1990 (2) TMI 86 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the order under section 263 passed by the Commissioner of Income-tax (CIT).
2. Whether the Income-tax Officer (ITO) made proper inquiries before finalizing the assessment.
3. Whether the assessment order was erroneous and prejudicial to the interests of the Revenue.

Issue-wise Detailed Analysis:

1. Validity of the Order under Section 263:
The CIT, Allahabad, invoked section 263 to revise the assessment order for the assessment year 1983-84. The CIT observed that the ITO completed the assessment without making necessary inquiries or examining the books of account, which led to an erroneous and prejudicial order against the interests of the Revenue. The CIT relied on precedents such as Rampyari Devi Saraogi v. CIT, Smt. Tara Devi Aggarwal v. CIT, and Gee Vee Enterprises v. Addl. CIT to substantiate his decision. The CIT set aside the assessment order and directed the ITO to make a fresh assessment after allowing the assessee an opportunity to be heard.

2. Whether the ITO Made Proper Inquiries:
The ITO finalized the assessment on the same day the assessee attended the hearing, based on the audited trading account, profit and loss account, and balance sheet. The CIT noted that the ITO did not scrutinize the books of account or make any inquiries into the significant decline in the net profit rate compared to previous years. The CIT highlighted that the net profit rate for the assessment year 1983-84 was significantly lower than in earlier years, where higher rates had been applied and upheld by the Tribunal. The CIT concluded that the ITO's failure to investigate the reasons for the decline in the net profit rate rendered the assessment order erroneous.

3. Whether the Assessment Order was Erroneous and Prejudicial to the Interests of the Revenue:
The CIT's primary contention was that the ITO accepted the net profit rate of 2.6% without proper scrutiny, despite the assessee's history of higher net profit rates and previous rejections of trading results. The Tribunal agreed with the CIT's view, stating that the ITO's lack of inquiry into the causes of the decline in the net profit rate constituted an error, making the order prejudicial to the Revenue's interests. The Tribunal referred to the judgment in Gee Vee Enterprises, which emphasized the ITO's duty to investigate the facts stated in the return when circumstances warrant further inquiry. The Tribunal concluded that the CIT's decision to set aside the assessment order was justified and in accordance with the law.

Conclusion:
The Tribunal upheld the CIT's order under section 263, agreeing that the ITO's failure to make necessary inquiries before finalizing the assessment rendered the order erroneous and prejudicial to the interests of the Revenue. The appeal filed by the assessee was rejected.