as well as prejudicial to the interests of the revenue. He also advanced similar arguments on the other issue relating to interest liability and submitted that the assessing officer failed to consider this aspect as well and, therefore, the learned Commissioner was justified in treating the order erroneous and prejudicial to the interests of the revenue. In support, the learned counsel also made reference to the following decisions :
(i) Swarup Vegetable Products Industries Ltd. v. CIT (1991) 187 ITR 412 (All)
(ii) Biru Mal Pyarelal v. Asstt. CIT (supra)
(iii) Malabar Industrial Co. Ltd. v. CIT (supra).
39. We have gone through these decisions. In our view on facts these decisions are not applicable. In the case of Malabar Industrial Co. Ltd. (supra), on facts it was found that the ITO without making enquiry accepted the entry in the statement of account filed by the assessee. On these facts, the order of the ITO was treated to be erroneous by the Commissioner and the High Court upheld the same view, However, the Hon'ble Court observed that where two views ate possible and the FPO has taken one view with which the CIT does not agree, it, cannot be treated as erroneous and prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law.
40. In the case of Birumal Pyarelal (supra), the issue related to raising of presumption under section 132(4A) and this decision is not directly applicable to the facts of the present matter.
41. In the case of Swarup Vegetable (Supra) also the Income Tax Officer had accepted the claim of the assessee without making any inquiry and the CIT concluded that in absence of proper investigation and inquiry, the order of the Income Tax Officer was erroneous and prejudicial to the interests of the revenue. To repeat, in the case before us, Income tax officer had conducted detailed enquiry and thereafter made some addition. Thus, it cannot be said that Income Tax Officer did not make any enquiry in the matter.
42. In view of the above discussions, we are unable to uphold the orders of the Commissioner for setting aside the order of the Income Tax Officer on the issue of deposits, as in out view the order of the income tax officer cannot be treated to be erroneous and prejudicial to the interests of the revenue. However, so far as the issue relating to claim of deduction on account of liability for providing interest is concerned, the ITO did not conduct full inquiry and has not adjudicated the issue. Hence, his order on this point can be treated to be erroneous and prejudicial to the interests of the revenue. We, therefore, hold that the order of the learned CIT passed under section 263 on this issue is sustainable,
43. In the light of the above, the grounds Nos. 2, 5 and 13 are partly allowed and decided accordingly.
Whether no order under section 263 could be legally passed as the assessment order had merged with the order of CIT(A) : (Ground No. 4):
44. The contention of the learned counsel for the assessee, Shri Dastur, was that both the issues, i.e., the issue relating to genuineness of deposits and addition under section 68 of Act as well as the issue relating to claim of deduction on account of liability for interest payable on the schemes were subject-matter of appeal and the order of assessing officer merged with the appellate order and, thus, there was no scope for exercising power under section 263 to review the order of the learned Commissioner (Appeals). According to him, even after introduction of clause (c) to Explanation to section 263, the CIT cannot invoke jurisdiction under section 263 to revise the order of assessing officer on the issues which were subject of appeal before the learned Commissioner (Appeals) and which were considered and decided by him because if the Commissioner is allowed to revise such issue which has been considered and decided by the Commissioner (Appeals), then the order of revision shall adversely affect the appellate order and shall alter/modify or disturb the findings of learned Commissioner (Appeals).
45. Coming to the facts of the present matter, the learned counsel submitted that the assessing officer had considered the issue relating to the genuineness of deposits, etc. in paras 5 to 5.12, 5.22, 5.29, 5.34 and after duly considering each aspect including the assessment in the case of firm and the order of Tribunal, he had decided not to apply the provisions of section 68 of the Act, but at the same time he made an addition of Rs. 96,64,62,980 by taking 15 per cent of the opening balance of the deposits and 30 per cent of the total deposits collected during the year. The learned counsel further submitted that the assessee challenged this addition made on account of deposits before the learned Commissioner (Appeals) by taking specific grounds and the Commissioner (Appeals) after considering the entire matter deleted this addition. Thus, the issue was considered and decided by the learned Commissioner (Appeals) and the order of the assessing officer stood merged in the order of learned Commissioner (Appeals).
46. On the issue of allowability of deduction on account of interest, it was submitted by him that the Tribunal had already decided this issue in the case of sister concern and has held that the doctrine of merger is applicable to the facts of the case. In this regard, he invited our attention to para 77 of the order of learned CIT(A) also, wherein ground Nos. 8, 9 and 10 taken before him about computation of notional interest and interest of borrowed capital were taken up for disposal and to subsequent paras where the issue relating to allowability of interest was considered.
47. The learned counsel made very detailed submissions on this issue, which were factual and legal and placed reliance on the following decisions
(vi) Smt. Sujata Grover v. Dy. CIT (2002) 74 TTJ (Del) 347
(vii) Remax Constructionl Remax Electricals v. ITO & Ors. (1986) 166 ITR 18 (Bom).
(viii) Oil India Ltd. v. CIT (supra)
(ix) Malabar Industries Ltd. v. CIT (supra)
(x) CIT v. Goodricke India Ltd. (supra)
(xi) Siemens Ltd. v. Dy CIT ITAT, Bombay 'A' for assessment year 1987-88, dt. 21-6-1999.
48. The learned special counsel appearing for the Department on the other hand, submitted that the doctrine of merger is not applicable to the facts of the present case because the question of addition under section 68 was neither considered by learned CIT(A) nor determined by him and the order of AO, in this regard did not merge with the order of the learned CIT(A). The learned counsel also pointed out that the issue of addition under section 68 was 'not before the Allahabad Bench of Tribunal when it decided ITA No. 609/All/1999 in the case of Sahara Mutual Beneflt Co. Ltd. Therefore, the said order is not relevant on this point. The learned special counsel further submitted that the issue relating to allowability of interest on deposits was also not considered by the assessing officer properly because he failed to examine each individual deposit/contact for determining as to whether it was a "lapsed account" or "defaulted account" or "a matured account but unclaimed" because on such deposits no interest was to be paid. According to him, the argument of the assessee that order of assessing officer had merged in the order of learned CIT(A) as he has considered the question of allowability of interest under section 36(1)(iii) and when he considered one aspect, it should be presumed that he considered all aspects of it, wholly without merit.
