TMI Blog1993 (7) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee had no valid explanation. Therefore, he caused them to be assessed under section 132(5) by an order passed on 14th August, 1976. The ITO, subsequently, on the basis of the return, filed by the assessee, on 1-7-1977, proceeded to make the assessment. He completed the assessment on a total income of Rs. 14,974 on 20-2-1980. According to the CIT, the ITO, in making the assessment, did not consider the order, passed under section 132(5) and, therefore, did not consider the addition made amounting to Rs. 62,341 representing value of cash, value of jewellery and the amount mentioned in the chit, for which the ITO had held that the assessee had no valid source to explain. It is, on the basis of this order, that the CIT reached a finding that the assessment order, made subsequently by the ITO, on 18-2-1980, was erroneous, which was prejudicial to the interest of revenue. 4. It has been represented that similar orders were passed by the CIT in the case of Central Dry Cleaners [IT Appeal No. 133 of 1982] Shri Inderjit Singh C/o Central Dry Cleaners [IT Appeal No. 135 of 1982]. Although we have upheld the order of the CIT, passed in those cases under section 263, because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n our mind that the ITO had acted in an illegal and arbitrary manner disregarding the facts altogether. Inderjit Singh stayed at 5, Krishna Nagar, while the minor resided at 4, Krishna Nagar. It can be anybody's guess that he was not a member of the family of the minor, who are residing at 4, Krishna Nagar. In that para, reference is made to a sale by a guardian - ad hoc, i.e., by a separated uncle, who had never intermeddled or had acted as a guardian. The sale was held to be void. Therefore, we cannot find any support in law for the Act of the ITO in appointing Inderjit Singh as a guardian on his own authority. It was for a situation like this, where a guardian is not available, that the Income-tax Act provides for direct assessment of a minor and also for a direct recovery of the tax dues from him. We are unable to guess the reasons for which the ITO did not adopt this procedure and associated the minor directly to obtain his explanation and say in the matter and felt the need for appointing a guardian by his sweet and arbitrary will. In our view, the order passed under section 132(5) is a bad order in the eye of law because this order was made without providing the assessee an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 132(5) of the Act and the illegality of the order of CIT under section 263. It is not a situation where an addition made in a quantum assessment becomes relevant for the levy of penalty and thereby legality of an assessment in quantum will affect the legality of the penalty imposed. The order of the CIT was purporting to refer to the omission of the ITO at the assessment stage to note the material come to light as a result of search and its subsequent processing under section 132(5) of the Act and the quantum of unexplained income considered therein. The more important fact in these circumstances is what the search uncovered and that information was to be considered by the ITO while framing the assessment for the accounting year in which the search took place. The material brought to surface will be relevant for determining the assessee's income liable to tax for the concerned assessment year. Looking into the order under section 132(5) could shorten the labour of the ITO in the event the assessee could successfully explain a part of the material seized. It is not that the assessment cannot be framed without depending or relying upon the order under section 132(5). T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5), the Assessing Officer had proposed to make the following addition in the assessment year 1977-78: Rs. (i) Out of cash found Rs. 18,430 a sum of Rs. 12,000 remained unexplained in proceedings under section 132(5) 12,000 (ii) One chit was found in the box containing jewellery on which there was mention of cash of Rs. 17,000 which was missing from the said box [para 6 of order under section 132(5)] 17,000 (iii) Value of jewellery found from the residence and business premises of the firm (paras 7 to 10 and 12 of order under section 132(5)] 33,341 ----------- 62,341 ----------- 4. However, while making regular assessment under section 143(3) on February 29, 1980, the Assessing Officer did not take notice of facts mentioned in order under section 132(5) and took the assessee's total income at Rs. 18,720 only. 5. The CIT subsequently examined the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concealed income of Rs. 52,341. Therefore, pursuant to and in accordance with the provisions of section 263 of the IT Act, 1961, I set aside the aforesaid order of assessment dated 20-2-1980 and direct the ITO to make a fresh order of assessment, according to law, by including in computation of total income the whole or part of the above said concealed income of Rs. 62,341, as may be found liable for inclusion in the assessee's total income on consideration, enquiry and appraisal of the relevant facts and meterial." He set aside the assessment with direction to the Assessing Officer to make fresh assessment after providing opportunity of being heard to the assessee. He specifically directed that the explanation tendered by the assessee with regard to sources of these amounts be examined by the ITO on merits of the case. The assessment framed was accordingly set aside and the matter restored to the ITO. 7. Being aggrieved, the assessee filed an appeal before the Appellate Tribunal. The Tribunal heard the appeal. After hearing the appeal, the learned Judicial Member was of the view that order of CIT under section 263 was liable to be cancelled. In his view, the CIT was not right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Judicial Member in his view will not invalidate the order of CIT under section 263. That being so, the learned Accountant Member could not endorse the view that the situation in this case was different from other two connected cases of Central Dry Cleaners. The Accountant Member then referred to the decision in other connected case of Central Dry Cleaners as situation was identical, he upheld that order of CIT under section 263. I have heard the parties on the point of difference. 9. Shri Salil Kapur, the learned counsel for the assessee vehemently contended that both the learned members have expressly or by necessary implication agreed that Shri Inderjit Singh was not guardian of the assessee in the relevant period and thus order under section 132(5) on minor through him was illegal and bad in law. Consequently, conclusion of CIT in the impugned order holding assessment as erroneous and prejudice to the interests of Revenue for not considering order under section 132(5) was unjustified. An assessment for failure to consider an illegal order cannot be held to be erroneous calling for action under section 263. Therefore, the CIT was in error in directing the Assessing Officer t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der sub-section (1) of section 132. A regular assessment, on the other hand, is made to determine the total income of an assessee and the tax payable by him after taking into account all relevant available material. An order under sub-section (5) of section 132 without strictly following the procedure laid down by law may effect the right of the Revenue to retain assets seized but cannot prejudice its powers to make a regular assessment. Where an order under sub-section (5) is passed and seized wealth (valuable articles) are retained, the Revenue is in a more secure position to recover the tax due even before the regular assessment is concluded. In the other cases, they have to take recourse to recovery proceedings. Apart from the above, in my view, there is no connection between an order under section 132(5) and the regular assessment. The position would have been different if existence of a valid order under section 132(5) was a conditional precedent to take up and make a valid order in the regular assessment. In that situation, it would have been necessary to examine validity and legality of order under sub-section (5) of section 132. But there is no such legal requirement under ..... 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