TaxTMI 
TaxTMI 
TaxTMI 
2007 (10) TMI 355
X X X X Extracts X X X X
X X X X Extracts X X X X
....vide order dated 26-3-1998 set aside the assessment order with following observations:- (i) The Assessing Officer had failed to conduct investigation in respect of the claim of the assessee that she was carrying on business; (ii) The Assessing Officer should conduct further enquiries in respect of names and addresses of customers to find out whether or not the business was carried on; (iii) The claim of loss from business should be further gone into; (iv) The Assessing Officer should examine the confirmation of the lease transactions concerned. In pursuance to the above directions the Assessing Officer completed the assessment on 20-3-2000 and determined the income at Rs. 28,86,030. This assessment order was a giving effect order in pursuance to CIT(A)'s order dated 26-3-1998. Incidentally this assessment order was also passed under section 144 of the Income-tax Act. The CIT considered this order as erroneous and prejudicial to the interests of the revenue and accordingly he issued notice under section 263 on 18-1-2002 on the following reasons : (i) Assets totalling Rs. 3,49,683 referred to in that report were not reflected in the trial balance filed and, therefore, remained ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed after 27-3-1999. He further submitted that without prejudice to the above,- (i) the copy of the report of the DVAC is a mere statement of allegations by a police officer, tire correctness of which, till date had not been established; (ii) the CIT had no material, except the vague allegations contained therein lobe satisfied that the order was erroneous or prejudicial to the revenue; (iii) the CIT had not even applied his mind to satisfy himself whether allegations therein were correct; (iv) his order itself is vague; (v) The charge-sheet filed by DVAC cannot be considered as record relating to the proceedings under this Act; (vi) Power cannot be exercised for starting fishing and roving enquiries-CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom). It was further submitted on behalf of the assessee that the Assessing Officer could not have travelled beyond the directions of the CIT(A) in view of the judgment in the cases of :- (a) CIT v. Jawoharlal Nagpal [1988] 171 ITR 136 (Bom.) wherein it is held that in the fresh assessment proceedings after the original assessment had been set aside the ITO had no jurisdiction to tax new source of income; (b) Kartar Singh v. CIT [1....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... or unchartered and cannot be used for starting fishing enquiry Gabriel India Ltd.'s. He further submitted that on facts additions suggested by him have been considered and accepted by same officer in the hands of the respective owners, all of whom are assessees on the file of the same Assessing Officer and same CIT. He submitted that the entire property had been let out for 12 months and therefore there could not have been any reconstruction. He further submitted that during the course of the last hearing the learned Departmental Representative had referred to a number of decisions to which the assessee responds as follows :- (i) In the cases reported in (i) K.A. Ramaswamy Chettiar v. CIT [1996] 220 ITR 657 (Mad.) (ii). CIT v. M.N. Sulaiman [1999] 238 ITR 139 (Mad.) and (iii) CIT v. Lakshmi Machine Works Ltd. [2000] 241 ITR 53 (Mad.) deal with materials found during the course of search under the Income-tax Act or the valuer's report which the Assessing Officer had asked for but not received at the time of assessment and it was held that these were 'records relating to the proceedings under this Act'; (ii) In Seshasayee Paper & Boards Ltd.'s case it was found that the relief whi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch staff members and examine them to find out whether or not the business was in fact carried out. The appellant should be given fresh opportunity to produce relevant books of account, documents and employees for examination and other such evidence. 'The ownership and use of vehicles as also the claim that the actual expenses on running and maintenance were reimbursed by the customers concerned should also be examined. It should also be found out whether any evidence in the form of documents, books of account, etc., were found during the course of search of the appellant's or some connected persons premises by the State agencies. The material so found, if any, should be taken into consideration. Similarly statements given to the State authorities for explaining the deposits, investments, etc. should also be taken into consideration while deciding the issue." Further he submitted that the report from the Directorate of Vigilance and Anti Corruption, Government of Tamil Nadu (DVAC) which carried out the search in the case of Miss J. Jayalalitha on 7-12-1996 was submitted to the Assessing Officer on first occasion on 24-7-1997. As per this report the following assets not reflected in....