TaxTMI 
TaxTMI 
2000 (5) TMI 160
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....nce with the s. 263, Explanation cl. (b), of the IT Act, 1961. 4. The order passed under s. 263 by the CIT, (Central) Kanpur, is without jurisdiction as the CIT failed to appreciate that the order of assessment dt. 27th March, 1997, had merged with the order of the CIT(A) for the asst. yr.1994-95 and that the order under s. 263 passed by the CIT was contrary to the provisions of s. 263 Expln. cl. (c) of the IT Act, 1961, and that the CIT(A) in the appellate order for asst. yr. 1994-95 had considered the matters in respect of which the order under s. 263 has been passed, as issue of deposits as well as, interest payable on them was subject-matter of appeal before the CIT(A) and consequentially the CIT had no jurisdiction under s. 263 for revising the assessment order on that issue. 5. The CIT ought to have considered while framing the order under s. 263 that the assessment had been framed by the AO after making all necessary enquiries and after considering the law applicable in the circumstances of the case and therefore, the order of assessment was not passed in undue haste and without proper enquiry and therefore, such order could not be considered as erroneous within the mean....
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....oundwise we, after hearing the arguments for both the parties, are of the opinion that the issues raised by the appellate can be dealt with and adjudicated upon by way of decisions of following issues formulated by us. Issue No. 1 Was the notice under s. 263 of the Act dt. 22nd Feb., 1999, issued without proper examination/consideration/perusal of assessee's assessment records by the CIT, and therefore, there was no application of mind as well as exercise of quasi-judicial discretion and judgment by the CIT and, if that being the case, were the notice under s. 263, dt. 22nd Feb., 1999, and consequently the order under s. 263, dt. 22nd March, 1999, bad in law and void ab initio. Issue No. 2 Was the assessment order dt. 27th March 1997, was neither erroneous nor prejudicial to the interest of the Revenue, as claimed by the assessee? Issue No. 3 If the assessment order was erroneous so far as prejudicial to the interest of the Revenue, than the CIT having not given any reason as to how the action of the AO allowing the liability on account of interest payable on deposits under two schemes, namely, 'Golden Fixed Deposit Account' (called as GFDA) and 'Golden Growth Fund' (ca....
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....ions of the CIT leads to one and only one conclusion that the CIT had not applied his mind at all and this could be only because of any of the following situation namely (1) either the A's assessment records were not before the CIT or (2) if the assessment records were with him, he had not examined the same of his own. 2.1. Another submission in support of claim that CIT had not applied his mind or the assessment records were not before him, the learned Senior Advocate submitted that the CIT, while issuing notice under s. 263 of the Act on 22nd Feb., 1999, started with the contention that assessee had claimed interest on the defaulted and lapsed account as well as, on unclaimed matured accounts on which interest was not payable after the date of default/maturity, as the case may be, which is quite wrong on facts because in case of both the deposit schemes, namely, GFDA and GGF, there was no question of any lapsed or unclaimed matured account and in support of this he referred to the terms and conditions of both the schemes (certified copies furnished before the Bench), which are made Annexures 'A' and 'B' to this order. 2.2. Referring to the GFDA Scheme, the counsel, after refe....
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....sequently, the jurisdiction assumed by the CIT for passing an order under s. 263 was also illegal. According to the learned council the jurisdiction to issue notice under s. 263 had been assumed illegally, the order passed under s. 263 on 22nd March, 1999, was bad in law and void ad initio. 3. The learned standing counsel, Shri A.N. Mahajan, on the other hand, disputed the assessee's claim that CIT had not considered the assessee's assessment records or that the same were before the CIT and pleaded that notice under s. 263 was issued on 22nd Feb., 1999, by the CIT after due examination of assessee's assessment records and, therefore, the assessee's claim is unfounded and this was supported by the claim that a proposal from Asstt. CIT (CCI), Lucknow, was received by Fax on 22nd Feb., 1999, and the notice was issued later on the same day. The learned standing counsel alternatively submitted that under the law it is not necessary that the CIT should examine the assessee's records himself before issuing a notice under s. 263, the records can be examined by the subordinate staff also. He, therefore, submitted that the notice under s. 263, issued on 22nd Feb., 1999, and consequently, t....
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....sessee. As a result of detailed investigation so conducted, the AO had come to the conclusion that 50 per cent of the total deposits collected by the agent, which came to Rs. 74,47,02,000 were not genuine and liable to be added in the hands of assessee-company by virtue of provisions of s. 68. 4.4. While drafting the assessment order of the present assessee, the AO accepted the details relating to the investigation on this account carried on and being a part of assessment order of M/s Sahara India Firm for asst. yr. 1994-95 reproduced in paras 3.4 to 3.21 of the assessee's assessment order, as investigations with reference to the genuineness of the deposits in assessee's hands also. 4.5. As per para 3.20 of the assessment order of M/s Sahara India firm so accepted by the AO and made a part of present assessee's assessment order, the issue relating to the genuineness of deposits under the two schemes was concluded as under: "3.20. Inasmuch as the assessee-company has claimed to collect deposits which are largely not open to verification and there is not enough of evidence to establish genuineness of deposits regarding the source of money, addition of 50 per cent of deposits du....
