1995 (2) TMI 125 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the CIT's invocation of Section 263 of the Income-tax Act, 1961.
2. Legitimacy of the assessment completed under Section 143(1) without enquiry into the loss claimed by the assessee.
3. Comparison of the assessment years 1985-86 and 1986-87 regarding the claim of loss of molasses.

Issue-wise Detailed Analysis:

1. Validity of the CIT's Invocation of Section 263:
The CIT invoked Section 263, noting that the assessment was erroneous and prejudicial to the interests of the Revenue because the Assessing Officer (AO) did not verify the loss claimed by the assessee for destroyed molasses. The CIT argued that the molasses, being an excisable commodity, required approval from the Central Excise authorities for destruction, which was not provided by the assessee. The CIT concluded that the AO's failure to verify this aspect rendered the assessment erroneous and prejudicial to the interests of the Revenue.

2. Legitimacy of the Assessment Completed under Section 143(1):
The assessee contended that the assessment under Section 143(1) was final and that the AO was not permitted to make enquiries into the loss claimed. The AO is limited to making adjustments for arithmetical errors and certain specified items under Section 143(1)(b). The assessee argued that the CIT's jurisdiction under Section 263 was not warranted because the assessment was completed in accordance with the law. The Tribunal agreed, stating that the AO had the discretion to choose between the two modes of assessment provided by the statute: summary assessment under Section 143(1) or detailed assessment under Section 143(3). An assessment made under one of these permissible methods cannot be deemed erroneous or prejudicial to the interests of the Revenue simply because another method might have resulted in higher revenue.

3. Comparison of the Assessment Years 1985-86 and 1986-87:
The CIT noted that for the assessment year 1986-87, the assessee's claim for the loss of molasses was allowed because the destruction was subsequently approved by the Central Excise authorities. However, for the year 1985-86, there was no such approval, and the assessee had paid excise duty on the destroyed molasses. The CIT emphasized that the facts of the two years were different, and the AO's failure to verify the loss for the year 1985-86 resulted in an erroneous and prejudicial assessment. The Tribunal, however, found that the AO's assessment under Section 143(1) was in line with the provisions of the law, which did not allow for such an enquiry, and thus could not be considered erroneous or prejudicial to the interests of the Revenue.

Conclusion:
The Tribunal concluded that the CIT's invocation of Section 263 was not justified as the assessment under Section 143(1) was made in accordance with the law. The Tribunal set aside the CIT's order and restored the AO's original assessment. The appeal by the assessee was allowed.