1983 (8) TMI 82 - AT - Income Tax

Issues Involved:
1. Whether the Income Tax Officer (ITO) made proper inquiries regarding the investment in the purchase of a new truck.
2. Whether the ITO examined the source of deposits in the assessee's bank account.
3. Whether the ITO scrutinized the assessee's bank accounts/pass books for any deposits needing further scrutiny.
4. Whether the ITO verified the correct sale price of the truck sold by the assessee.
5. Whether the ITO failed to initiate penalty proceedings under section 271(1)(c) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Proper Inquiries Regarding Investment in New Truck:
The Commissioner observed that the ITO completed the assessment without making any inquiry into the extent of investment made in the purchase of the new truck chassis and the expenditure incurred on constructing the truck body. The ITO had noted on the return that the investment in the new truck needed to be looked into, but this was not followed through. The assessee argued that the ITO had verified the sources of investment through the Vijaya Bank statement and other documents. However, the Tribunal agreed with the Commissioner that the assessment order was passed in undue haste and without proper inquiries, rendering it erroneous and prejudicial to the revenue's interests.

2. Examination of Source of Deposits in Bank Account:
The Commissioner noted that the ITO did not examine the source of deposits made by the assessee in his bank account. The Tribunal found no evidence that the ITO had scrutinized the bank accounts or verified the sources of the deposits. The mere filing of a chart by the assessee was not sufficient. The Tribunal upheld the Commissioner's view that the ITO should have examined the nature and source of the deposits, especially given the number of deposits and transfers between accounts.

3. Scrutiny of Bank Accounts/Pass Books:
The Commissioner pointed out that the ITO did not call for copies of the assessee's three bank accounts/pass books to find out whether there were any deposits needing further scrutiny. The Tribunal agreed that there was no material to show that the ITO examined these accounts. The failure to scrutinize the bank accounts was a significant omission, supporting the Commissioner's decision to set aside the assessment order.

4. Verification of Correct Sale Price of Truck:
The assessee initially disclosed the truck's sale price as Rs. 35,000 in the original return, which was later revised to Rs. 55,000. The Commissioner noted that the ITO did not make any inquiry to ascertain the correct sale price. The Tribunal found no evidence that the ITO had investigated the reasons for the variation in the sale price or the profit under section 41(2) shown in the two returns. This lack of inquiry further justified the Commissioner's decision.

5. Failure to Initiate Penalty Proceedings Under Section 271(1)(c):
The Commissioner observed that the ITO failed to initiate penalty proceedings under section 271(1)(c), which were clearly attracted in this case. The assessee argued that the revised return was filed voluntarily and in good faith, and thus no penalty was warranted. The Tribunal noted that the ITO's failure to make proper inquiries meant he was not in a position to decide whether to initiate penalty proceedings. The Tribunal cited relevant case law to support the view that the Commissioner's jurisdiction under section 263 was properly exercised, as the ITO's omissions rendered the assessment order erroneous and prejudicial to the revenue.

Conclusion:
The Tribunal upheld the Commissioner's order setting aside the assessment and directing the ITO to frame the assessment afresh after making due and proper inquiries and giving the assessee a proper opportunity to be heard. The appeal by the assessee was dismissed.

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