TaxTMI 
TaxTMI 
2006 (4) TMI 241
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.... section 263 dated 24-11-2004 and thus has exceeded the jurisdiction by not limiting himself to the allegations in the show-cause notice. (4) For that the order passed is violative of principles of equity and natural justice and as such fit to be quashed. (5) For that the learned CIT has erred in making adverse observation with regard to order under section 154 dated 27-1-2003 in the impugned order. (6) For that the learned CIT has erred in holding that the Assessing Officer has not made adequate enquiry and investigation while framing the order whereas no such allegation was made in the show-cause notice dated 19-10-2004. (7) For that the learned CIT has failed to appreciate that the order passed by the Assessing Officer was neither erroneous nor prejudicial to the interest of the revenue and thus the very invocation of power under section 263 is wholly illegal and beyond jurisdiction. (8) For that the learned CIT has erred in invoking powers under section 263 and passing order holding the order of assessment to be erroneous and prejudicial without even pointing out which of the two phraseology used in the section is applicable and as t....
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....roduced have been examined As per quantitative details furnished by the assessee, the concerned had a closing stock of gold weighing 52475.026 gms. As on 31-10-2001. However, when the business premises was surveyed under section 133A of the Income-tax Act, the assessee was found to be in possession of excess stock of gold weighing 18073.59 gms. as per the calculation furnished in the Survey Report, i.e., 70548.620 - 52475.026, being the stock as per physical verification and the stock as per stock register. It has been found that whereas the figures arrived at in the survey report was based upon a casual recording of weighment shown in the weightage accurate weighment has been made by the registered valuer, named M/s. Devi Lal Baijnath Prasad Zaveri, Center Point, Sumati Place, Boring Road, Patna to whom a reference has been made by none other than the Additional Director of Income-tax (Investigation), Patna himself. Taking the net weight reported by registered valuer as the basis, it has been found that accurate weight of gold calculated on the recognized scientific method adopted by the registered valuer is 33446.876 gms. (net) and not 70548.620 gms. as arrived at and taken in th....
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....he revenue if the department had accepted the assessee's method of accounting which was a recognized method that had been constantly followed by the assessee, or merely because the Assessing Officer has made it in accordance with one of the two legally permissible methods under the adoption of the order method might have resulted in collection of larger revenue. It is also well-settled that the power conferred under section 263 is a quasi-judicial in nature and, therefore, the Commissioner must give reasons in his order or otherwise the order would be vitiated. The section also gives power to the Commissioner to make enquiries, either by himself or by his sub-ordinates, into the facts of the case and all relevant facts and material before making an order under section 263 and, therefore, the petitioner is requesting your goodself to go through the assessment order as well as the assessment record including the expert's opinion obtained by the department. It is also well-settled that a decision of the Commissioner based only on a certain hypothesis is unsustainable and the order is also not sustainable if the same has been passed without considering relevant materia....
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.... assessment year under consideration. Even the Assessing Officer did not call and examine the records in form of loose papers, documents, files containing different papers relating to his business and other activities (books of account, bank pass books; bank deposit certificate etc.) which were found & inventorised during course of survey, as per annexure CJ 1 to 40 dated 1-11-2001. These facts are supported by order sheet entries appearing in assessment folder. These entries were written by Assessing Officer during assessment proceedings itself. As evident from notices given by Assessing Officer regular books of account (not included records found during survey) were called for by him for examination vide notice dated 3-3-2003 on the date of hearing on 13-3-2002 but no compliance was made by assessee on that date. Even after these books of account were never produced before Assessing Officer and accordingly not examined by Assessing Officer at all. No explanation whatsoever was asked by the Assessing Officer and he did not make any inquiry with regards to records and discrepancy found during course of survey in the form of excess Stocks of Cash, Gold, Silver, Diamond, etc....
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....t order, which gives the strengthen the action of CIT under section 263 of Income-tax Act. Photocopies of proposal of Assessing Officer are enclosed for your kind perusal. Looking to these fatal mistakes committed and accepted by Assessing Officer, the case records of assessee were called for CIT-II, Patna. After satisfy himself about the mistakes of Assessing Officer in passing the assessment orders, the CIT had issued notice under section 263 to assessee No. 2447, dated 19-10-2004 for hearing on 27-10-2004. The assessee did not appear on this date and moved time petition. Thereafter the AIR of the assessee attended during proceedings under section 263 before CIT and after proper opportunity being heard provided to assessee, the CIT had passed order under section 263 of Income-tax Act. The CIT had clearly mention in the order under section 263 about the mistake committed by Assessing Officer while passing assessment order. He had further explained how the Assessing Officer's order erroneous and prejudicial to interest of revenue. On previous hearing the A/R of assessee has raised basic objection and challenged the notice under section 263 by CIT for initiatio....
