1988 (9) TMI 92 - AT - Income Tax

Issues involved:

1. Erroneous and prejudicial assessment to the Revenue.
2. Lack of proper scrutiny and investigation by the ITO.
3. Failure to inquire into the volume and sources of investment.
4. Acceptance of genuineness of loans and liabilities without inquiry.
5. Under-assessment of truck income.
6. Non-examination of sources of investment in fixed deposits and acquisition of jewelry.
7. Jurisdiction of the ITO.

Detailed Analysis:

1. Erroneous and Prejudicial Assessment to the Revenue:

The CIT considered the assessment to be erroneous and prejudicial to the Revenue, leading to the issuance of a notice under section 263. The CIT highlighted that the ITO completed the assessment without proper scrutiny and investigation, which resulted in an erroneous order prejudicial to the Revenue's interest.

2. Lack of Proper Scrutiny and Investigation by the ITO:

The CIT issued a notice on 24th February 1987, stating that the ITO completed the assessment without proper scrutiny and investigation of the facts. The ITO failed to inquire into the volume of investment and sources thereof, and accepted the genuineness of loans and liabilities without any inquiry.

3. Failure to Inquire into the Volume and Sources of Investment:

The CIT noted that the ITO did not inquire into the volume of investment and sources for the immovable property and accepted the genuineness of loans and liabilities without any inquiry. The CIT's notice mentioned that the ITO failed to examine the source of acquisition of the jewelry and the sources of investment in fixed deposits.

4. Acceptance of Genuineness of Loans and Liabilities without Inquiry:

The CIT's notice indicated that the ITO accepted the genuineness of loans and liabilities without any inquiry. The assessee contended that the sources of investment in the property were properly explained, and an affidavit of Sardar Inderjit Singh from whom a sum of Rs. 3,70,000 was claimed to have been borrowed was filed, giving full particulars of the person and his assessing authority.

5. Under-assessment of Truck Income:

The CIT mentioned that the ITO added Rs. 2,500 for non-maintenance of books of accounts, which was capricious and vague. The CIT opined that a proper assessment of the truck income would be at least Rs. 2,000 per month. The assessee argued that the assertion that the truck income was under-assessed was arbitrary.

6. Non-Examination of Sources of Investment in Fixed Deposits and Acquisition of Jewelry:

The CIT noted that the ITO did not inquire into the sources of investment in fixed deposits and the acquisition of jewelry. The assessee contended that these were fully explained in wealth tax assessments for the assessment year 1984-85. The CIT's order mentioned that the ITO failed to examine the source of acquisition of the jewelry and the sources of investment in fixed deposits.

7. Jurisdiction of the ITO:

The CIT held that the ITO, Private Salary Circle IV, should have processed the case and passed the order. This point was not addressed to the assessee in either of the two notices issued to her. The CIT did not clarify in his order how the ITO, Private Salary Circle IV, and not the Private Salary Circle VII, could assess the assessee. The assessee argued that the Commissioner did not apprise her of this point in any of the notices, and thus no opportunity of hearing was given.

Conclusion:

The Tribunal found that the CIT's action in cancelling the assessment under section 263 was not sustainable. The Tribunal noted that the CIT failed to establish that the assessment made by the ITO was erroneous and prejudicial to the interest of the Revenue. The Tribunal also observed that the CIT did not provide an opportunity of hearing to the assessee on several points mentioned in the ultimate order. The Tribunal concluded that the Commissioner's order under section 263 was vitiated for want of an opportunity of hearing to the assessee and for lack of proper examination of records. Consequently, the Tribunal cancelled the CIT's order and allowed the assessee's appeal.

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