TMI Blog2000 (8) TMI 245X X X X Extracts X X X X X X X X Extracts X X X X ..... zure of books of account and documents which indicated that the assessee was carrying on parallel business outside the regular books of account. Thereafter, a notice under section 139(2) of the Act was issued. The assessee filed return declaring therein loss of Rs. 43,810. On the basis of entries in the duplicate sets of accounts, the Assessing Officer completed the assessment under section 143(3) on 27-2-1990 determining total income of Rs. 4,77,472. 4. Subsequent to the completion of assessment under section 143(3), CIT noted that the assessment order passed by the Assessing Officer was erroneous insofar as it was prejudicial to the interest of the revenue for the reasons that while making the assessment, the Assessing Officer accepted a large number of cash credits appearing in the books of account seized as genuine in the absence of any evidence. On examination of records, the CIT also observed that further inquiries made revealed that some of the parties had denied having advanced any amounts to the assessee. Accordingly, the CIT issued a show cause notice to the assessee why the assessment order should not be set aside/modified to be made afresh in accordance with law. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of Pushkar Narain Sarraf where Hon'ble Allahabad High Court has held that provisions of section 132(4A) are applicable only to summary proceedings under section 132(5) and do not override provisions of section 68 in the regular assessment proceedings. The CIT also noted that the decision of CIT(A) in the case of sister concern, where addition of Rs. 25,000 has been deleted, was not applicable to the present case because the CIT(A) did not have the benefit of Allahabad High Court judgment cited. Having regard to these facts, the CIT noted that the Assessing Officer made the assessment under section 143 without making any inquiry in regard to the genuineness of cash credits. He had also not examined the creditworthiness of the creditors and the genuineness of the transactions. More so, some parties denied having given loans to the assessee. Therefore, the CIT held that the order of the Assessing Officer was erroneous insofar as it was prejudicial to the interest of the revenue. Accordingly, he set aside the assessment and directed the Assessing Officer to make fresh assessment according to law and after making proper inquiries and affording reasonable opportunity to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108, he submitted that power conferred on the CIT under section 263 can be exercised only if the assessment order is erroneous. The condition of error of law is must for the purpose of exercising jurisdiction under section 263. He submitted that the assessee cannot be confronted the postmortem of the assessment completed by the Assessing Officer in accordance with the provisions of law merely because the CIT feels that Assessing Officer had not completed the assessment after making due inquiries. He submitted that in such a case, provisions of section 147 could be invoked. He submitted that there was no error of law in the assessment order and, therefore, the CIT had no jurisdiction to pass order under section 263. He also relied on the order of Delhi High Court in the case of Addl CIT v.J.K. DCosta [1982] 133 ITR 72 to contend that assessment order cannot be revised by the CIT under section 263 on the basis of minor omission or mistake in the assessment order. He also submitted that cancellation of assessment and a direction to the Assessing Officer for making fresh assessment is called for only in cases where there is something ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concluded that there was no error of law in the assessment order and, therefore, the CIT had no authority to set aside the order under section 263 of the Income-tax Act. 7. On the other hand, Shri Ravi Shankar, the ld. D.R. heavily relied on the order of CIT. He drew our attention to the provisions of section 68 of the Income- tax Act which provide that where any sum is found credited in the books of account of the assessee and the assessee offers no explanation about the nature and source thereof or the explanation offered by the assessee is not found satisfactory, the sum so credited is liable to be treated as income of the assessee. He submitted that failure on the part of the Assessing Officer to make inquiries into the genuineness of the cash credits has caused prejudice to the interest of the revenue. Relying on the order of Allahabad High Court in the case of Pushkar Narain Sarraf, Shri Ravi Shankar submitted that presumption raised in section 132(4A) is applicable only to summary orders and presumption raised in this section is rebuttable. Hop submitted that provisions of section 132(4A) do not override the provisions of section 68, where the assessee is still required t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee 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 be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner.' A plain reading of the section shows that the CIT is vested %kith the power to call for and examine the record of any proceedings under the Act and consider if the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the revenue. Thus there are two prerequisites for the CIT to assume jurisdiction under section 263. The first pre-requisite is that the order passed by the Assessing Officer must be erroneous. The error may be an error of law or an error of fact, but it does not mean that the CIT can assume jurisdiction if the order is merely erroneous. