Income Tax Appellate Tribunal - Mumbai
Savani Transport Ltd. vs Deputy Commissioner Of Income-Tax on 4 September, 1996
Equivalent citations: [1997]60ITD513(MUM)
ORDER
A. Kalyanasundharam, A.M.
1. The assessee, a limited company, has filed this appeal aggrieved by the order of the Commissioner of Income-tax dated 28-9-1993 passed under section 263 of the Income-tax Act, 1961. The assessee in this appeal has challenged the jurisdiction of the Commissioner exercising his powers under section 263 of the Act and on merits as well.
2. The learned counsel for the assessee, Mr. Pardiwala, referred to the notice of the Commissioner which has been placed at page 26 of the paperbook. He submitted that the Commissioner in this notice has referred to the search and seizure operation carried out at the business premises of the assessee on the 21st and 22nd August, 1990 resulting in seizure of books of account, loose papers, note-books and diaries. The notice also stated that the statement of full-time Director, Mr. N.M. Savani was taken and that he had admitted that the jottings on the loose papers, note-books and diaries represented part of the undisclosed income. It was further noted that the entries appearing in the various loose-papers, note-books etc., the items required to be multiplied by hundred to arrive at the correct figure. The notice further stated that the item of liability against Manav Mandir Trust was the only correct amount and the rest of the amount required multiplication by hundred. It was further noted that the Assessing Officer having accepted the submissions of the assessee to the effect that there was only one stray example and concluded the assessment on the returned income and accordingly the Commissioner felt that the order passed by the Assessing Officer was erroneous and prejudicial to the interest of the revenue. The assessee objected to the notice and consideration of the notings in pages 40, 41 and 42 was also objected. The Commissioner, however, in paras 3 and 4, he submitted, had rejected the contentions raised by the assessee.
The learned counsel, Mr. Pardiwala, submitted that in the course of assessment proceedings, the assessee addressed a letter to the Commissioner objecting to the high-pitched assessment being framed on the assessee and the various submissions as made before the Commissioner in the letter have been placed at pages 24 and 25 of the paper-book. The Commissioner apparently had called the Assessing Officer and had discussed the matter with him and had advised the Assessing Officer to accept the returned income as such. He submitted that the Departmental Representative, at the instance of the directions of the Bench, had filed the copy of the said letter written by the Commissioner of Income-tax, Mumbai City-XII, to the Dy. CIT, Spl. Range-12, Mumbai, dated 13-3-1992, which clearly speaks for itself that the Commissioner had given specific directions to accept the returned income of the assessee. He further contended that the department had also been fair enough in filing the office-note added by the Assessing Officer to the assessment order framed by him, copy of which also has been placed on our records. In this office-note there is mention about the fact, the salient feature and the nature of the addition so sent to the Chairman, CBDT in December 1991. This was followed by a report No.DC.,Spl. Range-XII/Action Plan/91-92 dated 13-1-1992 followed by the visit of the Member of CBDT from 13th, 16th January, 1992. He further noted in this office-note that before finalising the assessment for the assessment year 1990-91, the matter and issues regarding coded paper was discussed at great length with the Commissioner of Income-tax, Mumbai City-XII on several occasions in the months of February and March 1992. This is followed by a reference to the communication received from the Commissioner after which he had indicated that the draft assessment proposed a total income of Rs. 65,82,640 on the basis of including the undisclosed income as per the seized papers of Rs. 74,44,381 and the order was received by the Commissioner on 23-3-1992. This is followed by a noting to the effect of the specific directions of the Commissioner stating "complete the assessment by taking the figures in these sheets without multiplying the same by hundred." He finally observed that on receipt of the directions of the Commissioner, there left no scope for further examination because the Commissioner directed him categorically to proceed and pass the assessment without multiplying by hundreds and he concluded the assessment based on the returned income.
