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TMI Blog2002 (2) TMI 300X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 263 of the income-tax Act in all the three years on 2-1-1992 and passed the impugned order dated 5-1-2001. The assessee has challenged the order of the CIT(C) dated 5-1-2001 in the three appeals before us. Since the impugned order dated 5-1-2001 is common order, all the appeals relate to the same assessee and we have heard them together, therefore, all the appeals are decided by this consolidated order in all the three appeals. The assessee has filed these appeals on many common grounds and for the sake of convenience grounds of appeal for the assessment year 1987-88 are reproduced as under: "1. Because the revised income of the appellant has been accepted by the Assessing Officer on agreed basis and in pursuance of the directions and instructions of the then Commissioner of Income-tax, Central, Kanpur, the respondent is legally stopped to take action under section 263 of the Act on the basis of same material. 2. Because section 263 does not envisage the revision or review of an order passed on the directions of the Commissioner of Income-tax, Central, Kanpur himself and the notice dated 2-1-1992 is wholly without jurisdiction. 3. Because the word Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore is it wholly incorrect and without jurisdiction to allege that the seized material and documents were not properly examined by the Assessing Officer and as such the action under section 263 is called for. 12. Because, the Commissioner of Income-tax (Central), Kanpur before initiating the impugned action has not looked into the records of the case consisting of various reports and Office Note made by respective authorities involved in the quantification of income, to be disclosed by the assessee in the revised Return. In the premises, the impugned action is uncalled for and is against the provisions of law. 13. Because, the impugned action has been initiated by the respondent on the basis of change of opinion, surmises and conjectures and just to make a fishing and roving enquiry. 14. Because the entire seized material having considered and duly examined by the then Commissioner of Income-tax (Central), Kanpur, the action of the respondent in initiating the impugned proceeding would tantamount to review the directions/instructions of the then Commissioner of Income-tax (Central), Kanpur. 15. Because, the Commissioner of Income-tax (Central), Kanpur cannot legally reopen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has erred in directing that deduction under sections 80HH and 80HHA of the Act, has incorrectly been allowed. 24. Because order contested in appeal is contrary to facts, law and principles of natural justice." 3. For assessment year 1988-89, separate grounds are as under: 16. Because Commissioner of Income-tax (Central), Kanpur has erred in law and on facts as ground mentioned in the notice is not a valid ground to hold that the order passed under section 143(3) was prejudicial to the interests of revenue." "21. Because Commissioner of Income-tax (Central), Kanpur has erred in law and on facts in setting aside the order passed under section 263 as under: '3. The assessee has been allowed deduction under sections 80HH and 80HHA of the Income-tax Act, 1961 amounting to Rs. 38,371 and Rs. 7,417 which is not allowable to it."' 4. For assessment year 1989-90, the different grounds of appeal arc as under: 16. Because Commissioner of Income-tax (Central), Kanpur has erred in law and on facts as ground mentioned in the notice is not a valid ground to hold that the order passed under section 143(3) was prejudicial to the interest of revenue. 21. Because it is not legally pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 143(2) and 142(1) issued for assessment year 1989-90. 15-2-1990 to Hearing for all the assessment years continued before the Assessing Officer. 30-3-1990 5-3-1990 Order under section 132(12) passed by the CIT (Central) on the order under section 132(5) directing the Assessing Officer to examine the seized material again in regular assessments. 7-3-1990 First report on scrutiny of seized material submitted by the Assessing Officer to the CIT (Central). 16-3-1990 Discussion with CIT (Contra]) on his tour at Allahabad in the office of ACIT (Central), Allahabad continued with the assessee for all the years. 19-3-1990 Second report on scrutiny of seized materiall submitted by the Assessing Officer to CIT(Central). 