Income Tax Appellate Tribunal - Delhi
Harvatex Engg. And Processing Co. Ltd. vs Income-Tax Officer on 23 May, 1991
Equivalent citations: [1991]38ITD167(DELHI)
ORDER
--Passed against assurance given under amnesty scheme.
Ratio:
Assurance given under amenesty scheme that no information regarding return filed under this scheme would be used against assessee either in future or in past therefore, order passed by Commissioner by violating this assurance was not valid.
Held:
The entire assessment was thrown open. There is no evidence from the order of the Commissioner that he was in possession of any information to say that the Income Tax Officer made in mistake in accepting the capital as properly explained as if there was a duty cast upon the Income Tax Officer to enquire into the public issue of every company as to the genuineness of the shareholders. One of the assurances given under the Amnesty Scheme was that information would not be used against the assessee in making the assessment either of future or of past. But in this case that information made use of by the Commissioner as can be seen from the tenor of his order against the assessee to set aside the assessment. This is against the assurance given by the Government which the Commissioner was bound to implement and follow. This is major lacuna in the laconic order passed by the Commissioner. Therefore, the order passed by Commissioner is set aside.
Application:
Not to current assessment years.
Income Tax Act 1961 s.263 Revision under s. 263--OPPORTUNITY OF BEING HEARD--Asked assessee to appear but not disclosed any reason.
Ratio:
Merely asking assessee to appear before Commissioner on a day and time fixed without disclosing any reason does not amount to giving a proper and valid opportunity of being heard for justifying revision.
Held:
Merely asking the assessee to appear before Commissioner of on a day and time fixed does not amount to giving an opportunity of being heard as contemplated under section 263. The opportunity must be a full opportunity which should disclose the purpose for which the assessee was being asked to appear and why the Commissioner wanted to pass an order under section 263 and what were the points the assessee was required to meet. Any notice without disclosing any of these things when particularly it is affective his rights of disturbing a concluded assessment cannot be said to be giving of an opportunity. The opportunity provided by the Commissioner to the assessee is not an opportunity meeting even party the requirements of law, although the assessee filed a reply conjuring up what could be passing in the mind of the Commissioner. May be there was some discussion on this point between the officials of the Department and the assessee from which the assessee could have known or gathered the purpose of the reference to section 263. But, that does not mean that the specific and beneficial requirements of law were satisfied when a mere bald notice was given. Therefore the order passed by commissioner is set aside.
Application:
Also to current assessment years.
Income Tax Act 1961 s.263 ORDER G. Krishnamurthy, President
1. This is an appeal directed against an order passed by the Commissioner of Income-tax, Delhi-Il under Section 263 of the Income-tax Act by which he set aside the assessment made by the ITO directing him to redo the same in accordance with law. The order passed by the CIT under Section 263 is indeed very short and we thought it is better to reproduce it:
Assessment in this case was completed on 19-7-1985 on a loss of Rs. 9,114. Subsequently, the assessee came up with a return on 30th March, 1987 offering for tax a sum of Rs. 2,75,000 being part of the share capital collected as income from undisclosed sources. On its admission, the assessment made on 19-7-1985 is found to be erroneous in law and prejudicial to revenue. The ITO did not look into the genuineness of the share capital contribution.
In response to the notice under Section 263, Shri M.L. Dujari, C.A. appeared. He explained that the company had already filed the Amnesty return surrendering a sum of Rs. 2,75,000 for assessment. According to him, in the light of this surrender, there was no cause of action under Section 263.
I find that the assessee-company raised capital of Rs. 24 lacs. This included the subscription by the members of the public whose authenticity has not been verified by the ITO when he completed the assessment. The amount of such subscription totalled to Rs. 10,15,000. The Amnesty return filed by the company covers Rs. 2,75,000. The assessment is set aside. The ITO is directed to redo the same in accordance with law.
2. It will be seen from this order that what motivated the CIT in invoking the provisions of Section 263 was the return filed by the assessee on 30-3-1987 offering for tax a sum of Rs. 2,75,000 said to be part of the share capital collected as income from undisclosed sources. This return was admittedly filed under the Amnesty Scheme. The assessee sought the benefit of Amnesty Scheme by filing a return on 30-3-1987 by offering the said sum of Rs. 2,75,000 as income and paying the taxes due thereon within the stipulated time but instead of getting the benefit guaranteed by the Government under the Amnesty Scheme, the CIT thwarted the grant of Amnesty Scheme by setting aside the assessment made by the lTO on the plea that there was some other amount which needed enquiry and into which no enquiry was made by the ITO while making the assessment as that part also formed the same specie as that of the sum of Rs. 2,75,000. It is to be noted here that the order extracted above does not show except a bare suspicion that the balance of the income was of the same character and specie as that of the sum of Rs. 2,75,000. All that the CIT says that the ITO did not verify into the public issue made by the assessee. The order of the CIT does not even show that he had any information in his possession even to reasonably come to a conclusion that that amount could be the concealed income of the assessee-company. Forgetting the basic principle that the company being a juristic entity is different from the shareholders and the concealed income of the shareholders, if at all, it is so, established as concealed income of the shareholders, could be treated as the concealed income of the assessee-company unless the assessee-company was in business sufficiently long enough to earn income and to put it in the name of fictitious shareholders by converting it into share capital. There is neither the finding that the shareholders are fictitious nor the finding that the company was in business for long so as to justify a conclusion that it could earn income from undisclosed sources. These are in short the submissions of the assessee.
