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2009 (8) TMI 971

..... ommissioner of Income-tax under section 263 of the Income-tax Act. This appeal was originally decided by the Tribunal along with I. T. A. No. 709/ Mds/94 and I. T. A. Nos. 1956 and 1957/Mds/2003 vide order dated October 29, 2002. The assessee took the matter to the hon ble High Court and the High Court, ultimately adjudicated the issue vide paragraph 5 of its order dated September 19, 2006 in T. C. (A) Nos. 2 to 5 of 2003, which is reproduced below: 5. Heard counsel. We find that the Tribunal has not considered all the contentions raised by the assessee before it. It is clear that the Tribunal order was passed in a mechanical manner without properly considering the various contentions put forward by counsel appearing for the assessee. The Tribunal is the highest fact finding authority and the Tribunal, in our view, ought to have examined each of the contention raised by the assessee as well as materials and evidence on record, for both the assessment years. Under these circumstances, in the interest of justice, we set aside the order of the Income-tax Appellate Tribunal with a direction to re-hear and decide these appeals afresh after giving opportunity to both the parties to raise .....

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..... the following petition: 8. The assessee was the head of the representative office of the foreign company in India. He was in charge of its investments. He was given a power of attorney which amongst other things authorities him to do the following. 1. The assessee is to act as an agent and representative of C. P. Inc. 2. To take necessary proceedings of law including the filing of various forms with the Government agencies. 3. To accept notices on behalf of the company. 4. All things necessary, convenient and proper for the general management of the representative office. 5. To organise the representative office to rent or lease office space in India, to purchase necessary furniture for the installation, operation and maintenance of the representative office. 6. To make contracts and agreements for all reasonable general expenses. 7. To appoint necessary assistants, agents and employees and also to dismiss them. 9. It is also seen that in this capacity, the foreign company has also given him loans and other necessary advances. The foreign company has specifically advanced monies to him to obtain accommodation having status of the head of its representative office . In accordance w .....

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..... se of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83. He particularly referred to pages 87 and 88 of the report and pointed out that the pre-requisite to the exercise of jurisdiction by the Commissioner of Income-tax under section 263 requires that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. Therefore, two conditions are required to be satisfied, viz., (i) the order of the Assessing Officer sought to be revised is erroneous and (ii) it is prejudicial to the interests of the Revenue. In this case, the order passed by the Assessing Officer cannot be called erroneous. He argued that the Commissioner of Incometax cannot ask the Assessing Officer to do something which he was not authorised to do, as in this case, once the assessment order was passed under section 143(1)(a) of the Act, then he could have made only arithmetical adjustments and nothing more. His second limb of argument was that under section 153, the assessment order cannot be passed after the lapse of two years from the end of the relevant assessment year. Therefore, even if it is argued that order was erroneous and the Assessing Officer was requir .....

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..... section 139, the Assessing Officer may, without requiring the presence of the assessee or the production by him of any evidence in support of the return, make an assessment of the total income or loss of the assessee after making such adjustments to the income or loss declared in the return as are required to be made under clause (b), with reference to the return and the accounts and documents, if any, accompanying it, and for the purposes of the adjustments referred to in sub-clause (iv) of clause (b), also with reference to the record of the assessments, if any, of past years, and determine the sum payable by the assessee or refundable to him on the basis of such assessment. (b) In making an assessment of the total income or loss of the assessee under clause (a), the Assessing Officer shall make the following adjustments to the income or loss declared in the return, that is to say, he shall, (i) rectify any arithmetical errors in the return, accounts and documents, referred to in clause (a) …….. (iv) give due effect to the allowance referred to in sub-section (2) of section 32, the deduction referred to in clause (ii) of sub-section (3) of section 32A or clause (ii .....

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..... ct, makes it very clear that irrespective of the fact whether any assessment has been made under sub-section (1) or not, if the Income-tax Officer considers it necessary or expedient to verify the correctness and completeness of the return, by requiring the presence of the assessee or the production of evidence in this behalf, then he was required to issue notice accordingly and then pass the assessment order under sub-section (3). By now it is settled that failure to make necessary enquiry will also render an order erroneous. Reference may be made to the decision in the case of Rampyari Devi Saraogi [1968] 67 ITR 84 and Smt. Tara Devi Aggarwal [1973] 88 ITR 323. Therefore, we are of the view that failure to make an enquiry by the Assessing Officer under the provisions of clause (b) under sub-section (2) and then accordingly pass an order under sub-section (3) of section 143 was an error committed by the Assessing Officer and, therefore, the order passed under section 143(1) of the Income-tax Act is erroneous. However, at the same time, we find force in the second limb of the argument made by learned counsel for the assessee. Section 153 of the Act prescribes timelimit for completi .....

