9911796707
TMI Blog1990 (2) TMI 323X X X X Extracts X X X X X X X X Extracts X X X X ..... as short and reads, inter alia, as below :- Return filed showing income of Rs. 1,12,800. In response to notice under section 143(2), the assessee attended. The assessee is a contractor. Audited copies of trading account, profit and loss account and balance sheet by Shri Arjun Kapoor Co. have been filed. After discussion, total income is computed as under: Net profit as per P/L account Rs. 1,12,798 Add : subscription and donation Rs. 1,471 Out of car expenses 1/4th disallowed Rs. 2,715 Out of depreciation 1/4th disallowed Rs. 500 Rs. 117,084 3,568 Rs. 1,13,516 Rs. 1,13,520 (ii) Sometime after the aforesaid assessment had been completed, the CIT, Allahabad summoned the record of the assessee and discovered therefrom that the only material placed on record on the basis of which the assessment had been completed, consisted of copies of balance sheet trading and profit and loss account of the assessee and chart or tax deducted at source. As per this chart, gross receipts of the contract were of Rs. 48,10,215 inclusive of the cost of cement and steel supplied by the Varanasi Development Authority of the value of Rs. 4,89,046. The net profit of the assessee was shown to be Rs. 1,12,798, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cording to him, a reading of the order would clearly indicate that the ITO had applied his mind to the audited accounts filed before him and it was after discussion of the said case with the assessee that the assessment, in question, had been completed by him. The CIT had not brought on record any material to show that there was some defect in the accounts and as to why the book results could not be accepted. If there were no defects in the books of account, the assessees trading results, whatever they may be, including losses, had to be accepted, and this was no ground to set aside the assessment order that the net profit rate disclosed by the assessee this year was less than what was in earlier years. Then, pointed out the learned counsel for the assessee, the assessee had indicated several reasons for the decline in the gross profit rate this year in its reply to the show-cause notice under section 263. The CIT had not applied his mind to the said explanation of the assessee and, without examining the case of merits, had restored the matter back to the ITO on the short ground that he had not made proper enquiries. This action was, according to him, against law and, for this purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ady made. In the present case, the only charge of the CIT was the scrutiny of the accounts had not been done and that the books of account had not been looked into. According to the learned counsel for the assessee, this could not be the basis for action under section 263. Besides, he averred, the ITO had made proper scrutiny of the audited accounts of the assessee and books of CIT were not justified. The learned counsel for the assessee also drew our attention to the following authorities and submitted on their basis that the CIT could not have acted under section 263 on the basis of the reasons given by him in his order. 1. CIT v. R.K. Metal Works (1978) 112 ITR 445 (Punj. Har). 2. J.P. Srivastava Sons (Kanpur) Ltd. v. CIT (1978) 111 ITR 326 (All.). 3. CIT v. Ratlam Coal Ash Co. (1988) 171 ITR 141 (MP). 4. CIT v. Kanda Rice Mills (1989) 178 ITR 446/44 Taxman 316 (Punj. Har.). 5. Addl. CIT v. Jay Engg. Works Ltd. (1978) 113 ITR 389 (Delhi). 5. The learned Departmental Representative opposed the above submission of the learned counsel for the assessee. He strongly supported the order of the Ld. CIT and stressed the fact that, on the face of it, there was material on record to show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner, the ITO, faced with the past history of the assessees case and with the fact that this year the assessees trading results were the lowest, should have undertaken detailed enquiry to find out the causes of the decline in the gross profit rate. Inasmuch as he did not undertake this enquiry, there was an error in the order of the ITO, which was prejudicial to the interest of the Revenue. He perused for this purpose the material, which was placed on record by the assessee and also took note of the proceedings as recorded by the ITO on the order sheet showing the process through which the mind of the ITO was made up. Both these went to show that, except for some discussion of which there is inking either on the order sheet or in the assessment order, no enquiries whatsoever made, even the books of account of the assessee were not perused by the ITO. Even in his order, the ITO does not refer to any particular line of enquiry which he might have undertaken with a view to satisfy himself as to the lowness of the gross profit and as to why he accepted the trading accounts of this year, despite the above state of the net profit rate, when, in earlier years, the trading results of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The above plea was rejected by their Lordships of the Hon'ble Supreme Court in the case of Rampyari Devi Saraogi (supra) and Tara Devi Aggarwal (supra) that it is not necessary for the Commissioner to make further enquiries before cancelling the assessment order of the ITO. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case, the ITO should have made further enquiries before accepting the submissions made by the assessee in his return . After having stated as above, their Lordships elaborated the point further by stating as follows :- The reason is obvious. The position and function of the Income Tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income Tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further enquiry. It is his duty to ascertain the truth of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der itself, our learned Brothers defined the task which they were facing in the said appeal, in the following words :- We felt the basic issue in this case is a pure question of fact to be tackled for its answer on the question that we have set out above, namely whether an enquiry had been made into the various aspects necessary for making an assessment before completing the assessment by the IAC. Our Brothers, therefore, in paragraph 2 of their order noted the five points, which were listed by the Commissioner to show that the necessary enquiries had not been made by the IAC (Asst.). The Tribunal then considered all the aforesaid grounds in paragraphs 4, 5, 6, 7, 8, 9 and 10 of their order, and summarized their conclusion in paragraph 11 of the said order in the following words :- 11. Thus we find that the reasons adduced by the CIT to come to the finding that the assessment made by the IAC was without any enquiry and serious prejudice was caused to the interests of the Revenue does not appear to be founded on justifiable proper and correct grounds. In the directions given by the CIT at the end of the order, we find that he has mentioned that the ITO would not only make enquiries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld have been made by the ITO regarding the correctness or otherwise of the net profit declared by the assessee. As we have pointed out above, the Commissioner noted in this case: (i) That the assessee was a contractor whose accounts had not been accepted in earlier years; (ii) That in earlier years the question of adequacy or otherwise of the trading results of the assessee was adjusted upon even by the Tribunal in respect of assessment years 1976-77 and 1977-78 and the Tribunal had applied the net profit rate of 5% as against the declared net profit rates of 3.3% and 4.8% respectively by the assessee. (iii) That in the immediately preceding assessment year, the assessee itself had shown net profit rate of 5.4% which was not accepted by the ITO and who had applied a net profit rate of 10% to work out the resultant income of the assessee for the assessment 1982-83. (iv) That in the present assessment year, the net profit rate of 2.6% as disclosed by the assessee was the lowest of all the years. (v) And that these circumstances justified an enquiry by the ITO into the causes for the decline in the gross profit rate this year. It is difficult for us to hold that the aforesaid circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as low as 2.6% this year compared to what has been in earlier years. The Commissioner has directed the ITO to go into all that the assessee would have to show before him and then to determine the assessment in accordance with law. No prejudice can be said to have been caused to the assessee by such a direction. Nor can it be said that for that reason the order or the Commissioner was wrong. As noted earlier, the facts of the case of J. P. Srivastava Sons (Kanpur) Ltd. (supra) were altogether different. There, the assessee had shown in part D of the return a sum of Rs. 1 lac with the following noting:- addition to capital reserve... Rs. 1,00,000 (i) It is also not taxable as capital gains on account of aggregate capital loss of Rs. 21,09,010 brought forward under section 24(2B) from 1954-55 and 1956-57. The ITO passed an assessment order on March 7, 1964 in respect of assessment year 1960-61, but did not deal with the claim of the assessee contained in part D of the return. The Commissioner initiated action under section 33B with regard to the aforesaid sum of Rs. 1 lac and set aside the order of the ITO without making any comments on the merits of the aforesaid sum. The aforesaid o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra), their Lordships found that the order of revision, passed by the Commissioner, contained no indication as to the basis on which the Commissioner came to the, prima facie, conclusion that the order of the ITO was proceeded on the basis of the conclusion that the capital borrowed by the firm was utilized for purposes other than that of the firms business, but he did not indicate the basis of such conclusion in the order. Such an order was quashed by the Tribunal and their Lordships upheld the Tribunals order. The basis, on which the aforesaid order was quashed, as will be readily seen, is absent in the present case. We have noted in detail the reasons given by the Commissioner in his order for holding that the order of the ITO was erroneous and prejudicial to the interests of the Revenue, and we have expressed our agreement with the conclusion reached by the Commissioner on the basis of the said reasons. Therefore, the aforesaid judgment is of no help to the assessee. 12. In Jay Engg. Works Ltd.s case (supra) the original account books of the assessee had been destroyed in fire. The Auditors Report was, however, on the record of the ITO. He had allowed certain deductions from th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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