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TMI Blog1985 (7) TMI 159X X X X Extracts X X X X X X X X Extracts X X X X ..... , Shri Hakim Hari Kishan Lal, Vijay Abbot and Rajinder Abbot. 3. Undisclosed income of Rs. 4,48,000 on account of notings made on pages 30 and 43 of Annexure D-1. 4. Undisclosed income of Rs. 1,22,070 on account of notings made at page 34 of Annexure D-1. This order was passed on17-2-1982. Subsequently, the assessee filed objections under section 132(11) before the notified authority, who happened to be in this case the Commissioner, against the order under section 132(5). Pursuant thereto various meetings were held at the instance of the Commissioner, when evidence against the additions was produced and considered. Eventually, the assessee filed a petition under section 273A of the Act before the Commissioner of stating that they would agree for an addition of Rs. 75,000 to be spread over three assessment years with a view to purchase peace and avoid multiplicity of proceedings, making it clear that the assessee was not agreeing that there was any concealment of income. Thereafter the Commissioner called for a report from the ITO and again various meetings were held between the assessee's representative and the Commissioner, the IAC and the ITO. On29-4-1982a settlement was r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igure of sales which has been suppressed by the firm and as such the understatement of income by the firm cannot be determined correctly. As such in view of the discrepancies in the figures of sales in the seized documents and as reflected in the books of account after examining the information in detail and after detailed discussion it was agreed by the parties concerned that it would be proper if the understatement of the income on account of suppressed sales for all the three assessment years are taken at Rs. 75,000. The assessees and the authorised representatives have also agreed to the said estimate. 3. It was further pleaded on behalf of the assessee-firm that it is only to avoid multiplicity of the proceedings and prolonged litigation that the assessee came forward for settlement and that if the penalty proceedings, etc., are initiated and levied on the basis of additions of Rs. 25,000 in each of the assessment years from the assessment years 1980-81 to 1982-83 as discussed above, a real hardship would be caused to the assessees. It was further pleaded that the assessees be allowed to pay the additional demand raised in instalments. However, this was not agreed to and it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these cases of the partners. The ITO, thus, gave effect to the settlement reached with the Commissioner and completed the assessments of the assessee by adding Rs. 25,000 and the assessments of the partners without adding anything but by making reference to the settlement reached. 2. Subsequently on12-12-1983the Commissioner gave notice under section 263 of the Act proposing to cancel these assessments stating that the ITO had not properly considered, appreciated the seized material and overlooked certain material aspects. The assessees contended before the Commissioner that it is highly improper on the facts of this case to say that the ITO while making the assessments committed an error so as to cause prejudice to the interests of the revenue. On the failure of the Commissioner to withdraw these notices the assessee filed a writ petition in the Delhi High Court on11-1-1984but the Delhi High Court by its judgment dated19-7-1984dismissed the writ petition in limine without considering the questions involved in the matter. The assessee then moved the Hon'ble Supreme Court under article 136 of the Constitution. By its order on19-9-1984the Hon'ble Supreme Court passed the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment order before coming to any conclusion as to the quantum of addition to be made and that the non-discussion of the material caused prejudice to the interests of the revenue and vested jurisdiction in him to invoke the provisions of section 263. In support of the assumption of jurisdiction under section 263, he placed strong reliance on the decision of the Delhi High Court in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375. He cancelled the assessments made by the ITO on these assessees for these two years and directed him to make fresh assessments after making necessary investigations. To put it simply, the fault or the error that was said to have been committed by the ITO while making these assessments was non-enquiry with reference to the addition proposed in the order passed under section 132(5). He also referred to the following five items which according to him the ITO had not considered at all although that was a part of the seized material: (a) Renovation of residential premises by Shri Rajinder Abbot (vide notings on pages 36 to 41). (b) Renovation of the flat during April 1981 (vide notings on page 50) Rs. 6,380. (c) Booking of 14 scooters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was considered. It is not as if the settlement was reached in a haste. Several meetings were held between the assessees, his representatives and the Commissioner in the presence of the IAC. If after a mature and exhaustive consideration of the seized material the Commissioner, who is an appellate authority under section 132(11) comes to a conclusion that the additions proposed in the order passed under section 132(5) were incorrect, baseless and arrives at a figure to be added as concealed income of the assessee and gives directions to that effect to the ITO, who following those instructions