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Issues Involved:
1. Whether the Commissioner is empowered to exercise jurisdiction under section 263 of the Income-tax Act, 1961, in respect of orders passed by the ITO under section 132(5) of the Act. 2. Whether, on the facts and circumstances of the present case, the Commissioner rightly assumed powers under section 263. Detailed Analysis: Issue 1: Commissioner's Jurisdiction under Section 263 The first issue is whether the Commissioner can exercise jurisdiction under section 263 concerning orders passed by the ITO under section 132(5). Initially, both parties presented arguments on this point. However, the assessee's counsel eventually conceded that he did not wish to contest this legal proposition, as the ITO was in the process of finalizing the assessment. Consequently, the tribunal decided this issue against the assessee, affirming that the Commissioner was empowered to revise an order passed by the ITO under section 132(5). Issue 2: Commissioner's Assumption of Powers under Section 263 The second issue revolves around whether the Commissioner rightly assumed powers under section 263 based on the facts and circumstances of the case. Background and Proceedings: - The department conducted searches under section 132 at the assessee's premises, seizing gold ornaments and jewellery worth Rs. 1,70,900, while the total value found was Rs. 5,88,657. Additional items included cash, US Dollars, and silver ornaments. - The ITO initiated action under section 132(5), requiring the assessee to explain the possession and source of acquisition of these assets. The ITO accepted the explanations for most items except a diamond ring valued at Rs. 3,000, treating it as 'undisclosed income.' - The ITO's order estimated the total income at Rs. 92,043, determining additional tax and penalty at Rs. 5,826, to be discharged from the seized assets. Commissioner's Show-Cause Notice: - In October 1985, the Commissioner issued a show-cause notice under section 263, questioning the ITO's acceptance of the assessee's statements without proper verification, particularly concerning the jewellery and cash found in a locker. - The Commissioner highlighted discrepancies in the description and weight of the ornaments and questioned the ITO's acceptance of the assessee's explanations regarding gifts and purchases without detailed verification. Assessee's Response: - The assessee provided a written reply, addressing the points raised by the Commissioner. The reply included explanations about the reconciliation of ornaments' description and weight, payments to Alankar Jewellery, and gifts from the assessee's daughter's in-laws. - The assessee also explained the cash found in the locker, asserting it belonged to a partner, Shri Ratanlal Dhanraj, supported by a letter from him. Tribunal's Findings: - The tribunal examined the ITO's order and the Commissioner's objections. It noted that the ITO had conducted detailed enquiries within the constraints of the 90-day period mandated by section 132(5). - The ITO had considered wealth-tax returns, bills for new ornaments, and confirmatory letters from the assessee's daughter's in-laws. The ITO's acceptance of the cash explanation was also supported by evidence and a letter from Shri Ratanlal Dhanraj. - The tribunal found that the ITO's order was reasonable and detailed, given the time constraints, and that the Commissioner's concerns about the final assessment were misplaced. The ITO had made adequate enquiries and provided detailed reasons for his conclusions. Conclusion: - The tribunal concluded that the ITO's order under section 132(5) did not warrant interference by the Commissioner under section 263. The ITO had conducted a proper and reasonable enquiry, and the order was neither erroneous nor prejudicial to the interests of the revenue. - The tribunal quashed the Commissioner's order under section 263, allowing the appeal in favor of the assessee. Summary: The tribunal addressed two primary issues: the Commissioner's jurisdiction under section 263 and the appropriateness of assuming such powers in this case. The tribunal affirmed the Commissioner's jurisdiction but found that the ITO had conducted a reasonable and detailed enquiry within the constraints of section 132(5). Consequently, the tribunal quashed the Commissioner's order under section 263, allowing the appeal in favor of the assessee.
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