TMI Blog1981 (5) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... The Commissioner ought to have appreciated that the transactions entered into by the appellant firm with the said Srinivas Pictures and were in accordance with the normal practice that too in the regular course of business operations as entered into at arms length between two different businessmen and the agreements being for valuable consideration were valid in law. 4. The finding of the Commissioner that the income arising to Srinivas Pictures (K.V. Raju Family Trust) should have been assessed in the hands of the appellant is vitiated in that the Commissioner has attached undue importance to the relationship of the beneficiaries of the said trust with the partners of the firm. 5. The Hon'ble Commissioner is also not justified in. holding that the income arising to (1) K. Venkataramana (Parent HUF), (2) K. Venkataramana (Minor HUF), (3) K. Vinaya Kumar, (4) Master K. Prakash, and (5) Master K. Vinay, on the exploitation of the pictures should be assessed as income of the appellant firm. The finding is not supported by any material and is not sustainable in law. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly pray ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the learned departmental representative, this ground would involve investigation of fresh facts and new materials and facts would have to be looked into. As such it is submitted that although a legal issue may be involved but under the facts and circumstances of the present case before us, the additional ground may be disallowed. 6. We have taken into account for our consideration the rival contentions and submissions of both the sides. It is to be mentioned here that the present appeals preferred by the assessee are directed against the consolidated order of the Commissioner dated 27-9-1978 under section 263. The Commissioner examined the records and gave the assessee an opportunity of being heard and thereafter the impugned order was passed by him. We have gone through the grounds of appeal preferred by the assessee. The first ground as reproduced above challenges the order of the Commissioner insofar as it is against the assessee and is opposed to law, equity, facts and circumstances of the case. In other words, the entire order of the Commissioner is challenged before us. We have perused the additional ground of appeal as reproduced above. The additional ground sought to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of income of the assessee in favour of the family trust. According to the assessee, the family trust was validly formed on 1-7-1974 and that it was not the case of the Commissioner that the creation of a family trust was a sham or a bogus one. It is submitted on behalf of the assessee that in the present case the Commissioner has taken certain evidences, material facts, etc., into consideration before he took the proceedings under section 263, which were not before the ITO, at the time of passing the assessment orders for the years under appeal. It is his submission that any subsequent information that might have come in the possession of the Commissioner, should not be taken into account or considered by the Commissioner for the purpose of section 263. For this proposition, the learned counsel relies on the ratio of the decision of the Hon'ble Calcutta High Court in the case of Ganga Properties v. ITO [1979] 118 ITR 447. It is also submitted by him that the Commissioner in exercising of his revisional powers should take into account only those materials or records which were considered and decided upon by the ITO, and that for the purpose of section 263, the Commissioner cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sphere provided certain conditions are fulfilled. It is pointed out by him that those conditions are non-existent and as such, the order of the Commissioner impugned before us is vitiated. It is argued that in spite of the improper action and initiation of proceedings under section 263, the Commissioner did not even dealt with the different aspects of the contentions and submissions made by the assessee before him in its written reply, but has conveniently brushed aside the objections of the assessee to the action proposed under section 263. It is also pointed out that the Commissioner has dealt with the claim of the assessee regarding existence of a family trust which the Commissioner has not found to be sham or fictitious. The functioning of the trust, existence of beneficiaries, management and administration of the trust, etc., have not been challenged. It is pointed out that in similar situation the Hon'ble Supreme Court in the case of CIT v. Jayantilal Amratlal [1968] 67 ITR 1 has sustained the claim of that assessee. It is repeatedly stressed before us that the Commissioner has not given a finding that the trust in question was a sham or that the business arrangement made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same cannot be sustained. In this connection, it is further urged on behalf of the assessee that in a slightly similar situation the Hon'ble Madras High Court in the case of Sri Ramalinga Choodambikai Mills Ltd. v. CIT [1955] 28 ITR 952 has, among other things, held that the sales could not be regarded as mere sham transactions unless there was sufficient evidence to support that and if they were sham transactions, the sales had to be ignored and the company could be assessed only on the profits, if any, made by the benami purchasers when they sell the goods. It was also held that in the absence of evidence to show that the sales were sham transactions or that the market prices were in fact paid by the purchasers, the mere fact that the goods were sold at a concessional rate to benefit the purchasers at the expense of the company could not entitle the income-tax department to assess the difference between the market price and the price paid by the purchasers, as profits of the company. Thus, the learned counsel for the assessee emphatically contended that in the case before us also there was no evidence to show that the family trust was bogus and the contract arrangements were s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the case laws and the ratio of the decisions in all the cases cited have no applicability to the facts of the present case. It is submitted that the Commissioner has taken into account only the records, facts and materials which were before the ITO at the time of making the assessments. In this connection, the learned departmental representative refers to the report dated 15-10-1977 sent by the ITO to the Commissioner in which the different aspects and details of the facts as brought out by the Commissioner in his notice to the assessee as well as in his order under section 263 were discussed briefly. It is submitted that in that report the ITO has given his opinion that the family trust was a bogus and the real owner of the income of the so-called trust, was the assessee and that it was only an attempt on the part of the assessee-firm to divert what was really its income through the medium of a private trust. It is submitted on behalf of the revenue that the Commissioner has acted within the provisions of section 263 and that, in fact, before action under section 263 was taken, the various aspects were informed to the assessee and that the assessee gave its reply to the proposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terests of the revenue. It