49. The learned special counsel further argued that clause (c) to Explanation to section 263(1) came to be on the statute by Finance Act, 1988, w.e.f. 1-6-1988, and according to it, the jurisdiction of the Commissioner under section 263 "shall extend and shall be deemed always to have extended to such matters as has not been considered and decided in such appeal". According to him, the said clause was considered by Hon'ble Supreme Court of India in the case of CIT v. Arbuda Mills Ltd. (1998) 231 ITR 50 (SC), and this judgment was followed by the Hon'ble Gujarat High Court in the case of CIT v. Panna Knitting Industries (2002) 253 ITR 656 (Guj). According to the learned counsel, these decisions squarely cover the present matter. The learned counsel placed reliance on the following decisions in support of his contention that the doctrine of merger cannot be applied to the present case.
(a) CIT v. Arbuda Mills (supra)
(b) CIT v. Panna Knitting Industries (supra)
(c) Bundy Tubing of India Ltd. v. CIT (2002) 253 ITR 286 (Mad)
(d) CIT v. Kwality Restaurant (2002) 172 CTR (Del) 481
(e) CIT v. M.P. Rajah (HUF) (2002) 253 ITR 180 (Mad).
50. We have carefully considered the facts and circumstances relating to this issue, the material on record pertaining to this issue and the rival submissions including the case laws referred to by the learned counsel for the parties before us. The doctrine of merger in the context of orders and decisions of judicial authorities implies that the order of lower authority stands merged with the order of the appellate authority if the issue was adjudicated by both the authorities. In view of provisions contained under section 263 the power of revision is not available to CIT if the order of the AO has merged in the order of learned CIT(A) because the CIT can only revise the assessment order and not the appellate order. After amendment made w.e.f. 1-6-1988 the power of CIT under section 263 has been enlarged to some extent by introducing clause (c) to Explanation to section 263(1). This provision is as under :
"(c) Where any order referred to in this sub-section and passed by the AO had been the subject-matter of any appeal filed on or before or after the 1-6-1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal."
51. A perusal of the above provision goes to show that even after amendment the CIT cannot revise the order in respect of an issue which has been considered and decided by the appellate authority. Conversely speaking, the Commissioner has got the power to review such matters as had not been considered and decided in the appeal.
52. We now proceed to examine as to whether the issue relating to addition under section 68 on account of deposits made by the assessee was decided by the AO and as to whether such matter was also considered and decided by the learned Commissioner (Appeals).
53. In order to consider the above issue, we have to examine the facts of the case, the issues before the assessing officer, the issues before the learned Commissioner (Appeals) and the findings of these two authorities on such issues.
54. First of all, we take the assessmdnt order on the issue relating to deposits. On perusal of the assessment order, it is found that the assessing officer has considered the issue of deposits in the following paras
(i) Para 1.2 Total deposits under various schemes in asst.'yr. 1994-95 Rs. 2,89,85,69,013
(ii) Para 2.9, 2.10, Enquiry of the assessing officer regarding the application forms for 2.11 deposits.
(iii) Para 2.16 Notices issued to the assessee.
(iv) Para 4 Details of the schemes and total collections made.
(v) Para 5.5 Books of accounts produced and reports of ADIT about deposits at Branches.
(vi) Para 5.7 Assessee furnished the list of deposits in 20 volumes in 1-1-1997.
(vii) Para 5.8 Verification of 50 depositors of Gomti Nagar Branch.
(viii) Para 5.10 Assessee furnished confirmatory letters of 26 persons. The assessing officer issued summons under section 131 to these depositors. Assessee was also asked to produce 63 persons.
(ix) Para 5.11 Statements of depositors recorded.
(x) Para 5.12 Findings of assessing officer about non-traceability of other depositors.
(xi) Para 6.13 Directions for special audit under section 142(2A) issued.
(xii) Para 5. 16 Assessing officer observes that deposits are not open to verification.
(xiii) Para 5.19 On 4-2-1997 assessee submitted that he is filing a list of depositors showing deposits-5 volumes of 100 each.
(xiv) Para 5.25 to 28 Observations about unclaimed deposits.
(xv) Para 5.29 Reference to case of Sahara company showing revenue receipts @ 15% of the opening balance of collection under various schemes and 30% of collection made during the relevant year.
(xvi) Para 5.30 The same system followed by Sahara India Investment Ltd. in 1987-88 onwards.
(xvii) Para 5.33 Reference to order of learned CIT(A) for assessment year 1991-92.
(xviii) Para 5.34 Reference to observations of Tribunal for assessment year 1991-92 that deposits cannot be treated as revenue receipt.
(xix) Para 5.37 to 5.40 Reference to various decisions/cases on the nature of deposits.
(xx) Para 5.41 Addition of Rs. 96,54,62,980 made towards income of the assessee. On account of deposits in the following manner and by observing as under :
"Hence, for the detailed reasons as discussed above, the claim of the assessee of deposits being capital receipts is rejected and 15 per cent of the deposits on the opening day and 30 per cent of the deposits obtained during the year is taken as income of the assessee. Such income is working out as under :
Old deposits on the opening day of the account period Rs. 3,04,11,43,847 Income @ 15% 45,61,71,577 Current deposits 1,69,76,38,010-, Income @ 30% 50,92,91,403 96,54,62,980
55. The above paras of assessment order clearly show that the assessing officer had considered the issue relating to verifiability of deposits and did not prefer to make any addition under section 68 of IT Act, 1961 perhaps because of the observations of Tribunal which were referred to in para 5.34 and which were to the effect that "by no stretch of imagination or by no fiat of economic principles, a deposit of capital receipt can be treated as a revenue receipt edigible to tax under the Act". Hence, the assessing officer opted for the other course for making addition of Rs. 96,54,62,980 by taking clue and by following the formula adopted by the Commissioner (Appeals) also in order for assessment year 1991-92 which has been referred by the assessing officer in para 5.33. Thus, it is not the case where the issue of deposits and taxability of income under section 68 of the Act on account of such deposits was not considered but it is a case where the assessing officer after considering the entire matter and after making enquiries took a decision to make addition of part of the deposits on estimated basis as any other mode was not found feasible and legally possible by him.
