TMI Blog1989 (8) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... r the A.Y. 1982-83 in question on10-3-1983under sec. 143(3) after giving a notice under sec. 143(2). The I.T.O. held that the shares of the beneficiaries were specified and therefore, income in the hands of the trust was exempt. The income declared at Rs. 93,650 was therefore, accepted. 3. The learned Commissioner of Income-tax gave a notice dated14-1-1985to the assessee under sec. 263 proposing to set aside the assessment order on the ground that it was erroneous in so far as it was prejudicial to the interests of the revenue. The notice listed the following grounds forming the basis for the action :--- (1) The assessment had been completed without proper and adequate enquiries by the I.T.O. and income had been accepted without trying to scrutinise as to how the income shown by the Trust had been earned. The returns filed had been accepted in undue haste without trying to go deeper into the case of the Trust. (2) No enquiries were made regarding the nature of the accounts maintained by the Trust and as to how the initial contribution of Rs. 8,000 made by the Settlor had been utilised. (3) The I.T.O. had not left any notes on the file as to why he considered the income as e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were completed by three different Assessing Officers. There had been no change either in the constitution of the Trust or the facts relating to the business carried on by the assessee-Trust ; (2) The Trust had submitted a copy of Profit Loss account, trading account, balance-sheet and copies of the beneficiaries accounts for all the aforesaid years along with the returns filed ; (3) In compliance to the notice issued under sec. 143(2), the assessee had produced books of account, purchase vouchers, bills, bank account and stock register maintained for these years separately which were duly examined by the I.T.O. in making the assessments ; (4) The assessee dealt in the purchase and sale of salt on whole sale basis. The quantitative details were furnished and the accuracy of profits were shown and explained. Any variation in the rate of profit was duly explained with evidence ; (5) No undue haste had been shown in making the assessments which had been completed after going through the material and evidence produced properly in a manner normally a prudent man would have done in such circumstances ; (6) The constitution of the Trust was duly declared with the Bank at the time of op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd fund flow account for verification ; (9) The I.T.O. did not find out as to where the Trustees were having their bank accounts and what was the trade name under which the Trust was carrying on business ; (10) He noticed the following order-sheet entries :--- "A.Y. 1982-83 Return under sec. 139(1) received on8/6/82. I.T.O. 4/2/83Issue notice under sec. 143(2) for hearing on10-3-83. Sd/- I.T.O. 10/3/83Shri V.S. Agarwal, Advocate, attends. Discussed for orders. Sd/- I.T.O." From the above entries the learned Commissioner inferred that the books of account of the assessee-Trust were not produced nor called for by the I.T.O. which could be scrutinized to check-up the correctness of the claims regarding the Trust income and its activities ; (11) no tick-marks whatsoever had been made on any of the papers filed by the assessee along with the returns ; (12) The assessment had been completed in one hearing only and had been made in a hurried manner without even requiring the presence of the settlor or the trustee ; (13) The I.T.O. had not cared to find out whether the three trustees could carry on business on behalf of the beneficiaries ; (14) He had not applied his mind a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im. 4. The Bench which originally heard this appeal had made a proposal to the President for the constitution of a larger Bench since several Benches of the Tribunal atDelhihad taken different views in similar matters. That is how the present Special Bench was constituted to hear this appeal under sec. 255(4). 5. On behalf of the assessee a preliminary point was raised by Shri C.S. Agarwal, Advocate to the effect that the first assessment had become time-barred now and the point involved in the present appeal was only of academic interest. In this connection, he pointed out that on 18-12-1986 the Appellate Tribunal had stayed the proceedings before the I.T.O. till the pendency of the present appeal and that in terms of the decision of the Andhra Pradesh High Court in the case of ITO v. Khalid Mehdi Khan [1977] 110 ITR 79 read with section 153(2A); fresh assessment could be completed by the I.T.O. only up to 31-3-1987 i.e., before the expiry of two years from the end of the financial year in which the order under sec. 263 was passed by the Commissioner. He pointed out that in terms of the aforesaid decision of Andhra Pradesh High Court, the period during which the stay granted b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f CIT v. Kashi Nath Co. [1988] 170 ITR 28. Regarding the duties of the Commissioner acting under sec. 263 reference was made by him to the decisions of the Hon'ble Punjab Haryana High Court in the case of CIT v. R.K. Metal Works [1978] 112 ITR 445 and in the case of CIT' v. Chawla Trunk House [1983] 139 ITR 182. He referred to the decision of the Hon'ble Rajasthan High Court in the case of CIT' v. Trustees of Anupam Charitable Trust [1987] 167 ITR 129/31 Taxman 335 to say that the error envisaged by section 263, was not one which depended on possibilities or guess work but it should be actually an error either of fact or of law. He referred to a number of decisions of different Benches of the Appellate Tribunal in which similar Trusts were involved and wherein similar actions taken by the learned Commissioner of Income-tax under section 263, had been cancelled. Particular reference was made by him to the case of Goyal Family (P.) Trust [IT Appeal Nos. 672 and 673 (Delhi) of 1985, dated30-4-1986] disposed of by 'B' Bench of the Appellate Tribunal. He pointed out that the pattern of facts in that case was similar to that in the present case and that not only the Reference filed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this case by the assessee before the I.T.O. and the I.T.O. did not carry out any examination or scrutiny either in this year or in the preceding two years and that the assessment having been completed without any enquiry, it was actually an assessment made under sec. 143(1). He submitted that the assessment had been completed in a great hurry and with undue has to. He also submitted that the notice under sec. 143(2) was