25-3-1990 Discussion took place in the office of CIT (Central)on Sunday wherein Shri B.P. Gupta, CIT (Central), Shri G.C. Srivastava, D.D.I., Shri Daya Shankar, ACIT (Ccntral), (Assessing Officer) representing the department while Mr. Shyama Charan Gupta, Managing Director M/s Shyam Biri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 2-1-1992, submissions made before the CIT(C) on dated 28-1-1992, 28-2-1992 and 4-1-2001, copy of the order dated 28-3-1989 passed under section 132(5), copy of the objection filed under section 132(11) dated 23-4-1989, copy of the order dated 5-3-1990 passed under section 132(12) of the I.T. Act by the CIT(C), copy of the reports dated 7-3-1990, 19-3-1990, 29-3-1990 submitted by the ACIT (Central Circle) (AO) to the CIT(C), copy of revised computation of income filed alongwith the note for all the assessment years, copy of the assessment order under section 143(3) passed by the Assessing Officer on 30-3-1990 alongwith office note, copy of re-conciliation statement regarding the undisclosed income determined in the order under sections 132(5) and 143(3) of the Act, copy of the order sheets for the assessment year 1987-88 from 19-6-1987 to 30-3-1990, for the assessment year 1988-89 from 25-4-1989 to 30-3-1990 and for the assessment year 1989-90 from 31-1-1990 to 30-3-1990, copy of the order dated 27-9-1999 passed by the Income-tax Appellate Tribunal deleting the penalty under section 271(1)(c) of the same assessee for the assessment years 1987-88 and 1988-89. In the second Paper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of investigation so that the assessment proceedings may be finalised by the Assessing Officer". He has further deposed in his affidavit that these reports were part of the confidential record, which have been obtained by the assessee by undesirable means. Though CIT(C) in the same affidavit denied that the last report dated 29-3-1990 was received in his office, but facts stated in the affidavit and our directions having not been complied with, clearly show that all the reports were sent to the CIT(C) and are part of the revenue record. 9. The ld. Counsel for the assessee besides relying upon the grounds of appeal argued that the CIT(C) was the same person who was monitoring the investigation by the Assessing Officer and as such he should not have passed the impugned order under section 263. He has further argued that the CIT(C) did not refer to all the papers submitted by the department in search and survey. The CIT(C) had not gone into whole record. He has further argued that the CIT(C) supervised whole assessment proceedings and also filed affidavit in the High Court confirming the joining and guiding the Assessing Officer in assessment after going through the three reports. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 263 on 2-1-1992 but was stayed by Hon'ble High Court and ultimately that writ petition was dismissed on 7-12-2000. The assessee appeared before the CIT(C) on 4-1-2001 of their own and impugned order under section 263 was passed on 4-1-2001, as such, no sufficient opportunity was given to the assessee. The Ld. Counsel for the assessee relied upon the decision of Hon'ble Bombay High Court in the case of CIT v. Gabriel India Ltd [1993] 203 ITR 108. He has further argued that CIT(C) has not pointed out any error in the impugned order. He has further argued that the CIT(C) in the notice under section 263 has not mentioned any specific lapse in the order under section 143(3) and as such, it is liable to be set aside. He has taken us to page 8 of the CIT(C)'s order to show that the order is passed by the CIT(C) without application of mind. He has relied on the decision of the Hon'ble Madras High Court in the case of CIT v. Smt. D. Valliammal [1998] 230 ITR 695, and the decision of the Hon'ble Madhya Pradesh High Court, Indore Bench in the case of CIT v. Ratlam Coal Ash Co. [1988] 171 ITR 141 (M.P.). He has further argued that deduction under sections 80HH and 80HHA is mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocuments. The Ld. D.R. CIT also argued on behalf of the Revenue. He has filed computation of income filed originally showing that the assessee himself decreased deduction under sections 80HH and 80HHA. In original return, the assessee claimed deduction of full amount but in revised return of specified amount. The assessee has not given all the details how he claimed deduction. The Assessing Officer did not go through the details. Both deduction under sections 80HH and 80HHA have been claimed together, but both are exclusive and the assessee has to specify under which head how much he was entitled. He has also referred to the point that the assessee has claimed both the deductions together. He has also argued that no depreciation was claimed on machinery and in earlier year no machinery was used and then it is irregularity to claim deduction under, sections 80HH and 80HHA. No number of employees was mentioned and no separate balance sheet was prepared. He has further argued that page 122 of the Paper Book of the assessee shows that for 1987-88 the accounting year closed on 31-12-1986, but area of Jangi was declared backward on 19-12-1986 and then how in 12 days production was raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 63 ITR 333 (Cal.) and argued that the Ld. D.R. has presented altogether new facts for which no notice was given to the assessee under section 263 and even CIT(C) cannot travel beyond the show-cause