1997 (1) TMI 54 - HC - Income Tax

Court holds in favor of assessee due to lack of inquiry into surrendered amounts, upholding Commissioner's section 263 order.

Smt. Lajja Wati Singhal Versus Commissioner Of Income-Tax

Smt. Lajja Wati Singhal Versus Commissioner Of Income-Tax - [1997] 226 ITR 527, 138 CTR 320, 95 TAXMANN 157 Issues involved: The issue involves the maintainability of an order passed by the Commissioner of Income-tax under section 263, pertaining to the assessment years 1975-76 and 1976-77, in relation to the surrender of amounts by the assessee and their subsequent taxation.Details of the Judgment:The Commissioner of Income-tax invoked section 263 of the Income-tax Act, 1961, finding the assessment orders made by the assessing authority to be erroneous and prejudicial to the interests of the Revenue due to lack of inquiry into the surrendered amounts by the assessee. The Commissioner set aside the assessment orders and directed de novo assessments.The Income-tax Appellate Tribunal affirmed the Commissioner's order, leading to the reference of the question to the High Court regarding the maintainability of the Commissioner's order under section 263.The counsel for the assessee argued that for section 263 to apply, it is essential to establish both the error in the assessing authority's order and its prejudice to Revenue. Citing precedent, it was contended that without proving both conditions, the exercise of jurisdiction under section 263 is not valid.The Commissioner's order highlighted the lack of examination by the assessing authority into the nature and sources of the surrendered amounts, indicating potential undisclosed income. The Tribunal found the assessee failed to provide evidence supporting the claimed sources of the advanced amounts, leading to the conclusion that the assessing authority's orders were indeed prejudicial to Revenue.The Tribunal's finding, unchallenged by the assessee, emphasized the absence of material supporting the claimed sources of the advanced amounts, reinforcing the view that the assessing authority's orders were prejudicial to Revenue.The Supreme Court precedent was cited to emphasize that even if an income is not earned but surrendered for taxation, it can be deemed prejudicial to Revenue if not properly assessed.Ultimately, the High Court ruled in favor of the assessee, affirming that the assessing authority's orders were indeed prejudicial to Revenue due to the lack of inquiry into the surrendered amounts, leading to their taxation.In conclusion, the High Court answered the question in favor of the assessee, highlighting the importance of proper inquiry into surrendered amounts for taxation purposes.