9911796707
TMI Blog1997 (12) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... e of partial shipment. On examination of the records for the years from 1986-87 to 1992-93, the ADIT (Inv.) was of the view that in most of the cases the iron ore purchased by the assessee from M/s. D.B. Bandodkar Sons Pvt. Ltd. was for full shipment for which weighment had to be taken as per the bill of lading. As such, shortage of iron ore as claimed by the assessee was therefore bogus and had to be disallowed. The ADIT (Inv.) worked out the claim of shortage from assessment year 1986-87 to assessment year 1993-94 at Rs. 1,91,88,112. The figures of shortage relevant for assessment year 199293 and 1993-94 are respectively Rs. 32,99,357 and Rs. 36,24,263. The ADIT (Inv.) therefore expressed the opinion that the shortages claimed by the assessee were bogus and were liable to be assessed as the income of the assessee. 4. In the said report, the Investigation Wing of the department also dealt with the inflation of barge hire expenses. The ADIT (Inv.) noticed that the assessee company was making barge hire payment to M/s. D.B. Bandodkar Sons Pvt. Ltd. and M/s. SKUB Industries Pvt. Ltd. For the years under consideration, the assessee, company had hired two barges, namely, Shivapri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase for scrutiny. It is, however, very important to mention that the CIT had selected this case for his direct supervision and the Assessing Officer was directed not to complete the assessment unless the CIT is informed of the various investigations by the Assessing Officer. In other words" before the completion of the assessment order by the Assessing Officer, the CIT's permission was required as he was directly monitoring the case. 8. As the CIT was directly involved in the investigation of the case, he asked the Assessing Officer to submit a report of investigation carried out by the Assessing Officer. In response to the direction of the CIT, the Assessing Officer sent a report dated 24-6-1994, to the CIT and appraised him with the facts of the case. The Assessing Officer in the said report sought the permission of the CIT to accept the assessee's explanation in regard to all the three issues. This report of the Assessing Officer was with regard to the completion of the order under section 132(5) of the Act. 9. The CIT in his turn informed the Assessing Officer that he may pass the order in accordance with law after due consideration of the explanations given by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter of the CIT was again replied by the Assessing Officer vide his letter dated 27-1-1995, wherein the Assessing Officer reiterated his earlier stand and was of the view that on the facts and in the circumstances of the case, no addition could be made on either of the issues. Regarding the applicability of section 40A(2), the Assessing Officer informed the CIT that the assessee had furnished details of payments made to the sister concerns. The transactions with sister concerns were with prevailing market price. The Assessing Officer, therefore, expressed opinion that provisions of section 40A(2) were not applicable. This letter of the Assessing Officer in Annexure 9 to the order of the CIT under section 263. 16. On receipt of this letter, the CIT wrote a letter dated 7-2-1995 in which he directed the Assessing Officer to complete the assessment as per law after taking into account the results of verification made by him. As per this letter, the CIT also returned the records back to the Assessing Officer. 17. The Assessing Officer accordingly completed the assessment on 20-2-1995 without making any additions suggested by the ADIT (Inv.). 18. The CIT called for the records o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee and these have been unnecessarily detained by the department under section 281-B of the Income-tax Act. 23. The learned counsel continued and pointed out that before the assumption of jurisdiction under section 263, the CIT has to satisfy himself that there was an error in the order of the Assessing Officer which has caused prejudice to the revenue. He pointed out that no such finding, supported by evidence, has been given by the CIT. As a matter of fact, the Assessing Officer had made detailed investigations as is apparent from the correspondence between the Assessing Officer and the then CIT. The Assessing Officer had examined every aspect of the case with regard to the three issues and the assessment was completed by him after due and proper enquires. After detailed investigation, the Assessing Officer came to the justifiable conclusion that no addition was called for in the case of the assessee either on account of barge hire charges or shortages claimed or inflation of purchases. All these three issues were fully explained by the assessee before the Assessing Officer and as a result of such explanation, the Assessing Officer was satisfied and accordingly accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has made a specific mention that he need not consider the written submissions of the assessee. By drawing our attention to the decision of the Tribunal, Ahmedabad Bench in the case of Pankaj Dhirajlal Dhruvev. ITO [1996] 86 Taxman 121 (Mag. section) he pointed out that it is mandatory for the CIT to consider the written submissions made by the assessee. If the CIT had failed to deal with each and every objections contained in the written submissions, the order of the CIT would be without any jurisdiction. With considering the merits of the objections, the CIT could not say that his order holding that the assessment order was erroneous and prejudicial to the interests of revenue was correct. In the case of the assessee, the CIT has not followed this cardinal principle of natural justice. 