1991 (5) TMI 113 - AT - Income Tax

Tribunal overturns CIT's Section 263 order citing lack of evidence, natural justice breach, Amnesty Scheme violation

The Tribunal set aside the CIT's order, ruling that the invocation of Section 263 was erroneous due to lack of concrete evidence, violation of natural ... Amnesty Scheme, Authorised Capital, Being Heard, Income From Undisclosed Sources, Orders Prejudicial To Interests Issues Involved:1. Validity of the CIT's invocation of Section 263 of the Income-tax Act.2. Compliance with the principles of natural justice.3. Impact of the Amnesty Scheme on the assessment.Detailed Analysis:1. Validity of the CIT's Invocation of Section 263 of the Income-tax Act:The CIT invoked the provisions of Section 263 based on the return filed by the assessee on 30-3-1987, offering Rs. 2,75,000 as income from undisclosed sources under the Amnesty Scheme. The CIT's order stated that the ITO did not verify the genuineness of the share capital contribution, particularly the public issue amounting to Rs. 10,15,000. The Tribunal noted that the CIT's order lacked specific findings or evidence to support the claim that the balance of the income was of the same character and specie as the Rs. 2,75,000. There was neither a finding that the shareholders were fictitious nor that the company was in business long enough to justify such a conclusion. The Tribunal found the CIT's order to be based on 'bare suspicion' without concrete evidence, thus rendering the invocation of Section 263 as erroneous.2. Compliance with the Principles of Natural Justice:The Tribunal observed that the notice issued by the CIT on 21-1-1988 did not disclose the reasons for requiring the assessee's appearance, thereby failing to provide a proper opportunity of being heard. The notice merely stated a date and time for appearance without detailing the points the assessee needed to address. The Tribunal emphasized that the principles of natural justice require a full opportunity to be given, including the disclosure of the purpose and points of contention. The Tribunal concluded that the opportunity provided by the CIT did not meet the legal requirements, thus violating the principles of natural justice.3. Impact of the Amnesty Scheme on the Assessment:The assessee filed a revised return on 30-3-1987 under the Amnesty Scheme, offering Rs. 2,75,000 as income from undisclosed sources to purchase peace and avoid harassment. The Tribunal noted that the Government's assurances under the Amnesty Scheme included that the disclosed information would not be used against the assessee in making assessments. However, the CIT's order setting aside the assessment contradicted these assurances, as it used the disclosed information to justify reopening the entire assessment. The Tribunal pointed out that the CIT's order lacked any direction that the benefits of the Amnesty Scheme would be applicable to the Rs. 2,75,000, thereby failing to honor the Government's assurances. Furthermore, the Tribunal highlighted that the ITO had made all necessary inquiries during the original assessment, and no new suspicious circumstances were identified by the CIT to justify setting aside the assessment.Conclusion:The Tribunal set aside the order of the CIT, concluding that the invocation of Section 263 was erroneous, the principles of natural justice were violated, and the assurances under the Amnesty Scheme were not honored. The assessee's appeal was allowed.