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TMI Blog1991 (9) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the year. A brief order had been passed by the Assessing Officer by virtue of which an addition of Rs. 3,294 had been made on account of preliminary share issue expenses. 2. On perusal of the records of the company, it was noticed by the Commissioner that all was not well in the manner of assessment and the enquiry made by the Assessing Officer in this case. According to the Commissioner, the Assessing Officer had failed to make basic enquiries in this case insofar as a return of income had been filed by the assessee inDelhiwhereas its registered office is inCalcutta. The reasons for the company having filed the return inDelhigiving the address as B-72, Himalaya House, Kasturba Gandhi Marg,New Delhihad not bothered the Assessing Officer at all and no enquiry having been made, the real reason for filing of the return by the company inDelhihad not surfaced. It was found that the Assessing Officer who made the assessment in fact had no jurisdiction over this case if the place of business or the registered office of the company was taken into consideration. This aspect of the matter was found to have been overlooked by the Assessing Officer. The authorised capital of the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uiries had been made by the Assessing Officer and that sufficient material had been filed before the Assessing Officer to enable him to make the assessment. With regard to the advancement of loans and interest not having been reflected in the income, it was explained that neither any interest was received nor accrued during the year in appeal and as such no interest was disclosed in the books of accounts. This was claimed to be clear from the auditors' report to the company. With regard to the enquiry relating to the shareholders, assessee's case before the Commissioner as well as before us is that the enquiry as thought of by the Commissioner was beyond the scope of Assessing Officer as in the case of the company no enquiry relating to shareholders could be made. Assessee having maintained the details of shareholders in accordance with the Companies Act, it was pleaded that the Assessing Officer had justifiably accepted the return without making further enquiries in this case. 3. The CIT however, rejected the contentions on behalf of the assessee and recorded a finding that the order passed by the Assessing Officer was erroneous and prejudicial to the interests of revenue. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en made before making the assessment. Our attention was drawn to letter dated11-2-85filed on behalf of the assessee before the Assessing Officer in the course of assessment proceedings by virtue of which the details as were required had been furnished with the Assessing Officer. Shri Harihar Lal contended that list of shareholders, sundry creditors, secured and unsecrued loans, details of advances was given with confirmations. The details of purchases, sales and stock of shares along with copies of bills and contracts for the purchases and sale of shares was also furnished before the Assessing Officer along with the above mentioned letter, claimed the learned counsel for the assessee. With regard to interest income not having been reflected in the receipts, learned counsel contended that neither any interest was received nor accrued during the year. As such none was reflected in the receipts of the company. Our attention was drawn to the auditors' report at page 72 of the paper book in which it has been categorically stated that interest would be accounted for on cash basis. As such there was no warrant for the CIT to invoke his powers under section 263 on this ground. It was furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er did not enquire as to under what circumstances assessee had filed the return of income inDelhiwhen its registered office was atCalcutta. Smt. Bhattacharya contended that every prudent officer would start the enquiry to find out the circumstances prompting the assessee to file the return at a different place with an officer who would ordinarily not have the jurisdiction over this case. This basic enquiry coupled with other circumstances would throw light as to the manner of enquiry and assessment adopted by the Assessing Officer. The other factor highlighted by Smt. Bhattacharya is that assessee has claimed to have carried on the business during the year in appeal. No expenditure on account of salary of employees, rent, telephone, office maintenance were claimed by the assessee. Normally such expenditure would find place in the Profit and Loss account of the assessee. Such an expenditure not having been found to be debited in the profit and Loss account would normally provoke an enquiry. Assessing Officer having chosen not to make enquiry in this regard would certainly go to show that something was fishy about manner of assessment, contended the learned D.R. 10. A company havin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the assessment was a nullity. Moreover powers of the Commissioner under section 263 are not to be exercised in favour of the assessee as assessee has been conferred right of appeal separately under the Statute. Smt. Bhattacharya contended that the principles of natural justice have not been violated as assessee will get an opportunity of placing all material before the Assessing Officer while making the re-assessment in accordance with law. Reliance was placed on the following authorities in support of the contention that where it was found by the CIT that the Assessing Officer has acted without jurisdiction the CIT had the right to cancel the order under section 263 and direct him for making a fresh assessment in accordance with law: 1. CIT v. Panna Devi Saraogi [1970] 78 ITR 728 (Cal.). 2. Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC). 