2004 (10) TMI 292 - AT - Income Tax

Income Escaping Assessment - Validity of dropping proceedings u/s 148 served on the assessee - barred by time limitation in the absence of service within statutory period - Challenged the revisional order u/s 263 - erroneous nor prejudicial to the interest of the Revenue -difference of opinion between Judicial Member and Accountant Member - Third member order - Whether order passed u/s 263 related to allowing the claim of payment of interest to the creditors by dropping of the reassessment proceedings by the Assessing Officer is invalid under the facts and circumstances of the case? Per Shri I.C. Sudhir, J.M. - HELD THAT - From the record it appears that notices u/s 148 for the Assessment Year 1991-92, 1992-93 was issued on 3-6-1997 and Assessment Year 1993-94 on 12-5-1997. Reasons for reopening supplied to assessee vide letters dated 20-6-1997. Vide letter dated 17-11-1999 queries were raised by the Assessing Officer regarding creditors from the assessee fixing date of hearing on 6-12-1999 at 12.30 p.m. A detailed written reply dated 20-12-1999 was furnished by the assessee to the Assessing Officer. And before this reply, reply dated 3-12-1998 and 21-12-1998 were also furnished to the Assessing Officer. Thus, these were sufficient materials on the record of the Assessing Officer to take a decision as to whether the creditors in question were genuine or not. In case of his dissatisfaction, he was at liberty to ask the assessee to produce the creditors or issue summons to them to verify their confirmations about the credits to the assessee. The Assessing Officer was, however, satisfied with the genuineness of the creditors, hence he opted to drop the reassessment proceedings vide order dated 7-2-2000. We thus answer the issue in affirmative that claim of the assessee related to the creditors was properly examined by the Assessing Officer during the reassessment proceedings. The view taken by the learned CIT in the revisional order that explanation furnished by the assessee was not sufficient to drop the reassessment proceedings is thus nothing but a change of opinion, which is not allowed to be made a basis for invocation of revisional provision u/s 263 of the Act. The dropping of the reassessment proceedings, therefore, cannot be termed as erroneous and prejudicial to the interest of revenue. In the result, appeals are partly allowed. Per Shri T.R. Sood, AM. - Once the proceedings were reopened specifically for the purpose of examining the genuineness of loans, the Assessing Officer was duty bound to make proper enquiries and consider all the relevant material on record and determine the genuineness of loans. However, from the letter written by Assessing Officer, queries were definitely raised but in the reply it was simply stated by the assessee that these parties were regular assessee and their photocopies of pass books have been submitted and their confirmations have been filed. After this, Assessing Officer did not bother to raise any more questions. When the report of investigating authorities was before him that these people have indulged in only entry transactions or Hawala transactions, which means cheques were obtained from these parties and cash was simultaneously returned to them. We also find that copies of replies placed at page 65 to 71 are dated 21-12-98 i.e. before the enquiry was started by the Assessing Officer on 17-11-99 which very clearly mean that these documents were not filed before the Assessing Officer. Reassessment proceedings were dropped merely on the basis of simple reply which clearly shows that there was no proper application of mind. It is well settled position that failure to make proper enquiries will also render an order to be erroneous and in the case before us where assessments were reopened in the light of material obtained by the Deptt. that certain loans were not genuine, still Assessing Officer simply accepted the same on the basis of letter without raising further enquiries or obtaining relevant material or asking the assessee to produce such persons. Not a single question was asked about report of Investigation Agencies report. In the instant case, we are dealing with the scope of section 263 , and that is precisely the issue that no persons were produced before the Assessing Officer and that is why along with other factors the order was held to be erroneous in so far as it is prejudicial to the interests of the revenue. On the other hand, the Hon'ble Supreme Court in Malabar Industrial Co. Ltd.'s case 2000 (2) TMI 10 - SUPREME COURT has clearly laid down that if there is no application of mind by the Assessing Officer, then Commissioner would have powers to revise such order. Similarly, Hon'ble Supreme Court in Shree Manjunathesware Packing Products Camphor Works case 1997 (12) TMI 4 - SUPREME COURT has held that revisional powers conferred on Commissioner under section 263 are of wide amplitude and he can examine the records which were not before the Assessing Officer. Thus, I find nothing wrong with the order of Learned CIT and confirm the same. In the result, appeals are dismissed. Third member order - A bare reading of this provision one can say that the prohibition to make an order u/s 147 after the expiry of 2 years from the end of financial year in which the notice u/s 148 was served. This section does not prohibit the serving of the order any time limitation. The notice u/s 148 for the three years was issued in the financial year 1997-98 on 3-6-1997 in first two years and on 12-5-1997 in third year. Therefore, the time limit within which the order u/s 147 could be made was 31-3-2000 being 2 years from the end of financial year 1997-98 ending on 31-3-1998. Apparently therefore the orders made by the Assessing Officer on 7-3-2000 are not barred by limitation. The ld. counsel however submitted that an order though made within time limit provided u/s 153(2) would be barred by limit if they are not communicated within such period. The orders which were served on 8-3-2002 are therefore not valid order. I do not find any merit in this contention of the assessee. No such provision is there in IT Act to provide that order must also be communicated within such time limit prescribed for making the order. Making of an order and communication of such order are two separate actions and law provides a time limit for the first and not for the second. An order passed within the prescribed limit, in my opinion, can be communicated subsequently and for that there is no barrier of any time limit. It is true that, an order to be effective must be served on the aggrieved party or against whom it is passed/made as to seek redressal the assessee have to take appropriate measures for appeal, revision or rectification within a particular time. The assessee has no such redressal to seek as the dropping the proceedings under section 148 was in its favour by which he was not aggrieved. Again section 263 dealing with revision prescribes time limit of two years from the end of financial year in which the order was sought to be revised was passed but u/s 264 dealing with revision of assessee's application prescribes a time limit of one year from the date on which the order in question was communicated to him or the date on which he otherwise came to know about it, whichever is earlier. Provision of limitation for taking an action within a specified time also provides for exclusion of the period taken in obtaining the copy of an order appealed against or sought to be revised/rectified. As aforesaid the two actions of an authority for making/passing an order and communicating the impugned order are different actions and not synonymous and are differently understood in the fiscal and other statutes. When therefore time limit is prescribed for first action and no time limit is prescribed for the second, one need not have to read such limitation for both the actions. Similar is the position with regard to the cases referred to by the learned counsel of the assessee. The first and second questions are therefore decided against the assessee. Consequently the order u/s 263 would be a valid order. In my opinion is that the Assessing Officer has made proper inquiries and dropped the proceedings, after due consideration of the reply and details submitted by the assessee. Further, the order of the Assessing Officer cannot be said to be erroneous, and prejudicial to the interest of the Revenue. As observed by the Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT, the Commission has to satisfy twin circumstances viz. order of the Assessing Officer sought to be revised is erroneous and (2) that, the order- is prejudicial to the interest of the Revenue. Section 263 cannot be invoked to correct each and every mistake and/or error committed by the ITO. It is only when the order is erroneous that section will attract. In this case is not the case of CIT(A) that the cash credit were bogus or not genuine. The only reason to set aside his order is that the Assessing Officer has not made proper inquiry, that in my opinion is not correct, if one analyse the facts and circumstances in right perspective. In the present case also, the Assessing Officer made inquiry and the assessee replied to each and every query of the Assessing Officer both in the original proceedings as well as in the re-assessment proceedings and arrived at a conclusion for re-opening proceedings and dropping the proceedings after the due consideration of reply and facts submitted by the assessee. Here also the CIT has not given any finding that the cash credits were not genuine and that interest paid by them was not allowable as deduction. In the facts and circumstances, in our opinion, CIT(A) was not justified in invoking provisions of section 263 for revising the order of dropping of reassessment proceedings u/s 147 of the Act, of the Assessing Officer, which as aforesaid, were dropped by the Assessing Officer after due and proper inquiries. The order of the CIT(A) on merits, is therefore, not sustainable, and accordingly requires to be vacated. In the result, appeals of the assessee are allowed. The matters will now be listed before the Division Bench for consequential order.