3. The company in this case was incorporated on 28-6-1982 with an authorised capital of Rs. 24 lacs divided into 2,40,000 equity shares of the face value of Rs. 10 each. This capital was subscribed in the following manner :
Rs.
(i) Subscriber to the Memorandum 700.00 (ii) Promoters' contribution 8,99,300.00 (iii) Public issue 15,00,000.00
From the letter, filed on 30-3-1987 before the ITO which was available before the CIT before he proceeded under Section 263 on 29-2-1988, it is clearly seen that of the total contribution of capital by subscribers to the memorandum and by promoters' contribution amounted to Rs. 9 lacs, that the promoters' contribution came from the other inter-corporate bodies whose genuineness, status and file numbers were given along with returns of income. There could not, therefore, be any question as to the manner, method, nature and source of the contribution by the promoters because these appeared to be a sort of entries in the books by way of adjustments. It was further pointed out in that letter that this company followed the procedure prescribed by the Companies Act and also, the Securities Contract Regulations Act, and theRules & Regulations of the Delhi Stock Exchange in raising the capital. It was only in respect of public issue that the assessee, with a view to purchase peace because the Department was harassing them, took advantage of the Amnesty Scheme and offered the sum of Rs. 2,75,000 as income from other sources by paying the tax of Rs. 1,59,224. It was specifically pointed out in this letter that as a consequence of this offer, the Department would not make any further enquiry. It was further made clear that by agreeing to pay the tax on the aforesaid amount, the company did not in any way admit nor should it be construed as admitted that the said amount represented the income from undisclosed sources because the question of having income from undisclosed sources would not simply arise as there was no business activity carried on at the time when this money was being received by the Bankers from the shareholders concerned. It also prayed that in view of the Circulars and clarifications given by the CBDT, there should be no proceedings for imposition of penalty, no interest should be levied and no further enquiry should be made. At the end it pointed out that if the return of income was not accepted under the Amnesty Scheme, the assessee-company would reserve the right to seek the refund of the money paid under the Amnesty Scheme. This letter thus clearly shows that the sum of Rs. 2,75,000 was offered more to purchase peace as the Department was making unwanted enquiries and causing avoidable harassment to the assessee by taking advantage of the Amnesty Scheme than as admitting concealment of income. This return was not allowed to be processed, when the CIT had passed the order under Section 263 setting aside the assessment already made by the ITO on 19-7-1985 accepting the loss return.
4. Let us see in view of these facts whether there was any lapse on the part of the ITO who made the assessment on 19-7-1985 so as to cause prejudice to the interest of the revenue. He says that the company was incorporated on 28th June, 1982 and got the certificate of commencement of business on 14th July, 1982 that is to say the entire share capital was received between 28th June, 1982 and 14th July, 1982 and in this period, the company could not have commenced any business as it did not obtain the certificate of commencement of business. The moneys received from the shareholders could not, therefore, be ascribed as the income from any undisclosed sources of the assessee, although it can be argued that when the company had offered a sum of Rs. 2,75,000 as income from other sources out of the same source why not the balance also. But this had to be contrasted with and weighed against the back-drop of the facts mentioned in the letter dated 30th July, 1987 wherein the assessee repeatedly brought to the notice of the Department that it was to avoid harassment that it was compelling itself to make the offer to purchase peace which did not mean that it admitted that there was income from concealed sources.