is pointed out that the ITO in his report has stated that the family trust to be bogus. That was why a report was submitted by him to the Commissioner on the materials available with the ITO then and that it was, in fact, on receipt of this report the Commissioner took the initiation of proceedings under section 263 as discussed earlier. The learned departmental representative prefers to the case laws relied on by the learned counsel for the assessee as expounded by different High Courts connected with the sale tax cases. It is pointed out by him that in those decided cases, the Courts have not given a demarcating line or time with reference to which record to revising authority could and could not take into account (sic) before exercising their revisional powers as conferred by section 263. It is submitted that in dealing with the matters under section 263 one has to take into account the scheme of the Act. It is stated that the Commissioner can exercise his powers to rectify or modify even the administrative errors committed by the ITO under section 263. It is pointed out by him that for taking action under section 154 the ITO could take into account in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent statement must be considered real until it was shown that there were reasons to believe that the apparent was not the real. In a case, where a party relied on self-serving recitals in documents, it was for that party to prove the truth of these recitals and the taxing authorities were entitled to look into the surrounding circumstances to find out the reality of such recital. The learned departmental representative, therefore, contends that there was no infirmity in the initiation of the Commissioner for taking action under section 263 and the subsequent order thereon, in view of the facts of the case and in view of the decisions of various Courts on this point. It is vehemently urged by him that the ratio in the case of Durga Prasad More squarely applies to the facts of the case before us and as such the order of the Commissioner requires to be sustained. It is further urged by him that even any administrative error on the part of the ITO can be modified by the Commissioner under this section. For this proposition, the learned departmental representative draws our attention to the notes of Chaturvedi and Pithisaria's Income-tax Law, 2nd edition, at page 2618. At this stage of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r alia, in that case that the assessee had not in any way suffered from the failure of the Commissioner to indicate the results of the enquiries and moreover, the assessee will have full opportunity of showing to the ITO whether the income assessed in the assessment orders made originally, was correct or not and that the assessee could not, therefore, be said to have denied an opportunity in this respect. It was noted in the case of Rampyari Devi Saraogi that there was ample material to show that the ITO had made the assessments in undue haste, without any evidence or enquiry. At this juncture, the learned departmental representative sought reliance on the decision of the Hon'ble Karnataka High Court in the case of Thalibai F. Jain v. ITO [1975] 101 ITR 1 in which it was held that the assessments made without enquiry and evidence, and in undue haste were erroneous and prejudicial to the revenue. The action of the Commissioner under section 263 was upheld. It is submitted, therefore, that the order of the Commissioner may be sustained. 17. In reply, it is submitted on behalf of the assessee that the assessee was not supplied with a copy of the ITO's report to the Commissioner, ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 143(2) and completed the computation of the assessee's income from distribution of films in Bombay-Karnataka area. The ITO has noted that the assessee got commission for exhibition of films from the various producers and principal distributors. The ITO noted the total commission receipt and after hearing the assessee and on examination of the books of account, the taxable income of the assessee was computed. This is the position of the assessment orders in respect of both the years under appeal. There is no discussion absolutely about any family trust or contract, etc., in the assessment orders. There was not even a whisper that certain trust was in existence with which the assessee has made some business transactions as brought out in the notice issued by the Commissioner to the assessee at the time of initiating the proceedings under section 263 and ultimately incorporated by him in his order. As mentioned at the first few paragraphs, the assessment orders for the years under appeal was passed on 2-11-1976 and 28-1-1977, respectively. The report referred to by the learned departmental representative before us at the time of hearing was dated 15-10-1977, that is, after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account only the records considered by the ITO and thereafter the Commissioner can take into account any material which may come into existence later on in view of the expression "after making or causing to be made such enquiry as he deems necessary". In the present case before us it is not disputed that the Commissioner could initiate action under section 263 after receipt of the report from his subordinates. It is also not the case of the revenue that the assessments have been completed by the ITO in undue haste. Even in the copy of the letter dated 1-8-1977 which the assessee addressed to the ITO, referred to earlier, there is no mentioning or referring to the existence of a family trust. Similarly, there is no such mention of any trust in the assessment order. The Commissioner at page 4 of the impugned order has mentioned that for the assessment years 1975-76 and 1976-77 the assessee-firm consisted of six partners (names recorded therein) and that two partners, namely, Smt. Badam Venkatara manamma and Smt. G. Shamala have executed a trust on 1-7-1974 and the object of the trust was to provide for general welfare, etc., to the beneficiaries of the trust. From the facts, materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... records, evidence, etc., were not before the ITO at the time of making the assessment, then it would be impossible to say as to what extent the mind of the Commissioner was affected by those materials, record, etc. The Hon'ble Gauhati High Court has expressed a similar view in the case of Smt. Indu Barua v. CWT [1980] 125 ITR 436 in which it was held that when a court of fact acts on material, partly relevant and partly irrelevant, it is impossible to say as to what extent the mind of the Court was affected by irrelevant materials used by it in arriving at its finding and such finding is vitiated. 22. That apart in the case of T. Narayana Pai, the Hon'ble Karnataka High Court has held that the Commissioner has not recorded any finding and has left open the question as to the fair market value of the shares to be decided by the ITO, without coming to the conclusion that the value declared was less than the fair market value. In that decided case, the Hon'ble High Court sustained the order of the Tribunal in setting aside the order of the Commissioner under section 263. 23. We have given our anxious thought over the issue involved along with the rival contentions of both the sid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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