notice. He has further argued that the record relating to High Court case was with the CIT(C) before passing section 263 orders as he was the respondent in the writ petition filed by the assessee. He has relied upon the decision in the cases of Gabriel India Ltd. and CIT v. George Williamson (Assam) Ltd [2001] 250 ITR 747. He has further argued that at page 141 of the Paper Book, additional income of Rs. 76,60,000 was shown out of which Rs. 47,20,559 was deduction, which was already, shown in the Profit and Loss Account. Copy of the Audited Balance Sheet was also filed to explain this position and argued that there was no discrepancy in the undisclosed income. The Ld. Counsel for the assessee further argued that for deduction under sections 80HH and 80HHA, the claim was reduced only to factory in backward area in revised return. In the original return claim was made on entire production of all the factories. According to him, the assessee has now claimed deduction as per law. He has furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments of sections 80HH and 80HHA. The ld. DR. further argued that for assessment years 1990-91 and 1991-92, the claim of the assessee is denied by the department on this count. However, it was admitted by him that both the appeals are pending before this Tribunal on this issue and have not yet reached finalisation. The ld. DR. further referred to page 11 of the Paper Book of the assessee and argued that the assessee himself proceeded to quantify the additional income. The income assessed by the Assessing Officer is not according to the record and statement of the assessee. The ld. D.R. further argued that Explanation 5 to section 271(1)(c) is applicable in case of search, which is mandatory in nature and as such, the penalty should be initiated by the Assessing Officer. 13. The ld. Counsel for the assessee in rejoinder to the argument of the ld. D.R. further argued that the assessee had filed explanation which is at pages 120 and 121 of the Paper Book about the earlier reports. He has further referred to page 179 of the Paper Book, which is the order of I.T.A.T., Allahabad Bench deleting the penalty in the case of the same assessee for assessment years 1987-88 and 1988-89. He has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Gauhati High Court in the matter of Smt. Daljeet Kaur v. CIT [1990] 184 ITR 149 has held:-- "Under section 263(1) of the Income-tax Act, 1961, two pre-requisites must be present before the Commissioner can exercise the revisional jurisdiction conferred on him. First is that the order passed by the Income-tax Officer must be erroneous. Second is that the error must be such that it is prejudicial to the interests of Revenue. If the order is erroneous but it is not prejudicial to the interests of the Revenue, the Commissioner cannot exercise the revisional jurisdiction under section 263(1). Materials which were not in existence a, the time the assessment was made but came into existence afterwards cannot form part of the record of the proceeding of the income-tax Officer at the time when he passes the order and, accordingly it cannot be taken into consideration by the Commissioner for the purposes of invoking his jurisdiction under this section, for he is not an appellate authority under the section and exercises only revisional jurisdiction and hence he can take into consideration only the record as it stood before the Income-tax Officer and the materials in such record for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 63 of I.T. Act, we would like to deal with the arguments advanced on the principle of merger. In this case return was filed under the amended Income-tax Act in which the amended provisions of section 132(5), (11) and (12) have been incorporated. It is a complete code in itself. The purpose of these sections had been that the AO has to estimate the undisclosed income under section 132(5) of the I.T. Act though in a summary manner to the best of his judgment on the basis of such material as may be available with him which was found during the course of search and seizure operation. It has further authorised the AO to calculate the estimated tax and retain the assets for realisation of the tax due to the Revenue. However the assessee has been assigned the right to challenge the order passed by the AO under section 132(5) of the I.T. Act in the form of petition/appeal to the CIT under section 132(11) of the I.T. Act. The CIT on receipt of the appeal/petition of the assessee is required to give hearing to the assessee and pass appropriate order under section 132(12) of the I.T. Act. In this case also the AO has passed order under section 132(5) vide order dated 28-3-1989 and estimated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial Corpn. Ltd. v. Agri. ITO [1998] 230 ITR 306 held:-- "Thus, where the subject-matter of the order of a lower authority is the same as the subject matter of the order of the appellate or revisional authority, the order of the lower authority cannot remain to stand simultaneously with the order of the higher authority on the very same subject matter. In such an event, the order of the lower authority gets merged with the order of the higher authority, so that there is only one order holding the field." 