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....nt, namely, Sahara India Firm. The AO came to the conclusion that the interest bearing funds had been utilised for non-business purposes and since the assessee has born the burden of interest, the interest bearing deposits to this extent have not been used for assessee's business. Consequently, the AO added an amount of Rs. 60 lacs after calculating the notional interest income @ 24 per cent on interest-free loan of Rs. 2.5 crores. 4.8. On appeal by the assessee, the CIT(A), as per his order dt. 1st Jan., 1999, decided the issues relating to the aforesaid four disallowances/additions as under: (i) The issue relating to disallowance of an expenditure of Rs. 5,35,29,440 out of claim of expenditure on account of interest payable on deposits under the two schemes has been set aside for fresh disposal because the issue relating to genuineness of deposits to the extent of Rs. 74,47,02,000 has been set aside by him. (ii) The disallowance of Rs. 34,96,173, additions of Rs. 21,09,011 and of Rs. 60 lacs have been deleted as per paras 65 and 76 of his order. 5. Since there was dispute amongst the parties on the point of examination of assessee's assessment records by the CIT on or bef....
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....2. Notice under s. 263 2 3. Fax copy of the proposal under s. 263 sent by the AO 3-4 4. Postal copy of the proposal under s. 263 5-6 5. Order under s. 263 of the CIT (Central) 7-8 6. Assessee's reply to show-cause notice under s. 263 Annexures 9-17 5.2. Letter No. F. No. Dy. CIT (J)/CIT(C)/Misc./99-2000, dt. 23rd Sept., 1999, signed for the CIT by Dy. CIT (Judicial) and enclosed at p 1 of Departmental Representative's aforesaid letter reads as under: "F. No. DCIT(J)/CIT(C)/Misc/99-2000/dt. 23rd Sept., 1999 By Speed Post To The Sr. Authorised Representative, Income Tax Appellate Tribunal, Allahabad. Sir, Sub: ITA No. 509 in the case of M/s Sahara India Mutual Benefit Co. Ltd.—hearing held on 14th Sept., 1999 before the Tribunal 'A' Bench, Allahabad. Kindly refer to your letter F. No. Sr. AR/ITAT/All/99-2000/dt. 14th Sept., 1999, on the subject mentioned above. In this connection, I am sending herewith certified copy of the notice under s. 263 of the IT Act dt. 22nd Feb., 1999, a copy of the AO's report received through fax on 22nd Feb., 1999, recommending action under s. 263, written submissions of the assessee and the copy of order under s. 263 ....
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.... Representative Mr. Dogra, appearing on behalf of the Revenue, admitted that (i) proposal for initiating proceedings under s. 263 in case of the assessee under reference for asst. yr. 1994-95 was received by the CIT through fax at 3.15 P.M. on 22nd Feb., 1999, without any enclosure and notice under s. 263 of the Act was issued on the same day, i.e., 22nd Feb., 1999, (ii) the AO had not sent either assessment order or assessee's assessment record for asst. yr. 1994-95 to the CIT either along with the proposal sent by fax or along with the copy of the proposal sent by post, (iii) there was no record of meeting of CIT with AO as well as, of the discussion between them, and (iv) there was no evidence to show that availability of assessee' record with CIT. 5.5. Since the requisite information/record was not furnished and to avoid retraction on the part of the Revenue from the admission made by the learned senior Departmental Representative, he was again directed to produce the file relating to the proceedings under s. 263 in the assessee's case, maintained in CIT's office along with the order sheet and the hearing was adjourned to 30th Nov., 1999. On 30th Nov., 1999, the learned senio....
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.... the CIT and that the CIT had not examined assessee's assessment records even till the passing of the order under s. 263. On this, the learned senior Departmental Representative once again reiterated his admission made on 25th Nov., 1999. 5.7. After admission by the learned senior Departmental Representative twice first on 4th Oct., 1999, and again on 3rd Dec., 1999, that the AO had not sent assessee's assessment records or even assessment order for asst. yr. 1994-95 to the CIT and that there was no evidence with respect to either CIT's meeting/discussion with the AO or availability of assessee's assessment records or assessment order before the notice under s. 263 was issued or even thereafter till passing of order under s. 263, it was quite easy/convenient for the Tribunal to hold that CIT had not examined the assessee's assessment records at any time of the proceedings till the passing of the order under s. 263 of the Act but since the matter was likely to result in serious consequences and also was related to the working in the office of almost seniormost authority of the Department, i.e., the CIT, and there being no communication from the CIT himself and also the fact that....
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....arned CIT Camp Kanpur For 9th March, 1999. The notice of hearing was taken to Lucknow. By the learned CIT himself. Hence, if approved, the letters may be kept in file. Submitted please. Sd/-ACC(T) Sd/- ITO 26-2-1999 15th March,1999 Sri J.J. Mehrotra, authorised representative and Shri R.K. Singh, Controller Finance, attend. Filed written submissions. Discussed. 22nd March, 1999 Order under s. 263 passed. Sd/-" 6. We have considered the rival submissions, facts and circumstances of the case, documents furnished by the learned Sr. Departmental Representative, the contents of letter written by the Dy. CIT (Judl) on behalf of the CIT, Kanpur, dt. 23rd Sept., 1999, proposal sent by the AO, provisions of s. 263 and also the case laws available on the point of prerequisite condition/requirement of examination of assessee's records before issuing a notice under s. 263 or passing of the order under s. 263 of the Act. 6.1. Considering the totality of the circumstances, so far as, the availability of evidence with the Revenue with respect of its claim that the CIT had, before issuing notice under s. 263 or before passing order under s. 263 of the Act, examined the assessee....
