1991 (8) TMI 131 - AT - Income Tax

Assessing Officer, Assessment Proceedings, Chargeable To Tax, Orders Prejudicial To Interests, Penalty Proceedings, Reassessment Proceedings

Summary

Issues:
Jurisdictional facts for CIT under section 263 of the Act.

Analysis:
The appeal was against the order made by the CIT under section 263 of the Act for the assessment year 1971-72. The main issue was whether the CIT had the necessary jurisdictional facts before him to assume lawful jurisdiction for making the impugned order. The original assessment was completed on 24-4-1973, but during the assessment for the subsequent year, the Assessing Officer found information suggesting that income had escaped assessment for 1971-72. Reassessment was then framed on 18-8-1980. The CIT(A) deleted the addition made in the reassessment proceedings, but the Tribunal reversed this decision and restored the addition. The Assessing Officer initiated penalty proceedings under section 271(1)(c), which were dropped later. The CIT found dropping the penalty proceedings erroneous and prejudicial to the revenue's interests, leading to the show-cause notice to the assessee. The CIT's order setting aside the dropping of penalty proceedings was challenged by the assessee, arguing lack of jurisdictional facts. The CIT rejected these contentions, emphasizing that the Assessing Officer was misled by the assessee's advocate regarding the appeal before the Tribunal, leading to the erroneous dropping of penalty proceedings.

The CIT's decision was based on the premise that the Assessing Officer's reliance on incorrect information from the assessee's counsel led to an erroneous and prejudicial decision regarding the penalty proceedings. The CIT held that the dropping of penalty proceedings without proper consideration of all relevant facts was a jurisdictional error, justifying the need for a fresh penalty order after affording the assessee a reasonable opportunity to be heard. The CIT's order was challenged by the assessee, arguing that the dropping of penalty proceedings did not warrant interference under section 263, as the imposition of penalty is discretionary and the Assessing Officer's exercise of judicial discretion should not render the order erroneous or prejudicial to revenue. However, the Tribunal found that the Assessing Officer's failure to consider the Tribunal's order before dropping the penalty proceedings constituted an error that was prejudicial to the revenue's interests, justifying the CIT's assumption of lawful jurisdiction under section 263.

The Tribunal emphasized that the record considered by the CIT for invoking jurisdiction under section 263 should include all contemporaneous documents with evidentiary value relevant to the issue under examination, regardless of whether they were before the Assessing Officer at the time of passing the order. The Tribunal cited relevant judicial authorities to support this interpretation. In this case, the Tribunal found that the order of the Tribunal reversing the decision of the AAC and restoring the addition should have been considered part of the record, even though it was not on file when the Assessing Officer dropped the penalty proceedings. The failure of the Assessing Officer to consider this crucial information constituted a jurisdictional error, justifying the CIT's intervention under section 263.

The Tribunal rejected the assessee's argument that dropping the penalty proceedings was not an order, emphasizing that the penalty proceedings had effectively ended with the Assessing Officer's decision. The lack of communication regarding the dropping of penalty proceedings did not prejudice the assessee, as there was no adverse impact on the assessee's case. Ultimately, the Tribunal upheld the CIT's order, dismissing the assessee's appeal and affirming the CIT's assumption of lawful jurisdiction based on the jurisdictional facts present in the case.