The learned counsel submitted that the present action of the Commissioner in exercising his powers under section 263 of the Act is, in effect, directed towards the directions of the Commissioner, who is of equal rank, who was his predecessor holding the same charge, which is not permitted by section 263 of the Act. He contended that the Commissioner is empowered to revise the order of assessment made by the Assessing Officer and does not cover those situations where the Assessing Office passes orders in obedience of the direction of orders of the Commissioner. The learned counsel, Mr. Pardiwala filed a copy of the order of the Tribunal in Trustees of Parsi Panchayat Funds & Properties v. Director of Income-tax (Exemption) [IT Appeal No. 3065 (Bom.) of 1995 dated 18-10-1995] for the assessment year 1990-91 and submitted that the Tribunal had considered the decision of the Madhya Pradesh High Court in H.H. Maharaja Raja Pawar Dewas v. CIT [1982] 138 ITR 518/ [1983] 15 Taxman 363, the jurisdictional High Court decision in Brihan Maharashtra Sugar Syndicate Ltd. v. Dy. Commissioner of Agricultural Income-tax [1987] 165 ITR 279 (Bom.) and the Supreme Court decision in Sirpur Paper Mills Ltd. v. CWT [1970] 77 ITR 6 and had categorically observed that the Income-tax Act does not permit revision of an order of the Commissioner by another Commissioner. He also filed a copy of the order of the Tribunal, Mumbai Bench 'A', in Kiron & Co. v. ITO [IT Appeal Nos. 1623 to 1626 (Bom.) of 1986 dated 22-6-1990] for assessment years 1981-82 to 1984-85, in which case, the assessments were framed on the basis of a settlement petition accepted by the Commissioner and the successor Commissioner invoked his powers under section 263 of the Act and the Tribunal had held that an order that is passed on he basis of the directions received from the Commissioner, even if such an order is erroneous, it could not be held to be prejudicial to the interest of the revenue because it was passed at the behest of the Commissioner. He accordingly contended that the order of the Commissioner is without jurisdiction and should be annulled.
3. Shri Sunil Pathak, the learned Departmental Representative, had placed his written submissions in regard to the various points raised by the assessee, which is reproduced below :
"In this case, as directed, a copy of the letter dated 30-3-1992 issued by CIT, City-XII, Mumbai was submitted to the Hon. Tribunal on 5th August, 1996. At that time the Hon. Tribunal desired that I should make submission only on the point as to whether the successor CIT can revise the assessment order passed in pursuance of the directions issued by his predecessor. I am relying on the following cases in support of the argument that the successor CIT can revise the assessment order passed in pursuance of the directions issued by the predecessor.
1. My proposition in this case is that CIT has no authority to issue directions to the Assessing Officer for completion of assessment in any manner and if the Assessing Officer has completed the assessment in accordance with the directions of the CIT that order itself is erroneous. In this regard, I rely on the Hon. Supreme Court decision in the case of Sirpur Paper Mills Ltd. v. CIT [1970] 77 ITR 6.
2. ITO v. Eastern Scales P. Ltd. (Cal. H.C.) 115 ITR 323 : The important part of the decision in this case is reproduced below :
'The ITO has to act judicially or quasi-judicially in the assessment proceedings and any direction by any higher authority as to the manner in which such proceedings are to be disposed of would be interference with the judicial or quasi-judicial functions of the ITO. If the ITO acts in accordance with such directions and disposes of assessment proceedings accordingly, his orders will be liable to be set aside on that ground.'
3. In the case of Gordhandas Desai P. Ltd. v. ITO [1981] 129 ITR 495, it has been held by the Hon. Mumbai High Court that the CIT is not competent to give directions on the application of rectification. He cannot usurp functions of ITO. On this basis, ITO was directed to pass an order on the application for rectification ignoring the communications of the CIT.
4. Even in the case of J.K. Synthetics Ltd. v. CBDT [1981] 83 ITR 335, the Hon. Supreme Court held that the Board is not competent to give directions regarding exercise of power to the subordinates. On similar lines the CIT is not empowered to give directions to his subordinates.