26. The Hon'ble Allahabad High Court in the matter of Saran Engg. Co. Ltd v. CIT [1983] 143 ITR 765 held:-- "Once reassessment proceedings are started, the earlier order ceases to exist and the ITO starts the assessment proceedings afresh." 27. Keeping in view the above discussion and the authorities, it would be clear that the order of the AO under section 132(5) merged with the order of the CIT(C) passed under section 132(12) of the Act. It would be worthwhile to mention here that the CIT(C) in the order under section 132(12) has held:-- "I direct the Assessing Officer to weigh the evidences given by the assessee and the evidences seized in search and seizure operations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C) has exercised jurisdiction on these conditions correctly or not as per law. Mumbai I.T.A.T., a Bench in the matter of Sterling Construction Investment v. Asstt. CIT [2001] 79 ITD 299 held: "Whether even though assessment order was passed under section 143(3) read with section 144A Commissioner was competent to revise it--Held, yes." Though the facts are not identical to this but is clearly held that even if Dy. CIT(A) considered the matter under section 144A of the Act still the CIT has power under section 263 to cancel the assessment. Before proceeding further in the matter with regard to whether the CIT(C) has correctly considered that order of Assessing Officer is erroneous insofar as it is prejudicial to the interests of Revenue, we would like to deal with the objections raised by the Ld. D.R. on the strength of the authority of Allahabad High Court in Dhampur Sugar Mills Ltd.'s case The Ld. D.R. argued that the revised return was filed on 30-3-1990, assessment order was also passed on the same day, therefore, earlier proceedings are no proceedings under the Act. The ld. D.R. further argued that the CIT(C) has only monitored the earlier proceedings. The Ld. D.R, furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order was passed. Therefore, we are of the considered view that the judgment of Hon'ble Allahabad High Court in Dhampur Sugar Mills Ltd's case is distinguishable on facts and in law, and is not applicable to the facts of this case. 29. Now, we proceed to examine whether the CIT(C) has correctly considered that the assessment order was erroneous insofar as it is prejudicial to the interests of Revenue and further whether the CIT(C) has gone into all the records and passed the impugned order in accordance with law after giving proper opportunity of hearing to the assessee. 30. We have already indicated above that on issue No. 1 in all the assessment years, the Ld. CIT(C) has issued show cause notice under section 263 of the Act on the ground "no scrutiny of the revised return was made by the Assessing Officer as no notice under section 143(2)/143(1) was issued on the revised return. The CIT(C) himself dropped notice on this ground in the impugned order and specifically held that notice was waived by the assessee and that the assessment order does not suffer from the infirmity of issue of notice which could be prejudicial to the interests of Revenue. Therefore, notice was cancel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - "Annexure A (item 3) shows the expenditure to the tune of Rs. 1,81,01,000." 34. This was explained by the assessee in his petition under section 132(11) against the order passed under section 132(5) and the same was clarified in para 13.5 of the petition of the assessee which is mentioned at page 100 of the Paper Book filed by the assessee. The CIT(C) in his order dated 5-3-1990 passed under section 132(12) has observed as under:-- "First of all, the assessee has objected to estimate of income of the Assessing Officer made in the order under section 132(5) of the Income-tax Act, 1961 for assessment year 1987-88 at Rs. 17 lakhs for assessment year 1988-89 at Rs. 71 lakhs and for assessment year 1989-90 at Rs. 2,47,59,180 I have gone through the petition of the assessee on this point. The points mention relate to evaluate of seized evidence from the point of view of determination of concealed income. The Assessing Officer will give opportunity of hearing to the assessee and take a judicial decision on these matters in regular assessment proceedings." 35. These expenditures and estimates of income have been discussed and scrutinised by the Assessing Officer in his reports, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reports show that the seized material has been thoroughly examined by the Assessing Officer. The addition on this account has also been made in Annexure 'A' to the office note of the regular assessment order under section 143(3). 