1992 (11) TMI 280 - HC - Income Tax

Summary

Issues Involved:
1. Legality of the Commissioner's action u/s 263 of the Income-tax Act.
2. Tribunal's decision to cancel the Commissioner's order.
3. Fresh assessment by the ITO following the Commissioner's order.
4. Tribunal's refusal to refer a question of law regarding the fresh assessment.

Summary:

1. Legality of the Commissioner's action u/s 263:
The Commissioner initiated action u/s 263, considering the ITO's assessment order erroneous and prejudicial to the interests of the revenue. The Commissioner observed that the ITO failed to investigate and analyze transactions with three parties, which were found to be fictitious. The Commissioner set aside the assessment and directed a de novo assessment by the ITO.

2. Tribunal's decision to cancel the Commissioner's order:
The Tribunal quashed the Commissioner's order, stating that the Commissioner did not establish that the ITO's order was erroneous and prejudicial to the revenue. The Tribunal emphasized that the Commissioner must be prima facie satisfied of the error and prejudice before setting aside the assessment.

3. Fresh assessment by the ITO following the Commissioner's order:
Following the Commissioner's directive, the ITO made a fresh assessment, adding Rs. 2,66,878 to the assessee's income. The Commissioner (Appeals) annulled this fresh assessment, as the Tribunal had set aside the Commissioner's order u/s 263. The Tribunal upheld this annulment.

4. Tribunal's refusal to refer a question of law regarding the fresh assessment:
The Commissioner moved an application u/s 256(2) to refer a question of law regarding the annulled fresh assessment. The Tribunal refused, leading to the present application before the High Court.

High Court's Judgment:
The High Court held that the Commissioner was correct in finding the ITO's assessment order erroneous and prejudicial to the revenue. The ITO's failure to discuss and record findings on substantial issues warranted the Commissioner's action. The Tribunal's view that the Commissioner should have recorded the findings himself was incorrect. The High Court answered the referred question in favor of the revenue, stating that the Tribunal's cancellation of the Commissioner's order was incorrect.

Regarding the fresh assessment annulment, the High Court noted the peculiar situation where the Tribunal's earlier order influenced subsequent decisions. The High Court directed the Tribunal to state a case and refer the question of law concerning the annulment of the fresh assessment for its opinion.