5. On similar facts, in the case of Trustees of Parsi Panchayat Funds & Properties v. Director of Income-tax (Exemption) Mumbai, IT Appeal No. 3065 (Bom.) of 1995, the Hon. Tribunal, Bombay Bench 'A', Bombay has given a decision to which the Hon. Accountant Member was a party. In this case it was decided that despite the directions on the predecessor Director of IT on the framing of assessment, the successor Director of IT could invoke the provisions of section 263 and revise the assessment order.
6. Reliance is also placed on the decision of the Hon. Rajasthan High Court in H.H, Rahdadi Smt. Badan Kanwar Medical Trust v. CWT [1995] 214 ITR 130 which is already recorded in the above referred order of the Hon. Tribunal.
7. In the case of Jayantilal C. Jhaveri v. Asstt. CIT [1995] 55 ITD 313, CIT had passed order under section 132(12) reducing the quantum of concealed income. The Assessing Officer passed the assessment order without making any independent inquiry by merely following CIT's direction under section 132(12). Later on, action under section 263 was taken on the ground that there was complete lack of application of mind on the part of the Assessing Officer and the order under section 263 was upheld.
The decisions are submitted only on the proposition that on similar facts and circumstances, the successor CIT can revise the assessment under section 263 made by the Assessing Officer which is in pursuance with the directions of the predecessor CIT.
As the assessee's representative is yet to be heard on this point, I reserve my right to reply to any of his arguments and decisions if any, which would be relied upon by him.
I also rely on the decision of Hon. ITAT, Pune Bench in the case of Bhaskaracharya Pratishtana v. Asstt. CIT [1995] 52 ITD 28. In this case, the earlier CIT had granted exemption under section 10(22) which was later on withdrawn by his successor. This action was held valid by the Hon. Tribunal.
Reliance is also placed on 173 ITR 611 - Tarsan Products Ltd. v. CIT."
He also filed a copy of the decision of the Tribunal, Mumbai Bench 'D' in Ratan H. Khatri v. Asstt. CIT in I.T.A No. 4373 (Bom.) of 1990 for assessment year 1985-86 dated 4-7-1996.
4. The rival contentions in regard to the above have been very carefully considered. The undisputed fact in the instant case is that the assessment framed by the Assessing Officer is based on the specific directions received from the Commissioner vide his communication dated 30-3-1992. We must bring on record the fairness in the approach to the case of the department by placing the copy of the directions received from the Commissioner by the Assessing Officer as well as the copy of the office-note made by the Assessing Officer. For the sake of facility, the directions issued by the Commissioner vide his communication dated 30-3-1992 are reproduced below :
"No. BC.XII/18/91-92. Office of the Commissioner of Income-tax, Bombay City-XII, Bombay.
Dated : 30-3-1992.
The D.C. (IT) Spl. Range-12, Bombay.
Sub : M/s. Savani Transport Ltd.
Subsequent to my letter of even No. dated 18-2-1992, this issue has been discussed with the D.C. Spl. Range-12, Bombay more than once. At the time when this letter was received by D.C. had the draft of the assessment under preparation which he has subsequently completed and we have gone through the draft assessment order also. The issue involved basically is whether the seized material particularly in sheet Nos. 40, 41 and 42 represents a summarised version of the unaccounted income of M/s. Savani Transport Limited and if so whether the figures of income shown therein are the actual figures or are figures in hundreds. The objection of the assessee contained in their letter dated 17-2-1992 and further articulated in the subsequent discussion is that the Assessing Officer in the assessment for asst. year 1989-90 has drawn certain presumptions primarily on the basis of the non-co-operation from the assessee. It was stated before me that whatever the presumptions that have been drawn by the D.C. Spl. Range, they crumble under the weight of their own internal contradictions, thus, being negatived without the effort of the assessee to rebut the same. Going through the seized material, the presumptions made and discussion with the D.C. Spl. Range, the position that emerges is an under :
1. Even presuming that the figures in the seized statements, 40, 41 & 42 represent the income outside the books it has to be the income of an entity S.T.L. which income is divisible respectively between M.V.S., R.V.S. and R.D.S. in the proportion of 58 : 30 : 12, which entity cannot be the assessee M/s S.T.L. Apart from the fact that the Limited Co. does not have, like a partnership firm, its income divisible between the partners, the shareholdings of Shri M.V. Savani, Shri R.V. Savani and Shri R.D. Shah (whose names the abbreviations represent) in the assessee-company stand respectively at 10%, 5.33 and 5%.
