TMI Blog2003 (5) TMI 212X X X X Extracts X X X X X X X X Extracts X X X X ..... T is wrong in his observation that the reassessment order was passed in a hurried manner and that no genuine efforts had been made by the learned AO to examine Shri Jaiswal. There was no false assertion of any kind in the reassessment order as has been assumed by the learned CIT in the impugned order. (d) The Delhi High Court judgment reported in Gee Vee Enterprises vs. Addl. CIT 1975 CTR (Del) 61 : (1975) 99 ITR 375 (Del) had absolutely no application to the facts of appellant s case. (e) The learned CIT is wrong in saying that the reassessment order had been passed without making relevant enquires and that the reassessment order was erroneous and prejudicial to the interest of the Revenue. (f) Various observations made by the learned CIT while cancelling the reassessment order under s. 263 are either incorrect or are untenable. Some of the observations are self-contradictory also." 2. That the impugned order under s. 263 as passed by the learned CIT is bad in law and void ab initio and, therefore, the same deserves to be cancelled. 3. That the appellant reserves its rights to add, amend or modify the grounds of appeal." 2. The facts in nutshell are that the original a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rector of M/s L.P. Breweries Agencies (P) Ltd. during the course of his assessment proceedings filed an affidavit dt.22nd March, 1999, that he did not render any service to M/s Jagatjit Industries Ltd. against these payments. During the course of their assessment proceedings, he also admitted that this was merely an accommodation entry and that he had returned the whole amount of M/s JIL except to the extent of 2.3 per cent of total income. From these it is clear that in the return for asst. yr. 1995-96 M/s Jagatjit Industries has claimed a bogus expenditure of Rs. 74,40,561 and, therefore, I have reason to believe that an income of Rs. 74,40,561 and, therefore, I have reason to believe that an income of Rs. 74,40,561 has escaped assessment within the meaning of s. 147. Issue notice under s. 148." 4. In response to notice under s. 148, return was filed and the AO re-examined the issue but finally did not make an addition on he point of dispute, i.e., the payment of commission. This assessment order was examined by the CIT under its revisional jurisdiction and after finding it to be erroneous and prejudicial to the interest of Revenue, issued the show-cause notice to the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of assessment in the case of LPB with regard to the forged TDS certificate only with the intent to escape from the legal consequences expected in his own case. Mr. Sapra further contended that this affidavit of Shri Manoj Jaiswal does not have any legal sanctity because he was not at all connected with the LPB at the relevant point of time and he became the director w.e.f.29th Sept., 1998, while transactions were made during the financial year 1994-95. In the case of LPB, the audited accounts were filed after the date of affidavit of Mr. Manoj Jaiswal before the Registrar of Companies confirming the receipt of impugned remuneration. Therefore, the AO did not give much importance and has rather rejected the affidavit following the judgment of the jurisdictional High Court in the case of Sunder Industries Ors. vs. General Engineering Works AIR 1982Del220. The AO, however, made its efforts to examine Mr. Jaiswal and issued summons but the same were not served upon Mr. Jaiswal and the AO could not examine him. Before the AO, the assessee has, however, placed the confirmation letters of different parties of the same State in which they have confirmed that they have received t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hatsoever, directly or indirectly, has been brought on record to this effect. Learned Departmental Representative Mr. Sapra has also pointed out certain defects in the affidavit. He further urged that Mr. Manoj Jaiswal had not been examined by the AO of LPB and no opportunity had been given to the assessee for cross-examining him particularly when much before the affidavit, the AO had summoned the assessee to verify the payment made by the assessee to LPB. The affidavit of Shri Manoj Jaiswal was rightly ignored as it had no evidentiary value as held by jurisdictional High Court in the case of Sona Electrical Company vs. CIT (1984) 43 CTR (Del) 287 : (1985) 152 ITR 507 (Del) and CIT vs. Eastern Commercial Enterprises (1995) 123 CTR (Cal) 217 : (1994) 210 ITR 103 (Cal). He further submitted that it is important to note that Manoj Jaiswal did not appear before the AO of the assessee on 26th March, 2002, when he was to be re-examined by the assessee despite his assurance given in an affidavit dt. 26th Mach, 1999, that he would co-operate with the IT Department in future also as and when required for this purpose during the course of reassessment consequent to the order of CIT passed un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the submission that it has debited the huge expenditure but no details or description were given. He further invited our attention to the bank account of LPB which was opened on 6th June, 1994, and closed on 8th May, 1997, along with the copy of cheques through which the cash was withdrawn from the bank with the submission that this bank account was opened just before agreement was entered between the assessee and the LPB and whatever commission was received by LPB, it was immediately withdrawn either in cash or through its director Mrs. M. Kutti. The relevant documents are placed at pp. 19 to 37 of Revenue s compilation. It was further submitted that this account was also closed after determination of the agreement. It means that this account was opened only to encash cheques of the aforesaid commission payment from the assessee. Learned Departmental Representative further submitted that according to the assessee, the payment of commission was made within the previous year relating to the impugned assessment year but from the account of LPB, it is evident that part of the payments were received in May, June and December of 1995. When a substantial amount was paid in the succee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LPB is certainly connected to Jagdish Industries Ltd. for which necessary investigation is required but the AO did not do the same. He has also invited