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2006 (4) TMI 241 - AT - Income TaxChallenged the assumption of jurisdiction - Order passed by CIT u/s 263 - Non issuance of notice - change in opinion - erroneous nor prejudicial - adverse observation with regard to order u/s 154 - whether the Tribunal is empowered to admit new/additional ground raised for the first time before it - HELD THAT - While deciding a tax appeal, the appellate authority - first appellate authority - as also Appellate Tribunal- had jurisdiction to permit additional grounds raised before them, even though those grounds may not have been raised before either the Assessing Officer or the first appellate authority, so long as the points for decision arise from the proceedings which were the subject-matter of the assessment before the assessing authority. It appears that the Assessing Officer had adopted the report of the Government Valuer in good faith and in a bona fide manner as the true and correct report of a superior and technical expert in the line of the work more so, when the documentary evidence under reference had been obtained by no less an authority than the Additional Director of Income-tax (Investigation), Patna, and when such a report had been passed on to the Assessing Officer. He was bound to adopt the same. There may be a mistake in the valuer's report and consequently loss to revenue but then the action of the Assessing Officer cannot be levelled as erroneous and order may be prejudicial to the interest of the revenue but if it is not erroneous the same cannot be cancelled by the ld. CIT while exercising jurisdiction u/s 263. Even if, there was an error in the Government Valuer's report this was the error committed by the Government Valuation Officer but not by the Assessing Officer and if due to mistake in the report of the valuer some obvious mistake has occurred, remedies in section 154 and not u/s 263. So far, the Assessing Officer is concerned, he has acted in good faith and in a bona fide manner. Thus, the provision of section 263 is contemplated to cover within its ambit scope, the error which is committed by the Assessing Officer, and not those errors which are committed by any other authority. Thus, the assumption of jurisdiction by ld. CIT u/s 263 is also invalid and illegal on this score. We find that the decision of ld. CIT, in setting aside the order that too without any specific direction, is also not sustainable. On perusal of entire facts on record it is apparent that the Assessing Officer has made necessary enquiries, and has also confronted the assessee on alleged excess stock and on being satisfied with the evidences adduced, has not drawn any adverse inference. Thus in our view, the issue of alleged excess stock was fully adjudicated upon. Vide reply, it was brought to the notice of Assessing Officer that the inventory prepared at the time of survey suffers from various defects which were discussed in detail vide petition filed before CIT. Excess stock in any business could be generated by adopting two methodologies, one by suppressing GP from year to year and the other by undertaking transaction (purchase and sale) outside the books of account. No finding to this effect has beep recorded by ld. CIT nor any such material has been found in course of survey. Rather, to the contrary, the Assessing Officer has recorded a categorical finding that nothing incriminating relating to purchase and sale of ornaments (gold, silver, etc.) outside the books of account have been found in course of survey u/s 133A. No defect in the books of account has been detected. Hence, the trading result has been accepted . Thus, the assumption of the ld. CIT regarding possession of excess stock is based merely on suspicion and surmises and, therefore, the ld. CIT has restrained himself from giving any specific direction while exercising extraordinary power u/s 263. Therefore, on merit also, we find that the Ld. CIT was not justified in treating the order of the Assessing Officer as erroneous and prejudicial to the interest of the revenue. Therefore, on merit also, the order of the Ld. CIT is not sustainable. As a result, order of the Ld. CIT u/s 263 is not legally and factually sustainable, hence the same is quashed.
Issues Involved:
1. Invocation of powers under section 263 of the Income-tax Act by the CIT. 2. Validity of the show-cause notice issued under section 263. 3. Examination of books of account and materials by the Assessing Officer. 4. Allegations of excess stock and discrepancies found during the survey. 5. Application of principles of equity and natural justice. 6. Adequacy of enquiry and investigation by the Assessing Officer. 7. Determination of whether the assessment order was erroneous and prejudicial to the interest of the revenue. Detailed Analysis: 1. Invocation of Powers under Section 263: The assessee challenged the CIT's invocation of powers under section 263, claiming the CIT erred in setting aside the Assessing Officer's order without proper grounds. The Tribunal noted that the CIT must be satisfied on the twin conditions that the order is erroneous and prejudicial to the revenue. The Tribunal found that the CIT exceeded his jurisdiction by not limiting himself to the allegations in the show-cause notice and by making adverse observations regarding the order under section 154 dated 27-1-2003. 2. Validity of the Show-Cause Notice: The assessee argued that the show-cause notice was invalid as it was not signed by the CIT and was vague. The Tribunal agreed, referencing the decisions in CIT v. Sattandas Mohandas Sidhi and Garden Silk Mills Ltd. v. CIT, which held that a notice under section 263 must contain reasons and be signed by the CIT. The Tribunal found that the notice in question was signed by an ITO on behalf of the CIT and lacked detailed reasons, rendering it invalid. 3. Examination of Books of Account and Materials: The Tribunal examined whether the Assessing Officer had duly examined the books of account and materials found during the survey. The Tribunal noted that the Assessing Officer had indeed examined the books and considered the survey report and valuer's report. The Tribunal found no evidence that the Assessing Officer failed to call or examine relevant records, contrary to the CIT's claims. 4. Allegations of Excess Stock and Discrepancies: The CIT alleged that the Assessing Officer did not adequately address discrepancies in stock found during the survey. The Tribunal found that the Assessing Officer had considered the inventory discrepancies and the valuer's report, which provided a more accurate assessment of the stock. The Tribunal concluded that the CIT's allegations were based on suspicion and lacked substantive evidence. 5. Application of Principles of Equity and Natural Justice: The assessee claimed that the order violated principles of equity and natural justice. The Tribunal agreed, noting that the CIT's order was based on a vague and unsigned notice, and that the assessee was not given a fair opportunity to address the allegations. The Tribunal emphasized that any interference under section 263 must be justified by clear and specific reasons. 6. Adequacy of Enquiry and Investigation: The CIT claimed that the Assessing Officer did not conduct adequate enquiry and investigation. The Tribunal found that the Assessing Officer had made necessary enquiries, examined the books of account, and considered the survey and valuer's reports. The Tribunal concluded that the CIT's assertion of inadequate enquiry was unfounded. 7. Determination of Erroneous and Prejudicial Order: The Tribunal analyzed whether the assessment order was erroneous and prejudicial to the revenue. The Tribunal referenced the Malabar Industrial Co. Ltd. v. CIT decision, which requires both conditions to be met for section 263 to apply. The Tribunal found that while the order might be prejudicial to the revenue, it was not erroneous as the Assessing Officer had applied his mind and acted in accordance with law. The Tribunal emphasized that section 263 does not allow for substitution of the CIT's judgment for that of the Assessing Officer unless the latter's decision is erroneous. Conclusion: The Tribunal quashed the CIT's order under section 263, finding it legally and factually unsustainable. The Tribunal held that the show-cause notice was invalid, the Assessing Officer had conducted a proper examination and enquiry, and the assessment order was not erroneous despite being potentially prejudicial to the revenue. The Tribunal emphasized the importance of adhering to principles of natural justice and providing clear, specific reasons for invoking section 263.
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