TMI Blog2006 (6) TMI 205X X X X Extracts X X X X X X X X Extracts X X X X ..... as noted that there was no incriminating material found. There was a minor difference of 400 kgs. oil, no account books were seized. Regular returns of the assessee-company were filed up to 199899 in Bombay. After verification, the Assessing Officer came to the conclusion that undisclosed income of the assessee was Rs. Nil It may be pointed out that for the purpose of Block assessment, the period of Block was starting from the assessment years 1988-89 to 1998-99 plus a broken period from 1-4-1998 to 2-71998. For this broken period, the assessee had shown income at Rs. 13,03,103. Since this income as reflected in the books of account, this was not assessed as undisclosed income. The income is to be found on page 52 of the paper book, which is part of the Block return filed by the assessee. 3. The assessee-company filed regular return for the assessment year 1999-2000 on 16-12-1999 showing total income at Rs. 2,92,869. This period of 12 months covered the broken period from 1-4-1998 to 2-7-1998 considered earlier in the Block assessment. The return was accompanied by audited balance sheet, as well as tax audit report. Copy of this return and its accompaniments are placed on pages 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer and also comparative position of G.P. was also shown. Copies of both these statements were given to the CIT by way of Annexure 'A' and Annexure 'B'. It was further pointed out that the fall in G.P. was on account of the fact that there was substantial variation in the market price and the details of stock and its valuation on different dates was given. Legal submissions were also made that there being no error or prejudice to the Revenue, the action under section 263 should be dropped. 7. The learned CIT considered these submissions. On page 2 of his order, the CIT has referred to the letters which were claimed by the assessee to have been furnished before the Assessing Officer. According to the CIT, these letters were not found in the case file of the assessee and hence for verification of the genuineness of these documents, the case was adjourned to 15-2-2001, but it appears that subsequently the assessee did not attend. Thereafter, the CIT noted the written submissions of the assessee. It is the contention of the assessee that the entire letter of the assessee has not been considered by the Assessing Officer which grievance has been brought in ground No.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d admission of the assessee, the records themselves have clearly pointed out that the method of valuation of stock has come on record in the Company audit as well as tax audit with necessary details. The details of valuation of stock were also given by the assessee in its reply to notice under section 263 and enquiry on this point was not called for at all. The learned counsel further submitted that the CIT has not pointed out how, according to him, there was any prejudice to the Revenue. He relied upon the decision of the Hon'ble Bombay High Court in the case of CIT v. Gabriel India Ltd. [1993 203 ITR 108 where the High Court has held that the decision of the ITO cannot be held to be erroneous simply because in his order he did not make any elaborate discussion in regard to the enquiries made. The learned counsel accordingly concluded that the CIT was not justified in invoking his jurisdiction under section 263 and accordingly, his order setting aside the assessment of the Assessing Officer is void ab initio. 10. Shri K Srinivasan, the learned D.R. strongly supported the order of the learned CIT. He submitted that the fall in the income of the assessee for the period subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase also, even after initiating proceedings for revision and hearing the assessee, the learned CIT has not pointed out any material to show the results shown by the assessee were erroneous. His asking the Assessing Officer to re-examine the matter was not permissible. Reference is invited to the following observations of the Bombay High Court at page 117 of the judgment in Gabriel India Ltd.'s case: "Further inquiry and/or fresh determination can be directed by the Commissioner only after coming to the conclusion that the earlier finding of the ITO was erroneous and prejudicial to the interests of the Revenue. Without doing so, he does not get the power to set aside the assessment. In the instant case, the Commissioner did so and it is for that reason that the Tribunal did not approve his action and set aside his order. We do not find any infirmity in the above conclusion of the Tribunal." 12. Similarly, merely because the Assessing Officer wrote a cryptic order though after due enquiry, could not be the reason for setting aside the order and to make enquiries on a point which has been already brought on record and which does not, on the face of it, show any prejudice caused to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Considering the explanations given before the Assessing Officer and brought to the notice of the CIT, there was sufficient justification for the fall in G.P. and in fact yearly profit has shown improvement over earlier year's G.P. The argument made by the learned D.R. that the letters which were claimed by the assessee to have been filed before the Assessing Officer were not found on record etc. is not justified, in view of the fact that in the decision part of the order the CIT has nowhere observed that these letters were not on record or that they were not genuine etc. In fact, what the learned D.R. is trying to do is supporting the order of the CIT on the grounds which are not taken in the order under section 263. This is not permissible in view of the decision of the Punjab Haryana High Court in the case of Jagadhri Electric Supply Industrial Co. As regards the argument of the learned D.R. that the assessee need not feel shy of reassessment, we make reference to the decision of the Chandigarh Bench of the Tribunal in the case of N.S. Ichhopani v. Asstt. CIT [1995] 55 ITD 88 (Chd.) where the Bench has observed as under: "Setting aside an assessment is no ordinary matter. