TMI Blog1997 (10) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case in cancelling the assessment order and directing the Assessing Officer to make a fresh assessment. Further, the learned Commissioner of Income-tax erred in not restricting the cancellation of assessment only to the points covered by Notice under section 263. (Para 19, page 9 of Order under section 263). 3. Without prejudice to the above, the learned Commissioner of Income-tax, while cancelling the assessment order, erred in law and on facts and in the circumstances of the case in recording the findings that the under-mentioned errors were committed by the Assessing Officer while framing the assessment order : --- (i) That the Assessing Officer had omitted to include in the total income a sum of Rs. 19.5 crores being alleged dividend received on units of Unit Trust of India. (Paras 13 14, pages 5, 6 7 of Order under section 263). (ii) That the Assessing Officer had erred in not disallowing in the computation of total income loss of Rs. 2,10,31,425 incurred on sale of units of Unit Trust of India. (Para 17, page 8 of Order under section 263). (iii) That the Assessing Officer had erred in not including the interest income amounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue. He cannot act on the basis of borrowed satisfaction of the Assessing Officer. He submitted that the contents of Show Cause Notice issued by the CIT under section 263 are similar to the proposal sent to him by the ACIT vide letter dated23rd June, 1995. The notice under section 263 has been issued by the CIT simply on the basis of the contents of aforesaid letter dated23rd June, 1995sent by the ACIT. The CIT has to act suo motu for assuming jurisdiction under section 263. The order of the CIT under section 263 deserves to be quashed on this ground alone. 2.2 Shri Sharma, the learned lawyer then submitted that the points in relation to which action under section 263 has been taken by the CIT relates to items of alleged income, which according to the CIT, had escaped assessment. The Assessing Officer had himself jurisdiction under section 147 of Income-tax Act for bringing to tax the items of income which had escaped assessment provided the conditions prescribed in section 147 are satisfied. The revisionary jurisdiction of the CIT does not extend to those items of income, which allegedly escaped tax altogether, as there is no order of the Assessing Officer in respect of such i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tire assessment with a direction to Assessing Officer to make a fresh assessment after proper investigation and after providing reasonable opportunity to the assessee. 2.8 The learned counsel submitted that after giving a firm finding about such under-assessment of income, there was no justification on the part of the CIT in setting aside the entire assessment order and directing the Assessing Officer to make a fresh assessment after proper investigation. He submitted that such wholesale cancellation of the assessment is clearly contrary to the firm finding given with regard to alleged under-assessment of certain income and it is also contrary to the show-cause notice issued under section 263, which related only to certain specific items of income alleged to have escaped tax in the original assessment. 2.9 The learned counsel also submitted that the question of levying tax on hypothetical income, on the income of units of UTI in the hands of the assessee cannot validly arise. He submitted that the assessee had entered into various contracts for purchase of units of UTI (1994 Scheme) with various recognised brokers in the month of April 1991. The copies of brokers' note submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter accordingly. The order passed by the CIT under section 263 in relation to this item is patently wrong as no error or prejudice to the interest of revenue has been pointed out by the CIT in relation to this item. 3.1 The learned counsel for the assessee thus strongly urged that the order of the CIT under section 263 should be cancelled. 3.2 The learned Sr. D.R. strongly supported the orders of the CIT. 3.3 The learned Sr. D.R. submitted that the CIT could validly act on the basis of the facts reported to him by the Assessing Officer vide his letter dated 23rd June, 1995. It is not necessary for the CIT that he should suo motu call for the records and examine it with a view to find out whether the order of the Assessing Officer was erroneous and prejudicial to the interest of the revenue. The CIT is entitled to initiate proceedings under section 263 either suo motu or on the basis of information as may be given to him by the Departmental Authorities or by the Internal Auditor or Audit Officer of the CAG Department or on the basis of information received from any other sources. To the extent the CIT receives information from any of these sources, it is purely an administrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t someone else who would have been assessed to a larger amount, the assessment so made will be erroneous and prejudicial to the revenue, and the CIT has jurisdiction under section 33B of Income-tax Act, 1961 to cancel the assessment and may direct that assessment proceedings may be initiated under the provisions of the Act against some other assessee who according to the Income-tax Authorities would be liable for tax on that income. (e) Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 (Delhi) In this case, the Hon'ble Delhi High Court has held that the Commissioner can regard the order as erroneous on the ground that in the circumstances of the case, the ITO should make further inquiries before accepting the statements made by the assessee in his return. It is the duty of the ITO to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provide an inquiry. It is incumbent on the ITO to further investigate the facts stated in the return when circumstances would make such an inquiry prudent. The word 'erroneous' in section 263 includes the failure to make such an inquiry. (f) CIT v. Pushpa Devi [1987] 164 ITR 639/[1986] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce contemplated under section 263 is prejudice to the income-tax administration as a whole. The revisional jurisdiction can be invoked and employed for the purpose of setting right distortions and prejudice to the revenue which has to be understood in the context of and in the interest of revenue administration. This judgment does not in any manner supports the assessee's contention. 