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....ng/discussion of the CIT with the AO. (vii) That the learned Sr. Departmental Representative was not aware of the evidence for receipt of assessee's assessment record or assessment order for asst. yr. 1994-95 by the CIT because he has not been supplied with any evidence in this respect. 6.3. If the Revenue's stand till 16th Dec., 1999, on the one hand and the stand taken as per letter dt. 15th Dec., 1999, furnished on 16th Dec., 1999, and the photocopy of a loose sheet claiming the same to be an acknowledgement for return of assessee's assessment records for asst. yr. 1994-95 by the CIT on 17th March, 1999, on the other hand, is considered, then every prudent man will come to one and the only conclusion that there was something wrong in the stand taken by the Revenue i.e., either the stand taken prior to 16th Dec., 1999, was correct or the stand taken thereafter was correct and to decide the issue, we have once again to consider the nature of the proceedings and the documents maintained for such proceedings. 6.4. It is well known and settled principle of law that the proceedings under s. 263 of the Act before the CIT are quasi-judicial and as per the law every authority, whil....
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....O (1959) 36 ITR 350 (SC). In this case, the Hon'ble apex Court was to consider the meaning of the word 'record' appearing in the provisions of s. 35 of the 1921 Act (corresponding to s. 154 of the IT Act, 1961), under which rectification of mistakes apparent from the records was permitted. The Hon'ble apex Court, while considering the meaning of the term 'record' contemplated by s. 35 (a term similar to that used in provision of s. 154 as well as, s. 263 of the IT Act, 1961) held that 'the record' contemplated by s. 35 does not mean only the order of assessment but it comprises of proceedings on which the assessment order is based. 6.9. In view of above discussion and the decision of the Hon'ble Supreme Court, we are of the opinion that the records, as contemplated under s. 263, do not mean only an assessment order but it comprises of proceedings on which the assessment order is based. 6.10. In view of above facts and circumstances, we are of the opinion that the Revenue has failed to establish the availability as well as examination of assessee's assessment records—even assessment order, by the CIT before issuing a notice under s. 263 of 22nd Feb., 1999. The availability the....
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....appeal. (2)...... (not relevant) (3)...... (not relevant) 7.1. From the analytical examination of the provisions of s. 263, it is gathered that features of the power of revision granted by s. 263 are: (i) The CIT may call for and examine the records of any proceedings under the Act. The stage upto the calling of the records is an administrative act but examining of the same by the CIT is a quasi-judicial function. (ii) On examination of such records, the CIT may consider any order passed by the AO as erroneous insofar as, prejudicial to the interest of the Revenue and such a consideration is only after having come to be satisfied on this account and the stage of coming to the satisfaction is also a quasi-judicial stage. (iii) After complying with the aforesaid two stages, the third stage, which is again quasi-judicial in nature in view of the principles of natural justice, is to give an opportunity of hearing to the assessee and also to make enquiries, if need be; and (iv) it is only after going through the aforesaid three stages of various nature that the power to reduce or enhance or modify or cancel any order passed by the AO and give directions for passing a fresh....
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....tion of application of mind by the CIT. In earlier case, i.e., in the absence of records nothing can be said to have been examined, whereas, in latter's case it may be examination of records by the subordinate but the CIT cannot be said to have examined the records if he simply proceeds with the proposal. 7.4. From the above discussion, we are of the opinion that what follows from the legal provisions is that the CIT, before assuming lawful jurisdiction to proceed with the proceedings under s. 263 of the Act, must comply with the following: (i) Assessee's records, which have culminated into passing of the order to be revised must have been before the CIT. (ii) It is the CIT and CIT alone himself who must examine such records, and (iii) After such examination, must have applied his mind before coming to the satisfaction for lawful exercise of quasi-judicial functions. 7.5. Since the lawful assumption of jurisdiction is the stage before issuing a notice under s. 263, so the aforesaid three conditions, which, in our opinion are mandatory prerequisite conditions, must be complied with even before issuing a notice under s. 263. In other words, if in a given case it is found as....
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....the question of satisfaction of the CIT with regard to the erroneousness or prejudicial nature of the assessment order do not arise at all and even if it is assumed to be, then the same cannot be said to be in accordance with the provisions of law, which otherwise means that the assumption of jurisdiction by the CIT, Kanpur, for proceeding with the proceedings under s. 263—which were quasi-judicial in nature, was not in accordance with law and the same is the fate of subsequent proceedings, i.e., passing of order under s. 263. 10. Further the Revenue has taken the stand that records of ancillary actions such as discussions with the AO etc. had not been maintained. This plea is not ascertainable because the process of carrying on for the quasi-judicial proceedings is not one's private affairs. The proceeding under s. 263 of the Act being of quasi-judicial nature, the authority is duty-bound to maintain the complete record of each and every proceeding. Non-keeping of such records cannot be taken as carrying on of the proceedings; rather it leads to presume that no such proceedings were ever carried on. It is mandatory in Government offices to maintain the records of every outside....
