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TMI Blog2002 (10) TMI 224X X X X Extracts X X X X X X X X Extracts X X X X ..... enquiry has not been made by the assessing authority with regard to property income and investment made in the construction of multistoreyed building. (iii) Because, record shows that details enquiry was made in the assessment year 1996-97 with regard to rental income, the necessary details with regard to rental income was found correct and has been accepted, therefore, it can not be said to be a case of passing assessment order mechanically, without application of mind. (iv) Because, with regard to the investment in the construction of multi storeyed building, enquiry was made by assessing authority and in pursuance thereof valuation report was submitted. After considering valuation report, assessing authority has accepted the investment disclosed in the construction of multi storeyed building, therefore, it cannot be said to be case where order passed without making any enquiry mechanically without application of mind. (v) Because it is settled principle of law that the proceeding under section 263 of the Act can not be initiated on the basis of any subsequent material available on record. Office note after passing assessment order, report of the Inspector were wholly irre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forward from the earlier year. To investigate the investment in the construction of the house property was also an issue for bringing the case under scrutiny. However, the assessment order in question reveals that none of the issues has been investigated by the Assessing Officer. (ii) The assessment has been made in a very routine manner and no verification with reference to the rental income disclosed with that of the fair market value of the properties let out could be made. (iii) Investment in the construction of the property could not be investigated as no enquiry regarding investment has been made by the Assessing Officer himself or by sending his Inspector at the spot. (iv) Income from other sources has also not been investigated by the Assessing Officer," 4. The CIT issued notice under section 263 dated 22-2-2002 and the date of hearing was fixed on 4-3-2002. After giving opportunity of hearing to the assessee under section 263 of the Act, the CIT held that the assessment order passed by the Assessing Officer dated 9-3-2002 for assessment year 1998-99 is erroneous insofar as it is prejudicial to the interests of Revenue. In coming to this conclusion, the CIT consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onth. The Inspector also reported that property situated at 24, Chak, Allahabad consists of about 20 rooms and this property has also been let out to sister concern M/s. United Automobiles at the rent of Rs. 150 per month. The Assessing Officer referred the matter to the Valuation Officer but since no proceedings were pending, the successor Assessing Officer has withdrawn the reference to the Valuation Officer after the assessee objected to the reference to the Valuation Officer for determining the cost of construction. The CIT considered that the Assessing Officer had completed the assessment in undue haste and to save the assessment proceedings from becoming time barred and the Assessing Officer could not do required investigations in the case of the assessee. As the Assessing Officer could not do the required investigations as expected, the CIT considered that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In support of his action, the CIT relied on the decisions of Madras, Delhi and Gujarat High Courts mentioned at page 4 of his order. It was also claimed before the CIT that in the assessment proceedings for the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1988] 171 ITR 698. According to the ld. Counsel the CIT should say that the order passed by the Assessing Officer was not correct. Until and unless such a finding is given, the order under section 263 is not valid in law. The conclusion of the CIT is not of subjective satisfaction, it should be based on objective satisfaction. If the order is based on irrelevant consideration, it is bad in law and the CIT's order under section 263 is illegal. The ld. Counsel for the assessee also relied on certain decisions of the Hon'ble High Courts. It is also stated by the ld. Counsel that during the assessment year 1996-97, complete details with regard to properties let out have been given with reference to tenants and after making necessary enquiries with regard to the rental income of the properties, assessment order under section 143(3) was passed on 1-3-1999 by the same Assessing Officer who has also passed the assessment order for the assessment year 1998-99. According to the ld. Counsel full investigations were made and after detailed working, the ld. Assessing Officer completed the assessment for the assessment year 1996-97 and there was nothing to investigate in the matter of brought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng on 25-11-1999 by the Assessing Officer. There was no hearing at all till 7-3-2001 and the order was passed by the Assessing Officer on 9-3-2001. The Assessing Officer was under the impression that the case may become time barred and, therefore, the Assessing Officer made assessment in a routine manner accepting the return of income filed by the assessee. According to the ld. DR, the Assessing Officer did not try to find out fair rent of the property let out to sister concerns. The Assessing Officer did not pass any speaking order, rather in the Note Sheet, entries are very brief and do not show any enquiry made by the Assessing Officer. The assessee has filed papers including details of letting out of properties in assessment year 1996-97, but it is not correct to say that the detailed enquiries were made even in assessment year 1996-97. The Assessing Officer has not tried to investigate the details filed by the assessee and shown in the Papers filed with the return of income during the course of assessment proceedings. Record does not indicate that the Assessing Officer has applied his mind to Approved Valuer's report regarding investment in the house property. The case