1997 (5) TMI 96 - AT - Income Tax

Commissioner's Jurisdiction Denied under Section 263; Assessment Not Prejudicial

The Tribunal held that the Commissioner of Income-tax lacked jurisdiction to invoke section 263 in the case. The assessment was deemed not erroneous or ... Revision Issues Involved:1. Jurisdiction of the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961.2. Adequacy of the inquiry conducted by the Assessing Officer.3. Admissibility of secret commission as an expenditure.Issue-wise Detailed Analysis:1. Jurisdiction of the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961:The Commissioner initiated proceedings under section 263 on the grounds that the assessment was completed hastily without adequate inquiry, leading to the wrongful allowance of Rs. 11,93,100 as an admissible expenditure under the head 'Secret commission'. The Commissioner set aside the assessment and directed a fresh examination of the admissibility of the expenditure. The Tribunal had to determine whether the Commissioner had jurisdiction to invoke section 263 in this case.2. Adequacy of the inquiry conducted by the Assessing Officer:The assessee contended that all details of the secret commission were furnished to the Assessing Officer, who completed the assessment after due verification. The Assessing Officer had issued a notice under section 143(2), called for explanations, and examined the books of account and relevant documents. The Tribunal noted that the Assessing Officer had disallowed certain expenses, indicating that he had applied his mind before completing the assessment. The Tribunal found that the assessment was not completed in undue haste, as the process spanned over one and a half months, during which the Assessing Officer examined all details provided by the assessee.3. Admissibility of secret commission as an expenditure:The assessee argued that the secret commission was paid to 28 identified persons and sundry parties, and that the payments were made wholly and exclusively for business purposes. The Tribunal observed that the Assessing Officer had allowed the deduction after examining the details and considering relevant case laws, including decisions of various High Courts which held that secret commission is an allowable deduction. The Tribunal also noted that the persons who received the commission had filed returns disclosing the amounts received, further validating the genuineness of the payments.Separate Judgments by the Judges:Judgment by Judicial Member:The Judicial Member concluded that the Assessing Officer had fully applied his mind and that the assessment order was neither erroneous nor prejudicial to the interests of the revenue. The Judicial Member relied on the decision of the Madras High Court in the case of Venkatakrishna Rice Co., which held that secret commission is an allowable deduction.Judgment by Accountant Member:The Accountant Member disagreed, stating that the Assessing Officer failed to make adequate inquiries into the genuineness of the payments. The Accountant Member cited the decisions of the Delhi High Court in Gee Vee Enterprises and the Gujarat High Court in Mukur Corpn., which emphasized the need for thorough inquiries by the Assessing Officer. The Accountant Member supported the Commissioner's decision to invoke section 263.Third Member's Opinion:The Third Member, G.E. Veerabhadrappa, examined the assessment records and concluded that the Assessing Officer had made adequate inquiries and that the assessment was not completed in undue haste. The Third Member noted that the Commissioner did not provide sufficient material to conclude that the allowance of secret commission was illegal. The Third Member held that the Commissioner did not have jurisdiction to invoke section 263, as the assessment order was not erroneous or prejudicial to the interests of the revenue.Final Decision:In conformity with the majority decision, the Tribunal held that the Commissioner of Income-tax did not have jurisdiction to invoke the provisions of section 263 in the assessee's case. The appeal of the assessee was allowed.