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....d letter of the learned Sr. Departmental Representative dt. 15th Dec., 1999, which reads as: "The learned CIT has also desired that I may make a brief submission before your honours regarding the records being submitted. 2. All the cases of M/s Sahara Group are perused by the CIT(A) with due attention and concern and most of the deficiencies of the assessments come to light during scrutiny of the appeals and above during inspection and once drawbacks of the case are noticed, a report is either suo motto sent by the AO or the Addl. CIT/Jt. CIT and in some cases even by the CIT. Only later on, action according to the IT Act is initiated. 3. So far as, above two cases are concerned, the deficiencies regarding assessment were seen during judicial and administrative review and later on reports were received on which immediate action had to be taken since they were getting time barred. This would be seen from the note sheets also. 4. In conclusion, I may also point out that all the records available in the CIT's office are by themselves part of the proceedings and any action taken is supposed to be on the basis of records/evidence available", as well as, the so-called photostat....
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....or of the proposal and get himself satisfied with regard to the erroneous and prejudicial nature of the order likely to be revised. If the CIT does not comply with this mandatory requirement and proceeds blindly, i.e., simply on the basis of such reports/proposal having been received and fails to call for and carry on the examination of records before acting on such report/proposal, the assumption of jurisdiction to issue notice under s. 263 cannot be said to be lawful and consequently the notice under s. 263 so issued cannot be sustained—more so, because of the non-compliance of prerequisite mandatory requirement of examination of records by himself, absence of application of mind and exercise of quasi-judicial discretion, including satisfaction. The quasi-judicial powers of an authority cannot be controlled by any other authority. The proposition of ours is not only clear from the unambiguous provisions of s. 263(1) but is supported by the decision of the Hon'ble Supreme Court in the case of Sirpur Paper Mills Ltd. vs. CIT (1970) 77 ITR 6 (SC) and Calcutta High Court in case of Jiven Lal (1929) Ltd. vs. Addl. CIT 1976 CTR (Cal) 391 : (1977) 108 ITR 407 (Cal). 13.3. In the cas....
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....or directions shall be given by the Board so as to interfere with the discretion of the AAC of WT in the exercise of his appellate functions. It does not, however, imply that the Board may given any directions or instructions to the WTO or to the CWT in exercise of his quasi-judicial function. Such an interpretation would be plainly contrary to the scheme of the Act and the nature of the power conferred upon the authorities invested with quasi-judicial power." 13.4. The jurisdiction of the CIT for the purpose of s. 263 or s. 264 being as quasi-judicial as it is for the purpose of s. 25 of the WT Act and the prerequisite condition relating to examination of the records being the same, we are of the opinion that the CIT, while exercising his quasi-judicial discretion under s. 263 should not put himself in the control of any other authority—be it a superior or subordinate one. 13.5. Hence a question may arise that since in the case of Sirpur Paper Mill Ltd., the apex Court had set aside the order of the CIT and had directed him to decide the assessee's petition in accordance with law, the order of the CIT in the present case may also be set aside with similar directions but we a....
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.... ITO under s. 154 should not be rectified as being prejudicial to the Revenue. The company filed a writ petition challenging the said notice." On above facts, The Hon'ble Court held that: "(i) the power that the CIT exercises under s. 263 is a power in respect of the order of the ITO. The CIT has no power to revise the order passed by the AAC. When the assessment order of the ITO was rectified by him under s. 154 of the Act, the order in existence was the order as rectified. Vedentam Raghaviah vs. ITO (1963) 49 ITR 314 (Mad) and S. Authanari vs. ITO (1972) 83 ITR 828 (Mad) relied on. The application of the doctrine of merger depends on the nature of the appellate or revisional order in each case. If the original order of the ITO as rectified was the effective and operative order, the same was the subject-matter of appeal before the AAC and the AAC having passed the order thereafter, that was the only effective order and the original order had merged in that order. Therefore, the CIT had no jurisdiction to rectify the order [CIT vs. Teja Ji Farasram Kharawala (1953) 23 ITR 412 (Bom) relied on]. (ii) It was clear from the affidavit-in-opposition filed in this case that th....
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....T, Kanpur, without examination of assessee's records and application of his mind as well as, consequential satisfaction, which cannot be sustained. We, therefore, relying on the aforesaid decisions and in the facts and circumstances of the case, quash and set aside the notice under s. 263 dt. 22nd Feb., 1999, and since the CIT has passed an order in consequence upon issue of such notice, we set aside and quash the order under s. 263 dt. 22nd March, 1999, as well. 14.1. Before parting with the matter, we would like to deal with the Revenue's plea raised by way of furnishing a photocopy of two loose papers claiming the same to be acknowledgement for having returned the assessment records of the assessee and of another company by the CIT, Kanpur, on 23rd Feb., 1999, and 17th March, 1999, respectively. By filing these documents, the Revenue has tried, though of course, has not claimed specifically, to establish the availability of assessee's records with the CIT, Kanpur, on and before 17th March, 1999. The authenticity/correctness of this evidence being in doubt cannot be accepted because of the following reasons (observations). First of all, the Revenue till 16th Dec., 1999, had b....
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....Similarly, on other page there is no mention of number of volumes so far as entries for Kanpur are concerned but against entries of M/s Sahara India Savings and Investment Corporation Ltd., the words "received in one volume" are appearing. 14.3. For all the aforesaid abnormalities and absence of evidence for receipt of the assessee's records were received by the CIT, Kanpur, and, therefore, this piece of evidence is rejected being unreliable. Issue Nos. 2, 3 & 6 15. With regard to the issue that assessment order passed by the AO on 27th March, 1997, was neither erroneous nor prejudicial to the Revenue the learned Sr. Advocate Mr. Dastur, appearing on behalf of the assessee, submitted that an order passed by the AO can be said to be erroneous if it has been passed in disregard to the legal provisions or in haste without making proper enquiries and will be prejudicial to the interest of the Revenue if it is found that as a result of violation of any legal provision or failure of making proper enquiries the lawful tax due to the State has not been charged or has escaped or cannot be recovered. According to him, it is also not necessary that an order, which is erroneous, will als....