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eclaration of amount under the Voluntary Disclosure Scheme does not mean that the assessee has discharged the onus to prove the source and genuineness of cash credits. The assessee must support such disclosure with some independent material and evidence failing which the Assessing Officer would be justified in adding unexplained credits under section 68 of the Act. Thus, it is clear from the facts of the case that the Assessing Officer has accepted the cash credits without making inquiry into the creditworthiness of the creditors and genuineness of the transactions. In other words, this aspect of the case was not examined by the Assessing Officer at all. 11. The ld. Counsel for the assessee, Shri G.C. Sharma, has laid emphasis on the provisions of section 132(4A) to canvass the viewpoint that once the entries were found in the duplicate books of account, which were not intended to be produced before the Assessing Officer, the contents of the books of account found and seized during the course of search should be accepted as true. He has empliasised that provisions of section 132(4A) arc applicable even to regular assessment. We have given utmost consideration to these submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the Hon'ble Hligh Court has observed as under: "...... the Legislature, has provided under section 132(4A) that the books of account other documents, money, bullion, jewellery or other valuable articles seized from the possession of the assessee shall be presumed to belong to the assessee if they arc found in the possession or control of the assessee in the course of the search. A similar presumption may also be made as to the correctness of the contents of the books of account so seized. So also the signature and every other part of the books of account may be assumed to be in the handwriting of the person by whom it is purported to have been written. This presumption cannot, however, have the effect of excluding section 68 when regular assessment is made in regard to the income of the person from whose possession those books of account were seized under section 132. It does not obviate the necessity to establish by independent evidence the genuineness of cash credits.' The view expressed by the Hon'ble Allahabad High Court is also logical and reasonable view. Now, there could be a case where at the time of completing the assessment the assessee can explain that the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375, where the High Court has held as under: 'It is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case, the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income-tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return, which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. It is because it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not at the time when the Assessing Officer completed the assessment. Once the creditors deny having given any loans to the assessee, there is a prima facie case for addition to the total income under section 68 of the Act. The Hon'ble Calcutta High Court in the case of CIT v. Oil Extraction (P.) Ltd. [1991] 190 ITR 404, has held that an assessment order which on the face of it was a good order at the time when it was passed may, in the light of information received subsequent to the completion of assessment appear to be erroneous. The Commissioner has the jurisdiction to rectify the order in such a case so as to eliminate the error. In view of this fact, we find that CIT was justified in considering the assessment order as erroneous and prejudicial to the interest of revenue. 16. The ld. Counsel has referred to the decision of Hon'ble Delhi High Court in the case of J.K. D'Costa, where the High Court has quashed the order under section 263 on the ground that an assessment order was not erroneous or prejudicial to the interest of revenue. But it is relevant to note the facts of that case. In that case, the Assessing Officer did not charge interest under sections 139 and 217 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In that case, the Assessing Officer had allowed assessec's claims under section 37 treating expenditure as revenue in nature after making open inquiries and after examining the explanation of the assessee. Later, the CIT sought to revise the order under section 263 on the ground that the expenditure was capital in nature. The order passed under section 263 was quashed by the Bombay High Court on the ground that the order of the Assessing Officer could not be considered as erroneous or prejudicial to the interest of revenue. But the material difference between the facts of this case and that case are that Assessing Officer has accepted the cash credits by overlooking the provisions of section 68 and without making any inquiry warranted by the facts of this case. Therefore, the judgment of Hon'ble Bombay High Court, cited supra, is not applicable to the facts of the present case. Moreover, the requirement of law is that the assessment order must be considered erroneous and prejudicial to the interest of revenue in order to enable the CIT to exercise the powers vested under section 263. It is not necessary that CIT should himself make such inquiries. He can direct the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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