Summary

Issues Involved:
1. Validity of dropping proceedings u/s 148 served on the assessee.
2. Validity of the revisional order u/s 263.
3. Merits of the order passed u/s 263.
4. Validity of the order u/s 263 related to payment of interest to creditors.

Summary:

1. Validity of Dropping Proceedings u/s 148:
The primary issue was whether the dropping of proceedings u/s 148 served on the assessee on 8-3-2002 was valid and barred by time limitation in the absence of service within the statutory period. The Tribunal held that the orders made by the Assessing Officer on 7-2-2000 were not barred by limitation as the time limit prescribed u/s 153(2) was adhered to. The Tribunal noted that making an order and communicating it are separate actions, and the law provides a time limit only for making the order, not for its communication. The Tribunal referred to various judgments, including the Supreme Court's decision in M.R. Mondal, and concluded that the order was valid despite the delayed communication.

2. Validity of the Revisional Order u/s 263:
The Tribunal examined whether the revisional order u/s 263 becomes invalid if the dropping of proceedings u/s 148 was not communicated within the time limit. It was held that the revisional order u/s 263 was valid as the order dropping the proceedings was made within the prescribed time limit, and the communication delay did not affect its validity.

3. Merits of the Order Passed u/s 263:
The Tribunal analyzed whether the order passed u/s 263 was bad in law on merits. The CIT had set aside the order of the Assessing Officer dropping the proceedings initiated u/s 147/148, directing the Assessing Officer to conduct proper inquiries and frame a proper assessment order. The Tribunal found that the Assessing Officer had made proper inquiries and dropped the proceedings after due consideration of the assessee's replies and details. The Tribunal referred to the Supreme Court's decision in Malabar Industrial Co. Ltd. v. CIT, emphasizing that an order cannot be termed erroneous unless it is not in accordance with law. The Tribunal concluded that the CIT's order was not justified as the Assessing Officer had exercised quasi-judicial power in accordance with the law.

4. Validity of the Order u/s 263 Related to Payment of Interest to Creditors:
The Tribunal considered whether the order passed u/s 263 related to allowing the claim of payment of interest to creditors by dropping the reassessment proceedings was invalid. The Tribunal found that the Assessing Officer had made proper inquiries regarding the creditors and their genuineness during the reassessment proceedings. The Tribunal held that the CIT's view that the explanation furnished by the assessee was insufficient was merely a change of opinion, which is not a valid basis for invoking revisional provisions u/s 263. The Tribunal concluded that the dropping of the reassessment proceedings could not be termed erroneous and prejudicial to the interest of revenue.

Conclusion:
The Tribunal allowed the appeals, holding that the orders dropping the proceedings u/s 148 were valid, the revisional order u/s 263 was not justified, and the Assessing Officer had made proper inquiries before dropping the reassessment proceedings. The Tribunal emphasized that a change of opinion by the CIT cannot be a basis for invoking revisional provisions u/s 263.