1998 (3) TMI 166 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Commissioner of Income-tax (CIT) under section 263.
2. Validity of the proceedings initiated under section 147 and the subsequent actions.
3. The nature and effect of the order passed by the Assessing Officer (AO) dropping the proceedings.

Issue-wise Detailed Analysis:

1. Jurisdiction of the CIT under section 263:

The appellant contended that the CIT erred in law by invoking section 263 to set aside the AO's order dated 31-7-1995, arguing that the dropping of the proceedings was not an "order" within the meaning of section 263. The CIT observed that any action or inaction by the AO in statutory proceedings, including dropping the proceedings, constitutes an order that can be reviewed under section 263. The CIT's jurisdiction was upheld based on the comprehensive definition of "assessment" and "order" as established by various Supreme Court rulings, including Kalawati Devi Harlalka v. CIT and C.A. Abraham v. ITO. The Tribunal concluded that the CIT was within his rights to invoke section 263, as the AO's action of dropping the proceedings was indeed an order subject to revision.

2. Validity of the proceedings initiated under section 147:

The appellant argued that the proceedings initiated under section 147 for the assessment year 1987-88 were invalid due to a lack of material evidence. The AO initially dropped the proceedings, citing that only Rs. 10,962 related to the relevant assessment year, which was below the monetary limit prescribed under section 149. However, the CIT found that the AO failed to consider the second entry of Rs. 47,539, thus not making a specific enquiry into the total transaction. The Tribunal referred to Supreme Court precedents, including CIT v. C.M. Jaffar Khan and CIT v. Bidhu Bhusan Sarkar, to emphasize that even an invalid order terminating proceedings has the effect of terminating them, unless set aside by a higher authority. The Tribunal upheld the CIT's directive to reassess the case, as the AO's order was found to be erroneous and prejudicial to the interest of revenue.

3. The nature and effect of the order passed by the AO dropping the proceedings:

The appellant's counsel argued that the dropping of the proceedings was not an order and thus could not be cancelled under section 263. The Tribunal examined the broader legal context of "assessment" and "order," citing multiple High Court and Supreme Court rulings, including Aruppukottai Chandra Bus Lines v. CIT and Manaklal Porwal v. CIT, which held that dropping proceedings is tantamount to an order of assessment. The Tribunal concluded that the AO's action of dropping the proceedings was indeed an order, and the CIT was justified in invoking section 263 to cancel it. The Tribunal also noted that the AO's order was cryptic and lacked proper enquiry, further justifying the CIT's intervention.

Conclusion:

The Tribunal dismissed the appellant's appeal, affirming the CIT's order under section 263. The Tribunal found no legal or factual infirmity in the CIT's directive to reassess the case, as the AO's original order was erroneous and prejudicial to the revenue. The appeal was accordingly dismissed.