56. The assessee challenged the above addition before the learned Commissioner (Appeals) by taking following grounds before him. These grounds which have been reproduced in para 15 of the order of learned Commissioner (Appeals) dt. 15-2-1990 are as under :
"3. The Asstt. Commissioner has erred in law and on facts on records in making an addition, penalty on arbitrary basis of Rs. 96,54,62,950 out of the deposits collected by the appellant.
4. The Asstt. Commissioner has erred in law and on facts on record in making the addition of Rs. 96,54,62,980 which has been worked out as under :
15 % of opening balance of deposit, i.e., Rs. 30,41,43,847 45,61,71,577 30 % of collection made during the year, i.e., Rs. 1,69,76,38,010 50,92,91,403 96,54,62,980 Inasmuch as he has brought to tax even a part of the receipts collected in earlier years and accepted by the Department as capital receipts.
5. The Asstt. Commissioner has erred in law and on facts on records in treating a part of the deposits as a revenue receipt whereas, in fact the same is a capital receipt as claimed by the appellant.
6. The Asstt. Commissioner has erred in law and on facts on record in making various allegations and observations in bringing,to tax a part of the capital receipt as revenue receipt and the same are prejudiced without any proper reasoning or basis. "
57. The learned Commissioner (Appeals) has discussed the order of the assessing officer in paras 17 to 28 and thereafter the arguments of the learned counsel for the assessee through which it was submitted that no addition on account of collection or deposits can be made. The learned counsel had also submitted that the assessee had never shown the deposits as revenue receipts, The decision of Tribunal in the case of Sahara Investment Ltd. for assessment year 1987-88 to 1989-90 was also referred to in para 42. In para 43, the learned CIT(A) has also reproduced the argument of the learned counsel for the assessee that the deposits when received are capital receipts etc. The learned CIT(A) also forwarded the argument of the assessee to assessing officer for his comments as is revealed out on perusal of para 44 of his order. He has also referred to the argument of the Department in para 45 and thereafter he had made reference to order of assessing officer in para 47 again. The learned CIT(A) ultimately deleted the addition in para 49 of his order and in doing so he mainly placed reliance on the order of Tribunal in the case of Sahara Investment for assessment year 1991-92 to which reference was made by assessing officer also. The relevant extract of the order of the Tribunal dt. 13-6-1995 for assessment year 1991-92 in the case of Sahara Investment India Ltd. are being reproduced below.
"The Tribunal held as under :
"Short of all embellishments, the crux of the matter in this appeal is whether the deposits accepted by the appellant or any part thereof or any amount based on these deposits can be brought to tax by the Income Tax Department as revenue receipt in the hands of the appellant. "
"We are of the view that the appeal has to be allowed in favour of the appellant company and against the department. We do so and order accordingly. Viz., whether it can be brought to tax as revenue receipt is decided in favour of the appellant because of the ratio laid down by the Apex Court of the land in the Peerless case (supra) ........
"We hold that deposits under all the schemes of this assessee retain their characteristic of capital receipt and they cannot be taxed as revenue or trading receipts by the Department
58. On perusal of order of the learned Commissioner (Appeals), therefore, it is clear that after discussing all the facts, the order of assessing officer, the arguments of the department, the arguments of the assessee, the earlier orders on the points of deposits, he did not-consider it proper to apply section 68. He, in fact, decided that nothing can be added out of deposits.
59. A perusal of the two orders referred to above, thus, goes to establish that the subject-matter before the two authorities related to the genuineness and verifiability of the deposits and also the nature of these deposits and the learned Commissioner (Appeals) had finally decided that no addition can be made out of deposits. This shows that applicability of section 68 was neither considered justifiable by the assessing officer nor by the learned Commissioner (Appeals). Thus, the matter or subject in issue before the assessing officer as well as before the learned first appellate authority was as to whether any part of the deposits can be assessed as income of the assessee or not. This matter was duly considered and finally decided by the learned Commissioner (Appeals) who even deleted the addition of Rs. 96,54,62,980
60. Since the subject relating to genuineness or otherwise of the deposits under various schemes amounting to Rs. 2,89,86,79,103 mobilised during the assessment year under consideration and feasibility of addition under section 68 in the hands of the assessee was considered and decided by the learned first appellate authority, the order of assessing officer stood merged in his order and, therefore, it was not open to the Commissioner to review the finding of the learned Commissioner (Appeals) in deleting the addition made by the assessing officer on account of parts of the deposits by treating 30 per cent of the total deposits collected as non-genuine. Otherwise, such addition was not possible. Thus, the assessment order which learned commissioner proposed to revise under section 263 had already merged in the order passed by Commissioner (Appeals) and, therefore, in view of clause (c) to Explanation to section 263 the power was not available to revise such order so far as the issue of deposits is concerned. Since the issue of deposit was subject of decision of the learned Commissioner (Appeals), the Commissioner under section 263 was not justified in saying that he was revising the order, because a particular argument or a particular aspect of the matter was not considered by the Commissioner (Appeals).