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..... aring both the parties we find that the assessment order for this year was passed in pursuance of the order passed by the Commissioner of Income-tax under section 263 of the Income-tax Act. The revisionary order passed under section 263 has been quashed by us in I. T. A. No. 1245/Mds/ 91 as above. Therefore, the assessment order passed in consequence to the revisionary order has no legal sanctity and needs to be annulled. Therefore, we annul the assessment order passed in pursuance of the order passed under section 263 of the Income-tax Act, which we have already quashed. This appeal of the assessee is allowed. I. T. A. No. 709/Mds/94 : In this appeal, the assessee has raised only one issue regarding levy of penalty under section 273(2) (assessment) of the Income-tax Act. After hearing both the parties we find that the short fall in payment of advance tax was the reason mainly for addition amounting to Rs. 13,06,762. Since we have already annulled the assessment order passed under section 143(3) in pursuance of the order passed under section 263, this demand would automatically get nullified and there is no case for levy of penalty. Hence, consequent upon our order in I. T. A. No. .....

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..... assessee. Therefore, the car was imported in the name of CPI under customs clearance permit No. 1463390 dated December 31, 1983. The cost of vehicle was Rs. 2,18,170 and import duty amounting to Rs. 5,90,934 was paid by CPI out of the remittances made to the representative office. The Chief Controller of Imports and Exports had issued customs clearance subject to certain conditions and, inter alia, one of them was that the car will not be transferred within a period of five years. The car was transferred to the assessee after the expiry of five years period. According to the Assessing Officer, all through the relationship between the assessee and the CPI was that of employer-employee and various events and documents clearly show that the intention was to give the car to the assessee. In this regard the Assessing Officer relied on the decision of Commander P. Vasudeva v. CIT [1983] 142 ITR 826 (Delhi). The Commissioner Income-tax (Appeals) has confirmed the addition. He has observed that in so far as the query of Department of Company Affairs, Ministry of Industries, Government of India under No. F. No. 14/5/88 that for whose sake car was imported when independent representative of .....

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..... ond limb of the argument of learned counsel for the assessee as well as in respect of other two appeals and my reasons and findings for the same are as under : As regards in I. T. A. No. 1245/Mds/1991, so far as conclusions drawn by the learned Accountant Member starting from 10th line at page 10 reads as . . . However, the problem starts with second tier of assessment clause (b) . . . upto the end of the page to read as . . . and therefore the order passed under section 143(1) of the Act is erroneous , since I do not have any difference of opinion with regard to such part of the order, to which I fully agree, but, as regards, rest of the portion of the order at paragraph 7 from the start of page 11 to read as . . . However, at the same up to the end of paragraph 8 to read as . . . In these circumstances, we quash the order passed by the Commissioner of Income-tax is concerned, I have a difference of opinion, so not only I differ on the finding but also on final conclusion as drawn by the learned Accountant Member and my reasons are as under : It is an accepted fact that the assessment order under section 143(1) has been passed by the Assessing Officer on January 27, 1989 and revis .....

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..... e.g., by resort to section 153, which deals with the limitation for an assessment order by the Income-tax Officer. Moreover, the Commissioner s order is neither an order on appeal nor is it an order in revision. The Commissioner by exercise of his independent power under section 263 may direct the Income-tax Officer to levy interest which he had omitted to levy in the assessment order. Such an order cannot be said to be an order of a superior court or authority in which the order of an inferior court or authority became merged. Therefore, an order of the Commissioner made in accordance with section 263 directing the Income-tax Officer to levy interest cannot be said to be barred by limitation because it is made beyond the period prescribed by section 153. which is found to be in accordance with the above discussion. Therefore, in view of the facts, circumstances, the relevant provisions of law and dictum as laid down by the hon ble Calcutta High Court, which is direct on the point, it is held that the order of the Assessing Officer passed under section 143(1) could be validly revised by the learned Commissioner of Income-tax while invoking the provisions of section 263 and time-li .....

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..... The assessee s representative has not been able to point out any infirmity or flaw in the order passed by the authorities below except taking plea that since the order of the learned Commissioner of Income-tax (Admn) passed under section 263 is not a proper order, therefore, penalty could not be levied. Since the order passed under section 263 of the Income-tax Act and case has been upheld in the earlier part of this order and the assessee has not been able to show any reasonable cause for not making payment of entire advance tax within the stipulated time, therefore, in my considered view, penalty is attracted and the Assessing Officer is justified in imposing the same and the learned Commissioner of Income-tax (Appeals) has correctly upheld the action of the Assessing Officer. In the absence of any contrary material or evidence to establish that there is a reasonable cause for not depositing the due amount of advance tax on relevant dates, I do not find any ground to interfere in the impugned order, which is upheld and this appeal of the assessee is also dismissed. Order of reference to Third Member I. T. A. No. 1245/Mds/91, I. T. A. No. 1956/Mds/93 and I. T. A. No. 709/ Mds/94 A .....

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..... lue of the car. Be that as it may, the ultimate result is that these amounts were not taxed as the income of the assessee. The Commissioner of Income-tax took the revision provisions under section 263 of the Act on the ground that the assessment made as above was erroneous and prejudicial to the interests of the Revenue. The assessee objected to the proceedings, contending that the assessee was not an employee of the American company and therefore there was no employeremployee relationship with that company, that he was the chairman and managing director of M/s. Ponds India Ltd. and therefore, there was no nexus between the receipts and the services allegedly rendered to the American company. It was submitted that what was received by the assessee was a gift and not taxable as income. The above submissions were not accepted by the Commissioner of Income-tax. He noticed that the assessee was holding power of attorney for the American company authorising him to do several acts on its behalf and that he had the status of the head of its representative office in India and therefore, there was employer-employee relationship between the assessee and the foreign company, that he was looki .....

