2004 (4) TMI 47 - HC - Income Tax

Order under section 263 - In the present case the Commissioner after taking into consideration the assessment order and material on record came to the conclusion that the order of the Assessing Officer is erroneous inasmuch as it is prejudicial to the interests of the Revenue. Hence, there was valid assumption of jurisdiction under section 263 of the Act by the Commissioner and the Tribunal has not committed any error of law in confirming the order of the Commissioner of Income-tax in setting aside the assessment order under section 263 and directing the Assessing Officer to make fresh assessment for the assessment year 1998-99 after ascertaining the fair rental values of the properties let out by the assessee to his sister concerns and after ascertaining the cost of construction in respect of the property - when a case is picked up for scrutiny surely the duty of the Assessing Officer is to do a thorough investigation

Issues Involved:
1. Validity of the assessment order under section 143(3) of the Income-tax Act, 1961.
2. Commissioner's power under section 263 to revise the assessment order.
3. Adequacy of the Assessing Officer's investigation and enquiry.
4. Jurisdictional validity of the Commissioner's order under section 263.
5. The Tribunal's affirmation of the Commissioner's order.

Detailed Analysis:

1. Validity of the assessment order under section 143(3):
The appellant's properties were jointly owned with his two brothers and rented out to a society for running an educational institution. The Assessing Officer completed the assessment for the year 1998-99 on March 9, 2001. The Commissioner of Income-tax set aside this assessment under section 263, stating that the assessment was prejudicial to the interests of the Revenue. The Commissioner highlighted that the Assessing Officer failed to investigate the correct income from house property, the loss brought forward from the earlier year, and the investment in the construction of the property. The assessment was deemed to be conducted in a routine manner without proper certification of the rental income against the fair market value.

2. Commissioner's power under section 263 to revise the assessment order:
The Commissioner concluded that the Assessing Officer completed the assessment in undue haste to avoid it becoming time-barred, without conducting the necessary investigations. The Commissioner directed the Assessing Officer to make a fresh assessment after ascertaining the fair valuation of the property and the cost of construction. The Tribunal dismissed the appeal against this order, affirming the Commissioner's decision.

3. Adequacy of the Assessing Officer's investigation and enquiry:
The Tribunal noted that the first hearing was scheduled for November 2, 1999, but no further hearings occurred until March 7, 2001, with the order passed on March 9, 2001. The Tribunal found that the Assessing Officer did not make a detailed enquiry to determine the correct income of the assessee, as required under section 143(3). The Assessing Officer admitted that he could not make proper enquiries due to time constraints. The Tribunal cited several precedents, including K. A. Ramaswamy Chettiar v. CIT and Malabar Industrial Co. Ltd. v. CIT, to support the view that failure to make a proper enquiry is erroneous and prejudicial to the interests of the Revenue.

4. Jurisdictional validity of the Commissioner's order under section 263:
The Tribunal held that the Commissioner was justified in setting aside the assessment order, as the Assessing Officer admitted to not making the necessary enquiries. The Tribunal rejected the appellant's contention that the Assessing Officer's office note, made after the assessment order, could not be the basis for action under section 263. The Tribunal emphasized that there is no statutory bar against making or relying on an office note. The Tribunal also noted that the inspector's report indicated discrepancies in the valuation and income details provided by the assessee.

5. The Tribunal's affirmation of the Commissioner's order:
The Tribunal found no error of law in the Commissioner's order, as the Assessing Officer failed to ascertain the fair rental values and the cost of construction. The Tribunal held that the Commissioner's order was valid under section 263, as it was based on a thorough examination of the assessment order and the material on record. The Tribunal also cited the Supreme Court's decision in CIT v. Shree Manjunathesware Packing Products and Camphor Works, which held that the Commissioner's revisional power under section 263 is of wide amplitude.

Conclusion:
The High Court dismissed the appeal, agreeing with the Tribunal's findings that the Assessing Officer did not conduct a proper enquiry. The court emphasized that assessments should be done thoroughly, especially in scrutiny cases, and urged the Central Board of Direct Taxes to issue appropriate circulars to ensure proper investigations by Assessing Officers. The judgment underscored the importance of detailed enquiries in assessment proceedings to prevent revenue loss.

Directive:
A copy of the judgment was directed to be sent to the Central Board of Direct Taxes and all Chief Commissioners and Commissioners of Income-tax in U.P. to ensure thorough enquiries in scrutiny cases and proper monitoring by superior officers.

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