61. In view of the above, we find force in the submissions made by the learned counsel for the assessee that the order of the assessing officer stood merged in the order of the Commissioner (Appeals) and, therefore, Commissioner was not justified to revise the order of the assessing officer on this point that is on the point of deposits. Our view is fully fortified by the following decisions :
I. Oil India Ltd. v. CIT (1982) 138 ITR 836 (Cal) :
In this case, the ITO has allowed assessee's claim of depreciation on vehicles @ 2.5 as against the claim of 5 per cent and in this way amount inadmissible under section 40(a)(v) was calculated at Rs. 3,15,343. Before the AAC it was pleaded in appeal that assessing officer had not given correct details of written down value. The AAC allowed depreciation at 5 per cent of WDV. After decision of AAC, the Commissioner issued notice under section 263 and held that the order of the assessing officer was erroneous insofar as it was prejudicial to the interests of revenue. On appeal by the assessee against order under section 263, the order under section 263 was upheld but Hon'ble High Court held that once the appeal has been preferred before AAC on any aspect of quantum of depreciation, the Commissioner cannot assume jurisdiction, otherwise anomalous position could arise.
(II) The decision of Hon'ble Calcutta High Court in the case of Oil India Ltd. (supra) was followed by the Delhi Bench of Tribunal in the case of Sujata Grover v. Dy. CIT (supra). In that case, the assessing officer had varied the amount of deduction under section 80HHC, while passing the assessment order on two counts, firstly, he reduced 90 per cent of interest income from the profits of the business and secondly, he included a sum of Rs. 48,38,274 being the amount received on account of exchange fluctuation in relation to sales effect in earlier years in total turnover and not forming part of export turnover. The assessee challenged the second item before the learned Commissioner (Appeals) contending that such foreign exchange fluctuation ought to have been included in the export turnover as well. The learned Commissioner (Appeals) concurred with the assessee's contention in this regard. However, it was noticed by the Commissioner that the assessing officer while calculating the deduction under section 8011HC has not excluded 90 per cent of the foreign exchange gain of Rs. 48,38,274 and interest income of Rs. 1,52,807 from the profits of the business as defined in Explanation (baa) below section 80HHC(4B); it was noted that this amount received as foreign exchange difference during the present assessment year related to export sales made in the earlier years and, therefore, could not be treated like foreign exchange difference relating to exports made during the current year. It was further noted by him that since the issue of including the same amount in export turnover and total turnover was considered and decided by the Commissioner (Appeals), against which the department had filed appeal before the Tribunal. It was alleged that revision under section 263 was not justified, as the assessing officer did not reduce 90 per cent of the aforesaid two receipts from the profits of business for the purposes of calculating deduction under section 80HHC. Thus, the Commissioner held the order to be erroneous and prejudicial to the interests of the revenue. According to the Commissioner the amount of Rs. 48,38,274 was in the nature of "any other receipts of a similar nature" as contemplated by Explanation (baa). He, therefore, directed the assessing officer to modify the calculation of deduction under section 80HHC and deduct 90 per cent of difference of foreign exchange and interest income for calculating "profit of the business".
The order of the Commissioner was challenged before the Delhi Bench of Tribunal. The Bench considered the scope of section 251 and observed as under :
"Section 251 states the powers of the Commissioner (Appeals), which include confirming, reducing, enhancing or annulling the assessment. Explanation to this section provides that in disposing of an appeal the Commissioner (Appeals) may consider and decide any matter arising out of the proceedings in which the order appealed against was passed notwithstanding that such matter was not raised before him. This shows that any matter arising out of the proceedings before the assessing officer is open before the Commissioner (Appeals) and he is competent to consider all such matters. Powers of Commissioner (Appeals) are co-terminus with that of the assessing officer and he can do all that which assessing officer is competent to do, and can also direct him to do what he has failed to do. This is a settled legal position in view of the judgments of the Apex Court in the cases of Jute Corpn. of India Ltd. v. CIT & Anr. (1991) 187 ITR 688 (SC) and CIT v. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC). There is also no dispute about the fact that the Commissioner (Appeals) has also got the power of enhancement.
A survey of the a forecited legal position reveals that the Commissioner (Appeals) is competent to consider all the aspects of the matter which is agitated before him. It is not only the right but the duty of the Commissioner (Appeals) to examine various aspects of the issue which is the subject-matter of controversy before him. When a particular matter is disputed by the assessee before the first appellate authority and he gives his findings on some aspects of the matter, it is implied that he has examined all aspects of that matter before adjudicating upon the matter and is satisfied as regards the correctness of the findings of the assessing officer on all other aspects of that matter. This is obvious from his power of enhancement, which has the effect of increasing the income by setting right the lacunas left over by the assessing officer while framing the assessment."
(III) Hill Properties Ltd. v. Asstt. CIT ITAT B Bench, Bombay, assessment year 1985-86 to 1987-88, dated 23-11-1993 :
In this case, annual letting value of the property was determined on the basis of its municipal value at Rs. 3,57,257 for all the assessment years, i.e., assessent year 1985-86 to 1987-88, it was found that the assessee had received following amounts from its members :(1)
1985-86 9,70,642 (2) 1986-87 7,96,023 (3) 1987-88 3,85,573 On the basis of the above, the Commissioner took the view that the assessments in question were erroneous and prejudicial to the interests of the revenue. One of the objections of the assessee before the Commissioner was that the order of the assessing officer had merged with the order of Commissioner (Appeals). This objection was rejected. The Tribunal, on appeal against the order under section 263, found that before the learned Commissioner (Appeals) the issue was taken by the assessee regarding deduction of municipal and other taxes in determining the annual letting value of the property and the Commissioner (Appeals) decided the issue. In view of this position, it was argued that issue before Commissioner (Appeals) and the Commissioner (Admn) was the same inasmuch as the assessee was forced to file appeals against the assessment orders as the assessing officer had not allowed municipal taxes to be deducted from annual letting value on the basis of municipal valuation. It was argued that an aspect of the matter was determination of annual letting value. It was also subject-matter under section 263 proceedings. The Tribunal allowed the plea of the assessee's observation as under :
"Once this appeal was examined by the Commissioner (Appeals), the assessment order rendered by the assessing officer ceased to exist and got merged in the appellate order which cannot be subjected to any revisional jurisdiction. In saying so we get support from various authorities, to mention the one on which reliance has been placed by the assessee that is the Remex Constructions' case referred to supra.
