2004 (10) TMI 292 - AT - Income Tax

Tribunal Affirms Validity of Dropped Proceedings; Finds CIT's Revisional Order Unjustified Due to Proper AO Inquiries.

Dewas Silk Mills. Versus Commissioner Of Income-Tax.

Dewas Silk Mills. Versus Commissioner Of Income-Tax. - ITD 093, 031, TTJ 092, 481, Issues Involved:1. Validity of dropping proceedings u/s 148 served on the assessee.2. Validity of the revisional order u/s 263.3. Merits of the order passed u/s 263.4. Validity of the order u/s 263 related to payment of interest to creditors.Summary:1. Validity of Dropping Proceedings u/s 148:The primary issue was whether the dropping of proceedings u/s 148 served on the assessee on 8-3-2002 was valid and barred by time limitation in the absence of service within the statutory period. The Tribunal held that the orders made by the Assessing Officer on 7-2-2000 were not barred by limitation as the time limit prescribed u/s 153(2) was adhered to. The Tribunal noted that making an order and communicating it are separate actions, and the law provides a time limit only for making the order, not for its communication. The Tribunal referred to various judgments, including the Supreme Court's decision in M.R. Mondal, and concluded that the order was valid despite the delayed communication.2. Validity of the Revisional Order u/s 263:The Tribunal examined whether the revisional order u/s 263 becomes invalid if the dropping of proceedings u/s 148 was not communicated within the time limit. It was held that the revisional order u/s 263 was valid as the order dropping the proceedings was made within the prescribed time limit, and the communication delay did not affect its validity.3. Merits of the Order Passed u/s 263:The Tribunal analyzed whether the order passed u/s 263 was bad in law on merits. The CIT had set aside the order of the Assessing Officer dropping the proceedings initiated u/s 147/148, directing the Assessing Officer to conduct proper inquiries and frame a proper assessment order. The Tribunal found that the Assessing Officer had made proper inquiries and dropped the proceedings after due consideration of the assessee's replies and details. The Tribunal referred to the Supreme Court's decision in Malabar Industrial Co. Ltd. v. CIT, emphasizing that an order cannot be termed erroneous unless it is not in accordance with law. The Tribunal concluded that the CIT's order was not justified as the Assessing Officer had exercised quasi-judicial power in accordance with the law.4. Validity of the Order u/s 263 Related to Payment of Interest to Creditors:The Tribunal considered whether the order passed u/s 263 related to allowing the claim of payment of interest to creditors by dropping the reassessment proceedings was invalid. The Tribunal found that the Assessing Officer had made proper inquiries regarding the creditors and their genuineness during the reassessment proceedings. The Tribunal held that the CIT's view that the explanation furnished by the assessee was insufficient was merely a change of opinion, which is not a valid basis for invoking revisional provisions u/s 263. The Tribunal concluded that the dropping of the reassessment proceedings could not be termed erroneous and prejudicial to the interest of revenue.Conclusion:The Tribunal allowed the appeals, holding that the orders dropping the proceedings u/s 148 were valid, the revisional order u/s 263 was not justified, and the Assessing Officer had made proper inquiries before dropping the reassessment proceedings. The Tribunal emphasized that a change of opinion by the CIT cannot be a basis for invoking revisional provisions u/s 263.