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TMI Blog1994 (6) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... page 18, represents the undisclosed income from the concealed business activities. Taking into consideration the seized materials, an order under section 132(5) of the Income-tax Act, 1961 came to be passed determined the total income at Rs. 1,01,00,000. Determining the tax liability at Rs. 52,80,713 and the liability towards penalty under section 271(1)(c) to the extent of Rs. 1,05,00,000, it was ordered that the entire seized assets would be retained [The order of the Assistant Commissioner of Income-tax (Inv.), Circle 19(1), Bombay, is at pages 25 to 30 in the paper book filed]. 3. Aggrieved by the aforesaid order passed under section 132(5) of the Income-tax Act, 1961, the assessee filed an appeal to the Commissioner of Income-tax, City VII, Bombay, praying, among other things : (1) the addition to be made under section 132(4) may be taken at Rs. 46 lakhs for the assessment year 1988-89 ; (2) the assessee may be granted all immunities from penalty under Explanation 5 to section 271(1)(c) ; (3) accounted stock belonging to Niki Diamonds of 263.77 carats be released ; (4) all valuables seized to be released. (The application of the assessee is at pages 31 to 37 of the pape ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; 154 of the Income-tax Act, 1961 This has reference to my order dated 20th July, 1989. The assessee had filed petition dated 26-7-1989 pressing rectification of the order. The ITO's observations were received. After going through the same I agree that in the petition the assessee had raised the issue of spreading over the amount of Rs. 50 lakhs in the assessment years 1975-76 to 1988-89 on the basis of the turnover of each of the assessment years. The Assistant Commissioner is, therefore, directed to spread over the income of Rs. 50 lacs on the basis of the turnover from the assessment years 1975-76 to 1988-89. Therefore the petition of the assessee is allowed. Sd/- (H.C. Srivastava) Commissioner of Income-tax, Bombay City VII, Bombay." Based on this order of the Commissioner of Income-tax, additions were made by the Assessing Officer by making the following observations in the assessment order :--- " Income from commission business as per CIT order dated . . . . . . . . . . under section 132(12) of the Income-tax Act, 1961. " The Assessing Officer, while making thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r nor was the income computed on the basis of these seized diaries and seized documents. Secondly, the question and the extent to which the set off could be allowed in respect of the unaccounted seized assets against income computed on the basis of seized documents have also not been looked into. At no stage of the proceedings the assessee was confronted with any of the issues mentioned above. It was also seen that no penalty proceedings for concealment were initiated by the Assessing Officer. Therefore prima facie the orders passed by the Assessing Officer for the above-mentioned assessment years were erroneous in so far as they were prejudicial to the interests of revenue. (2) Therefore, a notice under section 263 was issued to the assessee asking him to show cause why the assessments framed by the Assessing Officer should not be enhanced or modified or the orders totally cancelled and directing fresh assessments. (3) In response to the notice Shri H.S. Parikh, C.A. attended and was heard. Shri Parikh has also submitted written submissions by his letter dated 25th March, 1992 which have been duly considered by me. (4) The main submission but forwarded by Shri Parikh was an err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice for A.Y. 1977-78 to 1989-90. There is nothing illegal or invalid about a notice under section 263 for more than one assessment year since the issues involved in all the asst. years are similar issues one notice under section 263 is both legal and valid. Therefore, this argument of the assessee is rejected. (10) The second argument of Shri Parikh is that the asst. orders were passed by the Assessing Officer pursuant to the directions given by the then CIT in his order under section 132(12) dated 20th July, 1989 and therefore the present CIT would have no jurisdiction to review the same. By the issue of a notice under section 263 there is no review of the order under section 132(12) passed by my learned predecessor. The order under section 132(12) essentially passed in order to determine whether the seized assets are to be released or to be retained. The issues involved are not decided finally but only in a summary manner in order to arrive at the conclusion whether or not the seized assets are to be released. While passing the assessment orders the Assessing Officer has essentially to consider all material facts including the seized material and then pass a speaking order com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of the seized assets. In many cases it happens that the assessee himself declares much higher income than the assets found. Therefore his argument that there was no higher income as per the assets cannot be accepted as for determining total income. It is also found that the rate of commission has taken at 2.5% by the Assessing Officer. He has not made any independent enquiry and investigation before adopting the same rate for determination of correct total income. (11) The question and extent of the set off to be allowed in respect of unaccounted seized assets and the income computed on the basis of the seized documents was also not independently enquired into. Penalty proceedings or concealment have also not been initiated by the Assessing Officer. He has also not given any reasons for non-initiation of penalty proceedings which would go to indicate that he independently considered the matter and arrived at a certain conclusion. The Assessing Officer has also not given any reasons for deviation from the findings given by the DDIT (Inv.) in his appraisal report. (12) In view of the above discussion I am of the opinion that the orders framed by the Assessing Officer for A.Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e instructions of the Commissioner of Income-tax at the first instance. Such order cannot be termed as erroneous. Relying upon the decision of the Punjab High Court in CIT v. Kanda Rice Mills [1989] 178 ITR 446, it was argued that it is not open to the Commissioner, acting under section 263, to merely observe that the order is erroneous without giving his considered opinion based on some material. Reliance was placed on to the decision of the Madhya Pradesh High Court in CIT v. Ratlam Coal Ash Co. [1988] 171 ITR 141. It was argued that the assessee has furnished all the information to the Commissioner of Income-tax in the proceedings under section 132(12) and also to the Assessing Officer while passing the assessment order. The learned counsel submitted that in such an event where the assessment is completed after considering all these facts, such order cannot be termed as erroneous and prejudicial to the interest of the revenue. The learned counsel for the assessee further argued even on merits the assessee is bound to succeed inasmuch as the order passed by the Commissioner under section 132(12) is