Income Tax Appellate Tribunal - Chandigarh
N. S. Ichhopani vs Assistant Commissioner Of Income-Tax. on 29 May, 1995
Equivalent citations: [1995]55ITD88(CHD)
ORDER
Per Kathuria - This appeal by the assessee for assessment year 1985-86 is directed against the order dated 16-9-1992 passed under section 263 of the Income-tax Act, 1961 by CIT, Patiala.
2. Brief facts of the case are these : The assessee is an individual who had income for two months from 1-4-1984 to 31-5-1984 as proprietor of M/s. AFCO Feeds dealing in manufacture and sale of poultry feeds. The assessee also started a proprietary business in the name of M/s. Bee Kay Gas Service, Jagraon, which ran for two months for February and March 1985. The accounting period of the assessee ended on 31-3-1985. There was an income-tax search at the premises of the assessee on 14-10-1986 when certain books of accounts and documents were taken into possession by the Department. The Assessing Officer made an assessment on 27-7-1990 under section 143(3) of the Act. Though the order is not very exhaustive, it is clear from the order that the incriminating material seized by the income-tax authorities was looked into by the Assessing Officer before framing the assessment. In fact, the Assessing Officer had issued three enquiry letters dated 6-2-1987, 10-2-1987 and 29-1-1988, copies of which are placed at pages 9 to 14 of the assessees compilation.
3. The ld. CIT, however examined the record of the assessee and noticed that the document seized during the income-tax search had not been considered by the Assessing Officer. He also noticed that some of the investments had not been looked into and on some, enquiries had not been made. The ld. Commissioner accordingly issued a show-cause notice dated 4-2-1992 listing as many as nine items which were not considered by the Assessing Officer at the time of original assessment. The Assessee furnished a detailed reply dated 15-9-1992 which is placed at pages 4 to 8 of the assessees compilation.
4. The ld. Commissioner, after enumerating the nine items mentioned the show-cause notice in the body of the order passed under section 263 of the Act, took cognizance of the reply submitted by the assessee but held that it was neither proper nor possible for him to verify the explanation furnished by the assessees learned counsel. Since, according to him, the Assessing Officer while passing the original assessment order had failed to consider the incriminating evidence in some seized papers and also did not look into certain investments, he held that the assessment order dated 27-7-1990 was erroneous insofar as it was prejudicial to the interests of the revenue. He accordingly set aside the assessment order in question and directed the Assessing Officer to make a de novo assessment considering all the seized papers not considered earlier and also other important aspects of the case as mentioned in the impugned order. It is against this order that the assessee has come up in appeal before us.
5. Shri Mohan Lal, Advocate, the ld. counsel for the assessee, very ably presented the case of the assessee. It was submitted by him that though the assessment order passed by the Assessing Officer may not be exhaustive and may be cryptic, that would not mean that the Assessing Officer had not made the necessary enquiries before completing the assessment. The ld. counsel, in fact, drew our attention to the various notices issued by the Assessing Officer before completing the assessment to which a reference had been made above. It was also submitted that the order under section 263 was a quasi-judicial order and it was necessary for assuming jurisdiction that there should be a proper and valid reason for doing so and the conclusion of the ld. Commissioner should also be based on facts. It was submitted that in the instant case, the ld. Commissioner had not gone into the explanation furnished by the assessee nor had he come to a definite conclusion that the order passed by the ITO was erroneous and prejudicial to the interests of the revenue. It was vehemently argued that the entire approach of the ld. Commissioner was faulty and on that basis, no order under section 263 could have been passed.
6. The ld. counsel with the help of a chart filed before us explained as to how item Nos. (i) to (vi) in the impugned order had been gone into by the Assessing Officer as would be clear from the various query letters issued by him before completing the assessment. As regards item No. (vii), it was submitted that the assessee in his detailed reply before the Commissioner had pointed out that M/s. Mutrivat Co. (P) Ltd. was incorporated on 5-5-1984 and that no income was earned up to 29-9-1984 when the assessee resigned from directorship. The assessee had explained that shares worth Rs. 10,000 of this company had been purchased after earned the same in the books of accounts since no income had been earned, nothing was to be shown in the return. As regards item No. (viii), it was submitted that business in the style of M/s. J. K. Feeds was being run by Sardarni Jasbir Kaur w/o Dr. Jagmohan Singh, sister-in-law of the assessee, as a proprietary concern. It was pointed out that in the reply submitted, it had been explained that the proprietary concern was proposed to be converted into a partnership concern for which purpose a partnership deed dated 17-10-1984 was also executed but this remained a paper transaction only and no activity was done by the partnership concern. It was also pointed out that neither any investment was made nor did the firm actually come into existence. It was also submitted that Sardarni Jasbir Kaur was assessed in her proprietary capacity for the said business for assessment year 1985-86.
