Income Tax Appellate Tribunal - Agra
Goyal Iron & Steel Works (India) vs Cit on 28 September, 2001
Equivalent citations: (2002)76TTJ(AGRA)578
ORDER
Keshaw Prasad, A.M. All the three appeals have been directed by the assessee against the order under section 263 of the Act passed by Commissioner pertaining to block period 1-4-1986 to 18-3-1997.
2. Briefly the facts of the case are that M/s Goyal Iron & Steel Works (India) is a partnership firm engaged in the manufacture of CI castings. The other assessees, namely, M/s Goyal Iron & Steel Works, is another firm engaged in the same business. The third assessee M/s Kailash Nath Goyal & Sons is an Hindu undivided family. Shri Onkar Nath Goyal is a Karta of HUF and is also partner in both the firms mentioned above. Action under section 132 was initiated at the residence of Shri Onkar Nath Goyal (Karta) as well as business premises of both the firms on 18-3-1997. Certain incriminating documents, accounts books/papers were found and seized. Accordingly, notice under section 158BD was issued to all the three assessees. In response to notices, the assessees filed their returns of incomes disclosing the following Name of the assessee Total income originally returned Undisclosed income (1) M/s Goyal Iron & Steel Works (I) 3,58,450 Nil (2) M/s Goyal Iron & Steel Works Nil Nil (3) M/s Kailash Nath Goyal & Sons 7,61,060 Nil
3. Proceedings for assessment under section 158BC/BD. started accordingly. Finally, while the assessing officer dropped the proceedings under section 158BC/158BD, in the case of M/s Goyal Iron & Steel Works (India) and M/s Kailash Nath Goyal & Sons, he determined the undisclosed income of M/s Goyal Iron & Steel Works at Rs. 7,72,870 for the block period 1-4-1986, to 18-3-1997. These orders were passed after obtaining approval of Addl. Commissioner.
4. Prior to passing the order, the assessee has challenged the initiation of search and seizure operation before the Hon'ble Allahabad High Court. The Hon'ble High Court held that let the assessment be completed but the order may not be served on the assessees.
5. Subsequently, the Commissioner examined the records of all the three assessees and issued show-cause notices as to why the assessments made by assessing officer may not be set aside as the same was erroneous and prejudicial to the interest of revenue. In the show-cause notices mainly the following points were raised in the case of both the firms:
(a) The assessing officer has failed to make proper enquiries regarding suppression of production;
(b) assessing officer has failed to consider the information called from the District Industries Centre (DIC);
(c) assessing officer has failed to work out the correct sale price of the finished production.
6. In the case of M/s Kailash Nath Goyal & Sons, the Commissioner observed that while completing the assessment, the assessing officer failed to make proper enquiries and investigations regarding investments made in various household goods along with the source thereof. These undisclosed investment related to investments in sofa-sets, dining table, beds, colour TVs, air- conditioners, steel-almirah, desert coolers, VCRs, fridge, pedestal fans, washing-machines, curtain-rods, tubelights and ceiling fans, etc. In response to show-cause notices issued by Commissioner as to why the assessment may not be set aside under section 263, all the three assessees furnished their replies to the Commissioner which did not find favour from him. Under the powers vested in him by virtue of section 263, the Commissioner held that the assessing officer has passed the order though as per direction under section 144A, but without making proper investigation. He also held that the assessing officer did not consider the information received from DIC, Agra, while making the assessment. In the case of M/s Kailash Nath Goyal & Sons, the Commissioner observed that the assessing officer has failed to make enquiries into various investments and sources thereof. He, therefore, held that the assessment order passed by assessing officer in all the three cases, was erroneous and prejudicial to the interest of the revenue. He, therefore, set aside all the three orders passed by assessing officer with the direction to pass order afresh after making proper investigation in the light of various documents available on record after allowing reasonable opportunity to the assessee.
