TaxTMI 
TaxTMI 
1990 (2) TMI 86
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.... and reads, inter alia, as below :--- " Return filed showing income of Rs. 1,12,800. In response to notice under section 143(2), the assessee attended. The assessee is a contractor. Audited copies of trading account, profit and loss account and balance sheet by Shri Arjun Kapoor & Co. have been filed. After discussion, total income is computed as under : Net profit as per P/L account Rs. 1,12,798 Add: subscription and donation Rs. 1,471 Out of car expenses 1/4th disallowed Rs. 2,715 Out of depreciation 1/4th disallowed Rs. 500 ------------------------------- Rs. 117,084 3,568 --------------------------------- Rs. 1,13,516 Rs. 1,13,520 " --------------------------------- (ii) Sometime after the aforesaid assessment had been completed, the CIT, Allahabad summoned the record of the assessee and discovered therefrom that the only material placed on record on the basis of which the assessment had been completed, consisted of copies of balance sheet trading and profit and loss account of the assessee and a chart of tax deducted at source. As per this chart, gross receipts of the contract were of Rs. 48,10,215 inclusive of the cost of cement and stee....
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....ies had been made, in the present case by the ITO and he accepted the accounts of the assessee in view of the fact that the same had been audited by a Chartered Accountant. According to him, a reading of the order would clearly indicate that the ITO had applied his mind to the audited accounts filed before him and it was after discussion of the said case with the assessee that the assessment, in question, had been completed by him. The CIT had not brought on record any material to show that there was some defect in the accounts and as to why the book results could not be accepted. If there were no defects in the books of account, the assessee's trading results, whatever they may be, including losses, had to be accepted, and this was no ground to set aside the assessment order that the net profit rate disclosed by the assessee this year was less than what was in earlier years. Then, pointed out the learned counsel for the assessee, the assessee had indicated several reasons for the decline in the gross profit rate this year in its reply to the show-cause notice under section 263. The CIT had not applied his mind to the said explanation of the assessee and, without examining the case....
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....ad) were different and that in all those cases there were facts on record to show that some enquiry was necessary before accepting the assessee's version. In the assessee's case there was nothing to suggest that an enquiry deserved to be made beyond what the ITO had already made. In the present case, the only charge of the CIT was the scrutiny of the accounts had not been done and that the books of account had not been looked into. According to the learned counsel for the assessee, this could not be the basis for action under section 263. Besides, he averred, the ITO had made proper scrutiny of the audited accounts of the assessee and books of account were also produced before him and, therefore, the reasons given by the Ld. CIT were not justified. The learned counsel for the assessee also drew our attention to the following authorities and submitted on their basis that the CIT could not have acted under section 263 on the basis of the reasons given by him in his order. 1. CIT v. R.K. Metal Works [1978] 112 ITR 445 (Punj. & Har.). 2. J.P. Srivastava & Sons (Kanpur) Ltd. v. CIT [1978] 111 ITR 326 (All.). 3. CIT v. Ratlam Coal Ash Co. [1988] 171 ITR 141 (MP). 4. CIT v. Ka....
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.... the interest of the Revenue was that the perusal of the records of the case indicated to him that, even though the past history of the assessee's case was that its accounts had not been accepted and that additions to the assessee's declared trading results had been made, yet the ITO had accepted without enquiry the net profit rate of 2.8%, which was much below the net profit rate disclosed in the assessee's own case in earlier years. According to the Ld. Commissioner, the ITO, faced with the past history of the assessee's case and with the fact that this year the assessee's trading results were the lowest, should have undertaken detailed enquiry to find out the causes of the decline in the gross profit rate. Inasmuch as he did not undertake this enquiry, there was an error in the order of the ITO, which was prejudicial to the interest of the Revenue. He perused for this purpose the material, which was placed on record by the assessee and also took note of the proceedings as recorded by the ITO on the order sheet showing the process through which the mind of the ITO was made up. Both these went to show that, except for some discussion of which there is no inkling either on the orde....
