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TMI Blog2005 (8) TMI 280X X X X Extracts X X X X X X X X Extracts X X X X ..... tively on account of income earned by him through following four activities (for short 'four activities')- (i) Making multiple applications in public issues of companies in the name of various family members, (ii) Selling shares at premium prior to allotment (premium market operations), (iii) Preparing sale bills at lower rate than actual sale price and thus, partly suppressing sale receipts, and (iv) By making applications in the public issues in fictitious names. 3. According to assessee though documents found at the time of survey were minutely inspected and investigated, however, no objectionable notings, papers, or record of any kind were found which could indicate that the assessee is involved in any of the above-mentioned four activities. 4. Subsequently, the assessee vide application dated 27-5-1994 filed on 30-5-1994 with the office of concerned CIT/DCIT and Assessing Officer a letter of retraction to the above disclosure. A copy of such retraction is filed at pages 12 to 27 of the paper book. According to the said application the assessee after making the statement at the time of survey had requested the authorised officer to grant the copy of statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el from M/s. C.F. Patel & Shah, CAs was also taken on the said letter for the receipt of the xerox copies of the statement by the A.C.I.T." Thus the assessee has filed a retraction letter with various Income-tax Authorities as mentioned above. 5. Assessment proceedings with respect to assessment year 1993-94 were started on 14th December, 1994 and for assessment year 1994-95 these were started on 17th January, 1996. The assessee has filed date-wise minutes of hearing in respect of both the assessment years under consideration and the same are comprising at pages 86 to 88 of the paper book the contents of which are as under:- The reply of the assessee as submitted to Assessing Officer with regard to disclosure made at the time of survey as found place at p. 78 of the paper-book is as under:- "As regards your honour's query as to why the disclosed amount during the course of survey proceedings should not be added to the total income for the assessment year 1993-94, we have to submit as under:- (i) The survey proceedings under section 133A of the Income-tax Act, 1961 were carried out on 5-1-1994 by your honour at the business premises situated 2235, Muharat Pole, Manek Chow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the statement has been filed with the various IT Authorities namely, Commissioner of Income-lax, Guj. II, Dy. Commissioner of Income-tax, Range-2, Ahmedabad and Assistant Commissioner of Income-tax, Circle 2(4), Ahmedabad, as well as to other higher authorities under the Income-tax Act, 1961. In pursuance of the contention taken in the retraction statement as stated hereinbefore no effects of disclosure has been given in the statement of total income and return of income for assessment year 1993-94. (Substituted as assessment year 1994-95 in the return for assessment year 1994-95)." After the completion of assessment CIT issued show-cause notices to the assessee invoking the provisions of section 263 of the Income-tax Act, on the ground that order passed by Assessing Officer was erroneous and prejudicial to the interest of revenue. 8. The assessee vehemently objected to such initiation of proceedings vide written submissions submitted on 12th April, 1997, a copy of which is placed at pages 89 to 99 and 100 to 117 for assessment years 1993-94 and 1994-95 respectively. It was pointed out therein that on receipt of copy of statement recorded at the time of survey the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied upon merely because it has been subsequently retracted by the assessee and the authorities concerned have not controverted the retraction petition. It is also stated that the statement recorded contained fabricated and manipulated allegations against the assessee. It is, however, observed that the assessee has not clarified as to how the facts mentioned in the statement duly recorded under section 133A(3) of the Act were fabricated and manipulated when the statement has been duly signed by the assessee. In the retraction petition, it is mentioned that the Assessing Officer did not furnish copies of the statement till 5-5-1994 and after receiving the copies, they found that the one of the pages did not contain the assessee's signatures while on some pages, there was discrepancy in the date mentioned. 7. I have considered this argument of the assessee also. Firstly, assessee has not produced any evidence as to when he first applied for obtaining Xerox of the statement recorded on 5-1-1994. The retraction of the statement recorded was made on 30-5-1994 while the copy of the statement is stated to have been received on 5-5-1994. If the assessee thought that the statement r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght to tax as there is nothing to show that the statement was not a voluntary one. The assessment order passed by him not including the disclosed amount of Rs. 40 lakhs is, therefore, erroneous and prejudicial to the interest of revenue. The Assessing Officer is, therefore, directed to pass a fresh assessment order and bring to tax the disclosed amount of Rs. 40 lakhs along with the other income already assessed after giving the assessee an opportunity of being heard." (For assessment year 1994-95 Ld. CIT has referred to his order for Assessment Year 1993-94). 