after appreciating the facts and circumstances of the case and after the scrutiny ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment if the Assessing Officer just follows any instruction or observation made by any others, the assessment is liable to be set aside. There should be an application of mind by the Assessing Officer in relation to the determination of the income. Reliance was placed on to the following authorities : (1) Gordhandas Desai (P.) Ltd v. V.B. Kulkarni, ITO [1981] 129 ITR 495 (Bom.) (2) ITO v. Eastern Scales (P.) Ltd [1978] 115 ITR 323 (Cal.) (3) Lampa Trading Co. v. ITO [1992] 42 TTJ (Delhi) 465 (4) Venkatakrishna Rice Co. v. CIT [1987] 163 ITR 129 (Mad.) (5) Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 (Delhi) and (6) Swarup Vegetable Products Industries Ltd (No. 1) v. CIT [1991] 187 ITR 412 (All.). The learned departmental representative argued the Assessing Officer has passed the order by blindly following the order passed by the Commissioner of Income-tax under section 132(12) of the Act, without any application of the mind. The learned departmental representative argued that the ratio laid down by the Bombay High Court in Gabriel India Ltd.'s case is distinguishable on facts. The learned departmental representative further argued the Commissioner of Income-tax, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure, determination of the point in dispute, quantum to be retained and also the quantum of the tax and interest on the undisclosed income, in relation to the amount seized. It has its own procedure for application under sub-section (11) in the place of appeal. It has all the fortifications of a code. The general provisions of the Act like the assessment under section 139, etc., cannot be invoked in this provision. This provision exists in complete isolation of the other provisions of the Income-tax Act and the general provisions of the Income-tax Act neither can creep from underneath these fortifications nor can overlook with favour or disfavour over these to influence the procedure or judgment in the proceedings under section 132." The provisions of section 132 of the Act vest in the Income-tax Authorities powers very dangerously wide and even drastic in nature, but the safeguards are inbuilt in the section itself. There are detailed rules setting out the procedure for making the search and seizure and for the custody of what has been seized. Sub-section (5) of section 132 deals with the special cases where, on search, money, bullion, jewellery and other valuables believed to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als available with him, the Assessing Officer is of the view that it is not possible to ascertain to which particular previous year or years such or any part thereof relates, he may calculate the tax on such income or part, as the case may be, as if such income or part were the total income chargeable to tax at the rates in force in the financial year in which the assets were seized and may also determine the interest or penalty, if any, payable or imposable accordingly : Provided further that where a person has paid or made satisfactory arrangements for payment of all the amounts referred to in clauses (ii), (iia) and (iii) or any part thereof, the Assessing Officer may, with the previous approval of the Chief Commissioner or Commissioner, release the assets or such part thereof as he may deem fit in the circumstances of the case." It is clear from the above that under section 132(5), the Assessing Officer, after affording a reasonable opportunity to the person concerned of being heard and making such enquiries as may be prescribed, shall, within specified days of the seizure, make an order estimating the undisclosed income in a summary manner and also calculate the amount of ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y way affect the Assessing Officer from making a proper estimation of income while making regular assessment under section 143 of the Act. In other words, it would be open for the Assessing Officer to arrive at a different figure of concealed income while making regular assessment than what has been determined while acting under section 132(5) of the Act. Sub-section (11) of section 132 provides a remedy to a person who has any objection against an order passed under section 132(5). Sub-section (11) simply provides a complete remedy to get an order under section 132(5) corrected. Where such objection is filed, the Chief Commissioner or Commissioner is empowered to dispose the same. The authority can pass such orders on the application as it thinks fit, after giving the applicant an opportunity of being heard. Either the provisions of section 132(5) or the provisions of section 132(12) are not concerned with the assessment of income but are mainly concerned with the retention or release of the seized valuables. For that purpose, such authorities may be required to estimate the income, which was not disclosed to the department, the tax due thereon and the interest and the penalty due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 132(12) gives any direction to the Assessing Officer in the matter of determination of income for the purposes of assessment. The order passed either under section 132(5) or under section 132(12) is in the nature of interlocutory order and does not in any way determine the income that would be assessable. The order of assessment in any year does not show the independent application of the amount by the Assessing Officer to be facts of the case. It has been held by the Delhi High Court in Gee Vee Enterprises case that it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an enquiry prudent and that the word 'erroneous' in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an enquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. In the facts before us, the Assessing Officer has simply followed the order of the Commissioner passed under section 132(12) without independently examining. The failure on the part of the Assessing Officer to make proper enquiries about the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of the case, could not be held to be 'erroneous' simply because in his order he did not make an elaborate discussion in that regard. It was also pointed out by the Hon'ble Bombay High Court that the Commissioner himself even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and the expenditure was not revenue expenditure but capital in nature. He simply asked the Income-tax Officer to re-examine the matter. Thus, the Bombay High Court held, was not permissible. In the case before us, on going through the order passed by the Assessing Officer, we find the application of mind by him is totally absent. He is guided more by the order passed by the Commissioner under section 132(12) of the Act. The Assessing Officer has abdicated his duty to assess proper income, after the study of the seized material and other relevant information. In the case of Ratlam Coal Ash Co. cited, it was found by the Commissioner of Income-tax that the Income-tax Officer framed an assessment on a total income of Rs. 35,000, as against the returned income of Rs. 26,324, just two days after the return was filed, wit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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