(IV) Remex Constructionsl Remex Electricals v. ITO & Ors. (1987) 166 ITR 18 (Bom).
In this case, the petitioner was a registered firm, which carried on the business of construction of factory sheds and also carried the activity of electric business. The gross profit rate shown by the assessee firm was at 13.77 per cent, 14.63 per cent and 16.35 per cent for assessment years 1972-73, 1973-74 and 1974-75. This was a gross profit in respect of construction business. The gross profit in respect of electrical business was at 11.64 per cent, 11.82 per cent and 22.87 per cent. The assessing officer estimated gross pr6fit at 12.5 per cent for the first two assessment years and retained the gross profit shown by the petitioner for the last assessment year. On appeal, the learned Commissioner deleted the addition of Rs. 8,486 and Rs. 16,558 for assessment year 1972-73 in respect of electrical and construction business. For assessment year 1973-74, the relief of Rs. 9,463 in respect of electrical business and Rs. 66,323 in respect of construction business was granted. Likewise, in assessment year 1974-75 also relief was allowed on both the counts by the learned Commissioner (Appeals), The order of Commissioner (Appeals) was challenged by the petitioner before Tribunal also.
The Commissioner, Bombay, exercising powers under section 263 issued notice to the assessee and thereafter set aside the assessment orders for the relevant years and directed the Income Tax Officer to redo the assessment. The Commissioner was of the view that the payment made to M/s. Architect Combine and P.L. Kampani were for the purpose of supervision work and the said payment related to trading account and could not have been debited to the P&L a/c.
This order of the Commissioner passed under section 263 was also challenged before the Tribunal. It was submitted by the assessee that the exercise of powers by Commissioner under section 263 of the Act was entirely without jurisdiction as he could not have exercised the revisional power under section 263 of the Act, when the order of the Income Tax Officer had merged in the order passed by the AAC. The Hon'ble Court accepted this plea by observing as under :
"A plain reading of section 263(1) of the Act established that the Commissioner could exercise revisional powers only in cases where any order passed by the Income Tax Officer is found to be erroneous and prejudicial to the interests of the revenue. Shri Pandit is right in his submission that the order of the Income Tax Officer in respect of the three assessment years was carried in appeal before the AAC and the appellate authority granted relief to the petitioner by modifying the orders passed by the Income Tax Officer, Shri Pandit did not dispute that revisional powers could be exercised by the Commissioner in cases where the order of an Income Tax Officer is not carried in appeal or where the appeal is restricted only to a part of the order. The order of the Income Tax Officer would merge in the appellate order provided the entire order of the Income Tax Officer is challenged and considered by the appellate authority and if any part of the order of the Income Tax Officer is not challenged, then that part of the order is open for revision by the Commissioner. Shri Jetly, learned counsel appearing on behalf of the Department, submitted that the Commissioner exercised the power to ascertain whether the expenses claimed by the petitioner are of trading nature and that was not an aspect which was considered by the AAC. The submission is not correct. The order under section 263 of the Act clearly sets out that the point for consideration was that the payment made to Kampani and M/s. Architect Combine were expenses of trading nature and, therefore, deemed to have been covered by the estimate of gross profits. The petitioner had filed the appeals before the AAC because of the decision of the Income tax officer that the gross profits disclosed by the assessee could not be accepted in the absence of day-to-day stock book, and therefore, gross profit has to be ascertained by estimate. It is, therefore, obvious that on this aspect of the matter, the Commissioner should not have exercised revisional powers.
V. CIT v. Goodricke Group Ltd. (supra) :
In this case, the issue related to calculation of head office expenses. The Income Tax Officer was of the view that only 7/12 of the head office expenses should be taken into account for disallowing the expenses as provided under section 44C. The Commissioner (Appeals) heard the appeal and upheld the order of the Income Tax Officer. In this order under section 263, the Commissioner held that order of Income Tax Officer was erroneous. According to him, the point regarding applicability of section 44AC was the only point agitated in appeal and the point whether the head office expenses for the entire year had been taken into account was not agitated by the assessee. The Commissioner, thus, set aside the assessment order and directed the Income Tax Officer to redo the assessment. In appeal against the order of Commissioner, it was argued that Commissioner had no jurisdiction to act under section 263 as the issue was decided by the Income Tax Officer and the Commissioner (Appeals). After hearing both the parties, the Tribunal held that there was no discussion in the order of the learned Commissioner (Appeals) about the ground relating to head office expenses. The matter was, therefore, remanded to the Commissioner (Appels). The Hon'ble High Court has held as under .
"Order of Income Tax Officer regarding application of section 44C having been taken in appeal to Commissioner (Appeals), same merged with appellate order and Commissioner cannot exercise revisional jurisdiction in respect thereof on the ground that quantification of allowance under section 44C was not agitated."
62. In the case of CIT v. Nirbheram Daluram (supra), while explaining the appellate powers of AAC laid down under section 251 of IT Act, 1961, it was held by the Hon'ble Supreme Court of India that the appellate power of AAC was not confined to matter, which was considered by the Income Tax Officer and the AAC had jurisdiction to consider the new entries, which were not considered at all by the Income Tax Officer. In this regard, the Hon'ble Court made reference to the earlier decisions in the cases of Jute Corporation of India Ltd. v. CIT (supra) and observed as under : -
"3. Having regard to the decision in Jute Corpn. of India Ltd. (supra), it must be held that the High Court was in error in holding that the appellate power conferred on the AAC under section 251 was confined to the matter which had been considered by the Income Tax Officer and the AAC exceeded his jurisdiction in making an addition of Rs. 2,30,000 on the basis of the other 10 items of hundies, which had not been explained by the assessee .......
