1992 (2) TMI 130 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the assessment order passed under section 143(3) of the IT Act.
2. Applicability of section 263 of the IT Act.
3. Doctrine of promissory estoppel.
4. Instructions under section 119(3) of the IT Act.
5. Verification and enquiry of seized assets.
6. Jurisdiction and powers of the CIT under section 263.

Detailed Analysis:

1. Validity of the Assessment Order Passed Under Section 143(3) of the IT Act:
The assessment order was finalized on 25-2-1985 by the Assessing Officer under section 143(3) of the IT Act. The order included discussions of various items of income but did not reference any discussions with the CIT or his letter dated 29-8-1984. The CIT later issued a notice under section 263, stating that the assessment was erroneous and prejudicial to the interests of revenue because certain seized assets were not considered. The appeal contended that the assessment was completed following the CIT's instructions and after thorough verification and enquiry.

2. Applicability of Section 263 of the IT Act:
The CIT issued a notice under section 263, proposing to revise the assessment order on the grounds that the assessment was erroneous and prejudicial to the interests of revenue. The CIT's order under section 263 concluded that the Assessing Officer did not verify the source of seized cash and primary gold and did not conduct any enquiry into the various bank accounts operated by the assessee. The Tribunal found that the Assessing Officer had indeed conducted a detailed enquiry and verification of the seized assets before finalizing the assessment.

3. Doctrine of Promissory Estoppel:
The assessee argued that the doctrine of promissory estoppel should apply because the assessment was made based on the CIT's instructions, and the assessee had altered its position by filing revised returns and paying taxes accordingly. The Tribunal held that the principle of promissory estoppel could not be invoked to defeat the powers vested in the CIT under section 263, as it would undermine the corrective measure intended by the provision.

4. Instructions Under Section 119(3) of the IT Act:
The assessee contended that the CIT's instructions dated 29-8-1984 should be considered as issued under section 119(3) of the Act and, therefore, binding on the Assessing Officer. The Tribunal referred to the Calcutta High Court decision in ITO v. Eastern Scales (P.) Ltd., which held that instructions under section 119(3) could not control the quasi-judicial functions of the ITO while making assessments. Thus, the Tribunal concluded that the instructions did not preclude the CIT from exercising jurisdiction under section 263.

5. Verification and Enquiry of Seized Assets:
The CIT's order under section 263 criticized the Assessing Officer for not verifying the source of seized cash and primary gold. However, the Tribunal found that the Assessing Officer had conducted a detailed enquiry and verification of the seized assets, including obtaining confirmations from third parties and scrutinizing the seized books of accounts. The Tribunal held that the criticism of the assessment being completed without enquiry or verification was unjustified.

6. Jurisdiction and Powers of the CIT Under Section 263:
The Tribunal emphasized that the CIT's powers under section 263 are supervisory and intended to correct errors and prejudices to the interests of revenue. The Tribunal referred to the Madras High Court decision in Venkatakrishna Rice Co. v. CIT, which stated that the expression "prejudicial to the interests of the Revenue" should be given a dignified construction and not be equated merely to rupees and paise. The Tribunal concluded that the CIT's order under section 263 did not meet the criteria for invoking the provision, as the assessment was neither erroneous nor prejudicial to the interests of revenue.

Conclusion:
The Tribunal set aside the CIT's order under section 263 and restored the original assessment order. The appeal was allowed, and the Tribunal found that the assessment was properly framed after thorough verification and enquiry, and the CIT's criticisms were unfounded.