1989 (2) TMI 166 - AT - Income Tax

Summary

Issues Involved:

1. Adequacy of opportunity for the assessee to be heard before the order under Section 263 was passed.
2. Whether the Commissioner had material to conclude that assessments were completed without proper enquiry.
3. Examination of the allowability of expenditure in respect of films under IT Rule 9B.
4. Genuineness of cash credits appearing in the assessee's books.
5. Whether the assessments were completed in a hurry.

Detailed Analysis:

1. Adequacy of Opportunity for the Assessee to be Heard:

The assessee argued that the time given by the Commissioner was too short, leading to inadequate opportunity to be heard before the order under Section 263 was passed. The Commissioner issued a notice on 25th March 1986, calling for objections by 31st March 1986. The assessee requested more time, citing the auditor's engagement with time-barring matters. Despite this, the Commissioner proceeded with the proposal under Section 263 and set aside the assessment orders.

2. Material to Conclude that Assessments Were Completed Without Proper Enquiry:

The assessee contended that the Commissioner had no material to conclude that the assessments were completed without proper enquiry. The assessments were made under Section 143(3), indicating they were done after proper enquiry. The Income Tax Officer (ITO) had called for particulars of creditors, which the assessee submitted, including names and addresses. The ITO examined these and segregated new credits from old credits, concluding that the credits were genuine. The Commissioner challenged this without any material evidence. The ITO had noted the release dates of the films and examined the applicability of Rule 9B, which is directory in nature. The Commissioner's conclusion that Rule 9B was not considered was based on surmises and conjectures.

3. Examination of the Allowability of Expenditure under IT Rule 9B:

The Commissioner set aside the assessments on the grounds that the ITO had not examined the allowability of expenditure in respect of films "Mogudu Kavali", "Seematapakia", and "Devudu Mamayya" under Rule 9B. The assessee argued that Rule 9B deals with the computation of profits and gains of the business of film distribution and the deduction in respect of the cost of acquisition of the feature film. The ITO had noted the release dates of the films, which did not prima facie attract the provisions of Rule 9B. The ITO appeared to have examined the applicability of Rule 9B and chose not to invoke it.

4. Genuineness of Cash Credits:

The Commissioner argued that the ITO had not called for confirmatory letters from the creditors or pursued further enquiries to verify the genuineness of new credits amounting to Rs. 6,06,841 for the assessment year 1981-82 and Rs. 14,36,824 for the assessment year 1982-83. The assessee contended that it is only when the ITO doubts the bona fides of the credits that the assessee needs to file confirmatory letters or produce the creditors. The ITO had segregated the list of creditors into old and new, examined the books of accounts, and accepted the genuineness of the credits. There is no mandate in the IT Act requiring confirmatory letters from every creditor.

5. Whether the Assessments Were Completed in a Hurry:

The Commissioner felt that the assessments were completed in a hurry due to the approaching time limit. However, the assessment for the year 1981-82 had to be concluded by 31st March 1984, and for the year 1982-83 by 31st March 1985. The ITO had called for details during the assessment proceedings, which were furnished by the assessee. The Commissioner erroneously concluded that both assessments were hurried due to the time limit.

Judgment:

Having considered the rival submissions and the materials on record, the order of the learned Commissioner under Section 263 was set aside. The Tribunal found that the ITO had conducted proper enquiries before accepting the credits and had considered the applicability of Rule 9B. The assessments were not completed in a hurry, and there was no material before the Commissioner to conclude that the ITO had accepted the credits blindly. The Tribunal relied on various judicial precedents, including the decision of the Allahabad High Court in CIT vs. Goyal Private Family Specific Trust, which held that cryptic orders by the ITO do not necessarily imply errors prejudicial to the interests of Revenue. The appeals were allowed, and the order of the learned Commissioner under Section 263 was set aside.