26. The learned counsel continued and urged that failure to deal with written submissions of the assessee cannot be cured at this late stage. No purpose would be served to give a second chance to the CIT. 27. The learned counsel also pointed out that the assessment order was passed by the Assessing Officer in pursuant to the directions of the CIT. An order passed by an Assessing Officer pursua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed the order in pursuance of the directions of the CIT, such an order cannot be revised under section 263 by another CIT. The learned counsel contended that the decision of the Bombay Tribunal is directly on the issue and supports the case of the assessee. 29. The learned counsel also took us through the notice under section 263 issued by the CIT which is placed on pages 1 to 7 in paper book No. 1 of the assessee. He pointed out that the CIT had taken up three points for the revision of the order, but the final order under section 263 passed by him was on totally different grounds. Thus the CIT issued notice for different issue, but the order was passed on different ground. By drawing our attention to the decision of the Punjab Haryana High Court in the case of CIT v. Jagadhri Electric Supply Industrial Co. [1983] 140 ITR 490/[1981] 7 Taxman 56, he pointed out that if the assessee can satisfy the Tribunal that grounds for the decision given in the order by the CIT are wrong on facts or are not tenable in law, the Tribunal has no option but to accept the appeal and to set aside the order of the CIT. The Tribunal cannot uphold the order of the CIT on any other ground which, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee clearly demonstrate that the Assessing Officer was aware of the issues and the legal provisions. In fact, the three issues involved in the assessee's case were dealt with by the Assessing Officer at the time of passing order under section 132(5) as well as were also considered by him by submitting various reports to the CIT who was monitoring the case and also were considered while passing the final order. From this, therefore, it is apparent that the Assessing Officer was aware about the controversy and after proper application of the mind had passed the order. Such an order cannot be revised in the opinion of the learned counsel in view of the decision of the Madhya Pradesh High Court in CIT v. Shri Govindram Seksariya Charity Trust [1987] 166 ITR 580. 34. The learned counsel further stated that a valid order under section 263 of the Act must categorically show and deal with the alleged error in the assessment order. A 263 order which sets out the possibility of an error or guesses as to alleged errors cannot be upheld by the Tribunal. He argued that in the case of the assessee, there is no categorical finding by the CIT that there is an error in the assessment order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... naturally proceed with a closed mind and there is hardly any chance of getting a proper consideration of the representation at such a post-decisional opportunity. In this connection, the learned counsel has placed reliance in the case of-Hindustan Petroleum Corpn. Ltd. v. H.L. Trehan [Civil Appeal No. 3214 of 1979], which is placed on the paper book. 38. The learned counsel has also briefly dealt with the merits of the case. Regarding the barge hire charges, he pointed out that the assessee is an exporter of iron ore and for the purpose the barges are required to transport the goods from the river loading point to Marmugac, Harbour. The assessee, therefore, was in need of having a fleet of barges at its disposal. The assessee himself had owned two barges and other barges were requisitioned on hire as per the agreement entered into between the assessee and M/s. D.B. Bandodkar Sons Pvt. Ltd. and SKUB Industries Pvt. Ltd. As per the agreements, guaranteed trips were agreed to be 160 per year which the assessee did not utilise. However, when the hired barges were not utilised for the business of the assessee, the assessee had given, those barges on hire to other parties, and in fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased the ore on the basis of the same being loaded on the barges and the price was negotiated and agreed upon on such basis. The facts of the case, therefore, were misconstrued by the CIT. He also pointed out that the shortages occurred for variety of reasons like spillage etc. for which our attention has been drawn to the report prepared by the Goa Mineral Ore Exporters Association. The shortage was also within the permissible limits. Therefore, there was no reason to doubt the bona fide of the assessee. 40. Regarding the inflation in purchases, the learned counsel pointed out that the assessee purchased ore from M/s. D.B. Bandodkar Sons Pvt. Ltd. under long term contract. During the year 1991-92 M/s D.B. Bandodkar Sons P. Ltd. sought an upward revision in the price of the ore. The price of ore was billed by them on the basis of earlier price and the revised price negotiated were billed at the year end. The difference in price payable for ore purchased during the years was Rs. 85,68,295. The voucher for the same was prepared and even the seller had confirmed the same. It is also pointed out that M/s. D.B. Bandodkar Sons P. Ltd. had accounted for the sales of the ore includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment afresh after making necessary enquiries. 