5. The ITO further stated in the order that the assessee company was dealing in purchase and sale of shares and then copies of the audited balance sheet and profit & loss account were filed, the list of shareholders, prospectus were all filed and were examined by him. It is, therefore, not clear from the assessment order as to what aspect the ITO did not look into and what was the information in the possession of the CIT based upon which he could say that the assessment made by the ITO caused prejudice to the interest of the revenue except bare suspicion. Even if enquiries were made or allowed to be made as directed by the CIT what enquiries could be made by the ITO in the case of the company. Even if he had summoned all the shareholders and found that some of them had not properly explained the source, would it be open to the ITO to add that sum as the income of the assessee even by invoking Section 68 because Section 68 would apply only to cash credits and not to share capital. The assessee-company had no means under the Companies Act to question the shareholders of their source of money. This apart when the assessee made a voluntary disclosure of Rs. 2,75,000 and sought the benefits guaranteed by the Government under that scheme, the assessee is entitled under the terms guaranteed by the Government to the benefits allowed under that Scheme. Those benefits were not allowed to be given to the assessee in respect of the sum of Rs. 2,75.000 by this process of setting aside the whole assessment. There is no direction in the order of the CIT that even in respect of this sum of Rs. 2,75,000, the benefits guaranteed by the Government under the Amnesty Scheme would be applicable, or available. The entire assessment was thrown open. There is no evidence as we pointed out earlier from the order of the CIT that he was in possession of any information to say that the ITO made a mistake in accepting the capital as properly explained as if there was a duty cast upon the ITO to enquire into the public issue of every company as to the genuineness of the shareholders. One of the assurances given under the Amnesty Scheme was that that information would not be used against the assessee in making the assessment either of future or of past. But in this case that information was made use of by the CIT as can be seen from the tenor of his order against the assessee to set aside the assessment. This is against the assurance given by the Government which the CIT was bound to implement and follow.This is a major lacuna in the laconic order passedby the CIT. Another lacuna in the order passed by the CIT was he only gave a notice to the assessee asking him to appear in his office at 11.00 a.m. on 10-2-1988 without disclosing any reason. The notice was issued on 21-1-1988 and it read as under:
Sub :- Notice under Section 263 of the IT Act, 1961 - Assessment year : 1984-85.
Please notice that your case has been fixed for 10-2-1988.
You are requested to appear before the CIT/ITO in his room No. 325 C.R. Building, I.P. Estate, New Delhi at 11.00 a.m. Yours faithfully, Sd/-
ITO Hqrs. II, New Delhi.
On 5th February, 1988, the assessee filed a long reply only imagining the ground on which the CIT could be requiring the assessee to appear before him. Section 263 of the Income-tax Act clearly says that before an order under Section 263 is passed, the assessee must be given an opportunity of being heard and he must make enquiries into the matter before passing such orders. We do not think that merely asking the to appear before him on a day and time fixed amounted to giving an opportunity of being heard as contemplated under Section 263. The opportunity must be a full opportunity which should disclose the purpose for which the assessee was being asked to appear and why the CIT wanted to pass an order under Section 263 and what were the points the assessee was required to meet. Any notice without disclosing any of these things when particularly it is affecting his rights of disturbing a concluded assessment cannot be said to be giving of an opportunity. In Administrative Law, the safeguard provided is the observance of principles of natural justice. If the principles of natural justice are violated by giving such bald notices, it cannot be said that the assessees were given opportunities of being heard, particularly when the assessees were not told on what points they were required to make their submissions. We are, therefore, of the opinion that the opportunity provided by the CIT to the assessee is not an opportunity meeting even partly the requirements of law, although the assessee filed a reply conjuring up what could be passing in the mind of the CIT. Maybe there was some discussion on this point between the officials of the Department and the assessee from which the assessee could have known or gathered the purpose of the reference to Section 263 of the Income-tax Act. But that does not mean that the specific and beneficial requirements of law were satisfied when a mere bald notice was given.
6. Thirdly on 30-3-1987, the assessee filed a revised return disclosing the income of Rs. 2,75,000 under the Amnesty Scheme. The assurance given by the Government in circulars by way of questions and answers was that in such circumstances the assessment would be regularised by the issue of a notice under Section 148 of the IT Act. Instead of regularising the assessment by issue of notice under Section 148 of the IT Act, the CIT took an opposite view and set aside the whole assessment which is contrary to the assurances given under the Amnesty Scheme. When the return filed by the assessee was still pending from being regularised by the issue of a notice under Section 148, where was the prejudice to the interest of the revenue caused? Merely because the assessment was said to have been made by the ITO on 19-7-1985 without due enquiry, that does not mean that there was a mistake in that assessment order, particularly when the ITO mentioned that he made all the necessary enquiries that were needed to be made then and when no suspicious circumstances came to his notice nor any such suspicious feature was mentioned by the CIT either in the notice or in the order as having come to the notice of the ITO but ignored by him.
7. It was held that the ITO does not act erroneously if he does not invoke Section 13 of the IT Act - CIT v. Shri Govindram Seksariya Charity Trust [1987] 166 ITR 580/ 32 Taxman 62 (MP) nor if he writes a brief order without details- CITv.Goyal (P.) Family Specific Trust [1988] 171 ITR 698 (All.). In this case what the ITO did was to write a brief order after collecting all the necessary material. It is not the case of the Commissioner that the ITO did not collect the required material. The order passed by the CIT is, therefore, very vague and unsustainable.
8. For the above reasons, we set aside the order of the CIT and allow the assessee's appeal.