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....e two schemes on which assessee had claimed the expenditure on account of interest. 15.3. On the aforesaid facts, the learned counsel submitted that so far, as the issue relating to the allowability of expenditure on account of interest payable deposits under the two schemes was concerned, the total disallowance of interest expenditure was more than Rs. 6.51 crores (the total of above disallowances/additions) and, therefore, the action of the AO could not be said to be erroneous only if it was found after making enquiries as suggested by the CIT, later on, that the disallowance would have been more. The learned counsel, referring to his submissions made while arguing first issue, reiterated his stand that out of total collection in the current year of Rs. 1,52,94,04,000, the collection to the extent of Rs. 1,52,93,36,700 was under the fixed scheme, i.e., GFDA and there was no question of any lapsed or unclaimed matured accounts. The collection under the second scheme was only to the extent of Rs. 67,300 and the fact that pre-matured claim was permitted and the prematured period was (sic) there was no question of lapsed or unclaimed matured account under that scheme also. 15.4. ....
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....hich of the accounts were of that nature, before making such general observations. According to the counsel, it was incumbent upon the CIT first to establish as to how the order was erroneous and then to establish by specific reasons/instances that such order was prejudicial to the case of the Revenue. According to the counsel, the revision of an order with the purpose of making of specific enquiry only is permissible only if the impugned order is found to have been made without making proper enquiries or in haste; otherwise not. Coming to the assessee's case, the counsel submitted that it is now established fact that the order of the AO was passed neither in haste nor without detailed enquiries and, therefore, revision of such an order only for the purpose of making general enquiries cannot be sustained. 15.9. Adverting to the matter regarding the prejudicial nature of the assessment order, the learned counsel submitted that even if it is assumed for the sake of arguments that the AO had failed to make enquiries with respect to the disllowability/allowability of the interest, then such a failure may render an order erroneous but that by itself, in the absence of any other materi....
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....bligatory to make provision on the basis of terms and conditions of the scheme, is nothing but a bald and vague statement on the part of the CIT and the order passed under s. 263 based on such vague statement cannot be sustained. 15.12. According to the counsel, the CIT failed to ascribe the reasons for his conclusion and, therefore, the order under s. 263 cannot be sustained as valid and for this purpose relied on the decision in the following cases: (1) CIT vs. R.K. Metal Works, and (2) CIT vs. Late Sunder Lal. 16. The learned Departmental Representative, on the other hand, submitted that the assessment order being silent on the point of allowability of the interest on lapsed and unclaimed matured accounts—a fact to be found only after necessary enquiries, the assessment order was not only erroneous but was prejudicial to the interest of the Revenue and the CIT was justified in revising the same and directing the AO to do the needful. 17. We have considered the rival submissions, facts and circumstances of the case, the terms and conditions of the two schemes, the assessee's system of accounting and method for making provision for payment of interest, order under s. 2....
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....evenue's petition for reference. 18.2. At the same time, it is also the settled proposition that the order passed by the AO may be brief and cryptic but that by itself is not sufficient reason to hold the order as erroneous and prejudicial to the interest of Revenue and that is so because writing an order in detail may be a legal requirement but cannot render the order erroneous and prejudicial to the interest of the Revenue. This view is fortified by the decision of Hon'ble Allahabad High Court in the case of CIT vs. Goyal Private Family Specific Trust. (a) In this case, the assessee-trust, which was found under a trust deed by way of Smt. Sudha Agrawal with corpus of Rs. 500 for the benefits of the beneficiaries, mentioned therein, filed the returns of income for asst. yrs. 1979-80 and 1980-81 for the first time on 20th Feb., 1982, in the status of private trust. The ITO completed both the assessments in the same status. The assessment order for the asst. yr. 1979-80 was in the following terms: "Return filed declaring an income of Rs. 39,540. In response to a notice under s. 143(2), Shri D.K. Agrawal, CA, attended. Case discussed. This is a case of Goyal Private Family Spec....
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....re benefit of details. It the order is not erroneous, then it cannot be prejudicial to the interest of the Revenue. There is nothing to show in the order of the CIT that the ITO would have reached a different conclusion had he passed a detailed order. So, the conclusion of the CIT that the orders of the ITO are erroneous and prejudicial to the interest of the Revenue are based merely on suspicion and surmises in the absence of any enquiry having been made by him." 2nd para page No. 702 "In the income-tax assessments, all questions boil down to this, whether income has been properly determined and whether the correct rate of tax has been applied. The CIT does not say that the income was higher or that it was assessed on a wrong entity or at a low rate of that any exemption was wrongly allowed. In the absence of such a finding, the assessment orders cannot be said to be erroneous and prejudicial to the interest of the Revenue." 19.1. The next requirement, before the CIT can assume the jurisdiction under s. 263, is that such erroneous order should be prejudicial to the interest of Revenue and, therefore, coming to the 'prejudicial to the interest of Revenue' aspect of the order ....