7. All the three assessees have challenged the order under section 263 passed by Commissioner before us.
8. It was argued by the learned counsel that the scope of undisclosed income under Chapter XIV-B of the Act was very limited. "Undisclosed income" is defined in section 158B(b) of the Act. Chapter XIV-B was a special provision regarding the assessment of search and seizure cases. Section 158BC speaks of those cases where search and seizure operation under section 132(1) was conducted or the books of accounts/documents/assets are requisitioned under section 132A. Section 158BD is applicable in those cases where the assessing officer is satisfied that the undisclosed income belongs to any person other than the person in respect of whom search was made under section 132. When the Commissioner issued show-cause notice, M/s Goyal Iron & Steel Works vide its letter, dated 5-10-1999, have furnished its detailed reply. It was stated that there was no undisclosed income which could be assessed to tax under Chapter XIV-B. In his order the Commissioner observed that the assessing officer has failed to make proper enquiries on account of suppression of production and did not consider the information received from DIC. He also had held that the assessing officer has not used the information from DIC in right perspective. The learned counsel argued that such observation by Commissioner is improper and unjustified. It is the sole discretion of the assessing officer while framing the assessment to adopt such view as he considers proper and reasonable. When the assessees came to know that the assessing officer has proposed certain arbitrary additions at the time of assessment they approached the Addl. Commissioner for giving direction to the assessing officer for making a proper assessment. In view of the petition filed by the assessees, the Addl. Commissioner gave directions to the assessing officer under section 144A according to which the assessment was made by assessing officer. It was argued that such direction of the Commissioner (Appeals) is binding on the assessing officer. Once the assessing officer has passed an order in view of the directions under section 144A of superior authority, such order cannot be considered to be erroneous. The learned counsel relied on the decision of Hon'ble Allahabad High Court in the case of K.N. Agarwal v. CIT (1991) 189 ITR 769 (All).
9. The learned counsel also argued that in his order under section 263, the Commissioner has observed that the information was called from DIC, Agra, regarding quantity of finished production and coal consumption as furnished by the assessee to them. The DIC has furnished the figures of finished production and coal consumption reported to the Centre by the assessee. The Commissioner observed that as there was substantial difference between the figures recorded in the books of accounts of both the firms and those furnished to the DIC, there was suppression of production, which existed outside the books of accounts and the assessing officer should have made such addition. The learned counsel argued that where the assessee have to obtain higher quota for a particular item, always the inflated figures are furnished so as to avail the higher quota. It is the normal practice in the trade and on this basis the assessment order passed by the assessing officer may not be held to be erroneous. It was argued that similar issued was considered by Hon'ble Madras High Court in the case reported in 25 STC 464 wherein it was held that the assessment cannot be opened under Tamil Nadu General Sales Tax Act, merely on the basis that the figures accounted for by the assessee and the figures furnished for availing the higher quota were different.
10. The learned counsel further argued that where two opinions were possible on an issue and the assessing officer adopts one opinion, the assessing officer's opinion cannot be said to be erroneous. Reliance was placed on the decision of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC). It was further argued that in order under Chapter XIV-B, no roving enquiries could be made. Reliance was placed on the decisions in Vettri Wines v. ITO (1997) 63 lTD 125 (Mad) (TM) and CIT v. Geo Industries Insecticides (I) (P) Ltd. (1998) 234 ITR 541 (Mad). While relying on the decision of Hon'ble Allahabad High Court in the case CIT v. Late Sunder Lal (1974) 96 ITR 310 (All), the learned counsel argued that it was mandatory on the part of Commissioner to give reasons for holding an assessment order to be erroneous. In the instant case, the Commissioner has only relied on the information furnished by DIC. He has no independent information except the information of the DIC. Thus, it is a case where the Commissioner has not given his reasonings for holding an order to be erroneous. While relying on the decision of Hon'ble Allahabad High Court in the case of J.P. Srivastava & Sons (Kanpur) Ltd. v. CIT (1978) 111 ITR 327 (All), the learned counsel argued that it was mandatory for Commissioner to examine the material and then come to the conclusion that the order passed by the assessing officer was erroneous. The Commissioner has not examined the material at all. While relying on the decisions CIT v. Taj Printers (1989) 178 ITR 384 (All), CIT v. G.K. Kabra (1995) 211 ITR 336 (AP) and CIT v. Amalgamations Ltd. (1999) 238 ITR 963 (Mad), the learned counsel argued that in case the Commissioner sets aside the order by assuming jurisdiction under section 263, it was mandatory for him to pinpoint the exact error. In the instant case, the Commissioner has not pointed-out any exact error in the order of the assessing officer. The Commissioner's order is based on the subjective opinion rather than material. While relying on the decision in 211 ITR 155 (Guj) (sic), the learned counsel argued that setting aside the assessment order based on the subjective opinion rather than material was not permissible.
11. Regarding investment in the household assets, in the case of M/s Kailash Nath Goyal & Sons, the learned counsel has stated that Karta of the assessee was residing along with various members of Hindu undivided family. When various members of the Hindu undivided family filed their returns of income in the different years, the cash flow statement was also filed along with it which indicated the investments made by them in the household expenses. Such investment was accepted by the assessing officers in different years. Even, during the course of assessment proceeding under Chapter-XIV-B, the assessing officer, vide letter dated 22-2-1999, had asked the assessee to file the sources of investment in various assets found during the course of search and seizure operation. The assessee vide letter dated 24-3-1999, had explained that the investment in the various household assets was made between the financial years 1994-95 to 1995-96.
