9911796707
TMI Blog2002 (5) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... petition are partnership firms. These firms were subjected to procedure of search and seizure. After such seizure, while mechanism provided in the Income-tax Act, 1961 (hereinafter referred to as "the Act") was in process to determine the tax liability, cases were transferred from Delhi to Kota. The petitioners feel that the order of transfer of the cases from Delhi to Kota was without jurisdiction, illegal and void. Still, the petitioners have not chosen to impugn the order of transfer. A notice under section 158BC of the Act was issued to the petitioners, namely, Ispat Traders and Shivchand and Brothers, on September 28, 2001. The opportunity provided in this notice was less than the statutory period. Another notice was issued in respect of the aforesaid firms afresh on January 28, 2002, requiring these firms to file the return of block period. These firms filed the returns of undisclosed income for the block period in response to the aforesaid notices on March 22, 2002. Notice was issued to the third petitioner on March 12, 2002. The third petitioner also filed a return in response to the notice. While all the aforesaid proceedings were continuing, a direction under section 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim that in view of an arrangement entered into between the Assistant Commissioner of Income-tax (Central Circle), Kota, the Commissioner of Income-tax, Jaipur, and Mr. Goyal, C.A., the Department has decided to take recourse to section 142(2A) of the Act. While arriving at such an agreement it is alleged that it was in the mind of the authority that assessment order, if passed, will go in favour of the petitioners. It is also alleged that, in case, assessment order is not passed after April 30, 2002, it would get barred by limitation. It is alleged that it was in these circumstances the assessing authority has issued a direction to the petitioners under section 142(2A) of the Act. In the aforesaid background of facts, the petitioners claim that there was nothing on record that any approval was obtained from the Commissioner of Income-tax by the Assessing Officer. Further, there was nothing on record to suggest that any exercise as required under the Act was undertaken by the Assessing Officer. The issuance of directions by the Assessing Officer under section 142(2A) at the directions of the Commissioner of Income-tax are vitiated being arbitrary and against the judicial system. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e instant case ready for perusal of the court. The records have been called for and a copy has been placed on record. The same have also been shown to counsel for the petitioners. After perusal of the record, it is submitted by counsel for the petitioners that the reference letter which has been shown today, clearly brings out the fact that there was no application of mind either on the part of the Assessing Officer or the Commissioner of Income-tax; further no opinion was formed by the Assessing Officer before referring the matter to the Commissioner of Income-tax for approval as provided under section 142 of the Act. Therefore, it has been claimed by the petitioners that the powers conferred under section 142(2A) could not have been invoked. The petitioner has placed reliance on the following decisions of the courts: H.P. State Forest Corporation Ltd. v. CIT (Joint) [2001] 252 ITR 833 (HP); Peerless General Finance and Investment Co. Ltd. v. Deputy CIT [1999] 236 ITR 671 (Cal) and Swadeshi Cotton Mills Co. Ltd. v. CIT [1988] 171 ITR 634 (All). This has further been submitted by the petitioners that the documents sought to be audited are all seized documents, whereas under the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been done to furnish sufficient opportunity to the Department. The argument is too presumptive to be accepted. The time limit was to expire on April 30, 2002. The exercise of ordering audit is shown to have been generated on or around April 10/11, 2002. At least three weeks' period was available to the Department to have undertaken any exercise for assessment. Without any relevant material, such inferences cannot be recognized. A shadow on the exercise of statutory powers can only be permissible if there is sufficient material. Unfounded assumption cannot be permitted to statutory exercise of jurisdiction. Learned counsel for the petitioners has further submitted that the directions issued by the Assessing Officer appear on the basis of the directions issued by the Commissioner of Income-tax. Such an assertion as contained in paragraph 11 of the writ petition is more in the form of a derivative conclusion from the manner of proceedings as alleged to have taken place on April 10/11, 2002. The allegations in paragraph 11 of the writ petition fall short of establishing the fact that the directions have been issued under the instructions of the Commissioner of Income-tax. There is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on itself. It was also observed that stock of all the three firms are lying in a common place and stock of any firm cannot be bifurcated. During the course of assessment proceedings, it was noticed that stock register is not maintained properly by all the three firms. The following defects were detected in the stock register: (a) Day-to-day balancing has not been done; (b) Different items such as GI sheets, angles, etc., have been clubbed in a single account; (c) Quantity/measurement of the stock has not been mentioned in the stock register." These observations of the Assessing Officer in the recommendation to the Commissioner of Income-tax record an admission of the petitioners that sales have been taken outside the books of account. If sale has taken place outside the books of account, then the necessary corollary of this submission is that there is an attempt at tax evasion. The petitioner has relied on the judgment of the Allahabad High Court in the case of Swadeshi Cotton Mills Co. Ltd. [1988] 171 ITR 634, wherein it has been observed thus: "The exercise of power to direct special audit depends upon the satisfaction of the Income-tax Officer with the added approval of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the Assessing Officer was conscious of the fact that such sales would result in tax evasion and in this background while submitting the case for approval to the Commissioner of Income-tax, this reason is stated in the letter. It cannot therefore be said that the Assessing Officer had not applied his mind and had acted mechanically at the instance of the Commissioner of Income-tax. The other reasons assigned in the recommendatory letter dated April 17, 2002, placed on record by the respondent-Department under the directions of this court issued on May 28, 2002, parts of which have been quoted here-in above, ruled out any possibility of application of the case relied upon by learned counsel for the petitioners in the matter of H.P. State Forest Corporation Ltd. [2001] 252 ITR 833 (HP). The Division Bench of the Himachal Pradesh High Court has proceeded in that case on the basis of the facts obtaining in that case wherein it has been observed thus: "We have considered the rival contentions of the parties and, in our view, the petition deserves to be allowed. It is true that the power has been exercised under sub-section (2A) of section 142 of the Act. But, it is equally true that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the exercise of jurisdiction by the Assessing Officer was not in conformity with the powers conferred on him. The case relied upon by learned counsel for the petitioners in the matter of Peerless General Finance and Investment Co. Ltd. [1999] 236 ITR 671 (Cal) is of no assistance to the petitioners as that was a case on the basis of a proposal which was made without placing material before the Chief Commissioner of Income-tax. In the instant case, there was a definite proposal made before the Commissioner of Income-tax with detailed material and thus this case has no application in the facts and circumstances of the present case. The discussions made hereinabove show that the Assessing Officer has objectively considered the material available with him and has reached a bona fide conclusion about the nature of accounts placed before him that there had been admitted sales out of account books. The day-to-day balancing has not been done. The stocks of three firms were lying in common place and their bifurcation was not possible in such contingencies to identify separate dominion of the petitioners firms on the stocks available. The exercise undertaken under section 142(2A) will ..... X X X X Extracts X X X X X X X X Extracts X X X X
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