TMI Blog1995 (2) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that there was no such approval furnished by the assessee for the year under consideration, the CIT formed an opinion that the assessment was erroneous as it was completed without verifying the above aspect, which resulted in the assessment being prejudicial to the interests of the Revenue. After issuing a show-cause notice to the assessee, he set aside the order by observing in paragraph 3 of his order as under : " A careful consideration of the facts and circumstances prevailing in this case made me to understand that there is absolutely no case for the assessee to seek dropping of the proposed action. Molasses being an excisable commodity, the same cannot be destroyed without the knowledge of the Central Excise authorities. In the instant case, it is the assessee's claim before me that the loss was claimed on account of the destruction of molasses in view of the heavy rains. Even in such cases, it is necessary for the assessee to obtain the approval of the Excise authorities so as to make the claim of loss, which was not evidently done by the assessee. In my opinion, the observations of the CIT (Appeals) in the assessment year 1986-87 will not be helpful to the assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year did not form part of the record of the year under consideration and consequently it could not have formed the basis for initiation of proceedings under section 263. The record of the year in dispute does not contain any such information on the basis of which it could be said that the claim made by the assessee was wrong. It was further contended that the assessment had been made by the Assessing Officer by invoking the provisions of section 143(1) and those provisions did not permit any enquiry into the loss of this nature for completing the assessment. Under section 143(1), the Assessing Officer has to make the assessment on the basis of the return filed by the assessee and he has been given a power to make adjustment only with respect to four items contained in sub-clauses (i), (ii), (iii) and (iv) of clause (b) of sub-section (1) of section 143. An enquiry about the claim by the assessee is not permitted thereunder. He, therefore, submitted that the exercising of jurisdiction under section 263 by the CIT was not warranted. According to him, assessment made under section 143(1) was final subject to proceedings initiated under section 143(2) with the approval of the Inspect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .710 MT and its request for approval of the loss and refund of the duty paid was not entertained and the Bond was released only after the excise authority concerned was satisfied about the fulfilment of the necessary obligations. This, according to him, clearly showed that the Central Excise authorities have not approved the loss claimed to have been incurred by the assessee. He, therefore, submitted that the action of the Assessing Officer in completing the assessment without verifying the vital issue discussed in the order of the CIT had resulted in the assessment being prejudicial to the interests of the Revenue inasmuch as it was erroneous and accordingly the CIT was perfectly justified in setting aside the assessment for being redone. 5. We have heard the parties and considered their rival submissions. Section 263 provides that the Commissioner may call for and examine the record of any proceeding under the Income-tax Act and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Revenue and not whether the Assessing Officer should have elected to pass an order under a particular section when the other mode of assessment was available under the Act. In our opinion, the CIT has no power to control the discretion of the Assessing Officer to elect one mode of assessment. His jurisdiction is to see whether an order passed by the Assessing Officer is erroneous or not. If the Assessing Officer has completed an assessment in accordance with the provisions of law, the same cannot be set aside by stating that it is erroneous or prejudicial to the interests of the Revenue. 7. A similar situation came up for discussion before their Lordships of the Supreme Court in the context of reopening under section 147(b) of the Act in the case of CIT v. Simon Carves Ltd [1976] 105 ITR 212. In that case, the Income-tax Officer completed the original assessment in the case of a person residing outside the taxable territory, by adopting one of the methods prescribed in rule 33 of the Indian Income-tax Rules, 1922. Subsequently, the ITO reopened the assessment under section 147(b) of the Income-tax Act, 1961, and applying a different method permissible under the said rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espective share income of the individual members. Therein, the ITO made an assessment on the share income of the assessee-firm from a joint venture by exercising his option of assessment which was valid in law and in accordance with law. The order was set aside by the Commissioner of Income-tax by invoking the provisions of section 263 on the score that the ITO's action in so far as he brought to charge the assessee's share income from the joint venture was prejudicial to the interests of the Revenue, which according to him, the ITO should have assessed in the hands of the AOP as a whole. On these facts, the Madras High Court held that they failed to understand how an assessment, which was in accordance with the law, could at all be regarded as erroneous, let alone prejudicial to the interests of the Revenue. Their Lordships thought it axiomatic that any assessment, which was in accordance with law, could not, in the same breath, be regarded as erroneous, and if the assessment was not erroneous, it could not be prejudicial to the interests of the Revenue or for that matter to the interests of the assessee as well. This is, their Lordships clarified, on the principle that nothing ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undable to him on the basis of such return. (2) Where a return has been made under section 139 but the Income-tax Officer is not satisfied without requiring the presence of the assessee or the production of evidence that the return is correct and complete, he shall serve on the assessee a notice requiring him, on a date to be therein specified, either to attend at the Income-tax Officer's office or to produce, or to cause to be there produced, any evidence on which the assessee may rely in support of the return. (3) On the day specified in the notice issued under sub-section (2), or as soon afterwards as may be, the Income-tax Officer, after hearing such evidence as the assessee may produce and such other evidence as the