was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer also. The following two issues arise for consideration: (i) Whether the Assessing Officer has made proper enquiries before passing the assessment order dated 9th March, 2001? (ii) Whether due to lack of proper enquiries by Assessing Officer the Commissioner in exercise of power under section 263 of the Income-tax Act, 1961 can set aside the assessment order and direct the Assessing Officer to make proper enquiries in a case? 11. As regards the first issue, whether the Assessing Officer has made proper enquiries required in the case of the assessee, it is seen that the Assessing Officer fixed the case for hearing by issue of notice under section 143(2) of the Act on 2-11-1999. The notice dated 30-9-1999 was issued under section 143(2) and the case of the assessee was heard on 2-11-1999. On 2-11-1999 Sri H.G. Agrawal, C.A. attended before the Assessing Officer on behalf of the assessee. The Assessing Officer asked for the details of investment in the property and it seems that the Assessing Officer also asked for report regarding investment in the property. The case was fixed for hearing on 25-11-1999. It appears from the entries on the Order Sheet that none attended o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been in a position to make enquiries in the case of the assessee, which were required for the purpose of correct assessment of the income of the assessee. The Assessing Officer was fair enough to mention in the Office Note that the assessee has shown rent of Rs. 1,250 per month from property No. 199, Transport Nagar, Kanpur and from property at 24, Chak, Allahabad at Rs. 150 per month on which municipal taxes of Rs. 10,412 are paid. The Assessing Officer stated that due to lack of time, it was not possible to determine the fair rental value of these two properties. The Assessing Officer directed the Inspector of Income-tax to make enquiries about the fair rental value of these properties for further action. The Assessing Officer also directed the Inspector of Income-tax to make enquiries about the investment in the properties in which the assessee has 1/3 share because the assessee did not file any deed before him. These facts mentioned by the Assessing Officer in the Office Note and the facts mentioned by him on the Order Sheet giving date of hearing to the assessee clearly show that the Assessing Officer has not made any enquiry to find out the correct annual letting value of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ea of 4,000 sq.ft. and situated in the market place and as per prevailing market rate of area it can fetch a rent of Rs. 5,000 per month. The Inspector also reported that the property situated at 24, Chak Road, Allahabad consisted of 20 rooms and has been let out to sister concern, M/s. United Automobiles at the rate of Rs. 150 per month. The fair letting value of this property has also been estimated by the Inspector at the rate of Rs. 5,000 per month. The facts mentioned in the Office Note by the Assessing Officer that he could not make proper enquiries due to lack of time and the facts found by the Inspector of Income-tax after the completion of the assessment show that if the Assessing Officer has made proper enquiries after fixing the case for hearing on 25-11-1999 and obtained the relevant details, then the determination of assessable income in the case of the assessee would have been at a higher total income than what has been determined in the assessment order dated 9-3-2001 by the Assessing Officer. The admission of the Assessing Officer in the Office note that he has not made proper enquiries due to lack of time and the report of the Inspector of Income-tax clearly show t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y does not arise. 13. The second issue is whether due to lack of proper enquiry by the Assessing Officer, the CIT can invoke the provisions of section 263 for the purpose of setting aside the assessment order to the file of the Assessing Officer with the direction to the Assessing Officer to make proper enquiries in respect of matters which have not been properly enquired by the Assessing Officer. In this connection, we would like to refer to certain decisions of the Hon'ble High Courts. 14. In the case of Gee Vee Enterprises, the facts of the case were that a private limited company acquired a plot of land and bungalow thereon with borrowed moneys for the purpose of making constructions. Some of the directors and shareholders formed with some others a registered firm, the petitioner before the Hon'ble High Court. An agreement was entered into between the company and the petitioner for erecting a multi-storeyed building on the plot after taking advances from licensees to whom the flats were to be let and the agreement was to come to an end after the building was constructed. The Assessing Officer granted registration to the petitioner-firm under sections 184 and 185 of the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d purchased some properties. No enquiries had been made with regard to the value of the properties at the time of completing the original assessment. Subsequent to the assessment, there was a search in the premises of the sellers and certain documents were recovered indicating "on money" payments in the accounting years relevant to the assessment years 1974-75 and 1975-76. The receipt of "on money" was also admitted by the sellers before the Income-tax authorities in settlement proceedings. The Commissioner of Income-tax noticed these facts on a report from the Income- tax Officer and initiated proceedings under section 263 of the Act by issuing notice for both the years. The order of the CIT under section 263 was upheld by the Tribunal. On a reference, it was contended on behalf of the assessee before the Hon'ble Madras High Court that on the materials gathered subsequent to the assessment order, the Commissioner could not have formed the opinion that the order passed by the Income-tax Officer Was erroneous and prejudicial to the interests of the Revenue. The Hon'ble High Court referred to the Explanation to section 263(1) which was amended by Finance Act, 1988 and clause (b) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and