2005 (8) TMI 280 - AT - Income Tax

Order passed u/s 143(3) r/w section 263 - 'erroneous' or 'prejudicial to the interest of revenue' - Additions To Income based on a mere statement - fundamental difference between the statement recorded under the provisions of section 132 and that of statement recorded u/s 133A - evidentiary value - HELD THAT - keeping in view the facts, it cannot at all be inferred that Assessing Officer while assessing the income at the returned figure had drawn any incorrect assumption of facts as there is no material on record to prove that assessee was engaged in any of the four activities on the basis of which the disclosure was made. It cannot be also said that he incorrectly applied the law in not making any addition to the returned income of the assessee as what can be lawfully assessed is the income earned by the assessee. The lawful assessment cannot solely based on statement particularly when assessee made the retraction and entire business affairs of the assessee were subjected to thorough investigation under the scrutiny assessment to be framed under the provisions of section 143(3) of the Act. Thus the assessment order passed by Assessing Officer under the provisions of section 143(3) cannot be said to be 'erroneous' within the meaning of section 263 of the Act as there was no incorrect assumption of facts, or incorrect application of law. Thus the first condition for invoking section 263 cannot be said to have been fulfilled. Similarly, to qualify an assessment order as an order being 'prejudicial to the interest of revenue', the order should cause lawful loss of tax to the revenue. That condition is also not fulfilled. In the present case, section 263 has been invoked on the ground that the income of Rs. 40 lakhs and Rs. 20 lakhs was assessable in the hands of assessee for assessment years 1993-94 and 1994-95 respectively on the basis of statement made by assessee during the course of survey u/s 133A of the Act. It has already been pointed out that there is no material on record till date to show that assessee was engaged in any of the four activities on the basis of which disclosure was made. It has been argued before us that there is a basic difference between the statement recorded under the provisions of section 132(4) vis-a-vis u/s 133A(3)(iii) of the Act. Thus it cannot be said that only on the basis of statement given by the assessee the disclosed income was assessable as lawful income of the assessee. There being no evidence/material available on record to prove the existence of such disclosed income or earning of such income in the hands of assessee it cannot be said that the tax was lawfully payable by assessee in his hand on the disclosed income. Thus it cannot be said that revenue has lost lawful tax payable by the assessee. Thus the second condition that assessment order should be prejudicial to the interests of revenue also cannot be said to be in existence to bring the present case within the parameter of section 263 of the Act. In absence of any adverse material, except a statement recorded u/s 133A(3)(iii) (which according to law had no evidentiary value) the view taken by Assessing Officer cannot be said to be a view impermissible in law. Therefore, order u/s 263 cannot also be upheld only on the ground that CIT is not in agreement with the view taken by Assessing Officer in the original assessment proceedings. The law is well-settled that when an ITO adopted between the course permissible in law and it resulted in loss of revenue or where two views are possible and the ITO has taken one view with which the CIT does not agree it cannot be treated as an erroneous order prejudicial to the interest of revenue unless it is found that view taken by ITO is unsustainable in law as it has already been pointed out that the view adopted by Assessing Officer in the assessment order passed u/s 143(3) was not unsustainable in law and was one of the possible view. Reference in this regard can be made to the decision of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT . Thus, we are of the opinion that the Commissioner has wrongly exercised his power under the provisions of section 263 of the Act for both the years and his orders are, therefore, quashed for both the years. The appeals filed by the assessee are, therefore, allowed.

Issues Involved:
1. Validity of the retraction of the statement made during the survey.
2. Applicability of Section 263 of the Income-tax Act, 1961.
3. Evidentiary value of statements recorded under Section 133A versus Section 132(4) of the Income-tax Act, 1961.
4. Determination of whether the original assessment orders were erroneous and prejudicial to the interest of revenue.

Issue-wise Detailed Analysis:

1. Validity of the Retraction of the Statement Made During the Survey:
The assessee retracted the statement made during the survey, claiming it was made under mistaken belief. The retraction letter was filed with various Income-tax Authorities, and the assessee argued that the statement was manipulated and fabricated. The CIT did not accept the retraction, emphasizing that the assessee did not provide evidence that the statement was not voluntary or was recorded under duress. The CIT relied on the fact that the retraction was delayed and argued that the statement made during the survey should be utilized for assessment.

2. Applicability of Section 263 of the Income-tax Act, 1961:
The CIT invoked Section 263, arguing that the original assessment orders were erroneous and prejudicial to the interest of revenue because the Assessing Officer did not include the disclosed amounts in the assessee's income. The assessee contended that the Assessing Officer had conducted thorough investigations and found no material evidence to support the disclosed income. The Tribunal noted that for Section 263 to be invoked, the order must be both erroneous and prejudicial to the interest of revenue. It was found that the Assessing Officer had made detailed inquiries and found no basis for the addition of the disclosed amounts, thus the original assessment orders were not erroneous.

3. Evidentiary Value of Statements Recorded Under Section 133A Versus Section 132(4) of the Income-tax Act, 1961:
The Tribunal highlighted the fundamental difference between statements recorded under Section 133A and Section 132(4). Statements under Section 132(4) can be used as evidence in subsequent proceedings, whereas statements under Section 133A do not hold evidentiary value and can only be useful or relevant to proceedings. The Tribunal referred to the decision in Paul Mathews & Sons v. CIT, which clarified that statements recorded under Section 133A cannot be given evidentiary value. Consequently, the Tribunal concluded that the CIT erred in using the retracted statement as evidence for invoking Section 263.

4. Determination of Whether the Original Assessment Orders Were Erroneous and Prejudicial to the Interest of Revenue:
The Tribunal examined whether the original assessment orders were erroneous and prejudicial to the interest of revenue. It was noted that the Assessing Officer had conducted a thorough investigation, scrutinized the books of account, and found no material evidence to support the disclosed income. The Tribunal emphasized that an order can only be considered erroneous if there is an incorrect assumption of facts or incorrect application of law. Since the Assessing Officer had made a conscious decision based on available evidence, the assessment orders could not be deemed erroneous. Additionally, for an order to be prejudicial to the interest of revenue, it must cause a lawful loss of tax, which was not the case here as there was no evidence of undisclosed income.

Conclusion:
The Tribunal concluded that the CIT wrongly exercised his power under Section 263 for both assessment years. The original assessment orders were neither erroneous nor prejudicial to the interest of revenue. The appeals filed by the assessee were allowed, and the orders under Section 263 were quashed.

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