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was an action under section 132 on 29-6-1998 to 2-7-1998 with other cases of the same group, but no incriminating documents was found during the course of search. The assessee filed Block return on 11-4-2000 showing undisclosed income at Rs. Nil The Block assessment was completed on 12-6-2000 computing the block income at Rs. Nil. In para 7 of the said block assessment the Assessing Officer had noted that there was no incriminating material found. There was a difference of 400 Kgs. oil, no account books were seized. Regular returns of the assessee-company were filed up to 1998-99 in Bombay. After verification, the Assessing Officer came to the conclusion that undisclosed income of the assessee was Rs. Nil The period of block was starting from assessment years 1988-89 to 1998-99 plus a broken period of 1-4-1998 to 2-7 -1998. For this broken period, the assessee had shown income at Rs. 13,05,103. Since this income was reflected in the books of account, this was not assessed as undisclosed income. 3. The assessee-company filed regular return for the assessment year 1999-2000 on 16-12-1999 showing total income at Rs. 2,92,869. This period of 12 months covered the broken period fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... records further revealed that the regular assessment has been completed by the Assessing Officer accepting the return filed by the assessee without sufficient enquiry/scrutiny/ verification etc. for the fall of income in the business for the period 1-7-1998 to 31-3-1999 as compared to the income of the first quarter of the accounting year of Rs. 13,05,103 shown in the block return filed by the assessee. If the income for the period of 12 months falling in the accounting year 1998-99 is estimated on the basis of Rs. 13,03,103 for the period of 3 months i.e., first quarter of the same assessment year, then it should be at over Rs. 52,00,000 instead of Rs. 2,02,869 shown by the assessee." Records indicate that the Assessing Officer has failed to conduct necessary verification/enquiries to ascertain the reason for fall in the returned income to Rs. 13,05,103 for the 1st quarter itself and has rendered the assessment erroneous for the reasons mentioned above. Opportunity to the assessee was granted by the CIT, Nashik as under: "As the Assessing Officer failed to consider the above aspects during the course of assessment under section 143(3) of the Income-tax Act, a show-cause noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord, the written submission filed by the assessee during the proceedings and the discussion in the matters with the assessee and [his Chartered Accountant. After considering the same it is found that (i) So far as the valuation of stock is concerned, the Director of the assessee himself admitted on 8-12-2000 that the Assessing Officer had not verified the method of valuation of stock nor any details were filed by the assessee i.e., no enquiry was made on this point (vide order sheet entry dated 8-12-2000 page No.2). (ii) So far as the enquiry by the Assessing Officer is concerned, the Assessing Officer in the assessment order on page No.2 has written as follows: 'These very book has been verified up to the date of raid.' From this sentence, it is clear that the Assessing Officer had verified the books of a/c of the assessee up to this date of search and from the date of search to 31-3-1999 the Assessing Officer could not verify the books of a/c. Since there has been a failure on the part of the Assessing Officer with regard to aforesaid vital issue which has a close and significant bearings on the determination of correct total income of the assessee, the asst. order passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to make further inquiries before cancelling the assessment order of the ITO. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the ITO 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 ITO 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 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. 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 is incumbent on the ITO to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word 'erroneous' in section 263 includes the failure to make such an enq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) to show that before passing the final order under that section, the Commissioner must necessarily and in all cases record final conclusions about the points in controversy before him. Since the Commissioner did not settle the assessment finally, but preferred to direct the ITO to make an order for fresh assessment, the only proper course for the Commissioner was not to express any final opinion as regards the controversial points. Section 263 also requires such enquiry as the Commissioner "deems necessary". It was contended for the assessee that the Commissioner had committed an error in not allowing the assessee to cross-examine Dr. Vyas. It is not in every case that the Commissioner is expected to make an enquiry before the original assessment order is cancelled and the ITO is directed to make a fresh assessment. The section specifically says that that enquiry should be as 'deemed necessary' by the Commissioner. Here, the Commissioner has given direction to the ITO to give proper opportunity to the assessee to substantiate its pleas as well as to cross examine Dr. Vyas. Therefore, on the facts of this case, the Commissioner was not bound to make any enquiry before passing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ountant Member and the Judicial Member, the matter is being referred to the President of the Income-tax Appellate Tribunal with a request that the following question may be referred to a Third Member or to pass such orders as the President may desire: "Whether on the facts and circumstances of the case, Commissioner of Income-tax, Nashik is justified in setting aside the assessment for assessment year 1999-2000 with certain directions under section 263 of the Income-tax Act, 1961?" THIRD MEMBER ORDER Per K.P. T. Thangal, Vice President. - As there arose a difference of opinion between the Members, the Hon'ble President referred the following question under section 255(4) of the Income-tax Act, 1961 for my opinion as Third Member: "Whether on the facts and circumstances of the case, Commissioner of Income-tax, Nashik is justified in setting aside the assessment for assessment year 1999-2000 with certain directions under section 263 of the Income-tax Act, 1961?" 