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..... on of evidence in support of the return and make an assessment after making the adjustments mentioned in clause (b) of the sub-section. This clause provided for adjustments of arithmetical nature and an adjustment for brought forward allowances. According to the learned Accountant Member since the omission to make an assessment of the receipt from the American company and the value of the car cannot be said to be an arithmetical error, no adjustment was possible to be made by the Assessing Officer and therefore the assessment order passed under section 143(1)(a) cannot be said to be erroneous. The learned Accountant Member however opined that the failure on the part of the Assessing Officer to make an enquiry as contemplated by clause (b) of sub-section (2) of section 143 was a good ground for the Commissioner of Income-tax to take action under section 263. I may mention here that the above clause authorised the Assessing Officer to verify the correctness and completeness of the return by requiring the presence of the assessee or production of evidence, even after completion of the assessment under sub-section (1)(a), and for this purpose he was authorised to serve a notice on the .....

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..... s passed and this period ended on March 31, 1991 and the Commissioner of Income-tax having passed the order on March 22, 1991, his order cannot be questioned on grounds of limitation. In this view of the matter he held that the order of the Assessing Officer passed on January 27, 1989 was validly revised by the Commissioner of Income-tax by order dated March 22, 1991. In the view he took in relation to I. T. A. No. 1245/Mds/91/ the learned Accountant Member annulled the assessment order passed on December 31, 1992 under section 143(3) read with section 263. The learned Judicial Member, however held that no argument with regard to the additions made by the Assessing Officer were advanced by learned counsel for the assessee and therefore dismissed the assessee s appeal. As regards I. T. A. No. 709/Mds/94, the learned Accountant Member, consistent with this view held that the penalty has got no legs to stand and accordingly deleted the same, whereas the learned Judicial Member held that counsel for the assessee was unable to point out any reasonable cause for not revising the estimate of advance tax upwardly and accordingly upheld the penalty. I have heard both the sides elaborately. .....

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..... me provision. In that case he can only make adjustments for arithmetical errors and brought forward adjustments under section 143(1)(b). This cannot be done to include the amounts and the car received from the US company as the assessee s income. The Assessing Officer cannot be faulted for not having included the above amounts in the assessment made under section 143(1)(a) and on this ground the order of the Commissioner of Income-tax has to be set aside. On this point both the learned Members are in agreement. I need not therefore dilate on this further. The second consequence can be that the fresh assessment should be made under section 143(3) and if this is so, the Assessing Officer can make the assessment under this provision only if a valid notice under section 143(2) had been issued to the assessee. No such notice has been issued to the assessee on or before March 31, 1990 and since that date has elapsed when the Commissioner of Income-tax passed the order it is not possible to either issue such a notice or make an assessment under section 143(3). The position might have been different, as pointed out on behalf of the assessee, had the assessment been completed by the Assessi .....

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..... on the ground that his direction to the Assessing Officer to redo the assessment will result in an assessment being made after the period of limitation and thus would be contrary to law. I am therefore unable to accept the submission of the learned Commissioner of Income-tax-Departmental representative. The learned Commissioner of Income-tax-Departmental representative then referred to section 153(2A) of the Act and submitted that the fresh assessment order may be passed at any time before the expiry of two years (as the sub-section stood at that time) from the end of the financial year in which the order under section 263 is passed. Since the order under section 263 was passed on March 22, 1991, the Assessing Officer could pass the fresh assessment order on or before March 31, 1993 and since the fresh assessment order was passed on December 31, 1992, it cannot be challenged on the ground of limitation. This sub-section, in my humble opinion cannot apply to the present case because here it is not a mere question of the time-limit within which the fresh assessment order should be made, but it is a question of jurisdiction and power of the Assessing Officer to make the fresh assessm .....

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..... he Assessing Officer to pass a fresh assessment order is contrary to law since the Assessing Officer had not issued any notice under section 143(2) on or before March 31, 1990 and therefore, an assessment cannot be made under section 143(3) after the aforesaid date and that the direction, if it is allowed to go unchallenged, would authorise the Assessing Officer to flout the period of limitation prescribed for issuance of a notice under section 143(2) as also for completion of the assessment under section 143(3). One other contention put forth before the Calcutta High Court was that the order of assessment, in which the Assessing Officer had omitted to charge interest, merged with the order of the Commissioner of Income-tax and since the latter order was passed after the period of four years prescribed for completion of the assessment, became bad in law. This contention was also rejected by the High Court holding that there is no merger and therefore the order of the Commissioner of Income-tax cannot be said to have been passed beyond the period of limitation. It was in this context that it was observed by the High Court that section 263(2) prescribes an independent period of limit .....

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