9911796707
TMI Blog1997 (1) TMI 481X X X X Extracts X X X X X X X X Extracts X X X X ..... sment order in this connection : "6. The assessee has claimed a bad debt of Rs. 28,77,420 along with the details of the bad debt. It is stated that he sold the above goods to Shri Bhagwandas Aggarwal whose office is on Aaram Hotel, Chowpatty, Bombay, and who was residing at BMC Building, No. 6, Clock Road, Haji Ali, Bombay. He has given date-wise sale of the said goods to the above party, furnished photo-copies of delivery challans. He has also given photocopies of 4 letters issued by him to the party. As to reasons for claiming it as a bad debt, it is contended by him that Shri Bhagwandas Aggarwal had left Bombay and his whereabouts are not known. The Ward Inspector visited the office and residential premises and found that Shri Bhagwandas Aggarwal had left and his whereabouts are not known. The assessee has, filed a copy of the account of the above party recorded in his books of account. The conditions laid down in section 36(1)(vii) read with sub-section (2) seem to have been fulfilled. Therefore, the claim of the assesse is allowed. As and when he recovers the payment, the same will be subjected to tax." On the basis of the Commissioner's holding that the assessment order was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e details regarding the sale of goods to the party were also furnished along with photo-copies of delivery challans. In addition, the assessee also filed photo-copies of four letters issued to the said party, Bhagwandas Aggarwal. As regards the cash sales, there was no dispute since the amount due was fully recovered against delivery. In respect of certain credit sales with Bhagwandas Aggarwal at the time when the books were drawn up, the assessee had no hope of recovering the said sum of Rs. 28,77,420 and, hence, he claimed the same as bad debt. An entry to that effect was also made in the books of account prepared later on. The Assessing Officer allowed the claim after satisfying himself that the provisions of section 36(1)(vii) have been complied with. For arriving at this finding, he also deputed an Inspector who submitted his report to the effect that the party was not traceable. The assessment was, therefore, completed by the Assessing Officer under section 143(3) of the Act, after examining the details and the income for the year under consideration was computed at Rs.1,00,03,020. It included an addition of Rs. 23,84,743 being the value of defective CRCA sheets, estimated i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the order under section 263 of the Act. Feeling aggrieved, the assessee is in appeal before us. During the course of the hearing, Sri A. V. Sonde, learned counsel for the assessee, contended that the order passed by the Commissioner is bad in law since he had traversed beyond the terms of the notice issued under section 263 of the Act wherein he had indicated that only certain specific issues were to be treated as prejudicial to the interests of the Revenue. The notice issued does not empower the Commissioner to set aside the entire assessment, more so in view of the fact that some of the issues were considered in appeal by the Commissioner of Income-tax (Appeals) against which the Department itself is in appeal before the Tribunal. He also drew our attention to the order under section 143(3) of the Act passed by the Assessing Officer, wherein he had clearly recorded that all the relevant details necessary for finalising the assessment were furnished and it was, therefore, incorrect on the part of the Commissioner to take a different view that the Assessing Officer failed to examine all the relevant details while finalising the assessment order. In respect of the allowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idity of the return once the order under section 143(3) of the Act was passed and against that order, an appeal was also pending before the Tribunal, the appeal having been preferred by the Department. According to learned counsel, the Commissioner, therefore, cannot at this stage hold that the return was invalid and if that be the case, the consequent action taken in pursuance of the return will also be bad. Learned counsel, therefore, submitted that the observations made by the Commissioner in his order are outside the power conferred upon him by virtue of the provisions of section 263(1), of the Act. He also submitted that finding the challans in serial number does not mean that the same should be disbelieved. The copy of the detailed reply, dated February 15, 1994, is available at pages 34 to 39 of the paper book. A copy of the trading account is at page 23 of the paper book and the bad debt written off amounting to Rs. 28,77,420 finds a place in the same. The details of the aforesaid sum of Rs. 28,77,420 appear on page 22 of the paper book, which is "Bhagwandas" Aggarwal's account. Further, relevant details on the scores are available at page 21 of the paper book. Sri Sonde a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; and (vii) BBC Brown Boveri and Co. Ltd. v. ITO [1989] 31 ITD 408 (Bom). We have heard the rival submissions and the material available on record. We have also gone through the various cases cited at the Bar. In our opinion, there is considerable force in the arguments advanced on behalf of the assessee, so far as the bad debts of Rs. 28,77,420, interest