TMI Blog2003 (2) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... hese three income-tax appeals relate to the assessment years 1998-99, 1999-2000 and 2000-2001. The assessee is a contractor. The assessment was completed under section 143(3) of the Income-tax Act for the assessment year 1998-99 on February 7, 2001, fixing the income at Rs. 10,08,090. For the assessment year 1999-2000, the assessment was completed on March 8, 2001, fixing the income at Rs. 13,81,760, and for the assessment year 2000-2001, the assessment was completed on March 8, 2001, fixing the income at Rs. 13,18,660. There was a survey operation under section 133A of the Income-tax Act on January 23, 2001, and a statement was also recorded from the managing partner, Roy Mathew. It was admitted that there were some irregularities and discrepancies in the books of account, in that there was excess payment of cash over what is available as per cash book and also unaccounted investment in properties and suppression of receipt and inflation of expenses. In the course of such statement given by the managing partner he offered an amount of Rs. 43 lakhs as additional income for the three years, i.e., for 1998-99 at Rs. 13 lakhs, for 1999-2000 at Rs. 10 lakhs and for 2000-2001 at Rs. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the books of account and was out of the business activity of the assessee. According to him, it cannot be clubbed with the capital gain which is not out of business activity of the assessee. Hence, excluding the capital gains for the three years the income assessed under the head "Business or profession" came to Rs. 24,17,774 only as against the disclosed income of Rs. 43 lakhs. Hence, according to the Commissioner, the additional income disclosed for each year should have been taken into account separately while making the assessment. Hence, he set aside the assessment and directed the Assessing Officer to, reframe the assessment afresh taking into consideration the omissions/mistakes pointed out. The assessee, aggrieved thereby, appealed to the Tribunal. The assessee contended before the Tribunal, that there is no error in law in the order of the Assessing Officer and, therefore, the action of the Commissioner of Income-tax amounts to illegal exercise of jurisdiction vested in him under section 263 of the Act and that the Assessing Officer has correctly exercised the judicial discretion vested in him while estimating the income of the appellant and hence interference with such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Officer has applied his mind and that it was only after discussions with the assessee and his representatives and after satisfying that what was offered was reasonable income that the Assessing Officer accepted the offer made by the assessee while making the additions and completing the assessments. It is also contended that the Income-tax Officer has no jurisdiction to take any sworn statement in the course of the survey under section 133A of the Income-tax Act and as such any statement so taken has no evidentiary value and is non est and is not binding on the appellant. According to learned counsel, Sri P.G.K. Warriyar, appearing on behalf of the appellant, even the Board cannot issue specific directions to dispose of a case in a particular manner even under section 119 of the Income-tax Act whereas in the present case, the Commissioner while invoking section 263 of the Income-tax Act on completion of the income-tax assessment has exceeded his jurisdiction virtually directing the Assessing Officer to reframe the assessment in a particular manner. He also drew a distinction between the provisions for search under section 132(4) of the Income-tax Act and survey under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is relied on by the Commissioner to hold that the order of the Income-tax Officer is erroneous and prejudicial to the Revenue is an alleged admission in a statement obtained from the managing partner of the assessee-firm during the course of survey by the Income-tax Officer under section 133A of the Income-tax Act. Section 133A of the Income-tax Act, deals with the power of survey which reads as follows: "133A. Power of survey.--(1) Notwithstanding anything contained in any other provision of this Act, an income-tax authority may enter- (a) any place within the limits of the area assigned to him, or (b) any place occupied by any person in respect of whom he exercises jurisdiction, or (c) any place in respect of which he is authorised for the purposes of this section by such income-tax authority, who is assigned the area within which such place is situated or who exercises jurisdiction in respect of any person occupying such place, at, which a business or profession is carried on, whether such place be the principal place or not of such business or profession, and require any proprietor, employee or any other person who may at that time and place be attending in any manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. At the same time, the assessee having found that there are some omissions on his part, offered certain amounts as additional income for the years in question and gave a written offer to the Additional Commissioner of Income-tax as evidenced by annexure D. It was after verifying the account books and various materials gathered in the survey and after considering the offer made by the assessee that the Income-tax Officer has exercised a judicial discretion in the matter while completing the assessment. According to learned counsel for the assessee section 263 of the Income-tax Act enables