2002 (2) TMI 300 - AT - Income Tax

Revision Of Orders prejudicial to interest of revenue, Profits And Gains From Hotel and Industrial Undertakings, Penalty For Concealment of income

Issues Involved:
1. Legality of the CIT(C)'s action under section 263 of the Income-tax Act.
2. Scrutiny of material seized during search and seizure operations.
3. Validity of the assessment orders for the years 1987-88, 1988-89, and 1989-90.
4. Allowability of deductions under sections 80HH and 80HHA.
5. Initiation of penalty proceedings under section 271(1)(c).

Issue-wise Detailed Analysis:

1. Legality of the CIT(C)'s action under section 263 of the Income-tax Act:
The CIT(C)'s order under section 263 was challenged on several grounds, including the argument that the revised income was accepted by the Assessing Officer (AO) based on the directions of the then CIT(C), and thus, the CIT(C) could not revise the same order. The Tribunal found that the CIT(C) had issued a show-cause notice on 2-1-1992 and passed the impugned order on 5-1-2001, setting aside the assessment orders for the years 1987-88, 1988-89, and 1989-90. The Tribunal held that the CIT(C) should not have relied upon the order under section 132(5) while issuing the show-cause notice under section 263, as the order under section 132(5) had merged with the order under section 132(12) and the regular assessment order. The CIT(C) failed to call for and examine the record of the case, including the seized material and the reports submitted by the AO, before passing the impugned order. Therefore, the Tribunal concluded that the CIT(C) had wrongly exercised jurisdiction under section 263.

2. Scrutiny of material seized during search and seizure operations:
The Tribunal noted that the AO had scrutinized all the seized material with the help of senior officers, including the CIT(C), DDIT, and DC(C). The AO had submitted three reports dated 7-3-1990, 19-3-1990, and 29-3-1990 to the CIT(C), detailing the scrutiny of the seized material. The Tribunal found that the CIT(C) had not gone through these reports or the seized material before passing the impugned order. The Tribunal emphasized that the AO had properly scrutinized the seized material and passed the assessment orders after complying with the directions and instructions given by the senior officers. Therefore, the Tribunal held that the CIT(C)'s finding that the assessments were passed without proper scrutiny of the seized material was incorrect.

3. Validity of the assessment orders for the years 1987-88, 1988-89, and 1989-90:
The Tribunal observed that the AO had conducted a detailed scrutiny of the seized material and the revised returns filed by the assessee. The AO had prepared an office note and Annexure 'A' to the assessment orders, detailing the determination of undisclosed income for all the three years. The Tribunal found that the CIT(C) had not considered these documents before passing the impugned order. The Tribunal also noted that the CIT(C) had dropped the first issue regarding the non-issuance of notice under section 143(2)/143(1) on the revised return, holding that the assessment order did not suffer from any infirmity. Therefore, the Tribunal concluded that the assessment orders for the years 1987-88, 1988-89, and 1989-90 were valid and not erroneous or prejudicial to the interests of revenue.

4. Allowability of deductions under sections 80HH and 80HHA:
The CIT(C) had issued show-cause notices stating that the deductions under sections 80HH and 80HHA were not allowable to the assessee. The Tribunal noted that the assessee had claimed deductions under section 80HH for industrial units at Jangipur and Chamagram and under section 80HHA for industrial units at Uchahara, Budhara, Pachpedi, and Bachhiya. The Tribunal found that the AO had examined the seized material and the records of the assessee, including the salary register, wages register, and audited balance sheet, and was satisfied that the assessee fulfilled the conditions for claiming the deductions. The Tribunal held that the CIT(C) had passed the impugned order without going through the record and the claim of the assessee. Therefore, the Tribunal concluded that the CIT(C)'s finding that the deductions under sections 80HH and 80HHA were not allowable was incorrect.

5. Initiation of penalty proceedings under section 271(1)(c):
The CIT(C) had issued a show-cause notice stating that penalty under section 271(1)(c) was clearly attracted but not initiated by the AO. The Tribunal noted that the ITAT, Allahabad Bench, had already cancelled the penalty against the assessee for the assessment years 1987-88 and 1988-89. The Tribunal held that the CIT(C) could not have given direction under section 263 to the AO to initiate penalty proceedings under section 271(1)(c), as it was the satisfaction of the AO to initiate the penalty or not. The Tribunal also noted that the assessee had made a statement under section 132(4) and disclosed the income, and therefore, the case of the assessee would fall in the exception to Explanation 5 to section 271(1)(c). Therefore, the Tribunal concluded that the CIT(C) fell in error in setting aside the assessment orders on this ground.

Conclusion:
The Tribunal set aside and quashed the impugned order dated 5-1-2001 passed by the CIT(C) under section 263 of the Income-tax Act, 1961. The Tribunal restored the regular assessment orders dated 30-3-1990 for the assessment years 1987-88, 1988-89, and 1989-90, as the CIT(C) had wrongly exercised jurisdiction under section 263 and the assessment orders were not erroneous or prejudicial to the interests of revenue.

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