2003 (7) TMI 298 - AT - Income Tax

Tribunal upholds CIT's order on interest provision, sets aside deposit issue. Appeal partly allowed.

The Tribunal upheld the CIT's order under Section 263 regarding the provision for interest but set aside the order concerning the issue of deposits. The ... - Issues Involved:1. Whether the assumption of jurisdiction by CIT while passing the order under Section 263 without examination of the record was invalid and illegal.2. Whether the assessment order dated 27th March 1997 was liable to be set aside under Section 263 as it was neither erroneous nor prejudicial to the interests of the Revenue.3. Whether no order under Section 263 could be legally passed against the assessment order which had merged with the order of CIT(A).4. Whether the manner in which the CIT exercised jurisdiction under Section 263 was erroneous.5. Whether the order under Section 263 was justified for setting aside the issue relating to liability on account of interest on deposits.Detailed Analysis:1. Assumption of Jurisdiction by CIT without Examination of Record (Ground Nos. 1, 3 & 24):The assessee argued that the CIT did not examine the record before issuing notices under Section 263, rendering the assumption of jurisdiction invalid. The Department countered that the CIT had considered the necessary records and materials, including the assessment order and proposals from the AO. The Tribunal found that while issuing the first notice, the CIT had examined the record, but the second notice was issued based on a faxed letter without examining the assessment order or any other record. However, the Tribunal concluded that the issuance of notice is not mandatory under Section 263, and the essential requirement is providing the assessee with an opportunity of being heard before taking any action. Therefore, the preliminary objections raised by the assessee were rejected, and the assumption of jurisdiction by the CIT was upheld.2. Assessment Order dated 27th March 1997 (Ground Nos. 2 & 5 to 13):The assessee contended that the AO had conducted a detailed inquiry into the genuineness of the deposits and made additions based on the material collected. The Tribunal agreed that the AO had made a thorough inquiry and decided the issue, thus the order could not be considered erroneous. However, regarding the provision for interest, the AO did not conduct a full inquiry, making the order erroneous and prejudicial to the interests of the Revenue. Therefore, the Tribunal upheld the order of the CIT under Section 263 on the issue of interest but quashed it regarding the deposits.3. Merger of Assessment Order with the Order of CIT(A) (Ground No. 4):The assessee argued that the assessment order had merged with the order of CIT(A) on both issues, making the revision under Section 263 invalid. The Tribunal found that the issue of deposits was considered and decided by both the AO and CIT(A), thus the order of the AO on this issue had merged with the order of CIT(A). Consequently, the CIT could not revise the order on the issue of deposits. However, the issue of provision for interest was not considered by CIT(A), allowing the CIT to exercise jurisdiction under Section 263 on this matter.4. Manner of Exercising Jurisdiction under Section 263 (Ground Nos. 14 & 15):The assessee argued that the CIT's directions were advisory and amounted to guiding the AO, making the order under Section 263 liable to be set aside. The Tribunal found that the CIT had not issued advisory directions but had set aside the order of the AO on two issues, directing the AO to decide them afresh after giving the assessee a reasonable opportunity. Therefore, the Tribunal rejected the grounds challenging the manner of exercising jurisdiction.5. Justification for Setting Aside the Issue Relating to Liability on Account of Interest on Deposits (Ground Nos. 17 to 23):The assessee contended that the CIT's observations on the issue of interest were incorrect and relied on the Tribunal's order in a similar case. The Tribunal noted that the AO had not examined the individual accounts of the depositors, and the issue was not involved in the appeal before CIT(A). Therefore, the CIT's order under Section 263 on the issue of interest was found to be legally sustainable, and the grounds challenging it were rejected.Conclusion:The Tribunal set aside the order of the CIT under Section 263 regarding the issue of deposits but upheld the order on the issue of provision for interest. The appeal was partly allowed.