3.6 The learned Sr. D.R. also submitted that the Explanation b inserted below section 263, which defines 'records' include all records relating to any proceedings under the Act available at the time of examination by the Commissioner. The proposal sent by the ACIT vide letter dated 23rd June, 1995 to the CIT was a part of 'record' and the CIT could take into consideration the said proposal at the time of initiating action under section 263. 3.7 The learned Sr. D.R. further submitted that section 263 provides that where the CIT considers that any order passed by the Assessing Officer is erroneous insofar as it is prejudicial to the interest of the Revenue, he may after giving an opportunity to the assessee, pass such order thereon as the circumstances of the case justify, including an order enhancin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. We have carefully considered the submissions made by the learned representatives of the parties and have gone through the order of the learned CIT as well as all other documents to which our attention was drawn during the course of hearing. We have also carefully gone through all the judgments which were cited by the learned representatives of both sides. 4.1 The provision of section 263(1) and the relevant Explanation (b) are reproduced hereunder :---- "263. (1) The Commissioner may call for and examine the record of any proceedings 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 interest 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. Explanation.----For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,---- (a) (b) 'record' shall include and shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 263. In the absence of any express provision in section 263, providing that CIT can act under section 263 only on his own motion or suo motu and also in view of the fact that there is no restrictions or limitations on the power of the Commissioner to call for and examine the record of any proceeding pursuant to the report given by the Assessing Officer or by other Departmental Officer, we are of the view that the CIT could validly call for and examine the record of the assessee for the relevant year under consideration pursuant to a letter received from the Assessing Officer containing a proposal under section 263 of the Act. We, therefore, do not find any merit in the contention of the learned counsel for the assessee that the CIT could not assume jurisdiction under section 263 on the basis of the letter sent by the ACIT containing the proposal under section 263. After receiving the report from the ACIT, the Commissioner decided to call for and examine the relevant records and proceeded to consider whether the assessment order passed by the Assessing Officer is erroneous and prejudicial to the interest of the revenue. After such consideration, the CIT gave a show-cause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 12(2) of Madras General Sales Tax Act, 1939 as reproduced at page 82 of said report is reproduced hereunder :----- "(2) The Deputy Commissioner may---- (i) suo motu, or (ii) in respect of any order passed or proceeding recorded by the Commercial Tax Officer under sub-section (1) or any other provision of this Act and against which no appeal has been preferred to the Appellate Tribunal under section 12A, on application, call for and examine the record of any order passed or proceeding recorded under the provisions of this Act by any officer subordinate to him, for the purposes of satisfying himself as to the legality or propriety of such order, or as to the regularity of such proceeding, and may pass such order with respect thereto as he thinks fit." 4.5 The Hon'ble Supreme Court at pages 878-879 of the said report has, inter alia observed as under : "Under section 12(2) of the Act, the revisional authority may suo motu call for and examine the record of any order passed or proceeding recorded under the provisions of this Act by an officer subordinate to him, for the purpose of satisfying himself as to the legality or propriety of such order, or as to the regularity o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) of the said Act do not authorise the revisional authority to consider as to whether the order of the Assessing Officer is erroneous insofar as it is prejudicial to the interest of Revenue. It does not also authorise the revisional authority to make or cause to make such inquiry as he deems necessary. It also does not specifically authorises the revisional authority to enhance or cancel the assessment or direct a fresh assessment. The said provision authorises the revisional authority to pass such order as he thinks fit. The Hon'ble Supreme Court, therefore, held that the expression may "pass such orders with respect thereto as he thinks fit" must necessarily be confined to the scope of the jurisdiction conferred upon the revisional authority under section 12(2). The Revisional Authority cannot, therefore, travel beyond the order passed by the inferior authority and also cannot make fresh inquiry and pass orders on merits on the basis of the said inquiry. In section 263, the Legislature has itself expressly conferred an authority on the Commissioner of Income-tax to make such inquiry as he may deem necessary and pass such orders thereon as the circumstances of the case justify, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erroneous insofar as it is controversial to the interest of the Revenue and also empowers the Assessing Officer under section 147 of the Act to initiate proceedings for bringing to tax the income which has escaped assessment, it cannot place limitations and restrictions on the powers of the Commissioner to exercise revisional jurisdiction under section 263 where income was under-assessed or some income escaped the tax in the original assessment due to failure on the part of the Assessing Officer to conduct necessary and proper investigation, which the facts and circumstances of the case warrant. The various courts have held that simultaneous initiation of proceedings under section 263 as well as proceedings under section 147 are legally possible. 