1988 (6) TMI 71 - AT - Income Tax

Summary

Issues Involved:

1. Whether the assessment orders made by the Income-tax Officer (ITO) for the assessment years 1983-84 and 1984-85 were erroneous and prejudicial to the interests of revenue.
2. Whether the Commissioner of Income-tax (CIT) was justified in invoking section 263 of the Income-tax Act, 1961 to set aside the assessments.

Summary:

Issue 1: Erroneous and Prejudicial Assessment Orders

The assessee-company was incorporated on 4-4-1981 and engaged in marketing services. For the assessment years 1983-84 and 1984-85, the ITO examined the company's financial activities, including agreements with wholesale purchasers of Godfrey Phillips India Ltd. The ITO requested detailed information and documents from the assessee, which were duly provided. The ITO scrutinized the financial records, including advertising and promotional expenses, and concluded the assessments based on the provided data. The ITO's assessment orders recorded detailed observations and adjustments, such as invoking section 40A(5) for certain expenses.

Issue 2: Invocation of Section 263 by the Commissioner

The CIT issued a show-cause notice u/s 263, stating that the assessments were erroneous and prejudicial to the interests of revenue. The CIT highlighted that the ITO failed to make proper enquiries and did not verify the details of contributions and expenses related to advertising and promotional activities. The CIT also noted deficiencies in the ITO's examination of compliance with Chapter XXII, section-B regarding deductions at source. The CIT concluded that the ITO's assessments were made in haste without adequate investigation, leading to erroneous assessments prejudicial to revenue.

Tribunal's Findings:

The Tribunal examined the ITO's assessment process and found that the ITO made detailed enquiries, examined the seized books of account, and discussed the points with the assessee's representatives. The ITO's assessment orders reflected a thorough examination of the financial records. The Tribunal noted that the CIT's observations were subjective and not based on material facts showing actual errors in the assessments. The Tribunal held that the ITO's assessments were not erroneous or prejudicial to the interests of revenue, and the CIT's invocation of section 263 was not justified.

Conclusion:

The Tribunal concluded that the assessments made by the ITO for the assessment years 1983-84 and 1984-85 were in accordance with law and not erroneous so as to be prejudicial to the interests of revenue. Therefore, the CIT had no jurisdiction to invoke section 263 and set aside the assessments. The Tribunal cancelled the CIT's order.