In view of the above, the appellate power can be exercised on certain points, which were not adjudicated by the Income Tax Officer. In the instant case, even if it is assumed that the Income Tax Officer left the issue of verifiability of deposits, etc undecided, then in view of the entire material on the subject having been available to the Commissioner (Appeals) and in view of the fact that even grounds were taken up before him to challenge the addition made on account of deposits, the Commissioner (Appeals) was fully competent to adjudicate the issue. He, in fact, had even proceeded to consider the assessment order on this issue but did not find it proper to make any addition under section 68, which goes to show that he considered the issue and took a decision on the same. Thus, the issue relating to deposits was considered and decided by both the authorities and order of the assessing officer on this issue merged in the order of the learned Commissioner (Appeals).
63. The learned special counsel for the Department made reference to the decision in the case of CIT Bombay v. Shapoorji Pailonji Mistry (supra) and the following other cases :
(I) CIT v. Shri Arbuda Mills Ltd. (supra) (II) CIT v. Panna Knitting Industries (supra) (III) CIT v. Kwality Restaurant & Ice Cream (supra) All the above referred cases have been considered by us. In our view, these cases are distinguishable on facts and they are not directly applicable.
In view of the above factual and legal position, we hold that the doctrine of merger shall be applicable on the issue relating to deposits in the light of clause (c) to the Explanation to section 263(1), because this clause is not applicable and the power of Commissioner shall not be extended to a matter which has been considered and decided in appeal.
64. So far as the second issue relating to interest is concerned, we are not convinced with the argument of the assessee that on this point also the order of assessing officer stood merged with the order of the learned Commissioner (Appeals). On perusal of assessment order it is found that the assessing officer has observed in para 2.xiii that interest provision for the year 1994-95 was at Rs. 26.42 crores and as per balance sheet as on 31-3-1994 it was less by Rs. 11.72 crores. He has discussed the issue relating to notional interest on floating funds and also issue relating to interest paid on 'borrowed capital in para 7.1 but he has not made any disallowance on account of interest provided. In any case, the issue was not agitated before the learned Commissioner (Appeals). It is true that the learned Commissioner (Appeals) had discussed other issues relating to interest but the specific issue relating to provision of interest for this assessment year was neither referred before him, nor considered by him, nor decided. Hence, in view of clause (c) to Explanation to section 263 he was within his power to revise the order of the assessing officer on this issue.
65. The other plea of the assessee that this issue stands covered by the order of Tribunal in the case of sister concern rendered in ITA No. 509/All/1999 is also not acceptable because in that case facts were distinguishable. It may be pointed out that in the case of Sahara India Mutual Benefit Co. Ltd. v. Asstt. CIT in ITA No. 509/All/1999 for the assessment year 1994-95, the issue before the assessing officer was about the allow ability of deduction of expenditure on account of interest payable on deposits received under the two schemes. The assessee, in the P&L a/c for the assessment year 1994-95, had claimed deduction of expenses worth Rs. 16,87,88,857 payable on account of interest liability on the total deposit of Rs. 2,27,95,11,823 upto 31-3-1994 inclusive of deposits of Rs. 1,52,94,04,000 collected during the current year. The assessing officer had considered the deposits worth Rs. 74,47,02,000 as not genuine, he disallowed the proportionate interest on such alleged ungenuine deposits which came to Rs. 5,35,29,140. On appeal, vide his order dt. 1-1-1999, the learned Commissioner (Appeals) considered and decided the issue relating to different disallowances/additions on account of interest including the disallowance of Rs. 5,35,29,140 out of claim of expenditure on account of interest payable on deposits under the two schemes and set aside this issue for fresh disposal (para 98 of his order) because the issue relating to genuineness of deposits to the extent of Rs. 74,47,02,000 had been set aside by him (para 43 of his order). In the notice under section 263 of the IT Act issued in that case on 22-2-1999, it was pointed out to the assessee that it had provided interest on historical average basis periodically on the current deposits as well as old balance of deposits without actually crediting the corresponding interest to the individual account of the depositors.
66. In view of these facts, it was held by the Tribunal by deciding ITA No. 509/All/1999 that the issue relating to allow ability of assessee's claim of deduction on account of liability for interest payable on two schemes was decided as a whole and thus the doctrine of merger applied and the order of the assessing officer with respect to that issue as a whole will be said to have merged with the order of learned Commissioner (Appeals). The relevant observations of the Tribunal, Allahabad Bench in this regard are contained in para 30 which are as under :
"In view of above discussions, we are of the opinion that so far as the assessee's claim of deduction of liability on account of interest payable on deposits under the two schemes was concerned, it was, as a whole including all aspects, such as accrual of the liability, quantum of claim etc, subject-matter of appeal before the Commissioner (Appeals) and since the Commissioner (Appeals) also has dealt with those aspects, the assessment order, so far as this issue is concerned, had merged in the order of the Commissioner (Appeals) passed on 1-1-1999. That being the position, the Commissioner, Kanpur, on 22-2-1999 had no jurisdiction to revise the impugned assessment order by exercising the powers available under the provisions of section 263 of the Act and consequently, the order under section 263 of the Act passed on 22-3-1999 was bad-in-law and void ab initio for want of lawful jurisdiction."
Thus, although similar notices were issued in the two cases on the same point and on the same issue but on facts, the two cases are not identical because in the present case the Commissioner (Appeals) has not considered the issue relating to provision of interest on account of liability at all. Thus, we accept the contention of the learned counsel for the department that the decision of Tribunal, Allahabad Bench is not binding on this issue and that question of merger of the order of assessing officer on this point does not arise.
