TaxTMI 
TaxTMI 
2010 (9) TMI 352
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....ct of these two years were cancelled and set aside by the Commissioner in exercise of his powers under Section 263 of the Income-Tax Act, 1961 (hereinafter referred to as the "Act"). However, the Tribunal has upset and quashed those orders in appeal. The factual background in which the assessment orders were made which were revised by the CIT under Section 263 of the Act is mentioned in the statement of case and is recapitulated below. 3. The assessee company was incorporated on 4.4.1981 with the object of carrying on the business of marketing agents and to render marketing services etc. The proceedings relate to assessment years 1983-84 and 1984-85, for which the relevant accounting periods ended on the 30th September, 1982 and 30th September, 1983 respectively. During the accounting period relevant to assessment year 1983-84 the assessee entered into agreements with the wholesale dealers of M/s. Godfrey Phillips India Ltd., a manufacturer of different brands of cigarettes. According to the agreements the wholesale purchasers of cigarettes from M/s. Godfrey Phillips India Ltd. were to pay certain amounts to the assessee company and the assessee company was obliged to spend at l....
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.....1987 directing the Income-tax Officer to re-frame the assessments and proceed afresh from the stage of the filing of the Income-tax returns. 7. Aggrieved by this order of the Commissioner, the assessee filed appeals in the Income-Tax Appellate Tribunal (hereinafter referred to as the „Tribunal‟). The Tribunal cancelled the order passed by the Commissioner holding that the AO had made proper enquiries for the years under consideration and the assessments were in accordance with law and were not erroneous so as to be prejudicial to the interest of the Revenue. The Tribunal observed that vide letter dated 27.12.1984 the Assessing Officer had asked the assessee to furnish various details and the assessee had furnished the necessary details vide letter dated 12.2.1985. The Tribunal also noted that certain other details were filed vide letters dated 19.4.1985 and 11.6.1985. The Tribunal also referred to the letter of the assessing officer dated 24.12.1984 for the assessment year 1983-84 and the assessee's reply dated 12.2.1985. The Tribunal came to the conclusion that the assessing officer made reasonably detailed enquiries and after processing the material, utilized the ....
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.... 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC). In the instant case, the Commissioner noted that the Income-tax Officer passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the Income-tax Officer failed to apply his mind to the case in all perspective and the order passed by him was erroneous. If appears that the resolution passed by the board of the appellate-company was not placed before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss of agricultural income. He accepted the entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts the conclusion that the order of the Income-tax Officer was erroneous is irresistible. We are, therefore, of the opinion that the High Court has rightly held that the exercise of the jurisdiction by the Commissioner under Section 263(1) was justified." 7. It is also well-settled principle that provisions of Section 263 of the Act would not be invoked merely to correct a mist....
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.... 9. We now proceed to answer the question keeping in view the aforesaid principles. As is clear from the facts of the case, the assessee company had been receiving contributions from certain wholesale dealers. These dealers/wholesale purchasers were having dealership of cigarettes manufactured by Godfrey Phillips India Ltd. Instead of spending themselves on advertisement and promotion of various brands of cigarettes individually, they decided to pool their resources together and engaged assessee for this purpose. Agreements were signed between the assessee and these dealers. All these dealers were to contribute specified amounts. Ninety per cent of the money received by means of these contributions was to be spent by the assessee company on advertising as well as promotional and other related services in respect of specified brands of cigarettes. Balance of 10% of the contribution was to be earmarked to cover the assessee‟s personnel and administrative expenditure etc., including profit margin. 10. As per clause 10 of the agreements, which were identical in nature, the assessee was obliged to ascertain the total expenditure incurred on advertising, promotional and other re....
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....ement, should work out to 90% of the total receipts barring that which is to be carried forward for the assessment year 1984-85) has actually been incurred for the purposes for which it has been shown in the break up filed before the ITO. It was the assessing officer‟s duty to make a checking in this regard, and his failure to do so, prima facie, shows that he has accepted the claims without proper scrutiny or enquiry." 11. After referring to various case law and extensively quoting therefrom the Commissioner highlighted the nature of enquiries etc. which were required by the AO and was not done, in the following manner:- "23. With the above background, the position regarding the two years‟ assessment can be examined to show that the ITO has not made any enquiries, examination and investigations in respect of some very important aspects that relate to the company‟s purported advertisement business. 24. ASSESSMENT YEAR 1983-84 : For the first time, vide letter dated 12.3.1985 information regarding agreements with various whole sale purchasers of Godfrey Phillips India Ltd., was given clarifying that as per Clause 9 of the agreement, the assessee company....