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....l to interest of revenue. Here also I would like to say that since valid notice was issued by CIT under section 263 of Income-tax Act to give assessee opportunity being heard and accordingly he had availed such opportunity during proceedings under section 263 before CIT, as evident from order sheet maintained by CIT in this respect. The AIR of assessee had put his signature and a reply was also given by AIR to CIT during the hearing of proceeding under section 263. Hence it cannot be said that the said notice suffers any fetal mistake that the (sic) cannot be rectified. Since opportunity being provided by CIT to assessee in this matter and an order under section 263 had been passed after considering the reply of assessee and all relevant fact available before CIT at the time of proceedings under section 263. It is pertinent to mention here that, no any kind of objection was raised by AIR or assessee during pendency of section 263 proceedings before CIT. Hence the objection raised by AIR of assessee at this cannot be entertained at all. Even if for sake of argument accepted that the notice under section 263 issued by CIT (though it was not suffered any irr....
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....unity to the assessee (see Smt. A. Nanat Veraba v. CWT [1993] 201 ITR 42,46 (Guj.). (5) Held CIT disclosed basic grounds on which he though to fit revise the assessment order, the non-disclosure of supporting material did not result in failure of natural justice The assessee is free to justify the original income assessed as correct in re assessment proceedings in pursuance of order 263, as held in this case. Rampyari Devi Sarogi v. CIT [1968] 67 ITR 84, 89 (SC). Issue of notice not mandatory - Section 263 does not in express forms require a notice to be served as in the case of section 147, section 263 merely requires that an opportunity of being heard should be given to the assessee and the stringent requirement of service of notice under section 147 cannot therefore be applied to the proceeding under section 263. Gita Devi Agarwal v. CIT [1970] 76 ITR 496 (SC) CIT v. Hukumchand Mohanlal [1971] 82 ITR 624 (SC) Discrepancies found during course of survey (Excess stock, cash and other paper & documents): During course of survey discrepancy was found by survey team, not only in stock/cash found physically at the time of survey bu....
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....s of Income-tax Act. In same way indirect expenses shown in P & L. A/c. also had not been examined at all. This also strengthen the view that the said order was suffered a lot of mistake which resulting assessment can be considered erroneous and prejudicial to interest of revenue. In view of facts indicated above and justification given by CIT in order passed under section 263, the order under section 263 of Income-tax Act deserve to be confirmed. Your honour is requested to consider the matter accordingly and decided the issue in favour of department and against the assessee." 7. The learned counsel has filed comments on written submission filed by the Departmental Representative. The same is reproduced below:- "First Para First Part - Non-examination of books.- No such finding/allegation either in notice under section 263 page 44 of Department Paper Book or order sheet placed at departmental paper book page 42 or in order under section 263 filed along with memo of appeal. Attention is drawn to the order of assessment placed at page 1 of paper book dated 20-2-2006 wherein the Assessing Officer has observed "books of account produced have been examined....
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....para of para 2 and continued up to para 3 - Assumption of jurisdiction and case laws relied thereon. Attention is invited to the show-cause notice placed at page 44 of departmental paper book. It is submitted that the said notice does not bear the signature of Commissioner of Income-tax and is equally vague. These facts were brought to the notice of Commissioner of Income-tax vide reply submitted on 3-11-2004 copy placed in our paper book pages 10 to 12 wherein reliance was placed on two judicial decisions directly on the issue in 221 ITR 861 (Guj.) and 230 ITR 591 (MP). Gist of decisions is enclosed. Attention is also invited to the impugned order wherein the Commissioner of Income-tax states that the order of assessment suffers from various mistakes, On perusal of the show-cause notice your honour will find that the very assumption of jurisdiction is void ab initio. Firstly, the notice has not been signed by the Commissioner and secondly the Commissioner of Income-tax has travelled beyond the show-cause notice. This fact is also apparent from the order sheet of proceeding under section 263 placed at page 42 of departmental paper book. Page 3 (middle & last para)....
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.... erroneous and prejudicial to the interest of the revenue. For this proposition he has placed reliance on the following two decisions:- (i) CIT v. Sattandas Mohandas Sidhi [1998] 230 ITR 591 (MP) (ii) Garden Silk Mills Ltd. v. CIT [1996] 221 ITR 861 (Guj.) Since new legal ground is taken for the first time before us, opportunity was allowed to Ld. Departmental Representative to be heard. The Ld. Departmental Representative has filed written submission inter alia the Ld. Departmental Representative has objected the raising of this issue for the first time before this Tribunal. He has further submitted that the assessee or Ld. Authorised Representative appearing on behalf of the assessee did not raise any objection in respect of issuing notice or not signing by the Ld. CIT for initiation of proceeding under section 263. Therefore, the assessee had no grievance in this regard during proceedings under section 263. It is, therefore, now it is not incorrect to raise such objection at this stage. For this proposition the Ld. Departmental Representative has placed reliance on the decision of Hon'ble Allahabad High Court in the case of Ishwar Das Kungoomal v. CIT [1....