free loans of Rs. 8,35,000 given by the assessee to his wife as also so far as the defective return are concerned. Section 263 of the Act empowers the Commissioner to call for and examine the record of any proceedings under this Act and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case may justify. It would be apposite to make a reference to the decision of the jurisdictional High Court in the case of CIT v. Gabriel India Limited [1993] 203 ITR 108 (Bom). In the said case the court observed that section 263 of the Act is in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of the record of the case. In the instant case, the claim of the assessee for bad debt and interest-free loan was accepted by the Assessing Officer on being satisfied about the genuineness of the same by himself and through the enquiries made by the Ward Inspector. The fact that the Assessing Officer had made necessary enquiries becomes abundantly clear from a perusal of paragraph 6 of the assessment order in so far as the claim for bad debt is concerned. The said portion has already been extracted above. So far as the claim for interest-free loan of Rs. 8,35,000 is concerned, the following stated by the Assessing Officer in paragraph 8 of his order may be reproduced : "8. Information was received from the Assessing Officer assessing Smt. Harvinder Singh Kaur, wife of the assessee, that he had advanced interest-free loan of Rs. 8,35,000 to her during this year on which she had earned interest income of Rs. 88,685. The Assessing Officer had assessed the said interest income on protective basis in her hands. The assesse was asked to explain on this point. He had given the details of the interest free loan advanced to his wife from which it is seen that all the amounts have gone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been able to persuade myself to agree with certain observations and the conclusion arrived at by him and hence respectfully proceed to make this separate order. The assessee is in appeal before us challenging the validity of the order under section 263 of the Income-tax Act, 1961, on the following four grounds : "1. The Commissioner of Income-tax erred in setting aside the assessment made by the Assistant Commissioner without considering the legal and factual submissions made at the time of hearing. The Commissioner of Income-tax's action in setting aside the original assessment is bad in law since no prima facie case was made out for applying the provisions of section 263. 2. The Commissioner of Income-tax erred in holding that the Assessing Officer was not right in allowing the claim of bad debts and also in respect of interest-free loans advanced to wife even though the claim was allowed by the Assessing Officer on the basis of evidence adduced and was also considered by Commissioner of Income-tax (Appeals) in appellate proceedings. 3. The Commissioner of Income-tax erred in setting aside the order under section 143(3) even though the said order had merged with the Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kaur." The notice under section 263 was dated January 13, 1994, whereas the order of the Commissioner of Income-tax (Appeals) was dated October 1, 1992. As per the grounds of appeal on record, raised before the Commissioner of Income-tax (Appeals), we observe that none of the above grounds are there. In fact, it would have been ridiculous to find them there as the Assessing Officer has allowed the assessee's claim for bad debt and as regards the second ground no addition has been made. The Assessing Officer has made an addition of interest amount only on the loan given by the assessee to his wife. The ground contesting the addition of the said interest was raised before the Commissioner of Income-tax (Appeals), but it is quite distinct from the ground relating to genuineness of the loan transaction. The above discussion will answer grounds Nos. 2, 3 and 4 raised by the assessee in this appeal. Ground No. 2 is rejected in so far as the two matters mentioned therein were never the subject matter of consideration before the Commissioner of Income-tax (Appeals). Ground No. 3 is also rejected in so far as as per clause (c) of the Explanation to section 263(1), the entire order unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rification were before the Assessing Officer and hence the claim was rightly allowed. Certain facts emerging from the material on record are very pertinent. In reply to question No. 5 mentioned in the statement recorded on February 20, 1990, the assessee has clearly replied that he does not maintain any books of account or other records for steel trading business. Further, in reply to question No. 3 in the statement recorded on February 21, 1990, the assessee has mentioned that he has gone through his statement under section 131 dated February 20, 1990, carefully and confirmed that the same has been correctly recorded. Still further, as a part of his answer to question No. 7 in the statement under section 132(4), he mentioned that the income of Rs. 92,50,000 was being offered under section 132(4) after considering and taking into account the profit and loss made thereon. Then he has given the breakup as to how this Rs. 92,50,000 stands invested. As per the break-up the various items of stocks amount to Rs. 55,33,488 and other investments and assets amount to Rs. 37,16,512. Then questions Nos. 8 and 11 and the respective replies are as under : "Question 8.