2. Further even presuming that the sheets represent unaccounted income the income is not of S.T.L. but of bigger, composite entity as the income and expenditure account of the bigger entity of which S.T.L. is a part.
3. Whatever the admission that has been made by Shri N.M. Savani and others it cannot be held as rebuttable presumption against the assessee in favour of the department. At best the statement of various people amounts to an admission that the seized sheets have something to do with the unaccounted income of the group and that they were yet to ascertain to whom did that income belong. Further these sheets were found from the drawer of Shri R.P. Shah who has not even been examined. Now the stand has been made that these are not even in the handwriting of Shri R.P. Shah and although every far fetched, the stand now is that these sheets must be the work of some candidate for the job of Accountant, demonstrating his accounts finalisation capabilities. Further examination of Shri R.P. Shah now will only be playing in the hands of this group.
4. As it appear more likely these sheets represent some internal leakages, generating income at the expenses of the assessee in which even the higher echelons of the group had a share in the booty. Even in this more likely presumption, there are contradictions. For example, why should there be an item of income-tax shown as an expense to find its place in an account of concealed income.
Further why should there be items like proposed donation. Although the Truck numbers given at various places show trucks belonging to the assessee or sold by the assessee, why should some of the trucks be shown as liability in its balance sheet ?
In view of the above, whichever way I look at it there is no case for an addition that has to be made in the same manner as was done in the asst. year 1989-90. I think the best bargain that we have to complete the assessment by accepting the assessee's offer to make an addition of the same amount as was done in asst. year 1989-90 without multiplying the figures as per seized statements by hundred. This would come to about Rs. 75,000 for the present year. The representative of the assessee has made the offer obviously to save the assessee from unnecessary litigation.
There are very strong reasons supporting such an acceptance firstly, it is impossible that the assessee would be making income outside the books from year to year which for one year itself (asst. year 1989-90) has been worked out at Rs. 2.5 crores. If there were so much income generated the search action could have apart from the seized sheets of paper, revealed at least something else to suggest the source of that income and also its destination in the forms of unaccounted assets. Secondly, all the enquiry conducted by the D.C. on the basis of these sheets has not revealed any such source of income or any such asset. Thirdly, the only item that supports the theory of the figures being in hundreds is the exact value of shares and debentures in the books of account which are at a multiple of hundreds as compared to the figure in the seized sheets. But then sheet No. 40 shows a liability of Rs. 12,972.10 pertaining to Manav Mandir Trust which is exactly the figure shown in the balance sheet of this Trust, contradicting to this limited extent that all the figures are not in hundreds. The assessee can always get away with the plea that there might be a brokerage/leakage to the extent of 1% in respect of the transactions pertaining to shares/debentures.
Lastly if at any time we locate an additional item of income referable to these statements but concealed by the assessee or any undisclosed assets to have been acquired with such income, the department will not be precluded from taking a separate action under section 147.
The D. C. may complete the assessment by taking the figures in these sheets without multiplying the same by hundreds. The offer from the assessee, is that the same is being made without an admission that it is the concealed income for which purposes the amount is not being capitalised by them. There is no other aspect of this case that required any discussion."
