2003 (5) TMI 48 - HC - Income Tax

Appeal allowed: Section 263 revision set aside where assessee produced evidence and assessing officer made full inquiries

HC allowed the appeal, reversed the Tribunal and set aside the Commissioner's revision under section 263. The court held the assessee had produced ... Examination of the Surrendered Amount - genuineness of the purchases - survey under section 133A - erroneous and prejudicial to the interests of the Revenue - HELD THAT:- The assessee has no control over the way an assessment order is drafted. The assessee on its part had produced enough material on record to show that the matter had been discussed in detail by the Assessing Officer. The least that the Tribunal could have done was to refer to the assessment record to verify the contentions of the assessee. Instead of doing that, the Tribunal has merely been swayed by the fact that the Assessing Officer has not mentioned anything in the assessment order. During the course of assessment proceedings, the Assessing Officer examines numerous issues. Generally, the issues which are accepted do not find mention in the assessment order and only such points are taken note of on which the assessee's explanations are rejected and additions/disallowances are made. As already observed, we have examined the records of the case and find that the Assessing Officer had made full inquiries before accepting the claim of the assessee qua the amount of Rs. 10 lakhs on account of discrepancy in stock. Not only this, he has even gone a step further and appended an office note with the assessment order to explain why the addition for alleged discrepancy in stock was not being made. In the absence of any suggestion by the Commissioner as to how the inquiry was not proper, we are unable to uphold the action taken by him under section 263 of the Act. Once the assessment order had been passed with the approval of the Commissioner of Income-tax, we are afraid that the successor Commissioner of Income-tax could not possibly say that the matter had been decided without application of mind by the Assessing Officer. Consequently, the appeal is allowed, the findings of the Tribunal are reversed and the order of the Commissioner, set aside. Issues Involved:1. Whether the Assessing Officer properly examined the issue of the surrendered amount of Rs. 10,50,000 during the assessment.2. Whether the Assessing Officer made proper inquiries to ascertain the genuineness of the purchases.3. Whether the Commissioner of Income-tax's order under section 263 was justified.4. Whether the assessment order was passed with the approval of the Commissioner of Income-tax.Issue-wise Detailed Analysis:1. Examination of the Surrendered Amount:The Commissioner of Income-tax issued a notice under section 263(1) of the Income-tax Act, 1961, stating that the assessment order dated March 31, 2000, was erroneous and prejudicial to the interests of the Revenue because the Assessing Officer failed to properly examine the surrendered amount of Rs. 10,50,000 during a survey operation under section 133A. However, the assessee contended that the Assessing Officer had made detailed inquiries regarding this issue, as evidenced by various notices and replies exchanged during the assessment proceedings. The High Court found that the Assessing Officer had indeed examined the issue thoroughly, noting discrepancies in stock and cash, and had accepted the assessee's explanation regarding the stock discrepancy after verification. The assessment order included an office note explaining why the addition of Rs. 10 lakhs was not made, indicating that the Assessing Officer had applied his mind and conducted proper inquiries.2. Inquiries into the Genuineness of Purchases:The Commissioner also noted that the Assessing Officer did not make proper inquiries to ascertain the genuineness of the purchases. The assessee argued that the Assessing Officer had verified purchases from various parties and placed certified copies from such parties on record. The High Court reviewed the assessment records and confirmed that the Assessing Officer had made full inquiries and was satisfied with the genuineness of the purchases. The Tribunal's finding that the assessment order did not mention specific inquiries was deemed insufficient to conclude that proper inquiries were not made, as the entire assessment record should be examined, not just the order itself.3. Justification of the Commissioner's Order under Section 263:The High Court criticized the Commissioner's order under section 263 for being non-speaking and lacking specific reasons for finding the assessment order erroneous. The Commissioner failed to discuss the detailed reply filed by the assessee or specify how the Assessing Officer's inquiries were inadequate. The Tribunal's reliance on the absence of specific mentions in the assessment order was also found to be misplaced. The High Court emphasized that the Commissioner must examine the entire assessment record before concluding that an order is erroneous and prejudicial to the interests of the Revenue.4. Approval of the Assessment Order by the Commissioner of Income-tax:The assessee contended that the assessment order was passed under the effective monitoring and approval of the Commissioner of Income-tax, Rohtak. The High Court found supporting evidence in letters from the Assessing Officer to the Commissioner, indicating that the case was selected for monitoring, discussed with the Commissioner, and the draft order was submitted for approval. Given this context, the High Court held that the successor Commissioner could not claim that the assessment was made without application of mind by the Assessing Officer. Consequently, the High Court allowed the appeal, set aside the Commissioner's order dated October 31, 2000, and reversed the Tribunal's findings.Conclusion:The High Court concluded that the Assessing Officer had made proper inquiries and applied his mind while framing the assessment order. The Commissioner's order under section 263 was set aside due to lack of specific reasons and failure to consider the entire assessment record. The Tribunal's findings were also reversed, and the appeal was allowed.