37. Regarding the issue of income Form No. 2 set of account books, the matter has been thoroughly examined and finds mention in reports dated 7-3-1990, 19-3-1990 and 29-3-1990 and is also mentioned in Annexure 'A' to the office note of the regular assessment order. The material was thoroughly examined by the Assessing Officer in these reports and was sent to CIT(C). The same principle of asset formation was followed to assess the concealed income as mentioned above. No defects have been pointed out on these counts. We would like to mention here that search took place on 29-11-1988 at the registered office and other branches and factories of the assessee and residential premises of the directors. The revenue has seized certain incriminating evidences and as noted earlier the discussions with the revenue authorities were continuing to arrive at correct concealed income in consequence of the search. As per the date of schedule filed by the learned Counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcle), Allahabad. The Commissioner of Income-tax (Central), Kanpur and DDI (Investigation), Kanpur and Deputy Commissioner of Income-tax (Central), Varanasi were only guiding and helping the Assessing Officer during the course of finalisation of assessment proceedings" He has further affirmed:-- "The scope of 'Monitoring' is only limited to guide the Assessing Officer and helping him in adopting proper line of action for investigation. The Assessing Officer was submitting records to the Commissioner of Income-Tax (Central), Kanpur from time to time and after going through those reports of the Assessing Officer, the deponent was only giving proper guidance to the Assessing Officer in the matter of investigation so that the assessment proceedings may be finalised by the Assessing Officer. 38. These counter affidavits clearly established that the Assessing Officer has properly scrutinised all the seized material in accordance with law on the guidance of the Senior Officers including the CIT(C) who has issued show-cause notice under section 263 of the Income-tax Act. The assessments were made on 30-3-1990 and the affidavit was filed by the then CIT(C) in Allahabad High Court in J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udit/CIT(C)/DC(C). 2. The investigation and scrutiny of the seized material alongwith the valuation Reports from valuation cells, suggests the extent of undisclosed income as per Annexure-A attached. 3. On scrutiny of seized material and investigations done Appraisal reports have already been submitted to learned CIT(C) before finalising the assessment order. 4. The revised return includes the additional incomes in the assessment years which are compared with the extent of undisclosed income based on seized material and attributable to search as below:-- ---------------------------------------------------------------------------------- Asst. Additional income Additional income as per Year per return appraisal reports [Note 2 of Ann.(A)]. ---------------------------------------------------------------------------------- 1989-90 76,60,000.00 76,49,065.00 1988-89 13,30,000.00 3,25,145.00 1987-88 1,70,000.00 1,54,881.00 1986-87 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Office Note showing the determination of undisclosed income for all the three years. Assessee has filed reconciliation statement regarding the undisclosed income determined in the order under sections 132(5) and 143(3) in his paper book from pages 154 to 160. Though the Ld. D.R. during the course of arguments objected to the reconciliation statement and stated that it was not part of the record, yet one thing is clear that this reconciliation statement as filed by the Counsel for the assessee was with regard to the reconciliation of the undisclosed income determined in order under sections 132(5) and 143(3). Even if Department has denied the existence of the document, yet it is probable that the reconciliation must have been made for reconciliation purpose as the contents of the same are similar to that as noted in the order under section 132(5), three reports and assessment order. We may further add here that in paragraph I of the office note the Assessing Officer has specifically mentioned that CIT(C) was monitoring the assessment and the assessment has been completed after complying all the directions and instructions given to him from time to time with reference to scrutiny/a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 5-1-2001. When CIT(C) himself can pass impugned order within one day, then why the Assessing Officer could not have passed the order which he was scrutinising from the date of the search i.e. 29-11-1988 and regular assessment orders were passed on 30-3-1990. The observation of the CIT(C) is, therefore, wrong, contradictory and against the law and could not be used for the purpose of exercising jurisdiction under section 263 of the Income-tax Act. 42. The CIT(C) has further taken the objection in the impugned order that no break up of the amount of Rs. 76,60,000 is available in the assessment order