4.8 In this regard it will be imperative to go through the judgment of the Hon'ble Delhi High Court in the case of Sharda Trading Co. v. CIT [1984] 149 ITR 19/17 Taxman 49. In that case also the question before the Hon'ble Delhi High Court was that whether after issue of notice of reassessment by the ITO under section 147/148 of Income-tax Act, 1961, the Commissioner has jurisdiction under section 263 to revise the earlier order of asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort and they will certainly cover within its ambit the cases where income liable to tax had been under-assessed or income which had escaped assessment on account of the failure on the part of the Assessing Officer to conduct necessary and proper investigation. In view of the plain language of section 263 where no limitations or restrictions have been provided for, the Commissioner of Income-tax is clearly entitled to invoke jurisdiction under section 263 in cases where he considers that the order by the Assessing Officer is erroneous and prejudicial to the interest of revenue regardless of the fact that action could also be taken by the Assessing Officer under section 147 for bringing to tax the income which had escaped assessment within the meaning of section 147 of Income-tax Act, 1961. Such a view is clearly fortified by the aforesaid judgment of the Hon'ble Delhi High Court and Gujarat High Court. We, therefore, do not find any merit in the aforesaid contention of the learned Counsel for the assessee. 4.11 It is a well-settled law that where the Assessing Officer fails to make proper inquiries and investigation, such failure on the part of the Assessing Officer will result in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrant and justify further inquiries and deep investigation would depend upon the facts of each case. It will, therefore, be imperative to examine the facts of the present case insofar as it relates to the disputed items of income which are the subject-matter of order passed by the Commissioner of Income-tax under section 263. 4.12 The details of transactions resulting in a loss of Rs. 4,06,93,010 referred to by the Commissioner of Income-tax in his notice as well as order under section 263 has been given by the assessee at page 18 of the Paper Book. A photo-copy of the said statement furnished at page 18 of the Paper Book is enclosed herewith. Details of Transaction referred to by the Commissioner of Income-tax,Delhi(Central)-I,New Delhiin his notice under section 263 of Income-tax Act, dated10-7-1995 -------------------------------------------------------------------------------------------------------------------------------------------------- Sl. Particulars Purchase Particulars --------------------------------------------------------- Date of Date of Quantity Rate Value Contract Delivery by Broker (Rs-) (Rs.) --------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ----------------------------------------------- 4.13 The transactions of purchase and sales mentioned at Sr. No. 2 resulting in a loss of Rs. 1,91,25,000 were made through broker, Shri Harshad S. Mehta. Some of the other transactions mentioned in the aforesaid chart were made through broker, M/s. Jayantilal Khandwala Sons. The photocopies of brokers' Note submitted in support of the various contracts of purchase and sale of units of UTI referred in the aforesaid chart do not give any distinctive number of units of UTI purchased or sold by the assessee. The Assessing Officer failed to make proper and necessary investigation. The least which the Assessing Officer should have ascertained is that who were the persons who sold the concerned Units of UTI through these brokers to the assessee. The loss of Rs. 4,06,93,010 alleged to have been suffered by the assessee must have given rise to substantial profits assessable to tax in the hands of the corresponding sellers. He has also not ascertained as to whether those sellers really owned possessed the requisite number of units of UTI, which are claimed to have been sold by them through these brokers to the assessee. Likewise, the nam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hown in the aforesaid chart and also in relation to the question relating to assessability of dividend income on such units of UTI, which have been estimated by the CIT at Rs. 19.5 crores in the order passed by him under section 263. We are, however, of the opinion that the learned CIT should have simply set-aside the order of the Assessing Officer in relation to the aforesaid two points and ought to have directed the Assessing Officer to decide the aforesaid two points after conducting necessary investigation and inquiries and after providing reasonable opportunity to the assessee instead of giving a firm finding that total income has been under-assessed by a sum of Rs. 2,10,31,425 in respect of loss on purchase and sale of units of UTI and also in relation to the firm finding given with regard to under-assessment of income by a sum of Rs.19.5 crores on account of dividend on such units of UTI. The firm findings given by the CIT in the order under section 263 for inclusion of the said income of Rs. 2,10,31,425 and Rs.19.5 crores are, therefore, cancelled and the order of the CIT in relation to these two items is modified to the extent that the CIT has rightly held that the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter accordingly. The CIT has not pointed out any facts or material on the basis of which it can be held that the order of the Assessing Officer was erroneous and prejudicial to the interest of Revenue in relation to the aforesaid item of income by way of accrued interest amounting to Rs. 25,44,657. The order passed by the CIT in relation to the aforesaid item of alleged accrued interest amounting to Rs. 25,44,657 cannot, therefore, be sustained. 6. One of the arguments advanced by the learned Counsel for the assessee was that wholesale cancellation of the assessment order by the CIT was not valid and he should have directed the ITO to make a fresh assessment only with regard to the specific items of income for which the show-cause notice was given under section 263. We agree with the submissions made by the learned counsel for the assessee and modify the order of the CIT to the extent that the ITO will make a fresh assessment after making necessary and proper investigation only in respect of the two items of income (i) relating to the loss of Rs. 4,06,93,010 claimed by the assessee in the purchase and sale of units of UTI, 1964, etc., as per details discussed hereinbefore; and ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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