1994 (6) TMI 31 - AT - Income Tax

Assessing Officer, Assessment Order, Orders Prejudicial To Interests, Tax Liability, Total Income

Issues Involved:

1. Validity of the order under section 132(5) of the Income-tax Act, 1961.
2. Validity of the order under section 263 of the Income-tax Act, 1961.
3. Jurisdiction of the Commissioner of Income-tax under section 263.
4. Requirement of independent application of mind by the Assessing Officer.
5. Validity of the assessment orders for the assessment years 1977-78 to 1989-90.
6. Non-initiation of penalty proceedings under section 271(1)(c).

Issue-wise Detailed Analysis:

1. Validity of the order under section 132(5) of the Income-tax Act, 1961:

The assessee, an individual, was subjected to a search and seizure action under section 132 of the Income-tax Act, 1961, during which cash, jewellery, diamonds, shares, and debentures were seized. Following this, an order under section 132(5) was passed, determining the total income at Rs. 1,01,00,000 and the tax liability at Rs. 52,80,713, along with a penalty liability under section 271(1)(c) amounting to Rs. 1,05,00,000. The order retained the entire seized assets. The assessee appealed to the Commissioner of Income-tax under section 132(12), who estimated the concealed income at Rs. 50 lakhs and directed the Assessing Officer to retain or release the assets accordingly.

2. Validity of the order under section 263 of the Income-tax Act, 1961:

The Commissioner of Income-tax, acting under section 263, found the assessment orders for the years 1977-78 to 1989-90 to be erroneous and prejudicial to the interests of the revenue. The Commissioner noted that the business income based on the turnover mentioned in the seized diary was much higher than what was assessed. The Commissioner observed that the Assessing Officer did not independently examine the seized materials or compute the income based on these documents. The Commissioner also noted the absence of penalty proceedings for concealment initiated by the Assessing Officer.

3. Jurisdiction of the Commissioner of Income-tax under section 263:

The assessee argued that the Commissioner had no jurisdiction to review the order under section 263 since the assessments were made following the directions given by the previous Commissioner under section 132(12). However, it was clarified that the order under section 132(12) is essentially for determining the retention or release of seized assets and not a final determination of income. The Assessing Officer is required to independently assess the income based on all available evidence, including the seized materials.

4. Requirement of independent application of mind by the Assessing Officer:

The Assessing Officer, while making the assessments, followed the directions of the Commissioner under section 132(12) without independently examining the facts and materials. It was emphasized that the Assessing Officer must act independently and arrive at his own conclusions. The lack of independent application of mind by the Assessing Officer rendered the assessment orders erroneous and prejudicial to the interests of the revenue.

5. Validity of the assessment orders for the assessment years 1977-78 to 1989-90:

The Commissioner, acting under section 263, set aside the assessment orders for the years 1977-78 to 1989-90, directing the Assessing Officer to re-do the assessments after independently evaluating all available evidence, including the seized materials. The Tribunal upheld this order, noting that the Assessing Officer's failure to make proper enquiries and independently determine the income caused prejudice to the interests of the revenue.

6. Non-initiation of penalty proceedings under section 271(1)(c):

The Assessing Officer did not initiate penalty proceedings for concealment of income, which was also guided by the order of the Commissioner under section 132(12). The Tribunal noted that the Assessing Officer must independently decide on the initiation of penalty proceedings based on the facts of the case during the assessment proceedings. The failure to do so indicated a lack of independent application of mind.

Conclusion:

The Tribunal upheld the order of the Commissioner of Income-tax under section 263, setting aside the assessment orders for the years 1977-78 to 1989-90 and directing the Assessing Officer to re-do the assessments after a thorough and independent evaluation of all available evidence. The appeals were dismissed.

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