11. The Assessing Officer has framed assessments under section 143(3) read with section 263 for both the years to give effect to the orders under section 263. Copies of both the assessments are filed at pages 126 to 129 and 130 to 133 of the paper book for Assessment Years 1993-94 and 1994-95 respectively. It is seen that in these orders also the addition is simply based on the orders of CIT and no material whatsoever has been pointed out to prove the existence of any of the above-mentioned four activities carried on by the assessee on the basis of which the said disclosure was stated to be made. It is also seen from the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etition the assessee had expressly made it clear that there was no substance in the disclosure made by him and thus the onus was shifted on revenue to show by bringing positive material on record that the assessee was engaged in any of the above four activities on the basis of which such disclosure was made. To bring out the difference between the statement recorded during the course of search and that recorded in survey proceedings, he placed reliance on the decision in the case of Paul Mathews & Sons v. CIT [2003] 263 ITR 101 (Ker.). In the said case it is held that a power to examine a person on oath is specifically conferred on the authorised officer only under section 132(4) in the course of any search or seizure. Thus, the Income-tax Act, whenever it thought fit and necessary to confer such power to examine a person on oath, has expressly provided for it, whereas section 133A does not empower any Income-tax Authority to examine any person on oath. This is in contradiction to the power under section 133A, section 132(4) of Income-tax Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed cannot be held to be 'erroneous' simply because the Assessing Officer in his order did not make an elaborate discussion in that regard. Having not found any material to prove the existence of any of the above four activities by the assessee on the basis of which disclosure was made, the order of Assessing Officer cannot be said to be erroneous within the meaning of section 263 of the Act. He in this regard placed reliance on the decision of Hon'ble Bombay High Court in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108. It was further pleaded that provisions of section 263 cannot be invoked to correct each and every type of mistake or error committed by Assessing Officer, it is only when an order is erroneous that section will be attracted. Only incorrect assumption of facts of incorrect application of law will satisfy the requirement of the order being erroneous. The assessee had produced relevant material and other explanation in pursuance of the notices issued under section 142(1) as well as section 143(2) and after considering those materials and explanation the Assessing Officer had come to the definite conclusion. The Commissioner did not agree with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost and thus the provisions of section 263 were rightly invoked by CIT. He, therefore, pleaded that order of CIT should be confirmed. 18. We have carefully considered the rival submissions in the light of material placed before us. The law regarding applicability or otherwise of section 263 is well-settled. In order to invoke the provisions of section 263 the order passed by Assessing Officer should not only be erroneous but should also be prejudicial to the interest of revenue. Thus both the conditions should be fulfilled simultaneously. If any one of them is absent, it will be held that the provisions of section 263 were not lawfully invoked. The term 'erroneous' though has not been defined specifically under the Income-tax Act, 1961 but it is now well-settled that each and every type of mistake or error committed by Assessing Officer cannot be said to be an error on the part of Assessing Officer to bring his order to be covered under the provisions of section 263. An incorrect assumption of facts, or an incorrect application of law can only satisfy the requirement of the order being 'erroneous'. Thus there should be an incorrect assumption of facts by the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was involved in any of the four activities on the basis of which the said disclosure was made. As against this, in the assessment order passed under section 143(3) the returned income has been accepted and in the order passed under section 143(3) read with section 263 the addition is made only with regard to disclosure made by the assessee as per direction of CIT. Thus there is an apparent absence of any material to say that assessee had any business activity which was not recorded in the books of account. Otherwise it establishes that the assessee could support all the entries recorded in his books of account. Thus keeping in view these facts, it cannot at all be inferred that Assessing Officer while assessing the income at the returned figure had drawn any incorrect assumption of facts as there is no material on record to prove that assessee was engaged in any of the four activities on the basis of which the disclosure was made. It cannot be also said that he incorrectly applied the law in not making any addition to the returned income of the assessee as what can be lawfully assessed is the income earned by the assessee. The lawful assessment cannot solely based on statement par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e hands of assessee it cannot be said that the tax was lawfully payable by assessee in his hand on the disclosed income. Thus it cannot be said that revenue has lost lawful tax payable by the assessee. Thus the second condition that assessment order should be prejudicial to the interests of revenue also cannot be said to be in existence to bring the present case within the parameter of section 263 of the Act. 20. In the case of Gabriel India Ltd. it has been held by Hon'ble Bombay High Court that when there was material on record to show that Income-tax Officer on being satisfied with the explanation of the assessee has formed a view, the said view of Income-tax Officer cannot be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard. Therefore, department cannot take shelter of the argument that Assessing Officer did not discuss anything about the disclosure made by the assessee in the order passed under section 143(3) of the Act as assessee has placed enough material on record to show that queries were raised by Assessing Officer with regard to disclosure made during the survey and explanation was given by assessee in this reg ..... 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