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TMI Blog1997 (5) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 263. It was submitted on behalf of the assessee that all the details of the secret commission, etc., had already been furnished to the Assessing Officer and that only after careful consideration of these details and due verification, the assessment had been completed. The details show that the assessee paid a total of Rs.9.80 lakhs to 28 persons and the remaining Rs.2.13 lakhs is shown as paid to 'sundry parties'. It was argued that the identity of all the 28 persons to whom secret commission had been paid had, according to the assessee, been established before the Assessing Officer. He, therefore, submitted that the assessment already completed cannot be considered as erroneous and prejudicial to the interests of the Revenue warranting intervention by the Commissioner under section 263. In this connection, following case laws have been relied upon by the assessee's counsel: 1. CIT v. Coimbatore Salem Transport (P.) Ltd [1966] 61 ITR 480 (Mad.), 2. Ganga Properties v. ITO [1979] 118 ITR 447 (Cal.), 3. Venkatakrishna Rice Co. v. CIT [1987] 163 ITR 129/30 Taxman 528 (Mad.), 4. CIT v. Gannon Dunkerley Co. Ltd. [1987] 167 ITR 637 (SC), 5. CIT v. Kashi Nath Co. [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cret commission incurred wholly and exclusively for the purpose of carrying on the business under section 37(1). A detailed reply dated 6-3-1992 was filed on 7-3-1992. At the time of hearing on 2-3-1992, a detailed explanation was given for the purpose of incurring the expenditure orally and subsequent to this a detailed written explanation was given as desired by the Assessing Officer. The purpose for which the payment was incurred has been fully established. The learned counsel for the assessee drew our attention to the assessment order passed under section 143(3) placed at pages 24 to 26 of the paper book. Our specific attention was drawn to page 24 of the paper bookwhere the Assessing Officer has stated that "Books of account produced examined. Details called for have been filed. After discussion with assessee's representative, assessee's income is determined as under". He further contented that the very fact that the Assessing Officer has disallowed a sum of Rs.41,510 from out of Rs.3,24,199 claimed by the assessee as general expenses and Rs.50,000 out of Rs.6,51,810 claimed by the assessee as shop expenses clearly goes to show that the Assessing Officer has fully applied his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d all the details filed before him by the assessee while passing the assessment order. On a perusal of the assessment order, it is seen that the assessment which was originally completed under section 143(1) was subject-matter of scrutiny and the Assessing Officer has served a notice to the assessee under section 143(2) on 14-2-1992. In reply to the said notice, the assessee filed all the details before the Assessing Officer and it is clear from the assessment order that all the books of account and details of payment of secret commission have been furnished by the assessee before the Assessing Officer and the Assessing Officer after examining all such details and books of account, has allowed deduction to the assessee. The fact that the Assessing Officer has fully applied his mind is borne out from the fact that he has disallowed a sum of Rs.45,510 from out of Rs.3,24,199 claimed by the assessee under general expenses and Rs.50,000 from out of Rs.6,51,810 claimed by the assessee as shop expenses. The Commissioner has made an observation in her order that the assessment was made by the Assessing Officer in a hurry, which proves to be false on examination of the records of the case. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Department to appeal against the order dated 15-10-1987 of the Madras High Court in TCP Nos. 703-704/1985 rejecting a reference application. 8. Respectfully following the ratio laid down by the Madras High Court, we hold that in the instant case, the order of assessment of the ITO was in accordance with law and it could not be held to be erroneous and, consequently, it could not be prejudicial to the interests of the revenue and, hence, the action of the Commissioner was not justified. 9. In the result, the appeal is allowed. Per Accountant Member -- I have carefully perused the order proposed by my learned brother, the Judicial Member, and I am unable to agree with the conclusion reached by him. The facts of the case in brief are, the assessee, a firm of nine partners, had at the relevant point of time successfully bid for as many as nine wine shops (that is to say, retail outlets for selling IMFL). For the assessment year 1991-92, it filed its return of income on 27-1-1992 disclosing a total income of Rs.1,80,600. An assessment under section 143(1) of the Act was made on 10-2-1992, determining the amount refundable to the assessee at Rs.2,831. On 14-2-1992, proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e paid were also identified. (c) The parties were produced before the Assessing Officer and sworn statements were recorded from them. (d) The parties concerned have filed return of income disclosing the secret commission received by them from the assessee. The assessee had also referred to and relied upon certain reported cases in support of the