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....year is erroneous and prejudicial to the interest of revenue as it has not been passed after due enquiries, investigation scrutiny of the problem under consideration. 27. Even the peculiar nature of agreement entered into with the whole sale purchasers, of cigarettes, by the coy, did not arouse the ITC's curiosity to impel him to go into greater details for knowing the co. act state of affairs regarding the arrangements made. The earlier discussion would indicate that the persons who provided the fund, namely, the wholesale purchasers who had the contributions had no control over the same and had not even a say as to how the money provided by them should be spent. A situation cannot be ruled out when some of them may be required to provide money even when the cigarettes sold by them are not advertised at all. 28. Further, according to the company's agreement with wholesale purchasers, the company had no control over the contributions to be received as that depended on the supplies made by the manufacturer to the wholesalers. How could company plan its expenditures in the presence of such an uncertainty. Definitely such aspects needed the ITO's attention for investigation to f....
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....sisting of books of accounts and various documents to check up whether the working results as shown to the department were in accordance with the information available in the seized papers. 13. In this scenario when the matter reached the Tribunal, the Tribunal posed the question as to whether it could be said that the assessment orders made in the case of the assessee were erroneous so as to be prejudicial to the interest of the Revenue. The Tribunal examined and discussed the orders passed by the Assessing Officer as well as the view of the Commissioner thereupon. After taking note of the exercise done by the Assessing Officer, the Tribunal came to the conclusion that the Commissioner was not factually correct in holding that the Assessing Officers had not made any queries or called for the required information or discussed the same. The order of the Tribunal shows that from paras 2 to 12 it has discussed the exercise done by the Assessing Officers while making assessments in respect of these two assessment years. It is, inter alia, noted as under:- "3. It appears that on 27.12.1984 the ITO, while dealing with the assessment for the assessment years 1982-83/1983-84/1984-85 ....
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....sed, miscellaneous expenditure incurred, conference expenses, details of unsecured loans and details of expenses incurred on behalf of the clients were filed. The Tribunal observed that from this it was apparent that not only the Assessing Officers asked for the required details, but those details were supplied as well, and thereafter there was discussion on these details filed by the assessee, with the representative of the assessee. Apart from the aforesaid details relating to supply of information and discussion thereupon, the Tribunal also took note of the fact that in the assessment orders passed by the Assessing Officers, these facts were recorded as is clear from the following:- "11. The ITO in his assessment order for the asstt. Year 1983-84 made on 18.6.1985 has recorded that the Chartered Accountants of the assessee attended before him and produced cash book, ledger, vouchers etc., which were examined by the test check and the case was discussed with him. In the impugned assessment order, the ITO also records and indicates that printed annual report of the company was filed before him and was examined. Thereafter, the ITO records that from the profit and loss account a....
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....ssessee company's share of service charges should come to Rs.34,08,099/- against total service charges declared by the assessee at Rs.33,92,847/-. The ITO was of the opinion after examination of this account in complete detail that there was understatement of service charges, in fact, amounted to 9.09% on the basis of arrangement made as mentioned supra but the ITO did not accept this argument as seend and correct because the assessee was not declaring service charges on the total amount of contribution received during the year but was working out such charges on due basis. He, therefore, made the addition of Rs.15,252/- out of this account." 15. It is on the basis of the above that the Tribunal concluded that the two assessment orders made by the two different Assessing Officers show that these Assessing Officers were conscious of their responsibilities and made enquiries from the assessee on the various facets of the assessment in each year as was apparent from the correspondence between the Assessing Officers and the assessee. Thus, opined the Tribunal, that the ITOs collected evidence, sifted it, discussed the points with the representatives of the assessee, got clarificatio....
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....ommissioner had himself stated in the impugned order, that these agreements were produced before the ITOs and nature of these agreements was discussed in the assessment orders. 19. We, thus, agree with the conclusion of the Tribunal that the Commissioner had not pointed out any flaw in the assessments made by the Assessing Officer, but was only expecting that the ITO should have gone deeper into the matter. When it has come on record that the ITOs had made reasonably detailed enquiries, collected relevant material and discussed various facets of the case with the assessee, the order of the Commissioner to direct fresh assessment by going deeper into the matter would not form a valid or legal basis to exercise jurisdiction under Section 263 of the Act. Law in this behalf has already been stated above. 20. We fail to understand as to what kind of further enquiry the Commissioner wanted the Assessing Officers to make, keeping in view the nature of the assessee‟s business, more so when no error was pointed out in the assessment orders and it was also not pointed out as to how these assessment orders had caused prejudice to the revenue. At this stage, we reproduce the follow....
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....aterials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. (See Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) at page 10). xxx From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax 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....