42. The learned senior departmental representative continued and pointed out that in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375, the Delhi High Court has held that it is not necessary for the CIT to make such enquiry before cancelling the order of assessment. Again in the case of Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 the Supreme Court did not feel it necessary that the CIT should give detailed reasons for cancelling the assessment order because in the opinion of the Supreme Court, on the face of the records the orders are prejudicial to the interest of revenue and in such a case, the CIT need not record his reasons in detail. The import of these observation of the Supreme Court, according to the senior departmental representative, is that even if the assessee was not given an opportunity of being heard in respect of certain facts and enquiries, it will not in any way adversely affect the order of the CIT revising the assessment order. In the case of the assessee also, at best it can be said that by not looking to its objections and observations, it has been effectively denied the opportunity of being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... about the points in controversy. Rather, the High Court held that when the CIT preferred to direct the Assessing Officer to make an order for fresh assessment, it was proper that he did not express any final conclusions and recorded only prima facie conclusions at which he arrived with reference to the facts of the case. 46. The learned senior departmental representative also relied on the decision of the Allahabad High Court in the case of Smt. Lafia Wati Singhal v. CIT [1997] 226 ITR 527/95 Taxman 157 and pointed out that there is no need for the CIT to make enquiry and it was open to the Income-tax Appellate Tribunal if it feels necessary to see the facts and come to a conclusion whether there was material to say that the order was erroneous. Further in the case of Y.N. Sharma v. ITO [1990] 33 ITD 308 (All.), the learned senior departmental representative pointed out that it was held that it is not necessary for the CIT to himself make any enquiry and consider the assessee's explanation before making the order under section 263. The learned senior departmental representative continued and urged that even if for a moment it is considered that the assessee was not heard or his s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer has not followed the directions of the CIT rather his order is contrary to the directions of the CIT. In f act, the CIT has directed the Assessing Officer to investigate various matters and make further enquiries and complete the assessment as per law. However, in spite of the directions, the Assessing Officer had completed the assessment without making any investigations and enquiries warranted by the circumstances of the case. 49. Further, the senior departmental representative refuted the contention of the learned counsel and stated that the CIT did not order for roving enquiries but has only directed the Assessing Officer to complete the assessment afresh after making necessary enquiries, which the Assessing Officer has not made at the time of the original assessment. In the case of the assessee, the CIT has not also attempted to substitute the opinion of the Assessing Officer. Actually, the CIT has not formed any opinion of his own, rightly so, as no opinion could be correctly formed in the absence of necessary enquiries having been made, data/information having been collected and necessary evidence having been seen. The CIT has only directed the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee had furnished any information as evidence for examination by the Assessing Officer to come to the satisfaction that the claims made by the assessee were correct. In the present case, the Assessing Officer failed to realise that in search and seizure cases, it is normal for him to collect information from various sources independently either under section 131 of the Act or otherwise to examine the assessee's claim. 53. Regarding the assessee's assertion that the assessee is entitled to 80HHC benefits and therefore, there cannot be any tax effect, the learned senior departmental representative pointed out that it is a common knowledge that even 100 per cent export oriented units and the assessees entitled to deduction under section 80HHC are resorting to various methods to manipulate the Foreign Exchange Regulation Act and to reduce their income. Moreover, the reasons for reducing their income despite being eligible to deduction under section 80HHC may be best known to the assessee. The learned senior departmental representative contended that in the case of the assessee the issue before us is to determine whether the Assessing Officer had conducted all the necessary en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xman 677 (Mad.); (2) Smt. Sumitra Devi Khirwal v. CIT [1972] 184 ITR 26 (Cal.); (3) Swarup Vegetable Products Industries Ltd. v. CIT [1991] 187 ITR 412/54 Taxman 175 (All.); (4) KEC In ternational Ltd. v. ITO [1994] 51 ITD 179 (Bom.); (5) Dindayal Prasad v. CIT [1993] 44 ITD 202 (Cal.); (6) Mayur Trading Co. v. ITO [1991] 39 ITD 49 (Pune); (7) Sunil Siddha Siddharthbhai v. GTO [1991] 3 8 ITD 5 (Ahd.) and (8) Tejinder S. Makkar v. Asstt. CIT [1997] 61 ITD 57 (Mum.) (TM). 