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TMI Blog2007 (1) TMI 595X X X X Extracts X X X X X X X X Extracts X X X X ..... the year under consideration, the assessee had claimed to have received gifts amounting to ₹ 70.00 Lakhs from Shri Shranik R. Shah, NRI residing in Hongkong. The Assessing Officer completed the assessment accepting the gifts as genuine. A show cause notice under Section 263 was issued to the assessee as according to the Commissioner the gift had been accepted as genuine without verifying relevant aspects and circumstances relating to the genuineness of the gift. It was claimed by the assessee before the CIT(A) that the gift was confirmed and duly acknowledged by the Donor. The assessee had filed the necessary details as requisitioned by the Assessing Officer and after due verification the assessment order was passed by the Assessing Officer. It was claimed by the assessee that the said assessment order cannot be revised on the ground of non-genuineness of the transaction. Reliance was placed on the decision in the case of Gabriel India Ltd., (203 ITR 128) (Bom.) for the proposition that CIT cannot initiate proceedings under Section 263 with a view to start fishing and roving enquiries in the matters already concluded. It was further claimed by the assessee before the CIT that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in appeal against the order. 6. The learned AR for the assessee submitted that the original assessment in the case was completed under Section 143(3) of the I.T. Act. During the year, the assessee had received gifts out of NRI account from Shri Shranik R Shah, amounting to ₹ 70.00 Lakhs and which were utilized for the purchase of a Flat No. 1-C, Vardhman, 1st Floor, 9, Manav Mandir Road, Mumbai - 400 006 for a consideration of ₹ 62.00 Lakhs. It was claimed by the learned AR for the assessee that both the assessee and Shri Shah belong to the Jain Community and are close family friends. It was clarified by the learned AR for the assessee that the Assessing Officer during the course of assessment had made enquiries with regard to identity, resourcefulness and transfer of funds by the donor. Reference was invited to the details submitted by the assessee during the course of assessment wherein the gift declaration letter was furnished and it was clarified that Mr. Shranik R. Shah is a very close family member, is a Non-Resident Indian settled in Hongkong. It was further stated that Mr. Shah is a Diamond Merchant having a Star Trade Export and Import and Import House and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer which are as under. Cheque dated 25.11.2000 was issued on Saturday and was encashed on 29.11.2000 Cheque dated 23.12.2000, which was a Saturday and 24.12.2000 Sunday and 25.12.2000 was Christmas, was encashed on 27.12.2000. Further, the cheque dated 01.12.2000 issued on Friday was encashed on 03.12.2000. 9. The learned DR questioned how the cheques posted from Hongkong were credited in the Bank account of the donee and encashed so soon. Further, it was submitted by the learned DR that the Assessing Officer has failed in his duty to look into the genuineness of the transactions and no enquiries had been made by the Assessing Officer with regard to the donor being a diamond merchant or the entries in the bank account of the donor. It was further proposed that in cases, where in Assessing Officer has failed to make enquiries the assessment order is erroneous and prejudicial to the interest of justice. Reliance was placed on the following decisions by the learned DR. R.V International vs. Addl. CIT (ITA No.3543 Mum 2003) (Mumbai) Malabar Industrial Co. Ltd. vs. CIT (243 ITR 83) (SC) Jewal of India (87 ITD 527) (Mum.) The learned DR also filed list of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category falls orders passed without applying the principle of natural justice or without application of mind. The phrase prejudicial to the interests of the Revenue is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadobhoy and Co. v. S.P. Jain (1957) 31 ITR 872, the High Court of Karnataka in CIT v. T. Narayana Pai (1975) 98 ITR 422, the High Court of Bombay in CIT v. Gabriel India Ltd. (1993) 203 ITR 108 and the High Court of Gujarat in CIT v. Smt. Minalben S. Purikh (1995) 215 ITR 81 treated loss of tax as prejudicial to the interests of the Revenue. Mr. Abraham relied on the judgment of the Division Bench of the High Court of Madras in Venkatakrishna Rice Company v. CIT (1987) 163 ITR 163 ITR 129 interpreting prejudicial to the interests of the Revenue. The High Court held (page 138) : In this context, it must be regarded as involving a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w will suffice for the requirement of order being erroneous. iv) If the order is passed without application of mind, such order will fall under the category of erroneous order. v) Every loss of revenue cannot be treated as prejudicial to the interests of the revenue and if the Assessing Officer has adopted one of the courses permissible under law or where two view are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order, unless the view taken by the Assessing Officer is unsustainable under law. vi) If while making the assessment, the Assessing Officer examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income, the Commissioner, while exercising his power under Section 263, is not permitted to substitute his estimate of income in place of the income estimated by the Assessing Officer. vii) The Assessing Officer exercises quasi-judicial power vested in him and if he exercises such power in accordance with law and arrives at a conclusion, such conclusion cannot be termed to be erroneous simply because the Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee had claimed to have filed the necessary details with the Assessing Officer during the course of assessment proceedings regarding the gift received by the assessee. The assessee vide letter dated 31.03.2003 submitted as under: 1. Donor Mr. Shranik Shah is a Non Resident Indian of Indian Origin, now he is permanently settled in and resident of Hongkong (Republic of China). Enclosed please find Copy of Permanent Resident Identity Card marked Exhibit-1 substantiating the facts of being Hongkong resident. 