1987 (12) TMI 66 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the Commissioner's assumption of jurisdiction under Section 263 of the IT Act.
2. Legitimacy of the transaction concerning the purchase and sale of National Defence Gold Bonds.
3. Determination of the correct assessment year for the alleged undisclosed income.

Detailed Analysis:

1. Validity of the Commissioner's Assumption of Jurisdiction under Section 263 of the IT Act:

The Commissioner issued a notice under Section 263 of the IT Act, claiming that the assessment made by the Income Tax Officer (ITO) was erroneous and prejudicial to the interest of the Revenue. The Commissioner found discrepancies in the assessee's declared purchase price of National Defence Gold Bonds. Specifically, the Commissioner noted that the official quotation on the Bombay Stock Exchange was significantly higher than the price claimed by the assessee. The Commissioner concluded that the ITO failed to make necessary inquiries, thus justifying the assumption of jurisdiction under Section 263. The Tribunal upheld this view, citing several judicial precedents that supported the Commissioner's authority to assume jurisdiction when the ITO fails to conduct proper inquiries.

2. Legitimacy of the Transaction Concerning the Purchase and Sale of National Defence Gold Bonds:

The Commissioner scrutinized the assessee's claim of purchasing 3,814 grams of National Defence Gold Bonds at Rs. 750 per 10 grams on 4th Jan 1980 and selling them on 9th Jan 1980 for Rs. 5,72,100. The Commissioner found that the official stock exchange rate was Rs. 1,450 per 10 grams on the purchase date, which contradicted the assessee's claim. The Commissioner concluded that the transaction was a facade to introduce unaccounted funds into the assessee's books as tax-free capital gains. The Tribunal agreed with the Commissioner, stating that the assessee failed to provide evidence supporting the alleged lower purchase price. The Tribunal also noted that the Commissioner was justified in treating the difference between the declared cost price and the market price as unexplained investment.

3. Determination of the Correct Assessment Year for the Alleged Undisclosed Income:

The assessee argued that if the capital gains were to be treated as undisclosed income under Section 69B, it should be assessed in the financial year 1979-80, corresponding to the assessment year 1980-81. The Tribunal acknowledged that the ITO's order was silent on the accounting period and the method of accounting adopted by the assessee. Consequently, the Tribunal remanded the matter back to the ITO for reconsideration, directing the ITO to determine the correct assessment year after giving the assessee a full opportunity to present their case.

Conclusion:

The Tribunal upheld the Commissioner's assumption of jurisdiction under Section 263 due to the ITO's failure to make necessary inquiries. The Tribunal also supported the Commissioner's findings that the transaction was an attempt to introduce unaccounted funds as tax-free capital gains. However, the Tribunal remanded the issue of the correct assessment year for the alleged undisclosed income back to the ITO for further examination. The appeal was thus treated as partly allowed for statistical purposes.