the Commissioner to call for and examine the records only when he considers that any order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the Revenue. According to him, the order passed by the Assessing Officer is not erroneous nor prejudicial to the interest of the Revenue and the twin conditions for invoking the power under section 263 are not satisfied. We have perused the statement made by the managing partner of the assessee during the course of the survey. According to the Commissioner of Income-tax, the assessee has stated during the cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... --------- Assessment year 2000-01 : Net income before salary to partners 9,79,730 Capital gain 5,00,400 --------- 14,80,130 --------- According to the assessee, for the assessment year 1998-99 out of an amount of Rs. 19 lakhs received by the partners, the assessing authority had accepted the explanation for Rs. 13 lakhs and balance six lakhs rupees was telescoped and they have estimated an income of Rs. 12 lakhs before payment of salary to partners for the assessment year 2001-02 and remitted the advance tax also. Thus, they have co-operated with the Department. According to the assessee, there is no difference between the income offered for assessment and income finally assessed. The Commissioner, however, did not accept the above contention. According to him, the income declared at the time of survey amounting to Rs. 43 lakhs is the additional income, i.e., in ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s has been accounted by the creditors but it was found that another sum of Rs. 7 lakhs was found to be genuine by the Assessing Officer. According to him, it is pertinent to note that the, entire sum of Rs. 19 lakhs was considered in the block assessment completed as early as on October 28, 1999, in the case of M.O. Devassy alias Pappu much before the survey on January 23, 2001, and such block assessment orders were also produced before the Tribunal. Thus, according to him, these facts clearly proved that the purported offer of the appellant for the assessment year 1998-99 of a sum of Rs. 13 lakhs is one imposed upon him and one made by the appellant on the mistaken understanding of facts. Similarly, the purported offer for Rs. 10 lakhs and Rs. 20 lakhs for the assessment years 1999-2000 and 2000-2001 are also not based on any material and does not represent the true income of the appellant. Therefore, subsequent to the survey, the case was posted several times and the Assessing Officer had discussions with the appellant and its representatives. Finally, since the Assessing Officer could not determine the true and correct profits of the appellant on the basis of the books of accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clared by the assessee in a mechanical way, but applied his mind to the various aspects of the matter before completing the assessment. The Income-tax Officer also found that during the course of hearing, certain details filed showed that the assessee had received an advance of Rs. 19 lakhs (from M.O. Pappu, Rs. 10 lakhs and from Sri M.D. Estappan Rs. 9 lakhs) and the advances received from Pappu of Rs. 10 lakhs has been explained. Regarding the advance of Rs. 9 lakhs received from M.D. Estappan only rupees three lakhs is found to be genuine. Hence, the balance of Rs. 6 lakhs is to be explained which is telescoped in the income already disclosed at Rs. 8,26,550. It was in such circumstances that no separate addition was made to the account. It was also found by the Income-tax Officer that "accordingly on discussion, the total income of the assessee for the assessment year 1998-99 is determined at Rs. 8,26,550". Thus, the Income-tax Officer considered the factual aspects of the matter regarding the advance claimed to have been received from M.O. Pappu and M.D. Estappan and the balance of Rs. 6 lakhs out of 19 lakhs was also telescoped in the income already disclosed. In the statemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interest of the Revenue. If one of them is absent--if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue--recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'pre Judicial 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 Income-tax Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional income for the assessment years in question and certain statements made during the course of such survey especially regarding the advance received from M.O. Pappu and Estappan. But the same has been explained by the assessee, which explanation was accepted after referring to the records and the assessment orders passed in their case, The Income-tax Officer was satisfied about the actual amount received towards advance and only an amount of Rs. 6 lakhs out of the balance was to be further explained and they were telescoped. The entire sum of Rs. 19 lakhs was considered for the block assessment completed as early as on October 28, 1999, in the case of M. 0. Devassy alias Pappu much before the survey. In these circumstances, the statement of the assessee that the amount of Rs. 13 lakhs offered by him in the statement during the course of survey is only a mistake of fact cannot be brushed aside. Further, in the light of the voluntary disclosure in the letter given in writing by the assessee the facts given by him have been verified with the books of account and it was only after consideration of the various aspects of the matter and related facts that the Assessing Officer accep ..... X X X X Extracts X X X X X X X X Extracts X X X X
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