1979 (10) TMI 110 - AT - Income Tax

Issues Involved:

1. Whether the Commissioner of Income Tax (CIT) erred in holding that the sum of Rs. 6,38,250 was allowed by the Income Tax Officer (ITO) without making necessary enquiries.
2. Whether the CIT erred in holding that the ITO's order was erroneous and prejudicial to the interest of the Revenue.
3. Whether the impugned order was without jurisdiction and contrary to the material on record.
4. Whether the impugned order was bad in law for being passed without giving an opportunity of being heard.
5. Whether the notice dated 20th August 1978 was vague and without material, thus bad in law.

Detailed Analysis:

1. Enquiry by ITO:

The assessee, a partnership firm dealing in country liquor, claimed Rs. 6,38,250 as "security forfeited a/c" in its profit and loss account. The ITO allowed this claim based on a detailed letter dated 16th August 1976 from the assessee, explaining the circumstances under which the amount had to be paid. The letter and a certificate from the Excise Authorities detailing the monthly payments were part of the assessment records. Despite this, the CIT set aside the assessment order, stating that the ITO had not made proper enquiries regarding the nature of the amount and its admissibility under the Income Tax Act, 1961. The Tribunal found that the ITO had sufficient material before him and had indeed made the necessary enquiries, thus the CIT's assertion was incorrect.

2. Erroneous and Prejudicial to Revenue:

The CIT concluded that the ITO's order was erroneous and prejudicial to the interest of the Revenue because the ITO allegedly allowed the claim without proper enquiry. The Tribunal disagreed, noting that the ITO had considered the detailed letter from the assessee and the certificate from the Excise Authorities. The Tribunal emphasized that the absence of a detailed discussion in the assessment order does not imply a lack of enquiry. Hence, the Tribunal held that the CIT's conclusion was unfounded and the ITO's order was neither erroneous nor prejudicial to the Revenue.

3. Jurisdiction and Material on Record:

The Tribunal observed that the CIT initiated proceedings under Section 263 of the Income Tax Act, 1961, based on an audit objection, which was not detailed in the CIT's order. The Tribunal held that the ITO had sufficient material on record to ascertain the nature of the amount and its admissibility. Therefore, the CIT's order was without jurisdiction as the ITO's assessment was based on adequate enquiry and material.

4. Opportunity of Being Heard:

The assessee argued that the impugned order was passed without giving them an opportunity of being heard. The Tribunal noted that the CIT had issued a show-cause notice served on the assessee on 21st August, with the hearing initially fixed for 26th August but advanced to 25th August. The assessee's request for adjournment was denied, and the CIT passed the order on 25th August. The Tribunal found this approach improper, emphasizing that substantial issues should not be decided without considering the material on record and without giving the assessee a proper opportunity to present their case.

5. Vagueness of Notice:

The assessee contended that the notice dated 20th August 1978 was vague and without material, thus bad in law. The Tribunal did not specifically address this issue, as it found the CIT's order invalid on other substantial grounds.

Conclusion:

The Tribunal concluded that the CIT erred in setting aside the ITO's assessment order. The ITO had made necessary enquiries and had sufficient material to allow the assessee's claim. The Tribunal emphasized that the CIT should have provided concrete advice or collected additional material if deemed necessary, rather than passing an order without proper consideration and opportunity to the assessee. Consequently, the Tribunal cancelled the CIT's order and allowed the assessee's appeal.

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