-Where have you inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oney have gone in vain and hence he wrote it off as bad. The assessee also submitted a statement purporting to be a copy of the ledger account of Shri Bhagwandas Aggarwal and also a copy of the bad debt account. He also furnished photo-copies of delivery challans as also of four letters written by him to the party. Based on this information, the Assessing Officer granted the claim of the assessee as regards bad debt. As regards the allowability of bad debts, what section 36(1)(vii) requires is that the debt must have been written off in the accounts of the assessee of the previous year. Thus as per the provisions, mere write-off of the debt in the accounts is sufficient and nothing more. Thus, two things ought to have existed while claiming the deduction of bad debtone, existence of the debt and two, existence of books of account where it can be written off as bad. Now, the question is, in the backdrop of the factual scenario given in paragraphs 18 to 24 (pages 96) above, did the Assessing Officer conduct proper enquiry in order to satisfy himself of the assessee's claim or not. Shri Arvind Sonde, learned counsel for the assessee, pleaded, he did Nowhere in his order, has the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Inder Dev Vij of Delhi and this appears to be somewhat incomprehensible-though not wholly impossible and should have certainly prompted the Assessing Officer to call for details which can prove the existence of the debt. But he failed to do so. Further, for not getting the accounts audited under section 44AB, the assessee seeks shelter of unaccounted income and for the claim of bad debt he says the Assessing Officer has examined the books. This is not permissible.The sending of the Ward Inspector by the Assessing Officer at the address given by the assessee to trace the said Shri Bhagwandas was a futile exercise as the very claim of the assessee for allowance of bad debt was his alleged flight from Bombay. Considering the facts of the case, the Assessing Officer, instead of going for the so called verification of the bad debt, should have first satisfied himself of the existence of the particular debt and that is where he failed to conduct the relevant enquiries. As regards the amount of Rs. 8,34,000 advanced by the assessee to his wife, the observation of the Assessing Officer at paragraph 8 of his order is very vague. Here also lack of enquiry on the part of the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ters were submitted not before March 23, 1992, when it was already written off as bad on October 31, 1990. Similar is the case with respect to the alleged loan advanced by the assessee to his wife. Information was received from the Assessing Officer assessing the wife of the assessee that he had advanced Rs. 8,35,000 to her. In respect of this, the Assessing Officer simply mentions that the details given by the assessee are checked and that the amounts have gone from the bank account and are properly explained. Here again, I repeat, the issue is not of elaboration but it should have occurred to the Assessing Officer that the declared income is Rs. 92,50,000, the break-up given by the assessee of this Rs. 92,50,000 does not reflect the amount advanced to his wife, nor does the balance-sheet reflect this amount. Thus the source from where he got this amount remains unknown. In this sense though the material on record reflects something else, the order passed by the Assessing Officer becomes erroneous which has caused prejudice to the interests of the Revenue. In view of the above position, I uphold the action of the Commissioner of Income-tax in assuming jurisdiction under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a number of parties were storing their unaccounted imported CRCA sheets in certain warehouses, action under section 132 of the Act was taken in respect of a few warehouses. The warehouses of Western India Steel Traders was also covered under the said section on January 12, 1990. Stocks of CRCA sheets and coils valued at Rs. 1.45 crores were found in the warehouses and those were placed under constructive seizure. Thereafter, the appellant sent letters dated January 23, 1990, and January 29, 1990, to the ADIT, Unit 11(2), Bombay (refer to question No. 4 of statement under section 131 of the appellant dated February 20, 1990), in which he admitted that the stock of CRCA sheets and coils found at the warehouse of Western India Steel Traders and lying there in the names of Kai International, Asish Enterprises and Ambassador Industrial Corporation belong to him which he intends to offer under section 132(4) as his unexplained investment. The statement of the appellant was recorded under section 131 of the Act on February 20, 1990, in which he, inter alia, admitted that the entire stock of CRCA sheets/coils kept in the warehouse of Western India Steel Traders and Union Fabricators in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r dated March 27, 1990, filed the details of working of business transactions as well as working of peak investment in support of the offer of taxing Rs. 92,50,000 along with certain enclosures containing the following : (i) Peak of cash rotation statement, (ii) Details of purchases and sales otherwise, (iii) Reconciliation peak-profit