1975 (12) TMI 23 - HC - Income Tax

Commissioner's Assessment Powers Upheld under Income-tax Act

Additional Commissioner Of Income-Tax, Gujarat Versus Mukur Corporation

Additional Commissioner Of Income-Tax, Gujarat Versus Mukur Corporation - [1978] 111 ITR 312 Issues Involved:1. Extent of the revisional powers of the Commissioner under section 263 of the Income-tax Act, 1961.2. Validity of deductions claimed by the assessee.3. Procedure followed by the Commissioner in issuing the show-cause notice and making inquiries.Issue-Wise Detailed Analysis:1. Extent of the Revisional Powers of the Commissioner under Section 263 of the Income-tax Act, 1961:The main question in this reference concerns the extent of the revisional powers of the Commissioner acting under section 263 of the Income-tax Act, 1961. The Commissioner issued a show-cause notice to the assessee firm, claiming that the Income-tax Officer's assessment order was erroneous and prejudicial to the interests of the revenue. The Tribunal set aside the Commissioner's order on the grounds that the Commissioner had not come to a firm conclusion that the Income-tax Officer's order was erroneous. The court held that the Commissioner is not always required to come to a firm conclusion before passing an order under section 263, especially when the matter is being sent back to the Income-tax Officer for fresh assessment. The Commissioner can act on prima facie conclusions in such cases.2. Validity of Deductions Claimed by the Assessee:The assessee firm claimed two deductions: Rs. 1,45,000 for the purchase consideration of buildings and Rs. 2,00,000 paid to Dev & Co. The Commissioner found that the Income-tax Officer had failed to make necessary inquiries regarding these deductions. For the Rs. 1,45,000 deduction, the Commissioner noted that the ownership of the building structures was to remain with the assessee, making the deduction inadmissible. Regarding the Rs. 2,00,000 deduction, the Commissioner cited an affidavit by Dr. Ambalal Vyas, revealing that he was a benamidar for the assessee, not Dev & Co., suggesting that the firm was merely an intermediary to bifurcate profits. The Tribunal's decision to set aside the Commissioner's order was based on the belief that the Commissioner had not reached a firm conclusion on these points, which the court found to be an incorrect requirement under section 263.3. Procedure Followed by the Commissioner in Issuing the Show-Cause Notice and Making Inquiries:The Commissioner issued a show-cause notice and provided the assessee with an opportunity to be heard. The assessee argued that it was not given a chance to cross-examine Dr. Vyas. The court held that the Commissioner is not required to conduct a full inquiry before passing an order under section 263 if the order directs the Income-tax Officer to conduct a fresh assessment. The Commissioner's role is to identify errors and prejudicial elements in the Income-tax Officer's order, not to settle the assessment finally. The court found that the Commissioner had sufficient material to initiate action under section 263 and that the procedural requirements were met.Conclusion:The court concluded that the Tribunal was not justified in setting aside the Commissioner's order under section 263 on the grounds that the Commissioner had not come to a firm conclusion. The Commissioner acted within his powers by identifying errors and directing a fresh assessment by the Income-tax Officer. The order of the Commissioner was found to be in conformity with the provisions of section 263, and the Tribunal's decision was overturned. The court's answer to the question referred was in the negative, in favor of the revenue and against the assessee.