57. The learned senior departmental representative also took us through the Notes on order sheet and the appraisal report with a view to show that the required investigation was not done by the Assessing Officer. The material papers in this regard are placed on pages 1 to 25 of the department's paper book. Thereafter, the learned senior departmental representative also drew our attention to agreement dated 22-11-1982 between M/s. D.B. Bandodkar Sons P. Ltd. and the assessee. 58. The learned senior departmental representative argued the case at length on the merits of the case. Regarding the inflation of expenses on account of barge hire charges, he pointed out that the Assessing Officer has sim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee without making any independent enquiries. The learned senior departmental representative, therefore, concluded that the revision order under section 263 of the CIT is justified and need not be interfered with. 62. In reply, the learned counsel Shri Mistry objected to the filing of the paper book containing 69 pages by the department. He pointed out that the paper book filed by the department is improper and impermissible in view of Rule 18 of the Appellate Tribunal Rules, 1963. He, therefore, urged that the said paper book should be ignored. 63. The learned counsel further alleged that despite an order of the Bench to grant inspection of the files, the departmental representative has refused to grant inspection of the files of the assessee other than the assessment file. He urged that in view of this attitude of the department, the Tribunal must draw an adverse inference and must come to the conclusion that the department is trying to suppress materials which would irrefutably establish the assessee's case and negate that of the department. 64. After this preliminary objection to the filing of the paper book by the revenue, the learned counsel of the assessee dealt wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer failed to investigate the case, This attempt of the learned senior departmental representative, he asserted, was only to confuse the issues and to try and create prejudice. 68. Further, the learned counsel took us through the various propositions on the basis of which he has built up his case. He pointed out that the assessee's propositions have not been properly dealt with by the senior departmental representative. He again took us through his own propositions and the answer thereto by the learned senior departmental representative and pointed out that the learned senior departmental represent at: representative has not effectively dealt with these propositions. According to the learned counsel, the learned senior departmental representative has made an attempt to confuse the issues. Regarding the arguments of the learned senior departmental representative on "some further aspects of the matter" the learned counsel pointed out that these are not at all relevant to the issue before the Tribunal. The learned counsel, therefore, maintained that on the facts and in the circumstances of the ease, the order under section 263 of the CIT cannot be maintained. 69. We have hear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statutory authority considered to be factors relevant for the exercise of the power, it is open to the Tribunal to examine whether such factors are relevant for the exercise of the power. In other words, the order under section 263(1) of the CIT should be judicious and should be based on the objective factors., The prejudice or bias has no place under the statute to exercise the revisional jurisdiction under section 263 of the Income-tax Act. 72. In the case before us, as already stated above, the premises of the assessee were subjected to search ore the basis of which the interim appraisal report and final appraisal reports were prepared by the Investigation Wing. In the said appraisal reports, it was alleged that the assessee had paid (i) excess amount for hiring the barges from the sister concerns, (ii) the assessee had claimed shortages in iron ore which was not justified and (iii) the assessee was guilty of inflation of purchases. These appraisal reports were duty forwarded by the Investigation Wing to the Assessing Officer with a view to Investigation e the issues with reference to the books of account maintained by the assessee and other materials which might be furnished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue was also investigated by the Assessing Officer and after such investigation accepted the contention of the assessee. 