67. The argument of the learned counsel for the assessee that in the present case even the Commissioner considered the issue of allow ability of interest under section 360)(iii) and therefore, it should be taken that all aspects and all matters relating to interest were considered by the learned Commissioner (Appeals), cannot be accepted. In the case of CIT v. Arbuda Mills Ltd. (supra), it was held that the assessing officer had accepted the claim of the assessee with regard to the deductibility of the following items from the total income :
(a) deduction of a sum of Rs. 23,82,621 by way of provision for gratuity.
(b) Depreciation of Rs. 4,21,000
(c) Loss on account of foreign exchange loss.
68. The assessee preferred appeal against some other additions but no appeal was filed in respect of above three items. In the proceedings under section 263 the plea of the assessee was that the order of the assessing officer had merged with the order of the learned Commissioner (Appeals) and hence, action under section 263 could not be taken. This reasoning was accepted by the Hon'ble High Court of Gujarat. On appeal, the Hon'ble Supreme Court, after considering clause (c) of Explanation to section 263(1) observed as under :
"The consequence of the said amendment Is that the powers under section 263 of the Commissioner shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in an appeal. Accordingly, even in respect of the aforesaid three items, the powers of the Commissioner under section 263 shall extend and shall be deemed always to have extended to them because the said items had not been considered and decided in the appeal filed by the assessee."
69. In the present case also the issue relating to claim of deduction on account of provisions of interest liability was not considered by the learned Commissioner (Appeals) although other items of interest were considered by him.
70. The decision in the case of CIT v. Panna Knitting Industry (supra) is also applicable to this aspect of the matter. In that case weighted deductions under section 35B was allowed in relation to three items by the assessing officer vide assessment order in the case of assessee for the assessment year 1979-80 but was disallowed on the item "export freight". The assessee challenged the disallowance of weighted deduction on this item (export freight). The learned Commissioner (Appeals), however, confirmed the order of the assessing officer disallowing the assessee's claim of weighted deduction under section 36B of the Act in relation to item No. 1, i.e., export freight. The Commissioner initiated revisional proceedings under section 263 as, according to him weighted deduction under section 35B of the Act was wrongly allowed by the Income Tax Officer in respect of item Nos. 2, 3 and 4 namely, foreign travelling, export service charges and export commission. The Commissioner passed an order under section 263 directing the Income Tax Officer to withdraw the weighted deduction allowed in respect of item Nos. 2 to 4. The challenge of the assessee against the order of Commissioner was that the issue relating to allow ability of weighted deduction was considered by the learned Commissioner (Appeals) and he could have in exercise of his powers under section 251 which are co-extensive with the powers of assessing officer, withdrawn the weighed deduction allowed for the remaining three items. The Hon'ble Supreme Court rejected this contention and observed as under :
"It is true that the powers of the appellate authority under section 251 are coextensive with the powers of the assessing authority and the former authority had power to even withdraw the allowance of weighted deduction in respect of the aforesaid three items. The legislature has, however, by incorporating Explanation (c) to section 263 of the Act conferred powers on the revisional authority which are co-extensive with the powers of the appellate authority. It is only with a view to empower the revisional authority to exercise the powers of the appellate authority in respect of such matters which have escaped the attention of the appellate authority that Explanation (c) to section 263 has been added to protect the interests of the revenue. The Supreme Court decision in the case of Shri Arbuda Mills Ltd. (1998) 231 ITR 50 (SC) squarely covers the question referred to us and it is, therefore, answered in favour of the revenue and against the assessee".
71. The decision of Hon'ble Madras High Court in the case of Bundy Tubing of India Ltd. v. CIT (supra) and the decision of Hon'ble Delhi High Court in the case of CIT v. Kwality Restaurant (supra) are also applicable to this issue.
72. In view of the above, whereas the issue relating to addition on account of deposits is found to be considered and decided by the Commissioner (Appeals) and thus on account of merger of the order of assessing officer with the order of learned Commissioner (Appeals) on this issue, there remained no scope for exercising jurisdiction under section 263 of the Act by the Commissioner. Hence, the order of learned Commissioner passed under section 263 for revising the order of assessing officer on the issue of deposit has to be quashed as the same cannot survive.
73. However, so far as the revision of the order of assessing officer on the other issue, namely, provision for interest and claim of deduction on account of such liability is concerned, we are of the view that the order of Commissioner under section 263 survives to this extent and on this issue.
Whether the manner in which the Commissioner exercised jurisdiction under section 263 was erroneous. If so, its effect (Ground Nos. 14 and 15)
74. The submission of the learned counsel for the assessee was that while setting aside the order of the assessing officer, the Commissioner has in a way issued guidance by giving opinion or advise and has directed the assessing officer to make addition under section 68 of IT Act which amounts to advising the assessing officer and therefore, the manner in which the order under section 263 is made is liable to be set aside on this ground also. In this regard, reliance was placed in the following cases
(i) CIT v. Sunderlal (supra)
(ii) CIT v. R.K. Metal Works (supra)
(iii) CIT v. Gabriel India Ltd. (supra)
75. We have carefully considered the entire material on record including the notice issued by the learned Commissioner and order passed by him under section 263. In our view, the direction of learned Commissioner is not advisory in nature. He has set aside the order of assessing officer on the two issues and restored these two issues to the file of assessing officer and directed the assessing officer to decide the issues afresh after giving reasonable opportunity to the assessee.