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....red erroneous and prejudicial to the interest of the Revenue. The power conferred under s. 263 undoubtedly being of quasi-judicial nature, it is imperative on the CIT to explain as to the manner (state in what manner) the order of the AO was considered as erroneous and prejudicial to the interest of Revenue and what is the basis or material for such a conclusion. Though, s. 263(1) vests power in the CIT in the substantive term, but even when a statute (and enactment) vests discretion in any authority saying "if it appears", "if he is satisfied", "if he considers necessary", then also the authority has to judge the circumstances in an objective manner also, because use of the terms for vesting the power does not mean that it is a matter only of subjective satisfaction CIT vs. Shanti Lal Agarwalla (1983) 35 CTR (Pat) 304 : (1983) 142 ITR 778, 783 (Pat). 21.2. If the CIT fails to give a finding as to (in what) manner the order of the AO was erroneous and as to how it was prejudicial to the interest of the Revenue, his order is liable to be quashed. This proposition is fortified by the decisions of the Hon'ble High Court of Allahabad in the case of CIT vs. Kashi Nath & Co. and CIT vs....
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..... 1959-60 on 5th Sept., 1959, in response to a notice under s. 22(2) dt. 2nd May, 1959. In the return, he showed a net loss of Rs. 4,229. In Section D of the return, the assessee claimed that a sum of Rs. 1,02,500 received by him on retirement from the firm styled M/s Ram Kishore Sunder Lal & Co. (sic) and was, therefore, not includible in his income. The assessee died on 11th Feb., 1961, but the ITO completed the assessment on 6th Feb., 1964. The ITO did not include the amount of Rs. 1,02,500 in the income of that year on the ground that it was received in April, 1959, and as such, was to be considered in the asst. yr. 1960-61 only. The ITO, thereafter, assessed this amount as capital gain in the asst. yr. 1960-61. An appeal was filed by the assessee against the aforesaid inclusion and the AAC deleted the addition on the ground that the amount was assessable as capital gain in the asst. yr. 1959-60 and not in the asst. yr. 1960-61. The CIT being of the view that the order of the ITO for the year 1959-60 was prejudicial to the interest of the Revenue, issued a notice under s. 33B of the 1922 IT Act to Bankey Behari Lal, the legal heir of the deceased assessee, to show-cause why a....
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....an appeal to the Tribunal against the order of the AAC. It is settled law that an order passed by a quasi-judicial authority without giving any reasons for its conclusion is vitiated in law. The order passed by the CIT clearly suffers from this infirmity." (iii) The case of CIT vs. Goyal Private Family Specific Trust have already been discussed. As well as, the case reported in 167 ITR 129 (Raj), in para No. 17.2 and 17.1. (iv) In the case of CIT vs. R.K. Metal Works, an order of revision was passed by the CIT on the ground that the capital borrowed by the assessee-firm was not used entirely for purposes of the assessee's business. There was no indication in the order as to the basis on which the CIT came to the prima facie conclusion that the capital borrowed by the firm was utilised for purposes other than that of the firm's business. The CIT's order was set aside by the Tribunal. On a reference to the High Court, it was held that the Tribunal was right in law in setting aside the order passed by the CIT under s. 263. 22. In the light of above facts and circumstances, the decisions and by considering the terms and conditions of both the schemes extracted supra, we, now proc....
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.... assessee's claim of deduction on account of interest payable on deposits under these two schemes cannot be considered to be erroneous and prejudicial to the interest of the Revenue. 23.1. Coming to the next issue that the CIT having not specified any reason as to how and in what manner and to what extent the assessment was erroneous and prejudicial to the interest of the Revenue, we, in view of the decision of various High Courts, including the decisions of the jurisdictional High Court in case of Late Sunder Lal, are of the opinion that the order of revision made by simply making bald statement is not sustainable in law. The assessment order, so far as the issue relating to allowance of interest is concerned, has been passed after making proper and detailed enquiries and consequently it cannot be said to have been passed in haste also. 23.2. In view of the aforesaid facts and circumstances, we are of the opinion that the assessment order dt. 22nd March, 1999, so far as the issues raised by the CIT are concerned, cannot be said to be erroneous insofar as prejudicial to the interest of the Revenue and, therefore, the CIT was not justified in revising the same. Further, the CIT ....
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....l Properties Ltd. (Asst. yrs. 1985-86, 1986-87 and 1987-88) dt. 23rd Nov., 1993; and (7) Tribunal Bombay decision in the case of M/s Seamen's Ltd. for the asst. yr. 1987-88, dt. 21st July, 1999. 24.1. Explaining the facts and circumstances of the aforesaid cases with respect to the issues and the aspects, which were the subject-matter of appeals, the learned counsel derived the ratio of all these decisions with respect to the doctrine of merger. The ratio, as derived, according to the learned counsel, was that even if the appeal before the CIT(A) is only with respect to one or more aspects of the issue, it is the issue as a whole which will be said to be the subject-matter of appeal and not the aspects alone. 24.2. In view of the aforesaid submissions and ratio of the various decisions derived by him, the learned counsel submitted that so far as the case before the Tribunal is concerned, the issue before the AO was the "allowability of deduction of expenditure on account of interest payable on deposits received by the assessee under the two schemes, "which could be dealt with by the learned AO from various angles, i.e., could be dealt with respect to various aspects of this i....
