1986 (6) TMI 20 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Commissioner of Income-tax u/s 263(1) of the Income-tax Act, 1961.
2. Adherence to the principles of natural justice by the Commissioner.
3. Basis of the Commissioner's order on surmises and conjectures.
4. Validity of the Tribunal's reliance on the case of Smt. Rambha Devi v. ITO.
5. Mechanical nature of the Commissioner's order for the assessment year 1973-74.
6. Validity of the consolidated order passed by the Commissioner for the assessment years 1968-69 to 1973-74.

Summary:

Jurisdiction of the Commissioner of Income-tax u/s 263(1):
The core question was whether the Commissioner's jurisdiction u/s 263(1) was ousted by a scheme envisaged by the Central Board of Direct Taxes (CBDT). The court held that the scheme did not cover ladies and minors, and the Income-tax Officer's assessments without proper enquiry into the initial capital were erroneous and prejudicial to the interests of the Revenue. The Commissioner was justified in setting aside the assessments and directing further scrutiny.

Adherence to the Principles of Natural Justice:
The Tribunal held that the Commissioner did not follow the principles of natural justice. However, the court found this reasoning fallacious, as the affidavits and written statement provided by the assessee did not address the crucial question of the source of initial capital. The Commissioner was within his rights to reject the affidavits without further examination.

Basis of the Commissioner's Order on Surmises and Conjectures:
The Tribunal's view that the Commissioner's order was based on surmises and conjectures was rejected. The court stated that applying common sense, the Commissioner was justified in inferring that the funds might have been provided by the assessee's husband, and the absence of direct evidence did not preclude such an inference.

Validity of the Tribunal's Reliance on the Case of Smt. Rambha Devi v. ITO:
The Tribunal's reliance on the decision in the case of Smt. Rambha Devi was found to be incorrect. The court noted that the scheme did not apply to ladies and minors, and the Tribunal's decision was based on a misinterpretation of the scheme's applicability.

Mechanical Nature of the Commissioner's Order for the Assessment Year 1973-74:
The Tribunal's assertion that the Commissioner acted mechanically in setting aside the assessment for the year 1973-74 was dismissed. The court held that the assessment for this year was outside the scheme period and had to be conducted under regular procedures, making the Commissioner's order valid.

Validity of the Consolidated Order Passed by the Commissioner:
The Tribunal's cancellation of the consolidated order passed by the Commissioner for the assessment years 1968-69 to 1973-74 was overturned. The court held that the assessments were erroneous and prejudicial to the Revenue, and the Commissioner was justified in exercising his jurisdiction u/s 263.

Conclusion:
All questions referred to the court were answered in favor of the Revenue and against the assessee. The Tribunal erred in setting aside the Commissioner's order, and the references were answered against the assessee with costs.