Income-tax Officer may require on specified points, and after taking into account all relevant material which the Income-tax Officer has gathered, shall, by an order in writing, assess the total income or loss of the assessee, and determine the sum payable by him or refundable to him on the basis of such assessment." Under these provisions, two modes of assessment are provided : one is without requiring the presence of the assessee or the production of eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return accounts and documents, is, prima facie, admissible, but is not claimed in the return ; " (iii) disallow any deduction, allowance or relief claimed in the return which, on the basis of the information available in such return, accounts and documents, is, prima facie, inadmissible ; (iv) give due effect to the allowance referred to in sub-section (2) of section 32, the deduction referred to in clause (it) of sub-section (2) of section 33 or clause (it) of sub-section (2) of section 33A or clause (i) of sub-section (2) of section 35 or sub-section (1) of section 35A or sub-section (1) of section 35D or sub-section (1) of section 35E or the first proviso to clause (ix) of sub-section (1) of section 36, any loss carried forward under sub-section (1) of section 72 or sub-section (2) of section 73 or sub-section (1) of section 74 and the deficiency referred to in sub-section (3) of section 80J, as computed, in each case, in the regular assessment, if any, for the earlier assessment year or years. (2) Where a return has been made under section 139, and--- (a) an assessment having been made under sub-section (1), the assessee makes within one month from the date of service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Officer, after receipt of the return of income, to make a regular assessment without requiring the presence of the assessee or the production by him of any evidence in support of the return, and without being satisfied that the return is correct and complete in all respects. In making such a 'summary' assessment, the income-tax Officer will have the authority to make certain adjustments to the income or loss declared in the return. These adjustments will be by way of : (i) rectifying any arithmetical errors in the return and the accounts and documents, if any, accompanying it ; (ii) allowing any deduction, allowance or relief which, on the basis of the information available in such return, accounts and documents, is, prima facie, admissible though not claimed in the return ; and (iii) disallowing any deduction, allowance or relief claimed in the return but which, on the basis of the information available in such return, accounts and documents, is, prima facie, inadmissible. The Income-tax Officer will also be required, in making a summary assessment, to give due effect to the deduction on account of unabsorbed depreciation brought forward from the preceding assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Where an assessee objects to the summary assessment made by the Income-tax Officer by making an application within the specified period of one month, it is incumbent on the Income-tax Officer to reopen the assessment by issuing the necessary notice calling upon the assessee to produce the books of account and other evidence in support of the return. The Income-tax Officer is also empowered to issue a notice in cases where an assessment has been completed under section 143(1). However, the issue of a notice in such cases is subject to the requirement that prior approval of the Inspecting Assistant Commissioner has been obtained. The basis for the issue of such a notice is that the Income-tax Officer considers it necessary or expedient to verify the correctness and completeness of the return by requiring tht presence of the assessee or the production of evidence in this behalf." 13. Sub-clauses (ii) and (iii) of clause (b) of sub-section (1) of section 143 were deleted by Finance Act, 1980, with effect from 1-4-1980 and the object of this was explained in circular No. 281 dated 22-9-1980 in paragraphs 27.3 and 28.1 as under : " 27.3 The revised procedure of assessment known as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lling upon the assesseee to do so, and if the defect is not rectified, consider the return as invalid. The defects which are required to be rectified by the assessee are given in the Explanation thereunder. We are not concerned with the details of such items. They are, therefore, not being reproduced or discussed here. 14. From the above, it is clear that the two modes are provided under the Act for making an assessment --- one is on the basis of the return under section 143(1) without any enquiry or production of evidence on any issue, and the other by issuing notice, making enquiry and on production of evidence. In the first category, no satisfaction about the correctness or completeness of the return is to be formed and the assessment is to be completed only on the basis of the return subject to certain adjustment under clause (b) of section 143(1). In the second category, however, the assessment is to be made by issuing notice and upon satisfaction reached after calling for, and on the basis of, evidence adduced by the assessee. Both the options are given to the Assessing Officer and, therefore, in view of the two decisions in the cases of Simon Carves Ltd and Venkatakrishna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to utilise resources for scrutiny and investigations of larger cases. In such cases, CIT should only inform Audit that the cases are completed under the Summary Assessment Scheme.' The above observations of the Member (R A) reflect the views of the Board on the subject and are being brought to the notice of all the Commissioners of Income-tax for their information and guidance." A perusal of this circular shows that this reflected the view of the CBDT about the provisions of section 143(1) --- a view which we have taken in our order. A remedial action is provided in section 143(2) itself and is to be taken by the Assessing Officer with the approval of the inspecting Assistant Commissioner. That action has not been taken in this case nor is it a subject-matter of our consideration. Suffice it to say for disposal of this case that the assessment order made by the Assessing Officer under section 143(1) having been made in accordance with the provisions contained in section 143(1) as they stood at the relevant time, was not and could not be said to be erroneous or prejudicial to the interests of the revenue. 16. Before parting with the case, it may be stated that we, on a ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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