76. The issue in the case of CIT v. Late Sunder Lal (through Bankey Bihari Lal) (supra) was different as in that case the Commissioner had not assigned reasons for being satisfied that the order passed by the Income Tax Officer was prejudicial to the interest of revenue. The Hon'ble Allahabad High Court made following observation :
"No reason at all have been given by the Commissioner for coming to the conclusion that the order in question was prejudicial to the interests of the Revenue. It is also not possible to accept the argument on behalf of the revenue that the Commissioner must be deemed to have adopted the reasoning of the AAC, inasmuch as he had authorised the Income Tax Officer to file an appeal to the Tribunal against the order of the AAC. It is settled law that an order passed by a quasi-judicial authority without giving any reasons for its conclusion is vitiated in law. The order passed by the Commissioner clearly suffers from this infirmity. Bhagat Raja v. Union of India AIR 1967 (SC) 160 followed."
77. In the case of CIT v. R.K. Metal Works (supra) it was found that the Commissioner did not consider the written statement of the assessee raising objections against proposal for initiating action under section 263 and also failed to indicate the material or the nature of evidence before him on the basis of which he came to the conclusion that the order of Income Tax Officer was erroneous and prejudicial to the interests of the revenue. On these facts, the Tribunal held that the Commissioner has not given any reasons to justify his satisfaction that the order passed by the Income Tax Officer was prejudicial to the interests of revenue. On reference, the findings of the Tribunal were upheld by the Hon'ble High Court.
78. Since, in the present case, the Commissioner had duly considered the objections of the assessee and has also assigned reasons for recording his satisfaction, the above decisions do not apply. Otherwise also, we do not find any error in the manner in which directions were given by him to the Income Tax Officer. His direction cannot be considered to be advisory or expressing opinion to influence the decision of 138 the assessing officer because the assessing officer was directed to decide the issue afresh after hearing the assessee. Thus, the decision of the assessing officer was not to be influenced in any manner by the observations of the learned Commissioner (Appeals).
79. These grounds are, therefore, rejected.
Whether the order under section 263 was not justified for setting aside the issue relating to liability on account of interest on deposits : Ground Nos. 17 to 23 :
80. The assessee has taken ground Nos. 17 to 23 to challenge the order of the learned Commissioner passed under section 263 on the issue relating to provision of interest. The observations of the learned Commissioner on this issue are as under :
"On the other point of interest, it is noticed that the assessee had made a provision of Rs. 1,38,58,194 under super 91 scheme and Rs. 16,99,45,451 on other schemes, in all amounting to Rs. 18.38 crores during this assessment year. The interest is provided on mercantile system of accounting on the balance of deposits. As per terms and conditions the interest on deposit is payable only when the depositor pays the instalment regularly till the maturity period without any default. Therefore, the entire liability to pay interest accrues or arises only on the date of maturity. The assessee, however, has provided interest on the current deposits as well as on the old balances without actually crediting to the accounts of individual account holders. Interest which is not payable on the defaulted/lapsed accounts or on unclaimed matured accounts has also been claimed and so allowed by the assessing officer. The assessing officer did not look into as to whether the claim of interest was excessive and whether it was ascertained or contingent in nature. The details of regular and irregular accounts and the amount of interest not payable on irregular accounts is not known. If the provision of interest has been made at 4 or 5 per cent only while the terms and conditions stipulate to a higher rate of interest the excess interest on maturity will thus be payable at a later period which will distort the accounts of the various years. In the 84 months scheme, if 12 instalments are not paid, then it becomes the lapsed account and no interest is payable at all but a minimum interest as admitted by the assessee's representative has been provided even in such case. The status of the depositors accounts is known only at the end of the tenure of the scheme and then only it is known as to how much interest is payable. That being so it cannot be said that the liability of interest is determinate and not contingent."
The learned counsel for the assessee submitted that the observations of the learned Commissioner (Appeals) on the issue of interest are not correct. According to him, since the assessee made a lesser claim, how it can be against the interests of the revenue. The learned counsel also made reference to the observations of the Tribunal in the case of Mutual (supra) on this issue and after making reference to para Nos. 19.1, 19.2, 21.1 and 22.2 of that order, it was argued that on similar facts the order of Commissioner in that case was quashed and therefore, following the order of Tribunal in the case of Mutual, the impugned order in this case should also be quashed on the ground that the Commissioner has not specified the reasons for his conclusions. In this regard, reference has also been made to the detailed reply of the assessee available at pp. 3 to 14 and particularly to the reply on point of interest claim which is available at pp. 10 to 14 of the paper book. The learned counsel also placed reliance on the decision in the case of CIT v. Gabriel India Ltd. (supra) in support of his argument on this point and the decision in the case of CIT v. R.K. Metal Works (supra).
81. The learned special counsel for the department supported the order of the learned Commissioner (Appeals) and submitted that on the issue of interest the observations of learned Commissioner (Appeals) should not be considered as his findings. It was also submitted that the findings of the Tribunal in Mutual's case are neither binding nor relevant because we arc concerned with a different assessee and factual position is also different in two cases.
82. We have carefully considered the arguments advanced before us. The order of Commissioner passed under section 263 in the case of Mutual has not been filed before us and therefore, we cannot compare the two orders. So far as the present case is concerned, on the issue of interest, the learned Commissioner has made certain observations which have been reproduced above. These observations, in any case, cannot be considered to be his findings. For the purposes of section 263 that is, for exercising the power of revision, it is sufficient if certain errors are pointed out in the assessment order.
83. In the present case, the Income Tax Officer had hot examined the individual accounts of the depositors. Since the books of account maintained by the assessee were not examined on this issue, it cannot be said that the assessing officer conducted inquiry into the matter. Since the matter was not involved in appeal, the learned Commissioner (Appeals) could not examine this issue and as held earlier, the question of merger on this issue does not arise. Thus, on the point of interest, the order of the Commissioner is fully justified and exercise of jurisdiction by him under section 263 is found to be legally sustainable. These grounds are, therefore, rejected.
84. In view of our findings on various issues and grounds of this appeal as recorded above, the impugned order of the learned Commissioner passed under section 263 is set aside in respect of the first issue relating to deposits and the order on the second issue relating to provision of liability on account of interest is upheld.
85. In the result, the appeal is partly allowed.