2009 (5) TMI 14 - SC - Income Tax

Income Form setting up units in Exemption Area (u/s 80IA) - Huge profit of about 49% to 66% of sales - AO conducted survey u/s 133A and after verification accepted the return submitted by the assessee - as per the order of the AO it appears that he has passed the order on the direction of CIT - in the meantime CIT and transferred - new CIT has passed an order u/s 263 as, I am left with no alternative but to decide the proceedings on the basis of material on record. In the assessment year under review, I estimate the assessee s income from Units at Parwanoo at 5% of the declared turnover. The income shown in excess of 5% amount is treated as undisclosed income from undisclosed sources. As the assessee does not fulfill many of the conditions for being entitled to deduction u/s 80IA/IB, no part of the total income, not even the one estimated @ 5% of the turnover at Parwanoo, would be entitled for deduction u/s 80IA/IB - Further notice u/s 148 issued for previous assessment years - in this matter honorable SC ordered to reopen the assessment.

Issues Involved:
1. Jurisdiction
2. Bias on the part of the CIT (Shimla)
3. Merits of the assessment order
4. Validity of the notices under Section 148 of the Income Tax Act
5. Directions issued by the CIT under Section 263 of the Income Tax Act
6. Maintainability of the appeal by CIT (Shimla)

Detailed Analysis:

1. Jurisdiction:
The principal question was whether the CIT (Shimla) had the jurisdiction to maintain the appeal before the High Court after the Central Board of Direct Taxes (CBDT) transferred the case to CIT (Delhi). The Supreme Court noted that the transfer of jurisdiction from CIT (Shimla) to CIT (Delhi) was effective from 5th September 2005, post the initiation of the appeal by CIT (Shimla). The Court observed that the CIT (Shimla) had passed the order before the transfer and thus had the locus standi to file the appeal. The Court also emphasized that no prejudice was shown by the assessee due to this jurisdictional issue.

2. Bias on the part of the CIT (Shimla):
The assessee alleged bias on the part of CIT (Shimla). The Tribunal had set aside the order of the CIT (Shimla) on the jurisdictional issue and did not delve into the merits. The Supreme Court noted that the CIT (Shimla) had issued directions for reopening the proceedings for other assessment years, which the Tribunal found to be beyond the jurisdiction conferred under Section 263 of the Act.

3. Merits of the assessment order:
The Tribunal observed that the Assessing Officer had made proper and adequate inquiries and allowed the deduction under Section 80-IA after applying her mind. The Tribunal held that the CIT (Shimla) had based his order on surmises and conjectures without substantial material, thus setting aside the CIT's order under Section 263. The Supreme Court upheld the Tribunal's finding that the assessment order was not erroneous or prejudicial to the revenue's interests.

4. Validity of the notices under Section 148:
The High Court had held that the notices under Section 148 for the assessment years 1996-97 and 1997-98 were not saved from the limitation under Sections 150(1) and 153(3)(ii) of the Act. The Supreme Court observed that the CIT (Shimla) had no jurisdiction to issue directions for reopening the assessments for other years, and thus the notices issued pursuant to those directions were invalid.

5. Directions issued by the CIT under Section 263:
The CIT (Shimla) had issued directions under Section 263, estimating the assessee's income and treating the excess as undisclosed income. The Supreme Court noted that the CIT's order was based on the premise that the Assessing Officer had not examined the case properly. The Court reiterated that the power under Section 263 can be exercised only if the order is erroneous and prejudicial to the revenue's interests. The Tribunal had found that the Assessing Officer had made adequate inquiries and thus the CIT's order under Section 263 was not sustainable.

6. Maintainability of the appeal by CIT (Shimla):
The Supreme Court held that the CIT (Shimla) had the locus standi to maintain the appeal as he had passed the order before the transfer of jurisdiction. The Court also noted that the appeal was maintainable even though CIT (Delhi) was later impleaded.

Conclusion:
The Supreme Court upheld the Tribunal's decision setting aside the CIT (Shimla)'s order under Section 263 and invalidated the notices under Section 148 issued pursuant to the CIT's directions. The Court directed that the assessment be reopened by the Commissioner of Income-tax, Delhi -VII, ensuring that the assessment proceedings are conducted afresh by the appropriate authority.

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