7. As regard item No. (ix), it was submitted that all the incriminating documents had been gone into by the ITO and that the search took place as a result of the machination of a disgruntled and dismissed employee of the assessee, Shri S. S. Sidhu. The ld. counsel for the assessee, therefore, vehemently argued that there was absolutely no justification for assuming jurisdiction under section 263 by the ld. CIT nor for passing the order setting aside the assessment to be made afresh.
8. The ld. counsel relied on the Patna High court decision in CIT v. Shantilal Agarwalla [1983] 142 ITR 778 for the proposition that the Commissioner has to point out as to how order sought to be cancelled is prejudicial to the interest of the revenue. Moreover, his satisfaction has to be not subjective but objective. Reliance was also placed on the Allahabad High Court decision in the CIT v. Kashi Nath & Co. [1988] 170 ITR 28 for the proposition that the power of revision by the Commissioner under section 263 of the Act is quasi-judicial in character and he must give reasons in support of his conclusion that the assessment order is erroneous insofar as it is prejudicial to the interests of the revenue. If he does not give reasons, the order would stand vitiated. The ld. counsel also relied on the Punjab and Haryana High Court decision in CIT v. R. K. Metal Works [1978] 112 ITR 445 for the proposition that in passing an order of revision under section 263 of the Act, it is necessary for the Commissioner to state in what manner he considered that the order of the Assessing Officer was erroneous and prejudicial to the interests of the revenue and that the basis was for such a conclusion. Relying on the Punjab and Haryana High Court decision in CIT v. Kanda Rice Mills [1989] 178 ITR 446, it was submitted that the Commissioner had come to a firm decision that the order of the Assessing Office was erroneous and was prejudicial to the interests of the revenue. The ld. counsel also relied on Allahabad High Court decision in CIT v. Goyal Private Family Specific Trust [1988] 171 ITR 698 at 701 for the proposition that the orders of the ITO may be brief and cryptic, but that by itself is not sufficient to brand the assessment orders as erroneous and prejudicial to the interests of the revenue. Writing an order in detail may be legal requirement, but the order not fulfilling this requirement, cannot be said to be erroneous and prejudicial to the interests of the revenue. Relying on the Rajasthan High Court decision in CIT v. Trustees Anupam Charitable Trust [1987] 167 ITR 129, it was submitted that the error envisaged by section 263 was not on which depended on possibility or guesswork, but it should be actually an either of fact or of law. The learned counsel for the assessee, therefore, forcefully submitted that all the necessary enquiries had been made by the ITO and the ld. Commissioner had failed to point out any error in the assessment order. It was, therefore, pleaded that the impugned order may be vacated.
9. The ld. Department Representative submitted that in the show-cause notice, 9 reasons were given by the ld. Commissioner for invoking his jurisdiction under section 263. According to the ld. Department Representative, these very reasons were incorporated in the impugned order. It was submitted that these were valid reasons which could justify the intervention by the learned Commissioner. It was submitted that the Assessing Officer had failed to consider the entire evidence and hence the setting aside of assessment order became a necessity. The ld. Departmental Representative strongly superheated the impugned order.