on the basis of his experience in the department and local knowledge, he can certainly make broad estimate of the value of a property which can form the foundation for initiating further enquiries in the matter. Therefore the Inspector's report was before the CIT when he issued notice under section 263 and it cannot be said that the Inspector's report has no value. The report of the Inspector dated 23-7-2001 contains important information, which was before the CIT when he issued notice under section 26 of the Income-tax Act. Therefore, it cannot be said that there was n material before the CIT when he issued notice under section 263 of the Act. 16. In the case of Mukur Corpn., the facts of the case were that one Dr. Vyas transferred a property to Dev Co., who transferred it to the assessee-firm and the firm transferred it to a society. It was found that' this transaction, the assessee-firm earned a gross profit of Rs. 5,00,000 the assessment for the assessment year 1965-66, the assessee claim deductions of two sums of Rs. 1,45,000 and Rs. 2,00,000 from the said profit. Without probing into the claim, the Income-tax Officer allowed deductions. The Additional Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 'deems necessary'. It was contended for the assessee that the Commissioner had committed an error in not allowing the assessee to cross-examine Dr. Vyas. It is not in every case that the Commissioner is expected to make an enquiry before the original assessment order is cancelled and the Income-tax Officer is directed to make a fresh assessment. The section specifically says that that enquiry should be as 'deemed necessary' by the Commissioner. Here, the Commissioner has given the direction to the Income-tax Officer to give proper opportunity to the assessee to substantiate its pleas as well as to cross-examine Dr. Vyas. Therefore, on the facts of this case, the Commissioner was not bound to make any enquiry before passing the final order and in substance no prejudice was caused to the assessee by failure of the Commissioner to give it an opportunity to cross examine Dr. Vyas." 17. Similarly in the case of Tarajan Tea Co. (P.) Ltd. v. CIT [1994] 205 ITR 45 (Gau.), the Assessing Officer passed the assessment order and income from sale of trees was treated as capital gain. Subsequently, the Assessing Officer under instruction from the then IAC under section 144B, treated income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the truth of the facts stated in the return of income and other documents filed with the return of income or during the course of assessment proceedings when the circumstances of the case are such as to provoke an enquiry. In the case of the assessee before us, the Assessing Officer has failed to make enquiries and failure of the Assessing Officer has been admitted by the Assessing Officer himself which is justified subsequently by the Inspector's report dated 23-7-2001, which shows that the failure to make enquiries resulting into passing an assessment order which was erroneous and prejudicial to the interests of revenue. 21. The ld. Counsel for the assessee has relied on certain decisions of the Hon'ble, High Courts. The ld. Counsel relied on the decision of the Allahabad High Court in the case of Goyal Private Family Specific Trust. In this case, the facts of the case were as follows: The assessee, a private trust, filed its returns and the Income-tax Officer assessed the beneficiaries of the trust and held that the trust was not assessable. The Commissioner acting under section 263 of the Income-tax Act, 1961, set aside the order of assessment. The Tribunal found that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of J.P. Srivastava Sons (Kanpur) Ltd. v. CIT [1978] 111 ITR 326. In this case, the assessee, a private limited company, earned a sum of Rs. 1 lakh in the assessment year 1960-61, which in its opinion was exempt from tax. Thus, the income of Rs. 1 lakh was shown in part D of the return, which is meant for showing items in respect of which the assessee claims exemption. The Assessing Officer accepted the claim of the assessee. The CIT exercising power under section 263 issued notice to the assessee on the ground that the order of the ITO was erroneous and prejudicial to the interests of revenue. It was claimed by the assessee that the amount of Rs. 1 lakh was exempt from tax. But the CIT cancelled the assessment order and directed the ITO to pass fresh assessment order after taking into consideration the claim of the assessee in para D, of the return. The Appellate Tribunal justified the order of the CIT under section 23B of the Income-tax Act, 1922. The Tribunal referred the question therefore the Hon'ble Allahabad High Court. "Whether, on the facts and in the circumstances of the case, action under section 33B of the Indian Income-tax Act, 1922 (corresponding to section 26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment case. 25. The ld. Counsel for the assessee also referred to the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. In this case the Assessing Officer failed to assess the amount of compensation received for delay in payment for rubber plantation. It was held that the CIT was justified in passing the order of revision to assess the amount as 'Income from other sources'. This case is also not helpful to the assessee. 26. The ld. Counsel for the assessee also referred to the decision in the case of Rayon Silk Mills v. CIT [1996] 221 ITR 155 (Guj.). In this case, the CIT exercising power under section 263 of the Act set aside the order of the Assessing Officer on the ground that the Assessing Officer has not at all examined the Goodwill Account and made no enquiry at the time of passing the assessment order and hence the order passed by the ITO was erroneous for want of making enquiry and prejudicial to the interest of revenue, was not well founded in law. In the case of the assessee we have examined the assessment records and facts and relevant material on the record. We found that the Assessing Officer has not made proper enquiries which he wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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