and stock, investment and assets, (iv) Quantity account of stock (statement of sales and purchases). In the aforesaid statement dated February 21, 1990, the appellant in reply to question No. 6 has admitted that initially he invested his unaccounted income from brokerage for purchasing such CRCA sheets/ coils. Subsequently, the profits earned on sale and purchase of CRCA sheets/ coils were invested in acquiring the aforesaid stock of Rs. 92,50,000 (peak). All the sales and purchases were effected in unaccounted terms during the current financial year 1989-90. The appellant in answer to question No. 7 offered an income of Rs. 92,50,000 as his income under section 132(4) for the current financial year 1989-90, i.e., the assessment year 1990-91, and further stated that the said income has not been disclosed to the Department so far as the same has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 is reproduced below : "I purchase the goods in cash against delivery and in sale delivery is given against cash only". The return of income was due to be filed under section 139(1) on October 31, 1990, but the appellant did not voluntarily file the return before the aforesaid due date. A notice under section 148 of the Act dated May 16, 1991, was served on the assessee. Reminders dated July 8, 1991, July 31, 1991, and August 9, 1991, were issued asking him to file the return of income. The assessee ultimately filed the return of income on October 31, 1991, declaring income of Rs. 64,35,580 computed as below : (Rs.) (Rs.) Salary 70,000 Less : Standard deduction under section 16 12,000 58,000 Directors fees 5,000 Business income offered under section 132(4) 92,50,000 Bad debts 28,77,420 63,72,580 64,35,580 It appears that effective assessment proceedings for the year under consideration assessment year 1990-91 commenced when the Assessing Officer issued a letter dated January 21, 1992, to the assessee requiring him to rectify the defects in the return and furnish (i) the statutory audit report, (ii) a copy of the balance-sheet, (iii) details of all loans advanced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Shri Bhagwandas Aggarwal (sun-dry debtors) shows the following details : (Rs.) (Rs.) 21-12-89 To sales 1,08,050 31-3-90 J (bad debts) 28,77,420 22-12-89 To sales 8,29,150 23-12-89 To sales 2,16,300 5-1-90 To sales 2,07,480 8-1-90 To sales 1,03,740 9-1-90 To sales 2,07,480 10-1-90 To sales 3,80,380 11-1-90 To sales 1,03,740 28,77,420 28,77,420 The Assessing Officer passed the assessment order on May 7, 1992. The findings given by the Assessing Officer in the said assessment order with regard to the two disputed items are reproduced hereunder : Paragraph 6 of the assessment order dated May 7, 1992 : "Assessee has claimed bad debt of Rs. 28,77,420 along with the details of the bad debt. It is stated that he sold the above goods to Shri Bhagwandas Aggarwal whose office is on Aaram Hotel, Chowpatty, Bombay, and who was residing at BMC Bldg. No. 6, Clark Road, Haji Ali, Bombay. He has given datewise sale of the said goods to the above party, furnished photo-copies of delivery challans. He has also given photo-copies of four letters issued by him to the party. As to reasons for claiming it as a bad debt, it is contended by him that Shri Bhagwandas Aggarw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase. It has only been laid down by the Bombay High Court in the decision that a Commissioner of Income-tax cannot revise an order merely because he disagrees with the conclusion arrived at by the Income-tax Officer. In the assessee's case, on the other hand, as per the various facts and circumstances of the case and as is clear from the evidence available on record, the assessment made by the Assessing Officer clearly emerges as erroneous and prejudicial to the interests of the Revenue, inasmuch as the Assessing Officer has made the assessment overlooking the evidence on record and also without making enquiries regarding the source of funds available with the assessee for the monies in the assessee's bank account, which fact is relevant for the purpose of determining the correct income of the assessee for the assessment year 1990-91. In view of these circumstances of the case, the Supreme Court decision in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 squarely applies and as laid down in the decision, if there are materials before the Commissioner to justify the finding that an order of assessment is erroneous in so far as it is prejudicial to the interests of the Revenue, the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in this order. To enable the Assessing Officer to do so, the assessment made by the then A. C. Cent. Circle 30, in the assessee's case for the assessment year 1990-91 on May 7, 1992, is set aside, and the assessment should be made afresh according to law." The learned Commissioner of Income-tax has given elaborate reasons in the order passed by him to support the conclusions arrived at by him. The appellant preferred this appeal against the said order passed by the Commissioner of Income-tax under section 263 before the Tribunal. The learned Judicial Member in view of the reasons recorded by him in the order has held that the order passed by the Commissioner of Incometax under section 263 of the Act is bad in law. He has also observed that the relevant paragraphs 6 and 8 of the assessment order would be sufficient