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TMI Blog1988 (4) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... from Rs. 4,01,551 to Rs. 3,21,551. In this connection he observed as follows: "So far as the claim of Rs. 3,21,551 being cash balance available on 29th Aug., 1981 is concerned it is true that the closing cash balance as on that day was that amount. But, assuming that this investment came out of the closing cash balance, subsequent transactions of the firm indicate deficit cash balance. Further the books do not show the withdrawal of amount on 29th Aug., 1981 for purchase of DDs. That being so, I am not inclined to accept the claim that the investment to the extent of Rs. 3,21,551 was made out of the cash balance available in the books of the firm." 3. Subsequently, the assessment in the case of the assessee was taken up for consideration and completed under s. 143(3) without making any addition whatsoever with regard to the amount of Rs. 3,21,551. The learned CIT issued notice under s. 263 of the IT Act holding that the sum of Rs. 3,21,551 stood unexplained and required to be added. The assessee in his reply dt.7th Feb., 1985 contended that there was no deficit cash balance on any day subsequent to 29th Aug., 1981 as was observed by the Commissioner in his order under s. 132(12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd completed the assessment without making the addition. On the other hand the learned Commissioner did not apply his mind before invoking the provisions of s. 263 but was simply swayed away by the observations in the order of his predecessor dt. 10th Aug., 1983. As a matter of fact Sri Devdas submitted the show cause notice issued by the learned Commissioner in his proceedings dt. 17th Jan., 1985 has bodily lifted the observations of his predecessor in his order cited supra and thus the learned Commissioner has not applied his mind to the facts of the case but allowed himself to be carried away by the prima facie observations of his predecessor. The show cause notice was issued by the Commissioner but the order under s. 263 was passed by another Commissioner, i.e. the successor in office. He had not issued any fresh show cause notice. On the other hand, the Commissioner passing the order under s. 263 did not consider the explanation of the assessee in the proper perspective, but has simply veered round to the opinion expressed by his predecessor in office who in turn was inspired by the observations of his predecessor action under s. 132(12). Apart from these procedural irregulari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the figures found in Annexure 'H'. Sri Devdas compared the entries in annexure 'D' filed before the Commissioner in s. 263 proceedings with the figures found in Annexure 'h' furnished to the ITO at the time of making the assessment and emphasised that the figures contained in Annexure H haveincoporated the figures found in Annexure 'D' and, therefore, Annexure 'D' was nothing new or different from the information contained in Annexure 'H' though Annexure 'D' was more elaborate in its details. Therefore, Sri Devdas argued that even on merits there was nothing to hold against the assessee. 6. It is the further submission of Sri Devdas that even during the proceedings under s. 132, it was an admitted position that the cash seized from the assessee belonged to a major extent (Rs. 2,71,237 to be precise) to the firm of M/s K.Nagavendra Rao Others. The assessee was having 40 per cent share in the firm and the other two partners are only his father and younger brother and there was nothing unusual for the assessee, being the eldest son, to have custody of the cash balances. In addition, the assessee was having a proprietary business from which he had drawn the amounts and the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment in the proper perspective. On the other hand, the Commissioner had considered the reply of the assessee to his show cause notice and confirmed that the deficit occurring in the books of M/s K. Nagavendra Rao Others was not properly explained leading to the conclusion that the sum of Rs. 3,21,551 could not have come out of the cash balance on 29th Aug., 1981 with the firm of M/s K. Nagavendra Rao Others. In this view of the matter, he submitted that even on merits there was not case for the assessee. 8. As for the argument of Sri Devdas that no fresh show cause notice was issued by the successor CIT before he passed the order under s. 263, Sri Radhakrishnamurthy submitted that the Commissioner has taken into account the reply submitted by the assessee and has also heard the assessee before passing the order and, therefore, there was no irregularity. 9. Having regard to rival submissions and the materials on record, we set aside the order of the Learned CIT. In this case, the search was conducted at the premises, of the assessee on 22nd Sept., 1982. The ITO passed the order under s. 132(5) on 18th Dec., 1982. On an application the learned Commissioner passed order under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be that at the time of the regular assessment the assessee is able to advance further evidence in support of his contentions which may be due to modification of the assessment made under s. 132(5). But, at the time of passing an order under s. 132(12), only point to be seen is whether the order of the ITO under s. 132 (5) is reasonable in the facts and circumstances of the case." After adverting to the observations of the Commissioner quoted above, Sri Devdas argues that what was a prima facie observation made by the learned Commissioner in sustaining the addition of Rs. 3,21,551 while exercising his jurisdiction under s. 132(12) was made the sheet anchor of the show cause notice issued by the Commissioner purporting to act under s. 263. In this connection, he relies on the decision of the Tribunal in Sri Mahalakshmi Finance Corp.vs. ITO (1986) 19 ITR 494 (Hyd). In that case, it was observed by the Tribunal, as per head notes, as follows: "Sec. 263 is in two parts. The first part is confined to the assumption of jurisdiction by the Commissioner and that is ex-parte. No notice or opportunity need be given by the Commissioner to the assessee before the former is arriving at his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er all deficit of Rs. 3,02,639 is noticed. These deficits were worked out after deducting the sum of Rs. 3,21,551 being the amount availed for investment. On the relevant dates on which the deficits appear, the assessee had withdrawn cash from other sources as for example Rs. 29,000 on 31st Aug., 1981 from his proprietory concern which is again supported by the account copy of the assessee in his proprietory business books. If Rs. 29,000 is deemed to be available with the assessee as it naturally formed part of his drawings from his proprietory business, there would have been no deficit in the books of M/s K.Nagavendra Rao Others till 9th Sept., 1981. On 10th Sept., 1981, when a deficit of Rs. 2,16,856 was worked out in the statement on the basis of the withdrawal of Rs. 3,21,551 as on 29th Aug., 1981 the assessee had withdrawn Rs. 1,63,400 and Rs. 50,000 from M/s Sri Venkateswara Enterprises and Rs. 18,000 each on two occasions from his proprietory business, totalling a sum of Rs. 2,49,400 which is more than the deficit of Rs. 2,16,856. If this amount of Rs. 2,49,400, which is available with the assessee in his custody, is taken into account, there will not be any deficit till 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though Annexure 'D' is more vivid in its description of the details. 12. Even in the proceedings under s. 132, the Revenue has accepted the position that the assessee was in possession of the cash balance of M/s K. Nagavendra Rao Others and also the monies borrowed from others. It is on this score the amount of cash seized, though added by the ITO, was not sustained by the Commissioner under s. 132(12). From a perusal of the books of M/s K. Nagavendra Rao Others, it is found that the cash book bears the remark that the balance is with K. Jamga Rao. The firm of M/s K.Nagavendra Rao Others consists of the assessee, his father and his younger brother and in the circumstances, there is nothing unusual for the assessee to be in the custody of the cash balance of the firm. It is also pertinent to point out that the mere absence of entries debiting the account of Sri K. Jangam Rao in the books of M/s K. Nagavendra Rao Others cannot conclusively prove that the cash balances of the firm were not utilised by the assessee for investment in M/s Sri Venkateshwara Enterprises as partner. It is found that as the chief partner of M/s. K. Nagavendra Rao Others, the assessee himself was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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