or in the office note. In the assessment order for 1989-90, this break up has been mentioned by the Assessing Officer. He has specifically mentioned additional income disclosed under section 132(4) of the Act i.e. Rs. 76,60,000 and reduced Rs. 47,20,559 which was already accounted in the books of account. The entire income assessed was mentioned in Annexure 'A' to the assessment order with regard to the break up also, the assessee has filed audited Balance Sheet on this issue which clarified specifically this point. All these records were available with the Assessing Officer who has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned at Rs. 22,20,559 and if out of the same, Rs. 17,11,557 was reduced, therefore, the investment would work out to Rs. 5,08,982. Instead of it, the addition was of Rs. 7,55,000. We do not understand why the department is still feeling aggrieved of this situation. This point was also clarified with regard to No. 2 book and diary in the second report dated 19-3-1990 which is mentioned at page 114 of the Paper Book by the Assessing Officer as well as at page 118 of the Paper Book which is report dated 29-3-1990. Therefore, the observation of the CIT(C) in his objection has stated that there appears to be a discrepancy. He himself was not sure about the discrepancy and no definite finding was given by him. 45. The CIT(C) further objected to the cash found in various branches in the impugned order, we have clarified this position that at page 111 of the Paper Book which is a report dated 7-3-1990 cash position has been specifically clarified and in the above paragraph it is clarified that the Assessing Officer has mentioned that cash in a sum of Rs. 17,11,577 was not found by the search party. The assessee has clarified this position in his report before the CIT (C) in petition under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et etc. Therefore, it could be safely held that the Assessing Officer was alive to all these points which are raised by the CIT(C) and Assessing Officer has scrutinised all the records in detail with the help of senior officers. CIT(C) appears to have merely raised these points on guess work without going into the records and merits of the claim of the assessee. The CIT(C) has not taken any firm decision for setting aside the assessment orders. We are fortified in our view with the following authorities: (i) Hon'ble Madras High Court in the matter of Smt. D. Valliammal's case has held:-- "That the Commissioner of Income-tax set aside the order passed by the Income-tax Officer on the ground that verification of account was needed. This could not be a ground for invoking jurisdiction under section 263. Moreover, when the explanation offered by the assessee was accepted by the Commissioner of Income-tax with regard to the alleged undisclosed income of rupees one lakh, there was no error in the order passed by the Income-tax Officer in the case of the assessee in the assessment year 1974-75. The Commissioner of Income-tax's order of revision was not valid." (ii) Hon'ble Rajasthan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xamined the assessment order in the light of whether the assessment order was prejudicial to the interests of the Revenue. The Commissioner merely observed that there was under assessment and/or wrong computation of income. The Commissioner then further observed that the ITO 'appeared to have made an under assessment if one looked at the assessee's records and profits shown by others in the same line'. But the Commissioner had not pointed out how it was a case of under assessment and how the order of the ITO was prejudicial to the interests of the Revenue. There was nothing in the order of the Commissioner or on the record of the case on the basis of which the Commissioner could have exercised the power under section 263(1). Therefore, the Tribunal was right in cancelling the order of the Commissioner under section 263(1)." 48. In view of the above authorities, we are of the considered view that the Assessing Officer has scrutinised all the seized record in accordance with law with the help of Senior Income-tax Officers, like DDIT and DCIT(C) and at the same time submitted three reports to the CIT(C) who monitoring and guiding the Assessing Officer in coming to the correct assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejudicial to the interests of Revenue......"Therefore, the duty cast upon the CIT according to the section 263 of the Income-tax Act is that while exercising the jurisdiction under this section, he has to call for and examine the record. The definition of 'record' is mentioned in Explanation 2 (b) to section 263(1) and it, provides:-- "(b) 'record' shall include and shall be deemed always to have included all records relating to any proceedings under this Act available at the time of examination by the Commissioner." The CIT(C) himself has nowhere mentioned in the impugned order whether he has called for the record. He has not gone into the