given by the I.T.O. not to the assessee but to the assessee's counsel. He also referred to the decision of the Supreme Court in the case of N.V. Shanmugham Co. v. CIT [1971] 81 ITR 310 to press the point as to when assessment could be framed in the status of AOP. He submitted that the facts in the case of Goyal Pvt. Family Specific Trust were not similar and that in any case in the case of Smt. Usha Agarwal Family Trust where the Appellate Tribunal had set aside the order of the Commissioner under sec. 263, the Hon'ble Allahabad High Court had called for the Statement of the Case from the Tribunal. In this connection, reference was made by him to the decision dated 6-1-1989 of Hon'ble Allahabad High Court in the case of CIT v. Smt. Usha Agarwal Family Trust [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rk. It has to be actually an error whether of fact or of law vide decision of the Hon'ble Rajasthan High Court in the case of Trustees of Anupam Charitable Trust The words "prejudicial to the interests of revenue" have not been defined in section 263 but undisputedly this expression means that the order of assessment should be such as is not in accordance with law, in consequence whereof, the lawful revenue due to the state has not been realised or could not be realised. 8. Section 143(3) provides that "on the date specified in the notice issued under sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him on the basis of such assessment". This language clearly suggests that the Act contemplates the passing of the assessment order on the same day which is specified in the notice under sec. 143(2) or as soon afterwards as may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utiny could be called for in the subsequent year. For the A.Y. 1980-81, the return was filed by the assessee on28-6-1980. The notice under sec. 143(2) was ordered to be issued on18-7-1980and on24-7-1980the case was discussed with the Trustee Shri Om Narain Singh and assessment order was passed on7-8-1980by the Income-tax Officer. It states as follows:- "ASSESSMENT ORDER Return has been filed on28th June, 1980showing an income of Rs. 41,947 in the status of AOP (Private Family Trust). Shri M.C. Jain Advocate appeared on behalf of the trust. It has been stated that one Shri Budh Sen created a trust by settling Rs. 8,000 for the benefits of his grandsons viz., Shri Sanjeev Kumar, Shri Vinay Kumar, Shri Rajeev Kumar and Shri Shailendra Kumar. The trustees of the trust are Shri Baboo Lal and his two sons Shri Sachendra Singh Shri Om Narain Singh. The trust carried on the business of purchase and sale of salt. It earned profit of Rs. 41,947. It has been credited in proportion to the sharing profit ratio, to the accounts of beneficiaries, The shares of the beneficiaries were:- Shri Sanjeev Kumar - 20% Shri Vinay Kumar - 20% Shri Rajeev Kumar - 30% Shri Shailendra Kumar - 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10-3-1983Shri V.S. Agarwal, Advocate attended and the order-sheet entry shows that the case was discussed by the I.T.O. The assessment order was passed the same day in the following terms :--- "ASSESSMENT ORDER Return filed declaring an income of Rs. 93,650. In response to notice u/s 143(2) Shri V.S. Agarwal, adv. attended. Case discussed. This is a case of private family trust created for the benefit of beneficiaries Sanjeev Kumar, Vinay Kumar, Rajeev Kumar, Shailendra Kumar. The share of beneficiaries are specified. Therefore, income in the hands of trust is exempt. The assessee derives income from purchase and sale of salt. After discussion and scrutiny income returned is accepted.IssueN.D.share of beneficiaries is as under:--- S/Shri 1. Sanjiv Kumar 20% 18,730 2. Vinay Kumar 20% 18,730 3. Rajeev Kumar 30% 28,096 4. Shailendra Kumar 30% 28,100 Sd/- (M.N. Dikshit) Income-tax Officer, Cir. II, A-Ward Dated10-3-1983Agra." This shows that income returned was accepted "after discussion and scrutiny". In the three years assessments were completed by different ITO's u/s 143(3). We have gone through the copy of the Trust Deed dated2-11-1978. The first proviso t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the nature of accounts maintained by the Trust. This showed as if the I.T.O. should have started with suspicion from the very beginning and should have embarked on detailed fishing enquiries in the hope of finding something questionable. May be that the I.T.O. should have written a more detailed order but for want of it, it would not become erroneous or prejudicial to the interests of the Revenue, That is why the learned Commissioner mentioned in his notice under sec. 263 that the papers on record did not give any indication whether income of the magnitude shown in the return filed by the Trust had really be earned or it was merely a device for generating bogus funds in the names of the beneficiaries. Neither the papers on the record nor any other material which was before the I.T.O. or the learned Commissioner suggested such a course of enquiry nor arouse any suspicion. The learned Commissioner was not justified in expecting the details regarding purchasers and sellers or the complete addresses of the parties whose names appeared on the assets' side of the balance-sheet, to have been given. It could not be said by the learned Commissioner that the I.T.O. did not examine the ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 143(2). The following was the assessment order recorded in that case :--- "Return filed declaring an income of Rs. 39,540. In response to a notice under section 143(2), Shri D.K. Agarwal, CA, attended. Case discussed. This is a case of Private Family Specific Trust, in which shares of beneficiaries are specified. Therefore, income in the hands of the trust is exempt and taxable in the hands of beneficiaries. The trust has been created, vide trust deed dated January 24, 1973, a copy of which has been filed and placed on record, for the benefit of beneficiaries, Km. Mira Agarwal, Km. Usha Agarwal, Km. Rekha Agarwal and Master Kapil Agarwal. After discussion and scrutiny, income returned is accepted. Share of each beneficiary comes to Rs. 9,890. Assessed.IssueN.D." As is clear, there also the I.T.O. wrote "after discussion and scrutiny". The Tribunal had set aside the order of the Commissioner holding that the I.T.O. had examined the matter. No doubt in that case the Tribunal found that the necessary books of account had been produced whereas in the present case, no such categoric finding can be given in the absence of the material on the record. But as already discussed a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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