TaxTMI 
TaxTMI 
1999 (5) TMI 51
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....cannot be considered to be erroneous. 4. On the facts and the circumstances of the case, the order of the CIT under s. 263 may be cancelled. 5. The appellant craves leave to add, alter or vary any of the grounds of appeal. 3. It is found that for the asst. yr. 1988-89 the Asstt. CIT, Inv. Cir. 2(1), Surat, completed the assessment in the case of the assessee-firm by an order under s. 143(3), dt. 20th June, 1989. As per this order the total income of the assessee comes to Rs. 6,90,750 as against the total income declared in the return of income filed on 29th Aug., 1988 amounting to Rs. 6,80,000. Later on the CIT, Surat called for and examined the case records of the assessee-firm and thereafter he formed an opinion that the order passed by the AO was erroneous and prejudicial to the interest of the Revenue. The following are the reasons given by the CIT while issuing notice under s. 263 to the assessee: "Assessment made by the AO under s. 143(3) of the Act on 20th June, 1989, is erroneous insofar as it is prejudicial to the interest of Revenue. Item No. 1 to 13 of the enclosed Annexure 'A' were not verified by the AO at the time of assessment proceedings under s. 143(3) ....
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....ed counsel for the assessee has vigorously pleaded for quashing the order of the CIT under s. 263 on the ground that the assessment order passed by the AO is not erroneous or prejudicial to the interests of the Revenue as alleged by the CIT. The mere fact that some items were not mentioned in the assessment order, does not mean that they were not considered by the AO before passing the assessment order. In fact the assessee did furnish explanations in respect of various items called for by the AO and since these explanations were accepted, the AO deemed it fit to complete the assessment without mentioning these details in the assessment order. Moreover, certain points which were not relevant for the assessment of the assessee-firm, were not mentioned in the assessment order. The omission to mention such details will not make the assessment order erroneous so as to justify the action under s. 263, it is stated by the learned counsel. The learned counsel further referred to a voluminous paper book filed before us containing the details of various orders passed by the authorities below at various stages of the proceedings and the correspondence between the assessee and the authorities....
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....roperly considered by the AO and found acceptable. The mere filing of the explanation does not necessarily indicate application of mind on the part of the AO. The assessment order does not show that the AO considered all the relevant materials before passing the assessment order. The learned Departmental Representative also referred to a number of decisions such as Sunanda Rani Jain vs. Union of India (1975) 99 ITR 391; 395 (Del) (sic), CIT vs. M.M. Khambatwala (1992) 198 ITR 144 (Guj), CIT vs. Emery Stone Mfg. Co. (1995) 126 CTR (Raj) 345 : (1995) 213 ITR 843 (Raj), Tarajan Tea Co. (P) Ltd. vs. CIT (1994) 117 CTR (Gau) 179 : (1994) 205 ITR 45 (Gau), etc. The learned Departmental Representative further pointed out that the CIT has only set aside the assessment order with a direction to do the assessment afresh and hence the order of the CIT does not deserve to be quashed but has to be upheld by the Tribunal. 8. We have considered the rival submissions and the evidence on record. The provisions of s. 263 insofar as it is relevant for the purpose of deciding the present appeal reads as under: "Sec. 263(1): The CIT may call for and examine the record of any proceeding under this....
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....so prejudicial to the interest of Revenue. In the case of the assessee-firm and its partners a search and seizure operation was carried out under s. 132(1) of the Act on 3rd Dec, 1987, during which besides various books of accounts and incriminating documents, the following unexplained cash and valuables were seized: Particulars From business premises Quantity Valued at (in Rs.) Rough diamonds 4,271.66 cts. 9,87,642 Polished diamonds 214.68 cts. 6,44,000 Cash - &nb....
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....in the submissions of the assessee-firm, the AO had not examined the issues relating to investment in two factories at Vishavadar society [Issue No. (viii) to the show-cause notice under s. 263 of the Act] and issue relating to investment of Rs. 1,50,000 in factory building with Kantibhai at Vishavadar society [Issue No. (xi) to the show-cause notice under s. 263 of the Act] even though highly incriminating evidence and information on those issues were forwarded to the AO by the ADI (Inv.). It is interesting to note that on these two issues the assessee-firm did not make any submission or offered any explanation even during the course of proceedings under s. 263 of the Act, in its written submissions or orally and avoided the twine issues entirely. On this score alone the assessment order passed by the AO is required to be set aside for re-completion of the assessment de novo, in accordance with law. It was incumbent on the part of the AO to have gathered and collected all the necessary information and clarifications from the assessee on various incriminating issues coming to the notice of the Department during the course of the search operation and after affording the assessee a r....
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..... The AO shall recomplete set aside assessment within a reasonable time, cutting short avoidable delays, so that, no undue financial hardship is caused either to the assessee or to the Revenue. 6. In the result the assessment order passed by the AO under consideration is set aside." 10. From the above it is clear that the CIT has pinpointed the various defects or omissions noticed by him in the assessment order before coming to the conclusion that the assessment order was erroneous and prejudicial to the interests of Revenue. Since the CIT has passed a speaking order giving solid reasons, the objection made by the learned counsel for the assessee is devoid of merits. 11. That apart, it is pertinent to observe that the CIT has not given any specific direction to the AO to make an addition to the returned income on any of the specific issues referred to in the show-cause notice. The entire matter is left open before the AO. If it is the assessee's case that the necessary explanation was furnished before the AO in the initial proceedings, the assessee is free to reiterate the submissions in the fresh proceedings before the AO. In respect of all items which are not pertaining ....