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TMI Blog1990 (2) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... ent with whom the Income-tax Department associated under sec. 133A. The survey was carried out in the premises of all the concerns of the assessee group. During the course of survey, the Income-tax authorities found that in the current cash book for the financial year 1985-86, on the first date of the previous year i.e. on1-4-1985, there were 21 cash deposits in different names aggregating to Rs. 1,15,08,000. In the cash book only the names of the depositors had been given without any further details. During the survey, the statement of the assessee's partner Shri Vinod Kumar Agarwal was recorded wherein he stated that he was not in a position to tell anything about the depositors. However, subsequent inquiries from the Union Bank ofIndia, Muzaffarnagar showed that cash to the extent mentioned above was deposited on1-4-1985in the current account of the assessee firm. The Income-tax Officer, during the assessment proceedings for the assessment year in question, issued notice under secs. 143(2) 142(1) to the assessee on21-2-1986fixing27-2-1986. On27-2-1986the case was adjourned to3-3-1986. On3-3-1986before the Income-tax Officer the assessee's partner Shri Salek Chand attended alon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th Feb. 1986by which the petitioner's case is covered. The assessee may be advised accordingly. " Yours faithfully, Sd/-- Encl: --- As above. (K.K. Agarwal) Income-tax Officer (J) O/O C.I.T. Meerut. " The Board's Circular dated15th November, 1985referred to by the Commissioner of Income-tax in his Minutes dated5-3-1986was Circular No. 432 containing clarification from the Board regarding the effect in the earlier years of the declaration of substantial income by the assessee in the initial assessment year. On5-3-1986itself the IAC (Asst.) made a communication to the assessing Income-tax Officer as follows : " F. No. 1/Vo. Discl/IAC-MZR/85-86/ Confidential Office of the Inspecting Asstt. Commissioner of Income tax, Muzaffarnagar. Dated:5-3-1986. To Shri H.C. Jain, Income Tax Officer, Muzuffarnagar. Sub: --- Voluntary Disclosure by M/s. Agarwal Pesticides Chemical Industries, Muzaffarnagar. M/s. Agarwal Pesticides Chemical Industries, Muzaffarnagar has filed a voluntary disclosure petition dated 5-3-1986 before the Hon'ble C.I.T., Meerut stating inter alia that assessee has offered a sum of Rs. 1,15,08,000 as current year's income from "Other sourc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be followed. He also observed that revised estimate of advance tax for A.Y. 1986-87 could be filed by the assessee up to31-3-1986. Thereafter assessment was framed by the Income-tax Officer under sec. 143(3) accordingly and the amount was treated as covered by the assessee's declared income at Rs. 1,15,08,000 disclosed as the current year's income. The assessee thereafter filed the revised estimate of the advance tax for the A.Y. 1986-87 on31-3-1986in Form No. 29 showing loss of Rs. 64.25 lakhs. 3. It appears that the succeeding Commissioner (who ultimately passed the impugned order under sec. 263) wrote to the Board on 17-9-1987 for clarification whether in the circumstances of the case, the disclosure made by the assessee could be taken to cover its untaxed income for the preceding A.Y. 1985-86 introduced in the books in the form of cash credits and if not, he would have to take proceedings under sec. 263 for the assessment year 1985-86. The Board issued Instruction No. 1775 dated23-10-1987(F. No. 11015/2/87-Ad.VII) and sent the matter to the CCIT,Lucknow. The CCIT,Lucknowvide his letter dated12-1-1988wrote to the CIT,Meerutas follows : " 2. The Chief Commissioner (Administ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Board's Instruction No. 1691 dated 12-2-1986 there being nothing in the Board's instruction which could justify the ITO's action in treating the unexplained deposits in the Asst. Year 1985-86 as covered by the unexplained deposits in different names in A.Y. 1986-87. It was pointed out in the notice that the I.T.O. had failed to see that in the financial year 1984-85 unaccounted cash had been introduced by the assessee and was utilised in the business and therefore, such untaxed amounts were introduced in the books for the A.Y. 1985-86 in the form of tangible assets. It was said that the I.T.O. was not justified in ignoring the existence of unaccounted funds in the Asst. Year 1985-86 because the subsequent years' deposits could not cover the deposits in the preceding year. It was also said in the said notice that if the assessee wanted to surrender the unexplained deposits it could surrender peak credits introduced in each year. It was said that cash had been brought in the books and utilised which showed the existence of concealed income in the A.Y. 1985-86. Therefore, he proposed to set aside the assessment order on the ground that it was erroneous in so far as it was prej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered by the additional income disclosed for taxation in the assessment year 1986-87 by offering it in its estimate for advance tax for the A.Y. 1986-87. He also submitted that the learned Commissioner was estopped from repudiating the settlement/assurance made by his predecessor. He pointed out that what the I.T.O. was to do, was to implement the directions of his superior authority. It was said that the earlier Commissioner had full legal authority and competence to issue directions under sec. 119(3) to bind the I.T.O. to frame the assessment in accordance with such directions even if they relaxed the rigours of law in favour of the assessee and to its benefit. Reliance was placed by him in this connection on the order dated 1st March, 1988 of Delhi Bench 'B' in ITA No. 1912/Del/1986 for A.Y. 1980-81 in the case of M/s. Amar General Industries, New Delhi wherein reliance had been placed on the decision of the Hon'ble Calcutta High Court in the case of Russell Properties (P.) Ltd. v. A. Chowdhury, Addl. CIT [1977] 109 ITR 229 and the decision of Delhi Bench 'C' in Vijay Kumar v. ITO [1986] 15 ITD 58. He referred to the decision of Bombay High Court in the case of Jivatlal Purtapshi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quasi-judicial functions of an inferior authority and therefore, if rectification was made under sec. 154 by the I.T.O. at the behest of a superior officer, it was bad. He also referred to the decision of the Rajasthan High Court in the case of Rajputana Mining Agencies v. ITO [1979] 118 ITR 585 for the proposition that the I.T.O. should not act under instructions or directions of higher authorities and had to apply his own mind independently to the facts of the case. He submitted that the decision of the Allahabad High Court in the case of Sterling Machine Tools was not relevant to the facts