2003 (2) TMI 25 - HC - Income Tax

Commissioner's Section 263 Reopening Unjustified Where Assessing Officer Used Section 133A Survey Material and Accepted Assessee Explanations

Paul Mathews And Sons Versus Commissioner of Income-Tax.

HC held the Commissioner was not justified in invoking section 263 because the twin conditions for reopening were not met. The Assessing Officer had ... Validity of the assessment orders - Additional income on investment and expenditure and credits​​​​​​​ - erroneous and prejudicial to the interests of Revenue - twin conditions under section 263 - survey operation u/s 133A - irregularities and discrepancies in the books of account - excess payment of cash over - HELD THAT:- The assumption that what was offered in the statement of Rs. 43 lakhs is in addition to what has been assessed and on the basis that the statement has got evidentiary value is erroneous. The materials collected during the course of survey have been borne in mind by the Assessing Officer who was well aware of the evidentiary value of the statement. At the same time, such survey conducted unearthed certain income and the Income-tax Officer rightly, on the basis of the accounts and offer made and the admissions made before him, came to the conclusion that what was offered in the written offer made by the assessee is reasonable. According to us the alleged admission contained in the answer to question No. 13 in the statement of the managing partner of the assessee obtained under section 133A is only a qualified one and the assessee had clearly explained the same before the Assessing Officer by cogent materials and the same was accepted by the said officer. In such circumstances, the question as to whether the Commissioner could have invoked his power under section 263 of the Act to hold that the order of the Income-tax Officer is erroneous and prejudicial to the interests of the Revenue is justifiable in law arises for consideration. 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 - We find nothing in the order of the Income-tax Officer to warrant a finding that it is unsustainable in law. - We hold that the Commissioner of Income-tax was not justified in law in invoking the powers under section 263 of the Income-tax Act as the twin conditions precedent to exercise the power have not been satisfied in this case. Issues Involved:1. Validity of the assessment orders for the years 1998-99, 1999-2000, and 2000-2001.2. Legitimacy of the additional income declared during the survey under section 133A.3. Jurisdiction of the Commissioner of Income-tax under section 263 of the Income-tax Act.4. Evidentiary value of statements made during a survey under section 133A.5. Whether the Assessing Officer's order was erroneous and prejudicial to the interests of the Revenue.Issue-wise Detailed Analysis:1. Validity of the Assessment Orders:The assessments for the years 1998-99, 1999-2000, and 2000-2001 were completed under section 143(3) of the Income-tax Act. The income was fixed at Rs. 10,08,090, Rs. 13,81,760, and Rs. 13,18,660 respectively. A survey operation under section 133A led to the managing partner admitting discrepancies in the books of account and offering Rs. 43 lakhs as additional income for the three years. The Assessing Officer determined the business income based on an 8% net profit rate from the total receipts for each year.2. Legitimacy of Additional Income Declared:The Commissioner of Income-tax found the assessments erroneous and prejudicial to the interests of the Revenue, arguing the additional income of Rs. 43 lakhs declared during the survey was not properly accounted for. The Commissioner issued a notice under section 263, asserting the additional income should be considered separately. The assessee contended that the total income assessed was consistent with the income offered during the survey.3. Jurisdiction of the Commissioner under Section 263:The Tribunal upheld the Commissioner's decision, stating the Assessing Officer failed to make proper inquiries, thus giving the Commissioner jurisdiction under section 263. The Tribunal noted the Commissioner's reliance on the survey depositions and the failure to consider subsequent assessments. The assessee argued the Commissioner's action was an unlawful exercise of jurisdiction, as the Assessing Officer had exercised judicial discretion correctly.4. Evidentiary Value of Statements During Survey:The court examined section 133A, which allows recording statements but not under oath, unlike section 132(4) which permits sworn statements during searches. The court found the statements made during the survey had no evidentiary value as they were not sworn. The assessee's argument that the survey statements were non-binding was upheld, noting the Assessing Officer had verified the account books and considered the written offer made by the assessee.5. Erroneous and Prejudicial Order:The court referenced the Supreme Court's interpretation in Malabar Industrial Co. Ltd. v. CIT, which requires both error and prejudice to the Revenue for section 263 to apply. The court found the Assessing Officer's order was neither erroneous nor prejudicial. The Assessing Officer had verified the accounts and made a reasonable estimation of income. The Commissioner's assumption that the additional income was over and above the assessed income was incorrect. The court concluded the Commissioner was not justified in invoking section 263 as the conditions were not met.Conclusion:The court set aside the orders of the Income-tax Tribunal and the Commissioner of Income-tax, confirming the Assessing Officer's order. The court held that the statements made during the survey had no evidentiary value and the Assessing Officer's discretion in estimating the income was reasonable and not prejudicial to the interests of the Revenue. The court answered in favor of the assessee and against the Revenue.