10. We have carefully considered the submission of both the sides. We find considerable merit in the arguments of Shri Mohan Lal which have been put forth in a very clear-cut manner. We find that the assessment order framed by the Assessing Officer was passed under section 143(3) after making all the necessary enquiries. The income-tax search and taken place on 14-10-1986. The Assessing Officer issued three query letters to which a reference has been made above. The assessment was completed on 27-7-1990 which was almost four years after the seizure of documents and records by the income-tax authorities. All these clearly show that the ITO had made the necessary enquiries before completing the assessment. The ld. counsel for the assessee has demonstrated with reference to a chart that items at Sl. Nos. (i) to (vi) mentioned in the impugned order were covered by one other query letter issued by the Assessing Officer. As regards items at Sl Nos. (vii) to (ix), it was submitted that a proper and exhaustive reply had been filed before the CIT which was, however, not considered by that authority. Various High Courts have held that the power by the Commissioner under section 263 is quasi-judicial in character. The Commissioner, therefore, has not to record his subjective satisfaction but to a conclusion in an objective manner. The ld. Commissioner has also to come to a firm conclusion that the order passed by the Assessing Officer was erroneous and prejudicial to the interests of revenue. The learned Commissioner cannot sit in judgment over the discretion exercised by the Assessing Officer. He can legally interfere with the assessment order only if he finds that the order is both erroneous and prejudicial to the interests of the revenue. In the instant case, what we find is that the ld. Commissioner has neither looked into the submissions made on behalf of the assessee nor came to a firm conclusion that the assessment order was erroneous and prejudicial to the interests of the revenue. He has also not demonstrated as to how the incriminating evidence seized by the revenue had not been utilised by the ITO. On the contrary, the ld. for the assessee has demonstrated before us as to how the Assessing Officer had issued detailed query letters for eliciting necessary information from the assessee. The case law cited by the assessee and referred to above makes it abundantly clear that the ld. Commissioner must state the reasons for intervention before assuming jurisdiction under section 263 and while passing the order under section 263 must come to a conclusion that the order passed by the Assessing Officer was not only erroneous but also prejudicial to the interests of the revenue. In the case of Kanda Rice Mills (supra) the facts were more or less similar to what we find in the instant case. In that case for assessment year 1979-80, the Assessing Officer completed the assessment. The ld. Commissioner intervened under section 263 of the Act and set aside the order of assessment with a direction to make fresh assessment on the ground that business loss of the assessee amounting to Rs. 30,000 was determined after adjusting deductions under section 80J and was allowed to be carried forward and also due to certain other infirmities. The Tribunal found that no firm conclusions were arrived at by the Commissioner in his revisional jurisdiction, and therefore, it could not be said that the assessment made by the Assessing Officer was erroneous, which was one of the prerequisites for the exercise of revisional jurisdiction by the Commissioner and hence set aside the order of the Commissioner. The High Court held that the Commissioner did not furnish his opinion or consider the cited cases or the arguments raised and merely observed that these were the points which deserved consideration and after setting aside the order of the ld. Assessing Officer, issued a direction for making assessment afresh, which was not permissible under the provisions contained in section 263 of the Act. The High Court further held that the Commissioner had to come to a firm decision that the order of the ITO was erroneous and prejudicial to the interests of the revenue and since no decision about the erroneous nature of the order was firmly taken. The Tribunal was held to be right in vacating the order of the Commissioner under section 263. In our opinion, the fact in the case of Kanda Rice Mills (supra), as discussed above, are akin to the in the instant case. In the present case also, the Commissioner has not come to a firm conclusion as to how the order passed by the Assessing Officer was erroneous. All the necessary enquiries as noted above already been made by the Assessing officer. The assessee had all furnished a cogent reply before the ld. Commissioner when a show-cause notice issued under section 263(1) was issued. In the face of this evidence, the ld. Commissioner could not pass an order under section 263 by remarking that it was neither proper nor possible for him to verify the explanation furnished by the assessees counsel. In fact, it was the duty of the ld. Commissioner to took the explanation of the ld. counsel for the assessee and come to a firm conclusion as to whether the Assessing Officer had committed an error framing the assessment. Setting aside an assessment is no ordinary matter. In fact, in tax laws as in other laws, certainly and finality are the prerequisites of a good tax administration. The orders of the subordinate authority should, therefore, not be cancelled or set aside on mere whims and fancies; there must be very compelling reasons for interference by the ld. Commissioner under section 263. In the instant case, however, the ld. Commissioner has left the enquiries to be made to the Assessing Officer without reaching a firm conclusion that the order passed was, in fact, erroneous. We have therefore, no hesitation to say that the impugned orders stands vitiated for the reasons mentioned above and is hereby vacated.
11. In the result, the appeal is allowed.