enough to establish that necessary enquiries and investigations were made by the Assessing Officer and he has not lacked in his duties to make such enquiries and investigations. The learned Judicial Member has accordingly held that the claim of the assessee for bad debts of Rs. 28,77,420 and the explanation offered by the assessee for advancing the loan of Rs. 8,35,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such a claim. The assesse submitted a detailed letter in response to the said query letter and submitted all the relevant details and evidence. The assessee had duly submitted the full address of the said customer, Shri Bhagwandas Aggarwal, to whom the goods were sold on credit. The copy of the debtor's account, copy of bad debt account, copy of the profit and loss account in which such amount of bad debt was written off were also submitted. The assesse also submitted photo-copies of delivery challans, and the copies of 4 letters sent by the assessee to the said party. The Assessing Officer thereafter deputed the Ward Inspector to conduct necessary enquiries. The Ward Inspector had gone to the office address and the residential address of the said debtor and found that Shri Bhagwandas (the debtor) had left and his whereabouts are not known. The Assessing Officer had thus accepted the assessee's claim after making proper enquiries and after his satisfaction about the reality and correctness of such a claim made by the assessee. Learned counsel submitted that the learned Accountant Member was wrong in holding that the order of the Assessing Officer in this regard was erroneous and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion that both the conditions prescribed in section 263, namely, that the order was erroneous and that such erroneous order caused prejudice to the interests of the Revenue, should co-exist and should be cumulatively satisfied. He submitted that in the instant case, the order was passed by the Assessing Officer after making due and proper enquiries and hence that cannot be regarded as an erroneous order. Learned counsel thus strongly supported the order of the learned Judicial Member and submitted that he has rightly set aside the impugned order under section 263 passed by the Commissioner of Income-tax. The learned Departmental representative strongly supported the order passed by the learned Accountant Member and relied upon the reasons mentioned in the order passed by the learned Accountant Member as well as in the impugned order under section 263 passed by the Commissioner of Income-tax. The learned Departmental representative submitted that the Accountant Member has very aptly observed in the order passed by him that as per the provisions of section 36(1)(vii) read with section 36(2) two things ought to have existed while claiming the deduction of bad debt-one, the existen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of the search. The learned Accountant Member has also recorded a firm finding of fact that the books of account were not produced before the Tribunal even when specifically asked for. The learned Departmental representative further submitted that the Assessing Officer in paragraph 26 of the original assessment order concluded by saying that "the conditions laid down in section 36(1)(vii) read with sub-section (2) seem to have been fulfilled". The use of the expression "seem to have been fulfilled" by the Assessing Officer clearly indicates that he did not have adequate material on record to arrive at a firm and final satisfaction as to the fulfilment of various conditions precedent for allowing the bad debt in question. He placed reliance on the judgment of the Delhi High Court in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 to support his contention that the facts and circumstances of the present case should have provoked the Assessing Officer to make further enquiries and investigation before accepting such a claim of bad debt. The learned Departmental representative drew my attention to page2 of the order of the Commissioner of Income-tax where extrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om) and [1992] 193 ITR (St.) 4. As regards the second item of loan of Rs. 8,35,000 advanced by the assessee to his wife, the learned Departmental representative submitted that the Assessing Officer in paragraph 8 of the assessment order has observed "Intimation was received from the Assessing Officer assessing Smt. Harvinder Singh Kaur, wife of the assessee that he had advanced interest free loan of Rs. 8,35,000 to her during this year on which she had earned interest income of Rs. 88,685." A perusal of the assessee's reply dated March 18, 1992 (page 14 of the paper book), reveals that the said amount of Rs. 8,35,000 included the opening balance of Rs. 3,30,000. The fresh loan advanced during this year was Rs. 5,05,000 only. The Assessing Officer did not even notice the said opening balance outstanding against the assessee's wife. This shows total non-application of mind by the Assessing Officer. The learned Departmental representative further pointed out that the Assessing Officer vide his letter dated January 21, 1992 (copy at page 13 of the paper book), required the assessee to explain the source of the loan of Rs. 8,35,000 advanced to his wife. In reply dated March 18, 1992, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount and the balance-sheets, etc., are