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of SRO, Uthukottai) 37,380.70 4.41 acres of dry land in S. No. 198 of Velagapuram Village (Doc No. 1581/93 dated 28-10-1993 of SRO, Uthukottai) 37,385.00 4.41 acres of dry land in S. No. 198 of Velagapuram Village (Doc. No. 1582/93 dated 28-10-1993 of SRO, Uthukottai) 37,385.00 4.41 acres of dry land in S. No. 198 of Velagapuram Village (Doc. No. 1583/93 dated 28-10-1993 of SRO, Uthukottai) 12.060.00 1.41 acres of dry land in S. No. 198 of Velagapuram Village (Doc No. 1584/93 dated 28-10-1993) &nbs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly said that the entire assessment was set aside to be finalized afresh after carrying out enquiries and providing opportunity to the assessee. There is no direction regarding any aspect of income to be assessed or deductions to be granted etc. Thus, the entire assessment was open before the Assessing Officer who ought to have made proper enquiries and thereafter passed the assessment order. (b) The order of the Assessing Officer was erroneous insofar as he had not made any enquiries regarding source of investment of several movable and immovable properties acquired by the assessee, although it was common knowledge even at the time of passing the assessment order that huge assets in the name of the assessee, being a close associate of the then Chief Minister, were also found from the charge-sheets filed in the case of Miss J. Jayalalitha under the Prevention of Corruption Act. This erroneous order resulted in great prejudice to the revenue, inasmuch as rage amounts were not brought into the tax net at all Thus the twin condition is that the order to be revised under section 263 should be both erroneous and prejudicial i.o the Revenue are satisfied. (c) The following case law woul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....AC's report, charge-sheet filed in a connected matter, etc., to come to the correct conclusion on facts. (e) The order of the Assessing Officer was clearly erroneous and prejudicial to the interest of the revenue inasmuch as he had not made proper enquiries regarding source of funds of the assessee for purchase of agricultural land, machinery, renovation and additional construction of house, purchase of farm house by firm in such assessee is a managing partner, payment of cash by firm in which assessee is a partner, etc., resulting in huge loss of revenue. (f) The CIT's order has only set aside the assessment order with a direction to enquire into the various aspects brought out in the DVAC report, and bring to tax unexplained investments. It is well within his powers under section 263 as explained in the case law cited supra. (g) The order of the CIT is not time-barred, as the order sought to be revised is dated 20-3-2000 and the CIT's order under section 263 is dated 14-3-2002 within a period of two years. It was therefore prayed that the appeal filed by the assessee may be dismissed as without merit. 5. We have heard the rival submissions and perused the material on record.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the interests of Revenue. If the order is erroneous but not prejudicial, CIT cannot exercise the power under section 263. Every erroneous order cannot be the subject-matter of revision because second requirement must also be fulfilled. There must be prima facie material on record to show that tax which was lawfully eligible was not imposed or by application of relevant statute on an incorrect interpretation a lesser tax than was just has been imposed. Thus under section 263 the revisionary power can be exercised only if the order of the Assessing Officer is erroneous and prejudicial to the interests of revenue. In the absence of any one of the said conditions the revisionary power cannot be exercised by the CIT. The Supreme Court in the case of Malabar Industrial Co. Ltd. has observed as follows :- "A bare reading of Section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interest of the revenue. The Commissioner has to satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t case the Assessing Officer is not doing the original assessment. The Assessing Officer was to give effect to CIT(A)'s order dated 26-3-1998. The CIT(A) in para 16 of that order directed as follows :- "In the light of the foregoing the entire assessment is set aside with the direction to finalise the assessment afresh after carrying out enquiries providing proper opportunity to appellant considering her submissions and following due procedure laid down by the law." What is important is the direction given by the CIT(A) is in pursuance to the grounds of appeal before him. The CIT(A) considered the grounds relating to the following issues :- (i) depreciation on vehicles; (ii) disallowance from loss from M/s. Metal King, and (iii) disallowance of agricultural income. The CIT(A) set aside the issue to the file of the Assessing Officer to consider these three issues only. He has not given any direction to consider any other issue. In such circumstances, is the Assessing Officer expected to go beyond the issues considered by the CIT(A), more precisely, which are not subject-matter of first appeal before the CIT(A)? In our humble opinion when an assessment order is set aside by app....