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Issues Involved:
1. Whether the assessment order was erroneous and prejudicial to the interests of the revenue. 2. Whether the Commissioner of Income-tax (CIT) was justified in invoking section 263 of the Income-tax Act, 1961. 3. Whether the initial assessment was conducted without proper and adequate enquiries. 4. Whether the trust was legally constituted and whether it violated the rule against perpetuity. 5. Whether the doctrine of lifting the veil applies to trusts. Summary: Issue 1: Erroneous and Prejudicial Assessment Order The CIT held that the assessment order was erroneous and prejudicial to the interests of the revenue, setting it aside and directing the Income-tax Officer (ITO) to proceed with the assessment de novo after proper enquiry and giving the assessee-trust an opportunity to represent its case. Issue 2: Invocation of Section 263 The CIT issued a notice u/s 263 proposing to set aside the assessment order on grounds that it was erroneous and prejudicial to the interests of revenue. The notice listed several grounds, including lack of proper enquiries and scrutiny by the ITO, and the acceptance of returns in undue haste. Issue 3: Adequacy of Initial Enquiries The CIT noted that the ITO had not made proper enquiries regarding the nature of the accounts maintained by the trust, the utilization of the initial contribution, the business operations, and the validity of the trust. The assessee countered that the assessments for previous years had been completed by different ITOs after proper examination of records and that the trust had submitted all necessary documents and maintained proper accounts. Issue 4: Legal Constitution and Rule Against Perpetuity The CIT observed that the trust deed did not specify the ages of the beneficiaries and suffered from uncertainty. He also noted that the trust was created for a period of 10 years, and the ages of the beneficiaries at the time of assessment were minors, which could be against the rules relating to perpetuity. The assessee argued that the trust was created by a valid trust deed with specified shares of beneficiaries and that the trust deed itself mentioned that the beneficiaries were minors. Issue 5: Doctrine of Lifting the Veil The assessee contended that the doctrine of lifting the veil, applicable to companies, was not applicable to trusts, citing relevant case law. The CIT, however, inferred that the trust could be a device for generating bogus funds and that the ITO should have made more detailed enquiries. Conclusion: The Tribunal held that the CIT was not justified in initiating action u/s 263 based on mere guesswork, possibilities, or suspicion. The assessment order could not be said to be erroneous or prejudicial to the interests of the revenue. The appeal filed by the assessee was allowed, and the order of the CIT was canceled.
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