our attention that necessary inquiry was conducted in the case of LPB and on that inquiry, it was revealed that no concern like LPB Agency (P) Ltd. exists either at Jaipur or V.P. 35-C, Maurya Enclave, Pitampura, Delhi, where the notice was issued by the AO in the name of Principal Officer, LPB. Since the notice was not issued in the name of Manoj Jaiswal, there was no question of its service upon his wife Mrs. Ekta Jaiswal. Through this report dt.5th Aug., 2000, it was brought to the notice of the AO that at VP 35-C, Maurya Enclave, Manoj Jaiswal was living with this wife but the company under the name of LPB did not exist. The AO did not take any trouble to summon Manoj Jaiswal to ascertain the veracity of his affidavit filed in the case of LPB stating therein that he has not received the commission from the assessee and the AO has gone with the presumption that notice was refused to be received by Shri Manoj Jaiswal whereas it was issued to the principal officer of LPB. 10.1. Mr. Salil Gupta, the senior Departmental Represent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat order can be revised by the CIT and its fate is uncertain but it does not mean that the CIT has wrongly exercised its jurisdiction. 12. On consideration of rival submissions and from a careful perusal of record, we find that in the case of assessee, a regular assessment was framed under s. 143(3) of the IT Act. During the course of assessment proceedings in the case of LPB for the asst. yr. 1996-97, it was noticed by the AO that the assessee has claimed more expenses than the receipt of commission, he investigated the claim of the assessee and during the course of investigation, the AO found that the claim of receipt of commission from JIL is not genuine because no evidence of services rendered by LPB for JIL was produced. While examining the bank accounts of LPB, the AO noticed that it was opened just prior to the execution of the agreement and except the commission received, no other transaction in this bank account was performed. Whenever the commission was received by LPB through cheque, it was immediately withdrawn in cash by LPB itself or through its director Mr. Madhavan Kutti. During the course of assessment proceedings, the LPB could not explain the reasons about the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. The assessee has strongly contended that this affidavit cannot be taken into account in order to draw an inference that the claim of commission payment by the assessee is bogus because Manoj Aggarwal who was director in LPB at the time of assessment proceedings was not at all connected with LPB during the financial year 1994-95 and 1995-96 when the transaction took place. No doubt, Mr. Manoj Aggarwal was not the director or at all connected with the LPB during the asst. yr. 1995-96 but its evidentiary value cannot be lessened because this affidavit is not of Manoi Jaiswal but it is of a company i.e., LPB though its director. During the course of assessment proceedings, the AO has questioned the LPB and LPB has come out with the plea that these facts and the statement of the company can only be recorded through its directors or its principal officers. As such, we are of the considered view that the affidavit is very much relevant to the present controversy and it should have been examined by the AO having jurisdiction over JIL in reassessment proceedings. If this affidavit is seen along with other events quoted by the AO of LPB through its letter dt.24th March, 1999, addressed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acted in a way which is not expected from an officer framing an assessment because it has been repeatedly held by the apex Court and various High Courts that the AO is not only an adjudicator but also an investigator. In the case of Gee Vee Enterprises vs. Addl. CIT, their Lordships have held that it is not necessary for the CIT to make further inquiries before cancelling the assessment order of the ITO. The CIT can regard the order as erroneous on the ground that in the circumstances of the case, AO should have made further inquires before accepting the statement made by the assessee in his return. The reason is obvious. The position and function of the ITO is very different from that of a civil Court. The statement 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 pleading and evidence which comes before it. The ITO 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. In his duty to ascertain the truth of the facts stated in the ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her an assessment was made without inquiry and evidence and in undue haste, it was erroneous and prejudicial to the Revenue. In the case of CIT vs. Pushpa Devi, their Lordships of Patna High Court has also held that where the assessment was made without making a proper inquiry, the CIT could not be denied jurisdiction to act in terms of s. 263 of the Act. In fact, it was obligatory on him to exercise jurisdiction where the order of assessment was erroneous and prejudicial to the interest of the Revenue. Again, in the case of Swarup Vegetable Products Ltd. vs. CIT, their Lordships of the Allahabad High Court have categorically held that where the AO had accepted the claim of the assessee erroneously that too without making proper enquiry, the CIT can cancel the assessment on the ground that the order is erroneous and prejudicial to the interest of the Revenue. In the case of K.A. Ramaswami Chettiar Anr. vs. CIT, their Lordships of Madras High Court after having relied upon the ratio laid down by the apex Court in the case of Tara Devi Aggarwal have categorically held that when the ITO is expected to make an inquiry of a particular item of income and if he does not make an inquiry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principle of natural justice or without application of mind. The phrase prejudicial to the interests of the Revenue is not an expression of art and is not defined in the Act. Understood in its ordinary meaning, it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the ITO, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase prejudicial to the interests of the Revenue has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of the AO, cannot be treated as prejudicial to the interests of the Revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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