1997 (12) TMI 164 - AT - Income Tax

Summary

Issues Involved:
1. Validity of assumption of jurisdiction u/s 263 by the CIT.
2. Examination of the three main issues raised by the ADIT (Inv.): excessive barge hire charges, shortage of iron ore, and inflation of purchases.
3. Adequacy of the investigation conducted by the Assessing Officer (AO).
4. Compliance with principles of natural justice by the CIT.
5. Whether an assessment order passed under the supervision of a CIT can be revised by another CIT.

Summary:

Validity of Assumption of Jurisdiction u/s 263 by the CIT:
The CIT assumed jurisdiction u/s 263, claiming the AO's order was erroneous and prejudicial to the revenue. The assessee contested this, arguing that the AO had conducted detailed investigations and that the CIT had not provided any specific evidence of error or prejudice.

Examination of the Three Main Issues Raised by the ADIT (Inv.):
1. Excessive Barge Hire Charges: The ADIT (Inv.) alleged that the assessee made excessive payments to sister concerns for barge hire charges. The AO, after investigation, found that the charges were in line with market rates set by the Goa Barge Owners' Association and that the assessee had earned substantial income from hiring out the barges when not in use.
2. Shortage of Iron Ore: The ADIT (Inv.) claimed the shortages were bogus. The AO, however, found that such shortages were common in the industry and had been allowed in previous years. The AO concluded that the shortages were reasonable based on the facts and prevalent market conditions.
3. Inflation of Purchases: The ADIT (Inv.) alleged inflation of purchases. The AO, after examining the records and explanations provided by the assessee, accepted that the difference in purchase price was due to a negotiated price increase, which was also reflected in the seller's accounts.

Adequacy of the Investigation Conducted by the AO:
The AO conducted thorough investigations into the issues raised by the ADIT (Inv.), including examining records, market rates, and industry practices. The AO's findings were reported to the CIT, who directed the AO to complete the assessments in accordance with the law.

Compliance with Principles of Natural Justice by the CIT:
The CIT did not consider the assessee's detailed written submissions and objections, stating that it was unnecessary. The Tribunal held that this amounted to a failure of natural justice, as the CIT is required to consider the objections and submissions before passing an order u/s 263.

Whether an Assessment Order Passed Under the Supervision of a CIT Can Be Revised by Another CIT:
The assessment order was passed under the direct supervision of the CIT, who had monitored the case and directed the AO to complete the assessments. The Tribunal held that an order passed under the directions of a CIT cannot be revised by another CIT, as it effectively becomes the order of the CIT himself.

Conclusion:
The Tribunal set aside the CIT's order u/s 263, holding that the AO had conducted adequate investigations, the CIT failed to consider the assessee's objections, and an assessment order passed under the supervision of a CIT cannot be revised by another CIT. The appeals were allowed.