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....unal to permit any party to the appeal to raise the question of jurisdiction, which goes to the root of the matter and does not involve further investigation into facts, cannot be disputed on the plain reading of rule 11 of Income-tax Rules, 1963. Indeed, on such a plea being taken, the Tribunal is under a statutory obligation not only to entertain the plea but also to decide the same after providing sufficient opportunity of being heard to the other side. This also supported by various other decisions as under: (i) Taylor Instrument Co. (India) Ltd. v. CIT [1992] 198 ITR 11 (Delhi) (ii) CIT v. Mahalakshmi Sugar Mills Co. Ltd. [1993] 200 ITR 2752 (Delhi) (iii) Mewar Sugar Mills Ltd. v. CIT [1993] 203 ITR 415 (Raj.) (iv) CIT v. Smt. Khairunnissa Ebrahim [1993] 201 ITR 903 (Ker.) (v) CIT v. Bhopal Sugar Industries Ltd. [1998] 233 ITR 429 (MP) Hon'ble Bombay High Court in the case of Godavari Sugar Mills Ltd. v. CIT [1993] 199 ITR 351 (FB) has held that "there is nothing in section 254(1) so as to limit the jurisdiction of the Appellate Tribunal in any manner. For reasons which have been set out earlier, the phrase "pass such orde....
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....obvious from the face of it. For the sake of clarity show cause notice issued is reproduced below: Government of India, Office of the Commissioner of Income tax-II, Patna, 2nd Floor, Central Revenue Building, Beerchand Patel Path, Patna. F. No. CIT-II/Pat/Tec/263/2004-05/2447 Dated, Patna the 19th October, 2004 To Sri Satish Kumar Keshri, Prop: M/s. Hira Panna Jewellers, Hira Place, Dak Bunglow Road, Patna Sub:- Show-cause notice under section 263 of Income-tax Act, 1961 for assessment year 2002-03. I am directed to convey that from perusal of the case records and assessment order under section 143(3) passed on 16-6-2003 in your case, it appears that the above order dated 16-6-2003 is erroneous insofar as it is prejudicial to the interest of revenue. In this connection, I am further directed to inform you that an opportunity is hereby given to you to appear before the Commissioner of Income-tax-II, Patna personally or through authorized representative on 27-10-2004 at 11.30 a.m. and to show-cause as to why the above assessment order for the assessment year 2002-03 should not be cancelled for a fresh assessment under section 2....
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....ng Officer is prejudicial to the interest of the revenue but it is not erroneous and unless the twin conditions are fulfilled, assumption of jurisdiction under section 263 cannot be sustained. The order cannot be termed as erroneous unless it is not in accordance with law. If an officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. Section 263 does not visualize a case of substitution of the judgment of the Commissioner for that of the Assessing Officer, who passed the order, unless the decision is held to be erroneous. Of course, arbitrary exercise of quasi-judicial power certainly would fall within the scope of section 263, that is not the case which is before us. The Assessing Officer has completed the assessment after considering two vital documents (i) survey report and (ii) valuer's report. He has discussed these two documents in his order so there is application of mind by the Assessing Officer. Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. has observed that "an incorrect assumption of facts ....
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....to revenue but then the action of the Assessing Officer cannot be levelled as erroneous and order may be prejudicial to the interest of the revenue but if it is not erroneous the same cannot be cancelled by the ld. CIT while exercising jurisdiction under section 263. Even if, there was an error in the Government Valuer's report this was the error committed by the Government Valuation Officer but not by the Assessing Officer and if due to mistake in the report of the valuer some obvious mistake has occurred, remedies in section 154 and not under section 263. So far, the Assessing Officer is concerned, he has acted in good faith and in a bona fide manner. Thus, the provision of section 263 is contemplated to cover within its ambit & scope, the error which is committed by the Assessing Officer, and not those errors which are committed by any other authority. Thus, the assumption of jurisdiction by ld. CIT under section 263 is also invalid and illegal on this score. 15. On merits also, we find that the decision of ld. CIT, in setting aside the order that too without any specific direction, is also not sustainable. On perusal of entire facts on record it is apparent that the Asse....