1991 (1) TMI 236 - AT - Income Tax

Tribunal annuls Commissioner's orders under Section 263 for assessment years 1980-81, 1981-82, and 1982-83

The Tribunal set aside the Commissioner of Income-tax's orders under Section 263 for the assessment years 1980-81, 1981-82, and 1982-83. It was found that ... Assessment Order, Orders Prejudicial To Interests, Original Assessment, Total Income Issues Involved:1. Legality of the Commissioner of Income-tax's (CIT) orders under Section 263 of the Income-tax Act.2. Whether the Income-tax Officer's (ITO) assessments were erroneous and prejudicial to the interests of the revenue.3. Validity of the CIT's reliance on another CIT's order in a different case.4. Jurisdiction of the CIT to pass orders under Section 263 when the ITO's order has merged with that of the CIT (Appeals).Issue-wise Detailed Analysis:1. Legality of the CIT's Orders under Section 263:The CIT passed an order under Section 263 on 21-3-1983, finding the ITO's assessment order dated 23-3-1981 erroneous and prejudicial to the interests of the revenue. The CIT directed the ITO to disallow payments amounting to Rs. 42,500 made to Shri D.K. Gupta and Shri N.K. Gupta, which were considered capital in nature. The ITO complied and passed a fresh order on 29-3-1985, adding Rs. 42,500 to the already assessed income.However, the successor CIT issued another show-cause notice under Section 263(1) on 27-1-1987 for assessment years 1980-81 and 1982-83, citing that the ITO failed to club the income of M/s. Nirman Engineers & Contractors with the assessee's income. This led to a common order for these years on 12-3-1987, which was challenged in the present appeals.2. Whether the ITO's Assessments were Erroneous and Prejudicial to the Interests of the Revenue:The ITO had scrutinized the contract account and accepted that the assessee took 5% of the billed amount as their share of profit from M/s. Nirman Engineers & Contractors. This was based on proper enquiry and scrutiny of accounts. The CIT's order under Section 263 dated 21-3-1983 did not find any irregularity other than the Rs. 42,500 payment. The subsequent order by the ITO on 29-3-1985 was merely to give effect to the CIT's directions and could not be considered erroneous.The CIT's reliance on another CIT's order under Section 263 in the case of Nirman Engineers & Contractors was deemed inappropriate. The CIT must examine the record of the assessee only and cannot base revisionary action on findings from another case.3. Validity of the CIT's Reliance on Another CIT's Order in a Different Case:The CIT's order dated 12-3-1987 relied on an order under Section 263 dated 3-3-1984 in the case of Nirman Engineers & Contractors. This order was passed without issuing a show-cause notice and was considered technically defective. The CIT cannot use findings from another case to justify revisionary action under Section 263 against a different assessee.4. Jurisdiction of the CIT to Pass Orders under Section 263 When the ITO's Order has Merged with That of the CIT (Appeals):For the assessment year 1981-82, the assessment order was a subject matter of appeal before the CIT (Appeals), who passed his order on 16-2-1985. Therefore, the ITO's order had merged with that of the CIT (Appeals), and the CIT had no jurisdiction to pass an order under Section 263 on 29-3-1985. The Full Bench of the Madhya Pradesh High Court in CIT v. K.L. Rajput held that the CIT cannot revise an order of assessment that has merged with an appellate order.Conclusion:Both the orders passed by the CIT under Section 263 for the assessment years 1980-81 and 1982-83 dated 12-3-1987, and the order for the assessment year 1981-82 dated 29-3-1985, were set aside. The Tribunal found that the CIT misdirected himself in passing these orders without specifically recording how the ITO's assessments were erroneous and prejudicial to the interests of the revenue. The appeals by the assessee were allowed, and the CIT's orders under Section 263 were set aside.