available and these can be produced today, i.e., on January 7, 1997. But after talking to the person sitting by his side, learned counsel expressed his inability to produce the same on that date on the ground that the appellant was out of station. He requested for grant of time for this purpose and relied upon the decision of the Supreme Court in the case of ITAT v. Deputy CIT (Assessment) [1996] 218 ITR 275. Learned counsel was well aware of the fact that I had come on tour to Bombay from Delhi only and exclusively for hearing this one single appeal, as Third Member. The manner in which the briefing gentleman and learned counsel conversed with each other and their facial expressions during such conversation gave me an impression that they want to avoid production of the books of account before me. However, in the interest of justice and with a view to provide a last and final opportunity to the assessee, learned counsel for the assessee was required to produce the following on the next day, i.e., on January 8, 1997, vide order sheet entry dated January 7, 1997 : (i) Assessee to produce the books of account, in which the bad debt is claimed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8, 1997. Learned counsel for the assessee was duly informed during the hearing on January 8, 1997, that such request for allowing further time for this purpose cannot be accepted. This was duly noted by learned counsel on the bottom of the said application. After my return to Delhi, I received one more letter dated January 9, 1997, from Shri Vinod S. Mehta, chartered accountant, on January 14, 1997, stating that the books of account are available and can be produced at any place and at any time in the next week. The sending of such an application once again after rejection of a similar request made during hearing on January 8, 1997, after considering the submissions made by the learned representatives of both sides and after conclusion of the hearing is improper. In view of the facts and reasons discussed in the preceding paragraph, I do not find any merit in the request so made in the aforesaid letter. I will, therefore, proceed to give my findings in relation to the points of difference referred to me. I have considered the submissions made by the learned representatives of both the sides and have perused the order of the departmental authorities and all other documents to whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any evidence that the books of account containing entries relating to unaccounted purchases and sales resulting in unaccounted income of Rs. 92,50,000 were produced before the Assessing Officer or that the Assessing Officer had examined those books of account before completing the original assessment. I have carefully gone through the original assessment order. The Assessing Officer has nowhere mentioned in the assessment order that such books of account were produced before him and/or that he had examined those books of account. On the other hand, the Assessing Officer had observed in the assessment order that the statement annexed with the return of income disclosed the turnover at Rs. 1.50 crores but the assessee did not file the statutory audit report under section 44AB either with the return or till completion of the assessment. The Assessing Officer, therefore, initiated penalty proceedings under section 271B of the Act. The Assessing Officer vide letter dated January 21, 1992, required the assessee to, inter alia, file the statutory audit report and copy of the balance-sheet. The assesse submitted a reply dated March 18, 1992 (copy placed at page 14 of the paper book). The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and his whereabouts are not known. The Assessing Officer accepted the claim of bad debt without making any further enquiries and investigation. In my view, the Assessing Officer failed to apply his mind to the various vital facts and circumstances, such as the following, on the basis of which any Assessing Officer, with ordinary prudence, could entertain an honest and reasonable belief that there exists a strong probability that the assessee has made a bogus and false claim in respect of such bad debt of Rs. 28,77,420 with a view to reduce his tax liability on the unaccounted and undisclosed income of Rs. 92,50,000 surrendered in the statements recorded under sections 131 and 132(4) during the proceedings of search, and that there is an imperative need to make thorough inquiries and deep investigation. The Assessing Officer ought to have conducted a deep investigation and found out as to (i) whether any such credit sales, in fact were made to Shri Bhagwandas Aggarwal or not, (ii) whether any such person, namely, Bhagwandas Aggarwal, ever carried on any such business from the given business address and whether any such person was residing at the given residential address, (iii) wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant was out of town. One of those enclosures marked as "Reconciliation Peak-Profit and Stock Investment and Assets" is reproduced hereunder : Peak offered 91,09,627 Stock 55,33,488 Profit 2,86,220 Sundry debtors 28,77,420 Less : Expenses 1,45,847 1,40,373 Advances 7,00,000 Cash 1,39,092 92,50,000 92,50,000 The details of advances of Rs. 7,00,000 was later on given in the course of assessment proceedings. As per details furnished at page 18 of the paper book such advances