proposition that no revisionary action was called for in this case. 4. None of the aforesaid contentions found favour with the Commissioner, because, on an examination of the records, she found: -- that the records did not contain any evidence to show that the persons who received secret commission were produced before the Assessing Officer for examination; -- that no sworn statements were recorded from them as alleged by the assessee; -- that even though the 28 persons had filed returns, no attempt had been made by the Assessing Officer to examine those persons concerned with a view to ascertaining the purpose for which the said commission had been paid to them; -- that all the 28 persons had given an identical address, namely, "Avvai Complex, Kamaraj Road, Tirupur" which was strange; -- that the sum of Rs.35,000 paid to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... What are the facts here? The return of income was filed on 27-1-1992 and the assessment was made within a short time thereafter, namely, 30-3-1992. Certain routine additions were made in the process. Further, there was effective hearing only on two days, namely, 2-3-1992 and 25-3-1992. Between the said dates the assessee had, on 6-3-1992, filed certain details at the instance of the Assessing Officer. The Assessing Officer merely took the details on record and proceeded to complete the assessment on 30-3-1992. 11. The assessee had claimed revenue deduction in a large sum of Rs.11,93,100. As rightly pointed out by the Commissioner, no investigation at all was made into the genuineness of the payments in question. The assessee's counsel contended that the assessee had filed the details of the parties to whom an aggregate sum of Rs.9,80,000 came to be paid. These details are contained in the letter dated 6-3-1992 referred to supra. From the copy of the letter, which is available at pages 12 to 14 of the paper book filed on behalf of the assessee, it is clear that only the names of the 28 parties have been given. Even their addresses were not given. 12. Again, the Commissioner had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in the circumstances of the case, the Commissioner of Income-tax, Coimbatore has jurisdiction to invoke the provisions of section 263 of the Income-tax Act, 1961 in the assessee's case?" ORDER Per G.E. Veerabhadrappa (A.M.) -- This appeal came before me as a Third Member to express my opinion on the following question:-- "Whether, on the facts and in the circumstances of the case, the Commissioner of Income-tax, Coimbatore has. jurisdiction to invoke the provisions of section 263 of the Income-tax Act, 1961 in the assessee's case?" 2. This appeal was by the assessee against the order dated 16-3-1994 of the Commissioner of Income-tax, Coimbatore passed under section 263 of the Income-tax Act, 1961. The assessee is a firm and for the assessment year 1991-92, its assessment was completed under section 143(3) on 30-3-1992. Subsequently, it was noticed by the Commissioner that a sum of Rs.11,93,100 debited to the Profit Loss account under the head "Secret commission" had wrongly been allowed as an admissible expenditure. The Commissioner, therefore, initiated proceedings under section 263 on the ground that the assessment had been completed in a hurry without adequate enqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act on 30-3-1992. Certain routine additions were made in the process or assessment. Further, there was effective hearing only on 2-3-1992 and 25-3-1992. Between the said dates, the assessee had furnished on 6-3-1992 certain details at the instance of the Assessing Officer. According to the learned Accountant Member, the Assessing Officer mere too the details on record and proceeded to complete the assessment on 30-3-1992. According to him, no investigation at all was made with regard to the genuineness of the payment in question. The assessee has given only the names of the 28 parties without giving their addresses. The other plea that was taken by the assessee that the said 28 persons had advanced monies to the assessee to enable it to bid 9 wine shops did not also find favour with the learned Accountant Member. According to him, the Assessing Officer failed to make proper enquiries warranted by the facts and circumstances of the case and the ratio of the Delhi High Court in the case of Gee Vee Enterprises and the decision of the Gujarat High Court in the case of Mukur Corpn. are directly applicable to the facts of the case. With these observations, the order of the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer made all the enquiries that were required for assessment. After considering the assessee's explanation, he accepted the assessee's stand with regard to the payment of the secret commission but chose to make an addition and some disallowance out of miscellaneous expenses, out of shop expenses and out of travelling expenses. The learned counsel further pointed out that the Commissioner erred in concluding that the order of the Assessing Officer is erroneous and also prejudicial to the interests of the revenue. According to him, no material is provided to reach such a conclusion. Moreover, there was no enquiry made by the Commissioner. According to him, the learned Commissioner was not justified in setting aside an order for making enquiries. Reliance was placed on the following decisions:-- 1. J.P. Srivastava Sons (Kanpur) Ltd. v. CIT [1978] 111 ITR 326 (All), 2. Ratlam Coal Ash Co.'s case, 3. CIT v. Kanda Rice Mills [1989] 178 ITR 446/44 Taxman 316 (Punj. Har.), 4. CIT v. Trustees Anupam Charitable Trust [1987] 167 ITR 129/31 Taxman 335 (Raj.), 5. Venkatakrishna Rice Co.'s case, 6. CIT v. Gabriel India Ltd [1993] 203 ITR 108 (Bom.). As regards, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be made partners in the firm. According to him, a letter written by the assessee on 22-10-1991 addressed to the Chartered Accountant at Coimbatore should not be accepted as it does not bear any acknowledgement. According to him, all these related to an attempt to create evidence which is very strange, unusual and improbable. The learned departmental representative further pointed out that after the Assessing Officer called for details of secret commission, the returns have been filed in the cases of the 28 persons. This again is an attempt to create evidence of payment of the secret commission. It was pointed out that it is unusual that the addresses of the 28 persons are the same as that of the assessee. He pointed out that all the cases relied upon by the assessee are distinguishable, on facts and the moment there is a failure on the part of the Assessing Officer, would be a ground for the Commissioner to enquire under section 263 of the Act. In this regard, reliance was placed on the decisions in the cases of K.A. Ramaswamy Chettiar v. CIT [1996] 220 ITR 657 (Mad.), Gee Vee Enterprises and Duggal Co. v. CIT [1996] 220 ITR 456 (Delhi). The learned departmental representative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cepting the statements made by the assessee in his return. 10. It has also been held by the Kerala High Court in Malabar Industrial Co. Ltd v. CIT [1992] 198 ITR 611 that the words "prejudicial to the interest of the revenue" are of wide import and they should not be limited to a case where the order passed by the ITO can be considered to be one prejudicial to the revenue administration as such. It has been held that where the ITO did not make proper enquiries called for in the circumstances of the case and the assessment order did not show that the ITO considered all the aspects of the case including the agreement and the damages and compensation realised for the loss of agricultural income, revision of such order was justified. 11. Again the Rajasthan High Court in CIT v. Emery Stone Mfg. Co. [1995] 213 ITR 843/83 Taxman 643 held that allowing certain deductions without proving the claim or without proper verification or in ignorance of the provisions of law are the various instances on the basis of which the order could be considered prejudicial to the revenue and could be set right in revisional jurisdiction. 12. It has also been held by the Madhya Pradesh High Court in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax Inspector on 4-12-1991 makes an enquiry into the business activity of M/s. Vettri Wines which was running 9 wine shops by the same name. The Inspector makes a memo that a partnership firm was running from 1-6-1990 and all the time-limit for filing the returns of their income have expired and, therefore, the notice under section 142(1) came to be issued. The case was posted on 26-2-1992 and on 2-3-1992 and also adjourned to 11-3-1992. From the records it is clear that in pursuance of such proceedings the firm filed on 9-3-1992 the details of the secret commission paid to the parties and relied upon the decision of the Madras High Court in Coimbatore Salem Transport (P.) Ltd.'s case and the Supreme Court decision in Gannon Dunkerley Co. Ltd's case and has given the details of the advertisement expenses, month-wise breakup of liquor purchases and break-up details for kist paid, tax and licence fees, break of general expenses, break-up for shop-expenses, salary and bonus and details of closing stock, etc. The ledger extract of same of these accounts is also on the record. It appears that the Assessing Officer on 11-3-1992 wanted the Income-tax Inspector to make enquiries with c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formation that for participation for allotment of wine shop by the Government of Tamil Nadu a ring was formed among the said parties and all were joined together and orally agreed either to share the shop or to form a partnership concern and become partners. After taking the shop in open auction, it appears that the assessee approached the tax consultant about the formation of partnership firm and that it was advised that such formation of partnership could not be possible due to the restriction of the member The assessee settled the dispute among the parties by way of payment of secret commission. The so-called secret commission is clearly payment for the deposits received from the above parties. The Assessing Officer chose to proceed against the firm for contravention of the provisions of section 269SS and has admittedly allowed the payment of secret commission as a charge against the assessable income of the firm. 16. It has been held by the Bombay High Court in the case of Gabriel India Ltd that the revisional power under section 263 is a quasi-judicial power hedged in with limitation and has to be exercised subject to the same and within its scope and ambit. So far as calli ..... X X X X Extracts X X X X X X X X Extracts X X X X
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