75. As far as appraisal reports are concerned, we are of the view that these reports raised certain presumptions regarding the concealment of income under three heads under review. These presumptions raised by the Investigation Wing were on the basis of preliminary enquiry and without any detailed investigation. These presumptions were rebuttable and were in fact rebutted by the assessee before the Assessing Officer by filing the necessary evidence. It, therefore, cannot be said that the issues raised in the appraisal reports were not dealt with by the Assessing Officer. There is no law that the appraisal reports should be accepted as such if the facts of the case warrant otherwise. The only grievance of the CIT in this case appears to be that the Assessing Officer did not accept the appraisal reports. In our view, the appraisal reports cannot be taken as the conclusive evidence and after investigation if the Assessing Officer finds that the contention of the assessee is acceptable and if the issues are clarified by the assessee, no addition need be made on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me to the conclusion that the order of the Assessing Officer is erroneous as well as prejudicial to the interest of revenue. The scope of interference under section 263 is not to set aside merely unfavourable orders and bring to tax some more money to the treasury, nor is the section meant to get at sheer escapement of revenue which is taken care of by section 147 of the Act. The scope of section 263 can only be applied where there is a clear-cut material on record to show that the order of the Assessing Officer is erroneous as well as prejudicial to the interest of revenue. In the case before us, except the appraisal report, there is no other material on record to show that any error has crept in the order of the Assessing Officer which has caused prejudice to the revenue. Regarding the appraisal reports, we have already discussed above that it cannot be taken as a conclusive evidence unless corroborated by further evidence. If the provisions of section 263 were to be invoked by the CIT merely on the basis of appraisal report, it was for him to point out as to how and to what extent the investigation done by the Assessing Officer is not upto the mark. In other words, it was incumb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xamined the various contentions raised by Shri T. Pooran. In the facts of this case, there is no justification for considering the same, since it proceeds on the misleading footing that the assessments were made in the normal course after due examination and exercise of due care in coming to various conclusions." From the order of the CIT, it is clear that he did not consider the submissions of the assessee and in fact did not allow meaningful and effective opportunity of being heard, Section 263 of the Income-tax Act contemplates a notice to the assessee. In response to the said notice, the assessee may show to the CIT that the order sought to be revised is not prejudicial to the interest of revenue. Under the law, it is open to the assessee to urge any ground, whether such ground was urged or not before the Assessing Officer, to establish that the order is not prejudicial to the interest of revenue. In such a case, the CIT would have no jurisdiction to take any further action if he is satisfied with the explanation of the assessee. He would be competent to take action only if he rejects the plea of the assessee. It thus becomes necessary for the CIT to examine the merits of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to give a semblance of normality to their actions. According to the CIT, no serious investigation was undertaken by the Assessing Officer. He has merely accepted the explanation filed by the assessee. The fact, however, remains that the Assessing Officer had completed the assessment under the direct supervision of the CIT. In our view, the order of the Assessing Officer cannot be said to be erroneous if he had merely followed the instructions of the CIT. We have mentioned the relevant dates etc. on which letters were exchanged between the Assessing Of Officer and the CIT. From time to time, the Assessing Officer had brought to the rotice of the CIT the investigations done by him and the CIT in turn had also asked the Assessing Officer to make certain further enquires. After the CIT was satisfied that the Assessing Officer has made sufficient enquiry in his opinion, the CIT has directed the Assessing Officer to complete the assessment in accordance with law and on the basis of investigation made by him. It is, therefore, clear that the assessment order was passed by the Assessing Officer under the directions of the CIT. The Act does not contain any provision by which an order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbedded in section 263(1) itself which clearly lays down that the assessee has to be heard before the CIT assumes jurisdiction under section 263 of the Act. These decisions, therefore, in our view, do not advance the case of the revenue. 83. The third set of decisions given by the learned D.R. are to the effect that provisions of section 263(1) can be applied in cases where proper investigation has not been made by the Assessing Officer. These decisions also do not support the case of the department in view of our finding that proper and sufficient investigation was done by the Assessing Officer in the case of the assessee. 84. We have also gone through the other judicial decisions cited by the learned senior departmental representative and we are of the view that these decisions do not change the legal position as enumerated by us above. 85. Viewed from any angle, we are therefore of the view that the CIT was not justified in assuming revisional jurisdiction under section 263 of the Income-tax Act. We accordingly set aside his order. 86. Since the assessee has succeeded on the preliminary ground itself, we do not consider it necessary to deal with the merits of the case. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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