In Kiron & Co. (supra), the Tribunal while considering the assessment order framed on the basis of settlement petition accepted by the Commissioner, which the successor Commissioner wanted to revise, has clearly observed that the Assessing Officer might have committed an error in framing the assessment in the sense such assessment came to be famed on the basis of the specific direction of the Commissioner, who was a superior authority, the error, if at all, was committed by the Commissioner and to that extent the prejudice caused to the revenue is not by virtue of the order of the Assessing Officer. Further, they have observed that cases where the Assessing Officer had followed the directions of the Commissioner and concluded the assessment, the Commissioner has no powers to revise the assessment under section 263 of the Act. In the case of Trustees of Parsi Panchayat Funds & Properties (supra), the Tribunal had extracted from the observations of the Supreme Court decision in Sirpur Paper Mills Ltd.'s case (supra). The Tribunal had stated in that order that the Supreme Court had given a categorical finding that a superior authority could not issue any directions in regard to the manner of framing an assessment and that the authority following such a direction could not be held to have applied his mind, which application of mind is the fundamental or primary requirement. In that case, the assessment was framed by the Assessing Officer on the basis of directions received from the CBDT, which the Commissioner sought to revise and this was struck down by the Supreme Court. The Tribunal further observed that the Supreme Court had categorically held that the superior authority could not interfere with the statutory functions of an authority and that the superior authority could not revise an order passed in pursuance to the directions of another identical superior authority.
The case law relied upon by the Departmental Representative in ITO v. Eastern Scales (P.) Ltd. [1978] 115 ITR 323 (Cal.), in our view, is not at all in dispute and this is in line with the decision of the Supreme Court in Sirpur Paper Mills Ltd.'s case (supra). In the case of Gordhandas Desai (P.) Ltd. v. V.V. Kulkarni, ITO [1981] 129 ITR 495 (Bom.), the jurisdictional High Court had held that the Commissioner cannot take away the statutory functions of the Assessing Officer and on that basis the Assessing Officer was directed to pass an order ignoring the communication of the Commissioner. This particular ruling is also not helpful to the department because presently we are concerned with a situation of the Commissioner revising an order of the Assessing Officer, who had framed the assessment as directed by the Commissioner, both of whom are of equal status and the one is not superior to the other. In Jayantilal C. Jhaveri v. Asstt. CIT [1995] 55 ITD 313 (Bom.), the Assessing Officer had not merely proceeded on the basis of the finding of the Commissioner under section 132(12) but had carried out independent enquiries and based on that the Commissioner had revised the order of the Assessing Officer. This was a case where the Assessing Officer had applied his mind and had not merely complied with whatever was determined by the Commissioner under section 132(12). However, in the instant case, there is a categorical nothing by the Assessing Officer to the effect that he had no option left with any scope of further examination and that he had categorically proceeded to pass the assessment as directed by the Commissioner. Not only that he had not applied his mind to the facts of the case, though before the receipt of the directions from the Commissioner he had himself drafted the assessment on a figure of Rs. 65.83 lakhs as income.
The reliance placed by the Departmental Representative on the Rajasthan High Court decision in H.H. Rahdadi Smt. Badan Kanwar Medical Trust v. CWT [1995] 214 ITR 130 is also misplaced because in that case, the Assessing Officer had noted in the order-sheet to the effect that he is dropping the proceedings after having discussed with the IAC and the CIT and there was no evidence to that effect available on records. The Commissioner revised the dropping of the proceedings, which revision was upheld by the Tribunal and the Rajasthan High Court upheld the order of the Tribunal. The Tribunal upheld the revision on the ground that meter mentioning in the order-sheet that he had received directions or that he had discussed the matter with the Commissioner would not deprive the Commissioner in invoking his powers. In the instance case, where at the instance of the assessee the Commissioner had intervened and directed the Assessing Officer to complete the assessment at the returned figure, which the Assessing Officer, who was subordinate to the Commissioner, had followed and concluded the assessment.
5. In view of the above, the conclusion is that in the present facts which show that the assessment was framed according to the directions received from the Commissioner, the successor Commissioner is not empowered to revise the said order because it tantamounts to revising his predecessor's directions. On this jurisdictional aspect we uphold the claim of the assessee. While doing so we may observe that we have taken guidance from the Supreme Court decision in Sirpur Paper Mills Ltd.'s case (supra).
6. In view of the above, merits need not be gone into and is considered not worthwhile hearing and give any conclusion thereon.
7. In the result, the appeal of the assessee is allowed.