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....re called for in the circumstances of the case. " (Emphasis supplied) 9. It was pleaded by Shri G.C. Sharma in that case before their Lordships that there must be an enquiry from the Commissioner before he came to the conclusion that the order of the ITO was erroneous and that if he cancelled the order of the ITO without making further enquiries which might go to show that the order of the ITO was erroneous and prejudicial to the interest of the Revenue the action under section 263 would not be sustainable. The above plea was rejected by their Lordships of the Hon'ble Delhi High Court, who pointed out, with reference to the judgments of the Hon'ble Supreme Court in the case of Rampyari Devi Saraogi and Tara Devi Aggarwal that "it is not necessary for the Commissioner to make further enquiries before cancelling the assessment order of the ITO. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case, the ITO should have made further enquiries before accepting the submissions made by the assessee in his return ". After having stated as above, their Lordships elaborated the point further stating as follows :--- " The reason is obviou....
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.... the Hon'ble Delhi High Court in the above case as, indeed, they were duty bound, being situated within the jurisdiction of the said High Court, and a careful reading of the facts of the said case would clearly show that our learned brothers had examined the facts of that case very carefully and the reasons given by the CIT for setting aside the order of assessment and had thereafter given, a clear cut finding that the reasons given by the CIT could never justify the finding that the order of the IAC was erroneous and prejudicial to the interest of the revenue. In the opening paragraph of that order itself, our learned Brothers defined the task which they were facing in the said appeal, in the following words :--- " We felt the basic issue in this case is a pure question of fact to be takled for its answer on the question that we have set out above, namely whether an enquiry had been made into the various aspects necessary for making an assessment before completing the assessment by the IAC. " Our Brothers, therefore, in paragraph 2 of their order noted the five points, which were listed by the Commissioner to show that the necessary enquiries had not been made by the IAC (As....
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.... facts of that case, which were distinguishable, because the Commissioner himself was not sure in his mind in that case as to whether the order of the ITO was erroneous and prejudicial to the interest of the Revenue. That was a case where not only the ITO had not applied his mind, but even the CIT had not applied his mind to the declaration made by the assessee in part D of the return. 10. Let us examine the facts of the present case in the light of the above position in law. The Commissioner of Income-tax brought out in the present case the circumstances in which, according to him, enquiry should have been made by the ITO regarding the correctness or otherwise of the net profit declared by the assessee. As we have pointed out above, the Commissioner noted in this case : (i) That the assessee was a contractor whose accounts had not been accepted in earlier years; (ii) That in earlier years the question of adequacy or otherwise of the trading results of the assessee was adjudicated upon even by the Tribunal in respect of assessment years 1976-77 and 1977-78 and the Tribunal had applied the net profit rate of 5% as against the declared net profit rates of 3.3% and 4.8% respe....
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.... by the Commissioner. Here, the Commissioner has given direction to the Income-tax Officer to give proper opportunity to the assessee to substantiate its pleas as well as to cross-examine Dr. Vyas. Therefore, on the facts of this case, the Commissioner was not bound to make any enquiry before passing the final order and in substance no prejudice was caused to the assessee by failure of the Commissioner to give it an opportunity to cross examine Dr. Vyas. Therefore, on the facts of this case, the Commisioner was not bound to make any enquiry before passing the final order. . . ." In the present case, also no prejudice can be said to have been caused to the assessee by the failure of the Commissioner to go into the averments made by the assessee for the first time before him with regard to the reasons on account of which according to him, gross profit of the assessee was as low as 2.6% this year compared to what has been in earlier years. The Commissioner has directed the ITO to go into all that the assessee would have to show before him and then to determine the assessment in accordance with law. No prejudice can be said to have been caused to the assessee by such a direction. No....
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....to be prejudicial to the interests of the revenue, and that when both the ingredients namely, the erroneous nature of the order and its prejudicial nature are not present, action under section 33B (which is analogous to that under section 263 of 1961 Act) could not have been taken. In the present case, however, the facts clearly go to indicate that the Commissioner has held the order of the Income-tax Officer to be not only erroneous, but also prejudicial to the interests of the Revenue, because he has accepted the assessee's income, even though the assessee had shown lowest net profit rate this year, without making enquiries, when the facts of the case and the history of the case clearly indicated the need for an enquiry. The order of the Commissioner of Income-tax cannot, therefore, be said to be without jurisdiction. 11. The authorities which the assessee had relied upon have been examined by us in detail. Their facts appear to us to be different from those in the present case. Thus, in the case of R.K. Metal Works, their Lordships found that the order of revision, passed by the Commissioner, contained no indication as to the basis on which the Commissioner came to the prima ....