As per information furnished to the assessing officer the following investments were made by the members of Hindu undivided family for this purpose :
Rs.
Shri Umesh Chand Goyal 1,00,300 Smt. Phoolwati Goyal 50,000 Smt. Kamlesh Goyal 50,000 Shri Onkar Nath Goyal 70,000 2,70,300 It was also argued that in the respective years, when the investments in household goods were made, a cash flow statements were furnished. In those cash flows, it was specifically mentioned "withdrawal for Kailash Nath Goyal & Sons and household effects." Such cash flows, have been accepted by assessing officer in the respective years. Hence, the investments in such assets cannot be treated to be the undisclosed income of the block period. The learned counsel, therefore, stated that there was no error in the orders passed by assessing officer and, therefore, the Commissioner has wrongly assumed jurisdiction under section 263 of the Act. The order under section 263 passed by Commissioner deserves to be cancelled. On the other hand, the learned Departmental Representative supported the order of the Commissioner.
12. We have considered the rival submissions. In all the cases, the assessment orders were made under section 158BC/158BD of the Act. In two cases, the assessing officer did not make any addition on account of undisclosed income whereas in one case, the addition on account of undisclosed income was made. However, the Commissioner set aside all these three orders by assuming jurisdiction under section 263 of the Act.
13. Section 263 of the Act reads as under :
"The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the assessing officer is erroneous insofar as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment."
14. From a reading of section 263(1), it is clear that power of suo motu revision can be exercised by the Commissioner only if on examination of any proceedings under the Income Tax Act, he considers that any order passed thereon by the assessing officer, was "erroneous" in so far as it is prejudicial to the interests of the revenue. It is not an arbitrary or unchattered power. It can be exercised only on fulfilment of the requirements laid down in section 263(1). The consideration of the Commissioner as to whether an order is erroneous insofar as it is prejudicial to the interest of revenue, must be based on materials on record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that Commissioner acting in a reasonable manner could have come to such a conclusion, the very intimation of proceedings by him, will be illegal and without jurisdiction. This opinion was expressed by Hon'ble Bombay High Court in the case of CIT v. Gabriel India Ltd. (1993) 203 ITR 108 (Bom).
15. The expression "erroneous", "erroneous assessment" and "erroneous judgment" have been defined in Black Law Dictionary, 6th Edition, page 542. According to definition, "erroneous" means "involving error; deviating from the law." "Erroneous assessment" refers to an assessment that deviates from the law and is, therefore, invalid and is a defect that is jurisdictional in its nature. Similarly, "erroneous judgment" means one rendered according to course and practice of court, but contrary to law, upon mistaken view of law, or upon erroneous application of legal principles. From the aforesaid definitions, it is clear that an order cannot be termed as 'erroneous' unless it is not in accordance with law. If an assessing officer acting in accordance with law, erroneously makes certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. The Hon'ble Bombay High Court in the case of Gabriel India Ltd. (supra) has held that section 263 does not visualise a case of substitution of the judgment of the Commissioner for that of the assessing officer who passed the order, unless the decision is held to be erroneous.
16. The words "prejudicial to the interests of the revenue" have not been defined but they must mean that the orders of assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the state has not been realised or cannot be realised. My views find support from the decision in Addl. CIT v. Mukur Corpn. (1993) 203 ITR 108 (Bom) (supra) and CIT v. Smt. Milan Ben S. Parikh (1995) 215 ITR 81 (Guj).
17. The phrase "prejudicial to the interests of revenue" has to be read in conjunction with an erroneous order passed by the assessing officer. As has been held in various cases in Rajpyari Devi Saraogi v. CIT & Ors. (1968) 67 ITR 84 (SC) : Tara Devi Agarwal v. CIT (1973) 88 ITR 323 (SC) and (2000) 243 ITR 83 (SC) (supra), every loss of revenue as a consequence of an order of the assessing officer, cannot be treated as prejudicial to the interests of revenue. For example, when an assessing officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the assessing officer has taken one view with whom the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue, unless the view taken by the assessing officer is unsustainable in law.