2. Mr. Shranik Shah is very close family member and a well wisher of my family. 3. Mr. Shranik Shah is a Diamond Merchant and a very successful businessman having a Star Trading Export Import House and is a multifaced, very resourceful business entrepreneur. 4. The gift received was gifted out of NRI External Account. Funds were remitted by Mr. Shah through regular banking channels from his overseas bank account in convertible foreign exchange which is duly confirmed by him vide his Gift letter dated 23rd December. 2000 which is already taken on record by your honour. 5. Gift received out of natural love and affection from Mr. Shah has been accepted by me and there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see is further required to give full cooperation to the Assessing Officer in providing complete address of the donors so that, if required, proper verification is made possible. In the facts of D.C. Rastogi (HUE) vs. ACIT (supra), the assessee had furnished mere confirmations from parties and though Assessing Officer had made enquiries even from the witnesses, but in the absence of copies of Bank accounts of donors, capacity of donors could not be determined and in the absence of such information not being furnished, it was held the assessee had not discharged his onus. In the case of 'B' donor, merely because the gifts were received by cheque the capacity of donor could not be established in the absence of furnishing Bank account of donor. 17. In Jyotsna Suri vs. ITO, the Tribunal on the issue of foreign remittance observed as under: 10. On the issue of foreign remittances having been treated as appellants' Income, the Assessing Officer noted that the assessees had not even identified the remitter, much less have furnished any evidence regarding the source of the amounts. While the Assessing Officer had already put to the appellants as to why provisions of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing whether the direction given by the Calcutta High Court reported in Grindlays Bank Ltd. vs. ITO 1978 115 ITR 799 was correct. In other words having quashed the notice under section 142(1) by way of a writ whether a fresh assessment could be directed by their lordships of the High Court. A question had arisen whether the Assessing Officer was justified in asking for banks of Head Office of the Bank situated outside India. It was held the material asked for had no hearing on the assessment being made in India and therefore the Assessing Officer had exceeded his jurisdiction. 10.1 In the appeals before us it is nobody's case that by inviting attention of the appellants to the provisions of section 68 (it be read as 69A) the Assessing Officer had exceeded his jurisdiction. The enquiry was relevant to the framing of assessment and not on extraneous matter. 18. In the facts of the case before us, the Assessing Officer accepted the transaction of gift merely on the basis of the submissions of the assessee that gifts had been received out of NRI account. The line of enquiry was restricted to identity of parties, remittance through banking channels and gift letter of donor and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... afterthought and that the gift has been received through Banking channels. No verification whatsoever of the origin of such entries was made by the Assessing Officer. In the absence of basic and proper enquiries having made by the Assessing Officer, the assessment order had been passed without application of mind. Such an order is erroneous. 21. The second limb of Section 263 of the Act is that order should be prejudicial to the interest of revenue. In Jewel of India (87 ITD 521) had held as under: The assessment made by the Assessing Officer would be prejudicial to the interest of the Revenue if the Assessing Officer has not made any enquiries or he has made insufficient enquiries. Delhi High Court in the case of Gee Vee Enterprises held that the Commissioner can regard the ITO's order as erroneous on the ground that in the circumstances of the case. The ITO should have made further enquiries before accepting the statements made by the assessee in his return. Rajasthan High Court in the case of CIT v. Emery Stone Mfg. Co. (1995) 213 ITR 843 held that allowing certain deduction without proving the claim or without proper verification or in ignorance of the provisions of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that prevented the Commissioner from revising the erroneous order passed by the Assessing Officer, which was prejudicial to the interest of revenue as held by Mumbai Bench of Tribunal in Arvee International (supra). In case erroneous orders passed by the Revenue are allowed to stand, which are prejudicial to the interest of revenue, then the administration of Income tax would be at stake. In the facts and circumstances of the present case, the CIT was justified in invoking the jurisdiction under Section 263 of the I.T. Act observing that the order of Assessing Officer is erroneous as well as prejudicial to the interest of Revenue, as the Assessing Officer had failed to make enquiries regarding the financial capacity of donor and genuineness of the gift because mere acceptance of confirmation from the donor of gift through Banking channel cannot be treated to have explained and established the genuineness of the gift. The financial worth of the donor was not looked into and the genuineness of the transaction of the gift remained unexplained. The CIT has set aside the assessment to be framed afresh by the Assessing Officer keeping in view the provisions of the Act. We are of the vie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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