1992 (1) TMI 162 - AT - Income Tax

Summary

Issues Involved:
1. Legality of the order under section 263 of the Income-tax Act, 1961.
2. Inquiry into the sale of damaged goods and its impact on the assessment.

Detailed Analysis:

1. Legality of the Order under Section 263 of the Income-tax Act, 1961:

The primary issue in this appeal was the legality of the order passed by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961. The Commissioner had set aside the assessment order on the grounds that the Assessing Officer (AO) had not properly examined the claim regarding damaged goods, which allegedly led to the suppression of income.

The Tribunal found that the information used by the Commissioner to issue the show-cause notice under section 263 came to light only during the assessment proceedings for the subsequent year (1984-85). This information was not part of the records examined by the AO during the assessment year 1983-84. Therefore, the Tribunal held that the assumption of jurisdiction under section 263 was illegal, as it relied on information that was not available at the time of the original assessment.

2. Inquiry into the Sale of Damaged Goods and Its Impact on the Assessment:

The Commissioner of Income-tax issued a show-cause notice stating that the assessee had sold 57.5 cases of damaged goods for Rs. 67,620, whereas the market value of these goods was Rs. 2,56,593. The Commissioner alleged that the AO had not properly examined the claim of the goods being damaged, leading to a suppression of income amounting to Rs. 1,88,973.

The assessee argued that all books of accounts, vouchers, and stock inventory were duly verified by the AO during the assessment proceedings. The assessee also contended that the issue of damaged goods was examined during the assessment for the subsequent year (1984-85), and the addition made by the AO was deleted by the CIT(Appeals).

The Tribunal noted that the AO had examined the books of accounts and was satisfied with the gross profit rate reflected by the assessee. The sales of damaged goods were included in the total turnover, and the gross profit rate was higher than the previous year. The Tribunal found no justification for the revision, as the AO had made the necessary inquiries and there was no requirement for the assessee to separately disclose the sale of damaged goods.

The Tribunal also observed that the Commissioner had not considered the appellate order for the assessment year 1984-85, which had deleted the addition made by the AO regarding damaged goods. The Tribunal held that the decision in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 (Delhi) did not apply, as the AO had made the necessary inquiries.

Separate Judgments:

The Judicial Member disagreed with the conclusion of the Accountant Member. The Judicial Member argued that the AO had not made any inquiries regarding the sale of damaged goods and that the assessment order was erroneous and prejudicial to the interests of the revenue. The Judicial Member supported the view that the order under section 263 should be maintained.

The matter was referred to the President of the Tribunal due to the difference of opinion. The President agreed with the Accountant Member, holding that the Commissioner of Income-tax had not properly exercised jurisdiction under section 263. The President noted that the AO had made sufficient inquiries and that the evidence provided by the assessee regarding damaged goods was not properly considered by the Commissioner.

Conclusion:

The Tribunal, by majority opinion, set aside the order passed by the Commissioner of Income-tax under section 263 and restored the assessment order passed by the AO. The appeal was allowed in favor of the assessee.