18. Keeping in view the above judicial pronouncements, we have considered the facts of the cases. We have to decide whether the orders passed by the assessing officer were erroneous or not. Needless to say, the order was passed by assessing officer under Chapter XIV-B. Proviso to section 158BG provides that no order of assessment for the block period shall be passed without the previous approval of the Joint Commissioner. There is no dispute that such order was approved by the Addl. Commissioner. It is a case where the assessee moved petition before the Addl. Commissioner for issue of direction to the assessing officer as he deemed fit for guidance of the assessing officer, for making the assessment. Section 144A of the Act, under which direction was issued by Addl. Commissioner for making the assessment, provides that before issue of direction, the Joint Commissioner may call for examination of the records of any proceedings in which the assessment was pending. The section also provided that such direction was binding on the assessing officer. In the instant cases, the assessing officer has passed orders on the basis of direction issued by Addl. Commissioner under section 144A of the Act. Thus, the assessing officer had no option but to follow the same. Hon'ble Allahabad High Court in the case of Kailash Nath Agarwal (supra) has held that if the assessing officer passed any order in accordance with the direction of the superior authority, such order was not erroneous. In the words of the hon'ble court :
"After giving our earnest consideration to the matter, we are of the view that it is difficult to sustain the exercise of reviewing power in such a situation for the simple reason that the order of the assessing authority cannot be said to be erroneous if he merely follows a decision of a higher authority or court on the same point in the case of the same assessee."
19. The above decision being of the Hon'ble Jurisdictional High Court, was binding on us. We also find that only reason for setting aside the assessment orders in the cases of both the firms, was the information received from District Industries Centre about the figures of production and consumption of coal submitted to the Director of the Industries. When a different future is mentioned in the books of accounts and another information was furnished before any authority for obtaining higher quota, whether on this basis it can be said that the assessment order passed by the assessing officer was erroneous or not, was considered by Hon'ble Madras High Court in the case of Indian Crafts and Industries 25 STC 466 (Mad). The Hon'ble High Court in this regard has held as under :
"The assessee, in order to obtain a higher quota to import a higher quantum of raw material, inflated his production year after year when applying to the Director of Industries and Commerce, but he was always granted by the Director only less than one-fourth of the quantum applied for. This allotment was regularly accounted for in the books of account of the assessee. The assessing officer reopened the assessments of the assessee for the previous years under section 16 of the Tamil Nadu General Sales Tax Act, 1959, on the ground that the accounts did not reflect properly the production and also levied penalty. The Sales Tax Tribunal on appeal held that there was no suppression. On a revision by the state :
Held, (1) that merely because the assessee conducted himself in a manner which was not conducive to ethics, the taxing authority could not invoke the provisions of reassessment and penalise him."
20. In view of above- decision, it could not be said that the assessment order passed by the assessing officer was erroneous.
21. Moreover, the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. (supra) has held as under :
"The scheme of the Act is to levy and to tax in accordance with the provisions of the Act and this task is trusted to the revenue. If due to an erroneous order of the Income Tax Officer, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. The phrase "prejudicial to the interests of the revenue" has to be read in conjunction with an erroneous order passed by the assessing officer. Every loss of revenue as a consequence of an order of the assessing officer, cannot be treated as prejudicial to interests of the revenue, for example, when an Income Tax Officer adopts one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and the Income Tax Officer has taken view with which the Commissioner does not agree, it cannot be treated as erroneous order prejudicial to the interests of the revenue unless the plea taken by the Income Tax Officer is unsustainable in law."
22. In the case of M/s K.N. Goyal & Sons, we find that at the time of assessment, the assessing officer had called for information about the sources of investment in various household assets. These details were furnished. The assessee even submitted the cash-flow-statement from where the investment was made by different members of the Hindu undivided family in different years. Such cash-flow statement was submitted by the respective members of the Hindu undivided family along with their returns of income when the investment in household assets was made. Such investment was accepted by assessing officer in those years. It is settled law that in any order under section 158BC/158BD, such issues could not be raised as has been held in the cases CIT v. Vinod Danchand Godawat (2001) 247 ITR 448 (Bom), Virishali Hotels (P) Ltd. v. Asstt. CIT (2000) 66 TTJ (Pune) 692, Monga Metals (P) Ltd. v. Asstt. CIT (2000) 67 TTJ (All) 247 and Eseem Intra-Port Services (P) Ltd. v. Asstt. CIT (2000) 72 lTD 228 (Hyd). As per these decisions, no addition on account of undisclosed investment was permissible because the same was not "undisclosed income" having been accepted in the respective years. Once as per law such addition could not be made and in case the addition of the same is not made, the order passed by assessing officer cannot be said to be erroneous. As mentioned earlier for assuming jurisdiction under section 263, an order passed by assessing officer has to be erroneous and prejudicial to the interest of revenue. Even, if the order is prejudicial to the interest of revenue, but if the same was not erroneous, assumption of jurisdiction under section 263 is illegal. In the instant case, as there is no error either of law or of facts, we hold that the order passed by assessing officer was not erroneous and the Commissioner has wrongly assumed jurisdiction under section 263 of the Act in setting aside the assessment orders therefore, cancel the orders under section 263 passed by the Commissioner in all the three cases.
23. In the result, all the three appeals filed by the assessee are allowed.