three reports. He has not considered the explanation of' the assessee. He has not called for the seized material before arriving at the decision under section 263. Therefore, question would be whether the CIT(C) has properly exercised jurisdiction under section 263 according to law. Our answer would be 'No'. When the CIT(C) has not called for and examined the record of the case, he should not have exercised his jurisdiction under section 263(1) in cancelling the assessment orders. This fact alone is sufficient to quash the entire order of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m and satisfy himself that it is a case where he ought, to exercise his revisional power." It was further held: "That in the instant case the Commissioner of Income-tax initiated proceedings under section 263 of the Income-tax Act without properly considering all the facts and circumstances of the case. The proceedings were not valid. III. CIT v. J.P. Goel (HUF) [2001] 247 ITR 555 where Hon'ble Calcutta High Court held:- "That the question whether proper enquiry was made by the Assessing Officer and whether the assessee has explained the income found on the basis of seized material was a basic question of fact and if a possible view had been taken for the finding of facts, though another view was possible it could not be said that the finding of the Tribunal was perverse. The Tribunal had not taken an impossible view. On the material available, that the assessee had explained the income based on the seized material and there was a detailed inquiry by the Assessing Officer before completing the assessment for the assessment year 1981-82. The Tribunal was justified in law in setting aside the order of the Commissioner of Income-tax under section 263 of the Act and restoring t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Bombay High Court held:-- "CIT cannot revise order mererly because he disagrees with conclusion arrived at by ITO." IX. Indian Hotels Co. Ltd. v. Dy. CIT [2000] 68 TTJ 706 Hon'ble ITAT, Mumbai Bench 'B' held: "Mere lack of discussion of the issue in the order by the Assessing Officer would not render the order to be erroneous," 50. All these authorities are clearly applicable to the case of the assessee and support our view. The ld. DR. relied on Malabar Industrial Co. Ltd.'s case wherein the Hon'ble Supreme Court observed at page 88 as:-- "In our view, this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue." There is no dispute about this legal proposition but the facts of this case are entirely different. The ld. D.R. also relied upon Indian Textiles' case. In this case no enquiry was made by the ITO, hence it was held to be prejudicial to the interests ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of a business already in existence in any backward area; provided that his condition shall not apply in respect of any industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section. (iii) It is not formed by the transfer to a new business of machinery or plant previously used for any purpose in any backward area. (iv) It employs ten or more workers in a manufacturing process carried on with the aid of power or employs twenty or more workers in a anufacturing process carried on without the aid of power." The requirements of section 80HHA are that:-- Section 80HHA(2). This section applies to any small scale industrial undertaking which fulfils all the following conditions, namely:-- (i) it begins to manufacture or produce articles after the 30-9-1977 but before the 1-4-1990 in any rural area. (ii) it is not formed by the splitting up, or the reconstruction of a business already in existence: Provided that this condition shall not apply in respect of any smal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t fund and excise etc. which are in lakhs showing that workers were more than the prescribed condition. Further regarding the condition that it employs 20 or more workers in the manufacturing process carried on with the aid of power, it was argued that the seized material like Salary Register, Wages Register etc. were examined by the Assessing Officer and therefore, though no specific finding is given but Assessing Officer was satisfied on this issue. The assessee had been explaining time and again that it, is a manufacturing unit and was entitled to deduction under sections 80HH and 80HHA. Further objection of the CIT(C) had been that in view of section 80HH(9A) where deduction in relation to profit or gain are available under section 80HHA, the benefit of section 80HH will not be available. He has further objected that the assessee cannot claim both the benefits under these circumstances and on this reason set aside the assessment orders. We would like to mention here that the assessee in his computation of income filed with the revised return on page 122 of the Paper Book for assessment year 1987-88 at page 131 for the assessment year 1988-89 and at page 141 for the assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Khemchand