2. The assessee is a limited company belonging to Bagaria Group of Aurangabad/Mumbai. There was an action under section 132 on this Group between 29-6-1998 to 2-7-1998. The assessee is also covered by this search an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the assessee's income for the entire block of the assessment year under consideration should have been at Rs. 52 lakhs instead of Rs. 2,02,869. The CIT further noted that the Assessing Officer has not verified the method of valuation of the stock nor any details of such valuation were filed by the assessee, that is to say, no enquiry was made on this point. The case was once adjourned for verification of this fact, but when the matter was taken, the assessee furnished some letters, which were claimed to have been filed before the Assessing Officer. The next hearing could not be conducted at the appointed date as there were certain difficulties and this was intimated to the assessee by the CIT and when the matter was again taken up, the assessee did not attend nor made any request for adjournment. 5. In the written submissions, the assessee claimed that assessee was following the method of valuation of stock at the end, at market value prevailing on that date. Based on the market value of the stock, the company declared Rs. 13,05,103 for the broken period ended. Further, it was claimed that the reason for difference in profit is due to the price difference in the valuation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direction was given on some other point. He held that it is not permissible for the CIT to give such a direction for verification on a point not taken in the notice itself. He relied on the decision of the Hon'ble Calcutta High Court in the case of General Trade Agencies as also the decision of the Hon'ble Punjab Haryana High Court in the case of Jagadhri Electric Supply Industrial Co. Further considering the explanation given before the Assessing Officer, the ld. Accountant Member came to the conclusion that there was sufficient justification for the fall in gross profit and the argument to the contrary by the ld. DR was not on the basis of record. Coming to the next point of the CIT wherein he held that there was no sufficient justification for the fall of gross profit for the subsequent period of the very same year, the ld. Accountant Member found that in fact there was sufficient justification for the fall in gross profit. The ld. Accountant Member further found that the ld. DR cannot support the order of the CIT on the grounds, which were not taken in the order itself. He held for that matter, that the Tribunal also cannot do that because same thing, it will amount to shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submitted that consequential order has already been passed by the Assessing Officer giving effect to the order of the CIT and has taken the income of the assessee as it was taken in the original assessment by the then Jt. CIT, SR II, Aurangabad at Rs. 2,92,869 and as far as the assessee is concerned, it is only academic now. 10. The ld. DR, on the other hand, strongly relied on the order the ld. Judicial Member. He submitted that it was incumbent upon the Assessing Officer to conduct proper enquiry before finalizing the order and he had failed to do so and even as far as the very assessment order, the ld. DR submitted, the Assessing Officer has not verified the method of valuation nor any details of such valuation were called for. Secondly, the ld. DR submitted that the Assessing Officer clearly records that he had verified the books of account up to the date of raid. Hence, he submitted that the order of the ld. Judicial Member has to be upheld. 11. I have heard rival submissions and have gone through the orders of the revenue authorities and the decisions cited before him and also the relevant orders of both the Members. I find that on facts the observations of the ld. Judi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jewel of India v. Asstt. CIT[2003] 87 ITD 527 (Mum). 13. There is no quarrel that if the Assessing Officer fails to make necessary enquiry which was necessary to be made to reach the truth, the CIT is definitely empowered under section 263 to deal with the order in accordance with law. However, in the instant case, the fact as divulged from record does not indicate that there is a clear failure on the part of the Assessing Officer. The method of accounting was before the Assessing Officer as per record. The books of account, according to the CIT, was verified only up to the last date of the block period. But it is also clear that audited accounts were before the Assessing Officer with supporting evidences for the subsequent period of the assessment year as well. In these circumstances, I am of the view that the order of the ld. Accountant Member where he held that there was no failure on the part of the Assessing Officer and, therefore, the order passed was without jurisdiction, is the right conclusion supported by evidences. 14. The matter will now go before the regular Bench for deciding the appeal in accordance with the opinion of the majority. ORDER Per C.L. Sethi, Judi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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