completes an assessment, how can it be said, the learned advocate asked, that the seized material was not considered by the ITO and the additions were made in disregard of that seized material. Merely because there was no discussion in the assessment order about the explanations offered by the assessee in regard to the seized material, does it follow that the earlier proceedings were all non est in law. Could the Commissioner ignore those proceedings, ignore the conclusions reached therein and then say that the ITO committed an error because he did not refer to that material ? It is not as if t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfined to the amount mentioned in the order passed under section 132(5). The minutes recorded by the Commissioner, on which so much reliance was placed by the assessee, as if they are sacrosanct are really not legal orders. The Commissioner or for that matter the IAC has no power under the Act to agree for any settlement more particularly on a petition filed under section 273A under which section the power of the Commissioner is confined only to reduce or waive the penalty in certain cases and not to deal with any income much less settlement of income. It is, therefore, very incorrect for the assessee to suggest that the orders passed by the Commissioner have got any legal sanction behind them. In a case of this nature, the ITO must be said to have failed in his duty to show how he has considered the various additions proposed in section 132(5) as not worthy of adding in the final assessment made under section 143(3). That apart the Commissioner found certain other items mentioned in paragraph No. 3 of his order. There is no reference in the order of the ITO that these items were considered. There is as pointed out by the Commissioner nothing in the minutes also. If any one of thos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offended by it. On the contrary they should appreciate the alertness of such an ITO. But in a case where the Commissioner sends to the ITO for his report on the explanations given by the assessee and the proposals made by him, it is certainly open to the ITO to express his opinion whether the explanations offered could be accepted or not and whether the proposals made could be acted upon or not and make counter suggestions in order to protect the interests of the revenue. This does not mean defiance. On the other hand, this means only compliance. But in this case what happened was, as soon as the assessee made a petition to the Commissioner for settlement, the Commissioner held several meetings with the ITO. That was on record. The assessee filed explanation to the various additions proposed in the order under section 132(5) supported by materials. This explanation was sent to the ITO for his comments. It was only after getting the explanations offered by the assessee examined by the ITO and it is only after receiving his comments on them and that too through the IAC the final settlement was reached. It is note worthy that the ITO was also present and a party to this settlement. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther important thing to be noted in this context is that one of the decisions reached was that no other addition as per discussion was found proper on account of the seized material in the possession of the department. What does this mean and show ? It means that the entire seized material in the possession of the department was considered and then it was found that no addition other than the addition of Rs. 75,000 could be made. The Commissioner now is not showing that this decision was wrong. Except stating that the material as not considered and that the assessment order does not show any consideration of this material, which is now found to be factually incorrect, he does not say that any particular addition was omitted to be made. On these facts what is to be seen is not the validity or the competence of the Commissioner in making an order under section 273A or in arriving at the settlement but what is relevant is whether the Commissioner now is justified in saying that no enquiry was made by the ITO while making the assessment with reference to the seized material and with reference to the order passed under section 132(5). There is enough evidence on record to show that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court in Russell Properties (P.) Ltd. v. A. Chowdhury, Addl. CIT [1977] 109 ITR 229. Quoting from the head-note the principle laid down by the Calcutta High Court is: "The power of revision under section 263 of the Income-tax Act, 1961, can be exercised only if the following conditions are satisfied---firstly, the Commissioner must call for and examine the records of the proceedings under the Act and, secondly, the Commissioner must consider the order passed by the Income-tax Officer to be erroneous in so far as it is prejudicial to the interests of the revenue. However, where there is a decision of a higher appellate authority the subordinate authority is bound to follow such decision. Hence, an order passed by the Income-tax Officer following the decision of the Appellate Tribunal cannot be held to be erroneous and such an order cannot be revised." Thus, we are fortified in the view that we are taking that when there is a decision of a higher authority, which the ITO is bound to follow under the Act, an order passed by the ITO following such decision could not be held to be erroneous and such an order could not be revised under section 263. More or less this is also the v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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