2003 (5) TMI 212 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the order under Section 263 of the IT Act.
2. Whether the reassessment order under Section 147/143(3) was erroneous and prejudicial to the interest of the Revenue.
3. Adequacy of the inquiries conducted by the Assessing Officer (AO).
4. Relevance and evidentiary value of the affidavit by Mr. Manoj Jaiswal.
5. Legal precedents supporting the CIT's decision to cancel the reassessment order.

Issue-wise Detailed Analysis:

1. Validity of the order under Section 263 of the IT Act:
The appellant argued that the order under Section 263 was arbitrary, unjust, and illegal. The CIT had not proven that the reassessment order was erroneous and prejudicial to the interest of Revenue. The appellant contended that the reassessment was conducted after proper application and consideration of documentary evidence. However, the CIT found the reassessment order erroneous and prejudicial to the interest of Revenue, leading to its cancellation and the directive for the AO to re-examine the issues.

2. Whether the reassessment order under Section 147/143(3) was erroneous and prejudicial to the interest of the Revenue:
The reassessment was initiated based on information from the AO of L.P. Breweries (LPB) indicating that the commission payments claimed by the assessee were accommodation entries. The CIT observed that the AO did not make necessary investigations into the payment of commission to LPB, leading to the conclusion that the reassessment order was erroneous and prejudicial to the interest of the Revenue.

3. Adequacy of the inquiries conducted by the Assessing Officer (AO):
The AO's reassessment did not include a thorough investigation into the commission payments. The AO failed to examine Mr. Manoj Jaiswal, whose affidavit suggested that the commission payments were accommodation entries. The AO also did not investigate the immediate cash withdrawals from LPB's bank account following the deposit of commission cheques. The Tribunal noted that the AO's lack of inquiry into these matters made the reassessment order erroneous and prejudicial to the Revenue.

4. Relevance and evidentiary value of the affidavit by Mr. Manoj Jaiswal:
The affidavit by Mr. Manoj Jaiswal, a director of LPB, stated that the commission payments were accommodation entries and no services were rendered. The appellant argued that the affidavit lacked legal sanctity since Jaiswal was not a director during the relevant period. However, the Tribunal found the affidavit relevant and significant, as it was made on behalf of LPB and corroborated by other evidence indicating the non-genuine nature of the commission payments.

5. Legal precedents supporting the CIT's decision to cancel the reassessment order:
The Tribunal cited several legal precedents supporting the CIT's decision. The case of Gee Vee Enterprises vs. Addl. CIT established that the AO is both an adjudicator and an investigator, and failure to make necessary inquiries renders an order erroneous. Other cases, such as Malabar Industrial Co. Ltd. vs. CIT and Duggal & Co. vs. CIT, reinforced the principle that an order is erroneous and prejudicial to the Revenue if it is made without proper inquiry.

Conclusion:
The Tribunal upheld the CIT's order under Section 263, finding that the AO's reassessment was conducted without adequate inquiry into the commission payments, making the order erroneous and prejudicial to the interest of the Revenue. The appeal of the assessee was dismissed.