Motilal Jain Co. [1997] 228 ITR 333 wherein Hon'ble Madhya Pradesh High Court held:-- "That the company had taken New Sales Tax also Central Excise Registration besides new Labour Licence. New Branch opened. The facts showed that it was not a reconstruction of a business of the erstwhile firm but a new company merged though it had taken certain movable and immovable property and stocks. There was no reconstruction of the firm. The assessee company was entitled to special consideration under sections 80HH and 80-I of the Act." (iv) CIT v. Associated Cement Co. Ltd. [1979] 118 ITR 406 wherein Hon'ble Bombay High Court held: "Even though the construction of each of the new kilns at each of the four factories had resulted in an expansion of the factory itself, yet the new kilns were completely integrated units which could be put into production independently of the other units or production therefrom could cease without affecting the production from the other kilns. Moreover all the four kilns at the four different factories had been established with the plant and machinery newly purchased and required exclusively for purposes of the new kilns. Therefore, even though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: "On the facts of the case penalty under section 271(1)(c) of the I.T. Act, 1961 is clearly attracted, but the same has not been initiated." 56. We have already mentioned above that for the assessment years 1987-88 and 1988-89, the ITAT, Allahabad Bench in the case of the same assessee vide order dated 27-9-1999 cancelled the penalty against the assessee. The impugned order was passed on 5-1-2001 and the only reason given is that the penalty was attracted which was not initiated. When at the time of passing the impugned order this Tribunal has already cancelled the penalty against the assessee in the same set of facts and circumstances then in our considered view the CIT(C) should not have taken this ground for setting aside the assessment order. Even otherwise it is the satisfaction of the Assessing Officer to initiate the penalty or not. It was so held in the case of CIT v. Ram Commercial Enterprises Ltd. [2000] 246 ITR 568 (Delhi). Even the Hon'ble Supreme Court in the case of CIT v. Suresh Chandra Mittal [2001] 251 ITR 9 has held "that the revised return filed after search to buy peace of mind and avoid litigation, no case of concealment is made out. Assessment and pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Champalal Ramswarup. We have already held that these reports were part of the record and as such it cannot be termed as additional evidence therefore, there was no bar for the assessee to refer the same before us. The arguments of the learned D.R. are unfounded and are rejected. The aforesaid authority is not applicable to this case. The learned D.R. further argued that no depreciation was claimed on the machinery in earlier year and then how the assessee will become industrial unit. It was further argued by the learned DR. that even machinery is necessary for industrial purpose and assessee has claimed the deduction on pro-rata basis. We are unable to agree with the learned D.R. on both the arguments. First of all the CIT(C) himself on page 5 of the impugned order did not dispute that the assessee was not industrial undertaking. The CIT(C) only mentioned about number of workers. Even otherwise both these points have not been taken into consideration by the CIT(C) while setting aside the assessment orders and as such the same cannot be considered at this stage on which no notice was given to the assessee. Therefore, the arguments of the learned D.R. have no force and are rejected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed before us. Though CIT(C), on reasons specified under section 263(l) of the Act could exercise jurisdiction of revision yet this was not the fit case for doing so because same CIT(C) monitored the entire scrutiny proceedings of seized material therefore, the same authority should have given very sound reasons in invoking power of revision instead of deciding it in a casual way. Even otherwise in this case propriety demands that the CIT(C) who himself monitored the scrutiny of the seized material and affirmed this fact in his affidavit before the Hon'ble High Court that proper scrutiny of seized material is done by the Assessing Officer should not have exercised power under section 263. 60. Keeping in view the above discussion and authorities referred to in this order, we are of the considered view that:-- (i) CIT(C) should not have relied upon the order under section 132(5) while issuing show-cause notice under section 263 in all the years. (ii) Assessing Officer has properly scrutinised all the seized material with the help of DIT/DDIT-1 Audit and CIT(C) himself and DC(C) and passed regular assessments accordingly. Therefore, finding of CIT(C) that the assessments framed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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