were given to Shri Inder Dev of Ghaziabad. At the fag end of the assessment proceedings, the assessee for the first time gave the address and other details of bad debts along with the letter dated March 23, 1992. The assessee now claimed that credit sales were made to one Shri Bhagwandas Aggarwal on various dates in the month of December, 1989, and January, 1990, aggregating to Rs. 28,77,420, which turned out to be irrecoverable and was written off as bad debt. The first credit sale was made to him on December 21, 1989, and the last sale on January 11, 1990. The Assessing Officer should have appreciated that if the assesse had genuinely made such credit sales to Shri Bhagwandas Aggarwal from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uyer will gather necessary information about the financial capacity of the customer, his reputation in the market and the volume of the customer's business. Normally, the dealer after making the first credit sale may be reluctant to again sell the goods on credit to the same party without realising the amount of the earlier bill or without obtaining proper securities or guarantee bonds or without satisfying himself about the realisability of the outstanding sale proceeds. The Assessing Officer ought to have examined the appellant on all such points. The Assessing Officer has also failed to take into consideration the statement of the appellant recorded on December 10, 1990, in which the assessee, inter alia, stated that "purchases and sales are in cash only" and "delivery is only against cash payment". Such a vital and relevant evidence already existing on records was not at all considered by the Assessing Officer at the time of passing the original assessment order. The Assessing Officer has also not examined the correctness or otherwise of the various documents claimed to have been submitted by the assessee along with the letter dated March 27, 1990. The Assessing Officer has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... primary records and ought to have carefully examined the same. The Assessing Officer has completely failed to verify the existence of a real debt, the existence of the books of account and also the reliability and correctness of the entries recorded in such books of account claimed to have been prepared after the search. The provisions of section 36(2), inter alia, provide that no deduction for a bad debt shall be allowed unless such debt has been taken into account in computing the income of the assessee of the previous year. It was, therefore, necessary on the part of the assessee to prove that the claim of bad debt of Rs. 28,77,420 formed part of the unaccounted income of Rs. 92,50,000. The Assessing Officer ought to have made a careful scrutiny of all the relevant entries forming the basis of computing the aforesaid unaccounted income admitted by the appellant at Rs. 92,50,000 and should have verified the fact whether the claim of bad debt of Rs. 28,77,420 was a part of the said income of Rs. 92,50,000. The Assessing Officer has not examined and considered this vital aspect. The Assessing Officer did not even verify the entry of write off of such entry of bad debts in the boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the bank pass books of the said account and did not examine the sources of the deposits made in the said bank account. The Assessing Officer made an addition of interest of Rs. 88,685 earned by his wife on the said amount but did not make any addition in respect of the fresh loan advanced during the year without considering the sources of advancing such loan. The explanation submitted by the assessee, vide letter dated March 18, 1990, does not contain even a word explaining the sources of loan advanced to the wife. The assessee did not produce any evidence to support the sources of advancing the said loan to the wife. It is clear from the afore stated facts that the Assessing Officer has erred in accepting the aforesaid loan as properly explained without conducting proper enquiries and investigations. Learned counsel for the assessee had placed reliance on several judgments. I have carefully gone through all those judgments and find that the facts of all those cases are totally different and are clearly distinguishable from the facts of the present case. It is well settled law that each case has to be seen in the light of the facts of that case. A decision has to be understo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be held to be 'erroneous' simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income-tax Officer to re-examine the matter. That, in our opinion, is not permissible. Further inquiry and/or fresh determination can be directed by the Commissioner only after coming to the conclusion that the earlier finding of the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue. Without doing so, he does not get the power to set aside the assessment. In the instant case, the Commissioner did so and it is for that reason that the Tribunal did not approve his action and set aside his order. We do not find any infirmity in the above conclusion of the Tribunal." It is clear from the aforesaid judgment that further inquiry and/or fresh determination can be directed by the Commissioner of Income-tax after coming to the conclusion th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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