TaxTMI 
TaxTMI 
1993 (7) TMI 108
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..... In respect of the chit and the jewellery also, the ITO found that the assessee had no valid explanation. Therefore, he caused them to be assessed under section 132(5) by an order passed on 14th August, 1976. The ITO, subsequently, on the basis of the return, filed by the assessee, on 1-7-1977, proceeded to make the assessment. He completed the assessment on a total income of Rs. 14,974 on 20-2-1980. According to the CIT, the ITO, in making the assessment, did not consider the order, passed under section 132(5) and, therefore, did not consider the addition made amounting to Rs. 62,341 representing value of cash, value of jewellery and the amount mentioned in the chit, for which the ITO had held that the assessee had no valid source to explain. It is, on the basis of this order, that the CIT reached a finding that the assessment order, made subsequently by the ITO, on 18-2-1980, was erroneous, which was prejudicial to the interest of revenue. 4. It has been represented that similar orders were passed by the CIT in the case of Central Dry Cleaners [IT Appeal No. 133 of 1982] & Shri Inderjit Singh C/o Central Dry Cleaners [IT Appeal No. 135 of 1982]. Although we have upheld the or....
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....tion in para 538. A perusal of this para does not leave any doubt in our mind that the ITO had acted in an illegal and arbitrary manner disregarding the facts altogether. Inderjit Singh stayed at 5, Krishna Nagar, while the minor resided at 4, Krishna Nagar. It can be anybody's guess that he was not a member of the family of the minor, who are residing at 4, Krishna Nagar. In that para, reference is made to a sale by a guardian - ad hoc, i.e., by a separated uncle, who had never intermeddled or had acted as a guardian. The sale was held to be void. Therefore, we cannot find any support in law for the Act of the ITO in appointing Inderjit Singh as a guardian on his own authority. It was for a situation like this, where a guardian is not available, that the Income-tax Act provides for direct assessment of a minor and also for a direct recovery of the tax dues from him. We are unable to guess the reasons for which the ITO did not adopt this procedure and associated the minor directly to obtain his explanation and say in the matter and felt the need for appointing a guardian by his sweet and arbitrary will. In our view, the order passed under section 132(5) is a bad order in the eye of....
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.... view, there is no inter-connection between the illegality of the order under section 132(5) of the Act and the illegality of the order of CIT under section 263. It is not a situation where an addition made in a quantum assessment becomes relevant for the levy of penalty and thereby legality of an assessment in quantum will affect the legality of the penalty imposed. The order of the CIT was purporting to refer to the omission of the ITO at the assessment stage to note the material come to light as a result of search and its subsequent processing under section 132(5) of the Act and the quantum of unexplained income considered therein. The more important fact in these circumstances is what the search uncovered and that information was to be considered by the ITO while framing the assessment for the accounting year in which the search took place. The material brought to surface will be relevant for determining the assessee's income liable to tax for the concerned assessment year. Looking into the order under section 132(5) could shorten the labour of the ITO in the event the assessee could successfully explain a part of the material seized. It is not that the assessment cannot be fra....
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.... objection was not dealt with. 3. In the aforesaid order under section 132(5), the Assessing Officer had proposed to make the following addition in the assessment year 1977-78: Rs. (i) Out of cash found Rs. 18,430 a sum of Rs. 12,000 remained unexplained in proceedings under section 132(5) 12,000 (ii) One chit was found in the box containing jewellery on which there was mention of cash of Rs. 17,000 which was missing from the said box [para 6 of order under section 132(5)] &nbs....
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....r-sheet recording day-to-day proceedings of the regular assessment, the various papers filed by the assessee in the course of regular assessment proceedings and the office in the case of the firm, given by the ITO, it is amply clear that the ITO never considered the said order under section 132(5) made by the ITO, Distt. II(ii). Amritsar in the case of the assessee as well as in the case of the firm, he never called upon the assessee to explain the reasons for not treating the said amounts as concealed income of the assessee, the assessee also did not tender any explanation to that effect in the course of the regular assessment proceedings. It cannot, therefore, be said that this aspect of the matter was considered by the ITO and that after considering the explanations as satisfactory, he treated the said amounts as fully explained. Thus the fact remains that the ITO simply omitted to consider and apply his mind to the unexplained cash and other articles determined as concealed income for the assessment year 1977-78. 7. In view of the foregoings, I hold that in making the order of regular assessment under section 143(3) dated 20-2-1980 for the assessment year 1977-78, the ITO om....
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....d an order cancelling order passed under section 263 of the IT Act. 8. The learned Accountant Member was unable to share the conclusion of the learned Judicial Member to allow the appeal on the ground that order passed under section 132(5) is bad in law and consequently order under section 263 should be cancelled. He observed that the point regarding the order under section 132(5) in the present form was not raised by the assessee nor replied to by the Revenue. He was of the view that it would have been better to refix the matter to hear the parties on above point, but as learned Judicial Member did not agree to above approach, the learned Accountant Member expressed his opinion on the issue involved. After reproducing para 7 of the order of CIT (quoted above), he observed that there is no interconnection between the illegality of order under section 132(5) and the legality of order of CIT under section 263. The order of CIT purported to refer to the omission of the ITO at the assessment stage to note the material came to light as a result of search and its subsequent processing under section 132(5) of the Act and the quantum of unexplained income considered therein. The informa....
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.... Member was not correct in deciding the issue in favour of the assessee without affording any opportunity to the revenue to explain its case. As far as CITs order was concerned, no principle of natural justice was violated in this case and observations to above effect of learned Judicial Member on facts were unjustified. At any rate, the CIT in the impugned order did not ask the Assessing Officer to follow order under section 132(5) but only directed him to consider the material recovered at the time of raid and referred to in the said order. Even without any order under section 132(5), the Assessing Officer was duty-bound to consider the gathered material and in not taking account of the said material in the regular assessment order, committed an error, which caused prejudice to the interests of the Revenue. Shri Arora thus justified and supported the order of the learned Accountant Member. 10. I have given careful thought to the rival submissions of the parties. Having regard to the Scheme of the Income-tax Act, 1961, as a whole with particular referred to, the provisions of section 132 and those relating to regular assessment in section 143 or 144, the two in my view have dif....