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....e assessee had gone in appeal before the CIT(A) with respect to those aspects, which is not so because while considering the allowability of assessee's claim the AO had duly considered the genuineness of the deposits received during the years, quantum of the deduction claimed by the assessee and disallowable portion of assessee's claim and, therefore, it was the issue as a whole which in this case was the assessee's claim of deduction of expenditure on account of interest payable on deposits under these two schemes, which was the subject-matter of appeal before the CIT(A). Similarly, the allowance of assessee's claim of deduction on this account by the AO clearly confirms that assessee's claim was allowed after considering the aspects relating to the allowability on accrual basis. Had it not been the case, then the AO would not have allowed the claim rather would have disallowed the whole claim. In view of these facts, the assessment order with respect to this issue had merged with the order of the CIT(A) [on 1st Jan., 1999, i.e., the date of the order of the CIT(A)]. That being the case, the CIT, on 22nd Feb., 1999, had no jurisdiction to exercise his powers of revision vested by ....
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....id not deposit the admissibility of the deduction on accrual basis. The AO, however, disallowed part of assessee's claim on the basis of other aspects as detailed below: (i) An expenditure of Rs. 5,35,29,140 being the proportionate liability on account of interest payable on deposits worth Rs. 74,47,200 out of total deposits of Rs. 1,52,94,04,000 received during the current year because the deposits to that extent were considered as ungenuine and had been added but assessee's income by invoking, the provisions of s. 68 of the Act. (ii) The AO disallowed an interest amounting to Rs. 34,96,173 out of assessee's total claim of interest on this account by holding that an amount equal to the average balance of Rs. 23,30,78,196 has always remained with the assessee's collecting agent M/s Sahara India Firm, of which no interest was being charged by the assessee, meaning thereby that the expenditure to this extent was disallowed because, according to the AO, the interest bearing deposits to the extent of average balance remaining with the collecting agent were without interest, i.e., were not used for assessee's business (iii) The AO, further added a notional income of Rs. 21,09,011 ....
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....5 had held that the building in question was of second class and depreciation was allowable at 5 per cent, and allowed depreciation @ 5 per cent of such WDV. (ii) Dealing with these contentions, the AAC inter alia observed as under: "7. The next contention relates to an alternative ground, ground No. 6, where the rate of depreciation is disputed. Here it is contended that the ITO was not justified in disallowing Rs. 9,74,788 by taking the allowance of the depreciation at 5 per cent as claimed by the appellant. It is contended that the ITO has allowed depreciation @ 2.5 per cent only and the same rates should be taken for disallowance under s. 40(a)(v) taking the depreciation in that manner." (iii) After this appeal to the AAC, which was disposed of on 3rd April, 1974, the CIT issued a notice dt. 5th March, 1975, under s. 263 except to this very assessment year, i.e., asst. yr. 1970-71 and in paras 3 and 4 of the notice stated as under: "In the said notice, in paras 3 and 4, it was further stated: "3. In view of what has been stated in the preceding paragraph the order of ITO under s. 143(3), dt. 24th March, 1973, appears to be erroneous insofar as it is prejudicial to the....
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....ppeal was preferred by the assessee. This jurisdiction of the AAC is indisputable. In this case the question is whether the quantum of allowance or disallowance or depreciation was the subject-matter of appeal or not. It is true that whether depreciation should be calculated on the basis of 12 months or it should be calculated on the basis of 11 months was not a specific aspect which was agitated before the AAC nor did he give any direction on this aspect of the matter but he had this aspect kept open for adjudication by him even though not taken by the assessee. Then, on that, he could have allowed 5 per cent or 2.5 per cent depreciation and should have directed the ITO to compute the same on such basis as he considered fit and proper, namely, 11 months or 12 months on the view that the employee of the assessee was on leave for one month and as such could not be said to be entitled to this accommodation. If that is the position, then, in our opinion, once the appeal has been preferred before the AAC on any aspect of the quantum of depreciation, the CIT cannot assume jurisdiction, otherwise an anomalous position would arise. The ITO has been directed by the AAC to fix depreciation ....
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....sible to verify the book results and that it was necessary to ascertain the book results on the basis of estimates. The gross profit shown by the petitioner in respect of construction business was 13.77 per cent, 14.63 per cent and 16.35 per cent for the three years, respectively, while the ITO estimated it at the flat rate of 17.5 per cent for all the years. The gross profits shown by the petitioner in respect of electrical business was 11.64 per cent, 11.82 per cent and 22.87 per cent, respectively, for the relevant assessment years and that was estimated by the ITO at 12.5 per cent for the first two assessment years, while retaining the gross profit shown by the petitioner for the last assessment year. (ii) The petitioner carried three appeals against the orders of assessment passed in respect of the three assessment years before the AAC of IT. The AAC by order dt. 10th Feb., 1977, deleted the addition of Rs. 8,486 and Rs. 16,558 for the asst. yr. 1972-73 in respect of electrical and construction business. For the asst. yr. 1973-74, relief of Rs. 9,463 in respect of electrical business and Rs. 56,323 in respect of construction business was granted. For the asst. yr. 1974-75 re....