3. Ponkunnam Traders v. Addl. ITO [1972] 83 ITR 508 (Ker.). Smt. Bhattacharya vehemently argued that the order of the Assessing Officer was erroneous and prejudicial to the interests of revenue. The assessment order not being in accordance with law in consequence whereof a lawful revenue due to the State has not been realised woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of the Commissioner of Income-tax that the Assessing Officer had completed the assessment even when he had no jurisdiction is only supportive to the reasons given for setting aside the assessment. Even otherwise it is inconceivable that the CIT would have the power to annul an assessment under section 263 even where the order is without jurisdiction. The powers of the Commissioner under section 263 are to protect the interests of revenue and not to defeat the interests of revenue. A right of appeal has been given to the assessee against any orders passed by the Assessing Officer. In case the jurisdiction of the Assessing Officer is in doubt assessee has been given a right to challenge the same before an assessment is made. In such circumstances the contention on behalf of the assessee that the CIT ought to have annulled the assessment instead of setting aside the same, in our view, is not well founded. The decision of the Allahabad High Court in the case of Sant Baba Mohan Singh is inapplicable to the facts of this case. The issue before us is as to whether the Commissioner was justified to pass an order under section 263 in respect of the assessment order made by the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer had passed an order without making an enquiry in the circumstances of this case would not mean to say that the order of assessment was a nullity more so when we consider provisions of section 124 of the Income-tax Act, 1961. Under section 120 of the Income-tax Act, 1961, the jurisdiction of the income-tax authorities are determined. Section 124(3) debars every person entitled to call in question the jurisdiction of an Assessing Officer to challenge the jurisdiction after the expiry of one month from the date of which he was served with a notice under sub-section (1) of section 142 or sub-section (2) of section 143 or after the completion of the assessment, whichever is earlier. Section 124(3) is quoted hereunder for the sake of reference : " 124(3). No person shall be entitled to call in question the jurisdiction of an Assessing Officer---- (a) where he has made a return under sub-section (1) of section 139, after the expiry of one month from the date of which he was served with a notice under sub-section (1) of section 142 or sub-section (2) of section 143 or after the completion of the assessment, whichever is earlier. (b) where he has made no such return, after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ITO should not have assumed jurisdiction over the case. (3) The authorised capital of the company is Rs. 24 lakhs and the ITO did not make any enquiries, this being the first year of the company regarding the genuineness of the company, its promoters, shareholders and about its business activities. (4) The company had advanced loans to the tune of nearly Rs. 22 lakhs but no interest receivable or received on this loan was shown in the return filed. (5) The assessee-company did not have any fixed assets nor did it claim any expenses under the essential heads such as establishment charges, office maintenance, rent, telephone, etc. We shall deal with these points in order to arrive at a conclusion as to whether the Assessing Officer had made an assessment after making proper enquiry or that the assessment was made in undue haste and hurry without proper enquiry. 15. This was the first year of the company which was incorporated on28th April, 1982having closed its account on30th June, 1983. Assessing Officer as per the notice available from records had issued a notice under section 142(1) indicating the date of issue as31st January, 1985. The notice had been served upon S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6) Details of advances given with confirmations from a party are enclosed herewith. (7) Details of preliminary and share issue expenses are enclosed herewith. (8) Bank Reconciliation statement is enclosed herewith. (9) Details of purchase, sale and stock of share along with copies of bills and contracts for the purchase and sale of shares are enclosed herewith. (10) Power of Attorney in our favour is enclosed herewith. We hope, you will find the above in order. Kindly provide us an opportunity, if any further details are required by our goodself. Thanking you, Yours faithfully, for S.P. Aggarwal Co. Chartered Accountants sd/--- (S.P. Aggarwal)" Two facts are glaring from this letter. One is that the letter was furnished voluntarily by the assessee without any requirement from the Assessing Officer and that the power of attorney in the case of Chartered Accountant was also filed for the first time along with this letter. This fact assumes importance on the background and in the circumstances of this case that on4th February, 1985, notice under section 142(1) had been served upon Shri S.P. Aggarwal, CA, when he was not authorised to receive notice on behal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendering his order as erroneous and prejudicial to the interests of revenue. We may hasten to add that on making proper enquiries it may not always result in making the additions to the income disclosed but an officer entrusted with the job of collecting the revenue is supposed to take due care and caution in making an assessment in the case of assessees. We agree with the contention raised on behalf of the revenue that whether assessment has been made in undue haste or hurry would depend on the facts and circumstances of each case. Making an assessment in two days may be sufficient in certain cases but in cases like that of the assessee, completing an assessment in two days time without making relevant enquiries would undoubtedly be an assessment made in undue haste and hurry. 17. When can we say that the assessment has been made without proper enquiry or scrutiny? No hard and fast rules can be laid down in this regard. The question shall have to be determined on facts of each case. Broadly speaking when apparent does not seem to be real and when the facts on record would clearly give rise to suspicion and the Assessing Officer has not made enquiries, there should be no diffic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... future profits of the company. 19. Interestingly the company has not incurred any expenditure on account of its employees, rent or telephone expenses. It may be so that the assessee might not have incurred any expenditure on these basic necessities of business but would it provoke an enquiry by the Assessing Officer or not is a question not difficult to answer. The absence of tick marks on the papers furnished by the assessee may not be sufficient to hold that assessment is made in undue haste and hurry but then facts and circumstances of the case are to be taken into account as to whether the assessment has been made in undue haste and hurry, or not. 20. An explanation has been furnished before the CIT as well as before us as to why interest receivable on loans of about Rs. 22 lakhs had not been disclosed in the return. The explanation is that the interest was to be shown on cash basis. The explanation may or may not be acceptable is a different matter but what is important is as to whether the Assessing Officer had made enquiries as warranted in this case. Considering the facts and circumstances of this case, we are convinced that the assessment in this case had been made in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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