of this case. Next, he referred to the decision of Andhra Pradesh High Court in the case of Torson Products Ltd. v. CIT [1988] 173 ITR 611/38 Taxman 72 for the proposition that if certain directions were given by the IAC under sec. 144B, they did not have the effect of impressing the order ostensibly made by the I.T.O. as an order made by the IAC. He pointed out that this decision was prior to the Direct Tax Laws (Amendment) Act, 1987 which declared that an order passed by the assessing officer included an order of assessment made on the basis of the directions issued by the Dy. Commissioner u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing officer. The Explanation to sec. 263 as inserted by the Taxation Laws (Amendment) Act, 1984 with effect from 1-10-1984 and amended by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4-1988 and Finance Act, 1988 with effect from 1-6-1988 was to the effect that "an order passed by an assessing officer" shall include an order made on the basis of the directions issued under sec. 144A. The position resulting from these two sets of provisions therefor is, that the Commissioner would have the jurisdiction and power unde sec. 263 to call for and examine the assessment order even though made by the assessing officer on the basis of the directions under sec. 144A to examine if it is erroneous in so far as it is prejudicial to the interests of the revenue. The fact that the assessing officer was bound to follow the directions issued by the IAC under sec. 144A would therefore, not detract from the jurisdiction and power of the Commissioner under sec. 263. We hold accordingly. 7. The third question is whether, and if so, how far the exercise of the jurisdiction or the power of a Commissioner under sec. 263 is affected by his or by his predecessor in office expressing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of the exercise of the jurisdiction or power by a Commissioner under section 263 the fact that he or his predecessor in office held a certain view or took a certain stand, would be relevant though not conclusive. We would have occasion to dilate on this point further in what follows. 8. This brings us to the consideration of the most essential aspect namely as to what the petition dated 5-3-1986 of the assessee was, what the Amnesty Scheme was, what were the other instructions preceding and subsequent to it and how the assessment proceedings took note of the same. It hardly needs to be emphasised the Circulars issued by the Board are binding on the Income-tax authorities particularly when they are of a benevolent nature and instead of imposing a burden on the taxpayer, they mitigate the rigour of law. It is not the case of the department that the Circulars which we would be presently making reference to, were not within the four corners of the provisions of section 119 or that they were contrary to law. They had been issued with particular reference to the Finance Act, 1985 with the objective of securing voluntary tax compliance and to treat repentant sinners on the same footi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for advance tax purposes showing a very high figure in the current year. It should be obvious that such a higher estimate of income would not represent his income of the current year alone but possibly also the accumulated untaxed income of several earlier years. It may be difficult for him even to relate the income to different years. . . . . . The assessee may very well plead that even if some income had escaped assessment in some particular earlier years, he has made a clean breast of it in the current year by including it in his estimate for advance tax and paying tax on the same. (5) In such cases (i.e., cases mentioned at Sl. No. 4 above) Income-tax Officers are advised to have a broad and liberal approach and take a sympathetic view in respect of the cases for the earlier year, so long as the material in their possession does not show the evasion of past incomes which could not be accounted for by the assessee's estimates for the current year. Obviously such an approach can apply only to cases where the concealment in the earlier years is not in the form of tangible assets. In the Instruction No. 1692 dated 13-2-1986 it was said inter alia that in the spirit of the assura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts to the extent as offered in the A.Y. 1986-87 be treated as fully explained in the earlier years whose deposits may happen to appear in various names. It was said that estimates of advance tax for the A.Y. 1986-87 were also being revised in the cases of the four partners. In the petition the assessee had also added that the aforesaid amount has been/will be utilised by the partners as per details given in Annexure 'B'. It was, therefore, prayed that the revised estimates be accepted. After this petition the Commissioner discussed the matter with the IAC to whom a copy of the petition was given and he was directed to act in accordance with the Board's circular dated15-11-1985and Instruction No. 1691 dated12-2-1986. Apart from this the instructions of the Commissioner were communicated through the ITO to the IAC by means of letter dated 5-3-1986 saying that he should particularly keep in mind the Board's Instruction No. 1691 dated 12-2-1986 by which the assessee's case was covered. On the same day the IAC wrote to the Income-tax Officer to complete the assessments of earlier years keeping in view the said instructions and to feel free to seek the IAC's directions in case he found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irculars referred to above. Thus the income which had been earned by the assessee outside the books for a number of earlier years, had remained undisclosed and untaxed and the assessee was unable to offer to the Commissioner or the assessing authority the precise details of such income earned with clear co-relation with the years in which such incomes were earned. Due to the same the assessee had offered the amount of Rs. 1,15,08,000 to cover-up all the undisclosed and untaxed income of the past, for being taxed in the A.Y. 1986-87 under the Amnesty Scheme. The Income-tax Officer making the assessment had raised the question of proof of genuineness of the cash credits for the assessment year in question and completed the assessment in the light of the voluntary disclosure made by the assessee. The learned Commissioner, in our view, had correctly appreciated the facts and circumstances arising from the disclosure petition of the Amnesty Scheme in the circulars when he issued the instructions to the IAC which were handed down to the ITO initially administratively and later under section 144A. The successor Commissioner was not justified in considering such a view itself to be erroneo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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