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....cause of the decision of the ITO that the gross profits disclosed by the assessee could not be accepted in the absence of day-to-day Stock Book, and, therefore, gross profit has to be ascertained by estimate. It is, therefore, obvious that on this aspect of the matter, the CIT should not have exercised revisional powers." 26.3. CIT vs. Goodricke Group Ltd. (i) Shortly stated, the facts are that the CIT exercised his jurisdiction under s. 263 of the IT Act, 1961, in respect of the asstt. yr. 1977-78 as, according to him, the order passed by the ITO was erroneous, inasmuch as, the ITO came to the conclusion that only 7/12th of the head office expenses should be taken into account for disallowing the expenses as provided under s. 44C. He also observed that the ITO erred in calculating the correct amount of disallowance. According to the CIT the order of the ITO was erroneous and prejudicial to the interest of the Revenue. He initiated proceedings under s. 263. The assessee protested against the proceedings initiated by the CIT. Amongst other things a point was raised that the CIT(A) heard the appeal filed by the assessee which was disposed of and, therefore, the CIT cannot exercis....
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.... In response to s. 263 notice the assessee raised several objections before the CIT. Inter alia, they are that the assessment had already merged with orders passed by the learned CIT(A); that the assessment orders were not prejudicial to the interest of the Revenue and that the amount received by the assessee from its shareholders did not partake the character of rent as it was only a reimbursement of expenses made by them to the assessee-company and finally that in law it were the shareholders occupying the flats who were real owners thereof and as such there was no question of the liability of the payment of any income from house property by the assessee-company. (iii) The learned CIT disagreed with the assessee on all counts. To be stated succinctly, despite the first appeals, in the view of the CIT, the issues before him were different than the subject-matter of the appeals before the CIT(A). (iv) On the aforesaid facts, the Hon'ble Bench, after giving the details regarding the dates of various orders and considering the provisions of s. 23 of the Act, held as under: "As per the learned CIT the issue in the appeals before the learned CIT(A) related to the deduction of mun....
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....d with law or not. The scope for our consideration is rather limited, namely, as to whether the issue raised by the assessee in the three appeals before the CIT(A) and the one stated to be opened by the Administrative Commr. on the scrutiny of the assessment records were similar or dissimilar. Surely at both the ends the subject-matter was the correct determination of the annual value of the property in question. 11. Once this appeal was examined by the CIT(A) the assessment order rendered by the AO ceased to exist and got merged in the appellate order which cannot be subjected to any revisional jurisdiction. In saying so get support from various authorities, to mention the one on which reliance has been placed by the assessee that is the Remex Constructions case referred to supra. 12. (In this para the Hon'ble Tribunal has discussed the decision in the case of Indian Oil Ltd.—reproduction not necessary) 13. Applying the aforesaid law, the contrary of which has not been brought to our notice at all, the issue before the CIT(A) broadly speaking was only the determination of the annual value of the property inasmuch as despite the claim of the assessee, the AO did not allow t....
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....ssessee's claim relating to the consideration of the export amounting to Rs. 22,66,000 as part of export turnover as envisaged in s. 80HHC. (iii) After the order of the CIT(A) dt. 30th Nov., 1990, the CIT, as per his order dt. 26th March, 1992, revised the assessment order and directed the AO to recompute the deduction allowable under s. 80HHC after including the amounts of sales-tax and excise duty collected amounting to Rs. 15,82,21,950 in the total turnover because, according to the CIT, the failure on the part of the AO to include this amount in the total turnover had resulted, while calculating the export provided in terms of s. 80HHC, in an order which was erroneous insofar as prejudicial to the interest of the Revenue. (iv) Before the Tribunal, the assessee's stand was that the deduction under s. 80HHC had been the subject-matter of appeal before the CIT(A), the assessment order cannot be revised by the CIT from including the amount of sales-tax in the gross turnover in exercise of powers under s. 263 because of the application of doctrine of merger and for this purpose had relied on the decisions in the case of Oil India Ltd. and Remex Construction. The Revenue's stand,....
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.... Remex Constructions relied upon by the learned counsel, cited supra, is also in favour of the assessee. In this case, the AO estimated the gross profit and it was the subject-matter of appeal before the CIT(A). Accordingly, it was held that the CIT did not have jurisdiction to revise the assessment under s. 263 on the ground that certain expenses were disallowable. In the light of these two decisions and also the decisions of the Tribunal cited by the learned counsel for the assessee, which we have referred to hereinbefore, we have to hold that the assessment order had merged with the order of the CIT(A) on the question of the deduction under s. 80HHC and accordingly, the CIT did not have jurisdiction to the assessment order under the provisions of s. 263 as admittedly, it is only the assessment order and not the appellate order which could be revised under s. 263." 27. After giving our thoughtful consideration to the rival submissions, facts and circumstances of the case and the ratio of the decisions, we are of the opinion that so far as the doctrine of merger, even after the amendment of the provisions of s. 263 is concerned, once any of the 'aspects' of an 'issue' is the sub....
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....e the subject-matter of appeal and consequently by virtue of application of the doctrine of merger, the order of the AO with respect to that issue as a whole will be said to have merged with the order of the CIT(A). This is the ratio of decisions discussed supra. 29. So far as, the assessee's case is concerned, as we have already said that the issue before the AO was the allowability of assessee's claim of deduction on account of liability for interest payable on deposits under the two schemes, the facts that AO had dealt only with one or few aspects of the issue and the fact that those aspects were only in appeal before the CIT(A) will not be hindrance for the applicability of doctrine of merger because in view of the ratio of various decisions supra it is the issue as a whole which has to be said to be subject-matter of appeal before the CIT(A) and not the aspects alone. 30. In view of above discussions, we are of the opinion that so far as the assessee's claim of deduction of liability on account of interest payable on deposits under the two schemes was concerned, it was, as a whole-including all aspects, such as accrual of the liability, quantum of claim, etc., subject-matt....