9911796707
TMI Blog2002 (10) TMI 225X X X X Extracts X X X X X X X X Extracts X X X X ..... authority with regard to property income and investment made in the construction of multi-storeyed building. (iii) Because, record shows that detailed enquiry was made in the asst. yr. 1996-97 with regard to rental income, the necessary details with regard to rental income were found correct and have been accepted, therefore, it cannot 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 and without application of mind. (v) Because, it is settled principle of law that the proceeding under s. 263 of the Act cannot be initiated on the basis of any subsequent material available on record. Office note after passing assessment order, and report of the Inspector were wholly irrelevant and could not be made basis for taki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 AO. (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 AO himself or by sending his Inspector at the spot. (iv) Income from other sources has also not been investigated by the AO." 4. The CIT issued notice under s. 263 dt. 22nd Feb., 2002, and the date of hearing was fixed on 4th March, 2002. After giving opportunity of hearing to the assessee under s. 263 of the Act, the CIT held that the assessment order passed by the AO dt. 9th March, 2002, for asst. yr. 1998-99 is erroneous insofar as it is prejudicial to the interests of Revenue. In coming to this conclusion, the CIT, considered the following facts from the assessment records: The CIT considered that the only papers filed by the assessee during the course of asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but since no proceedings were pending, the successor AO 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 AO had completed the assessment in undue haste and to save the assessment proceedings from becoming time-barred and the AO could not do required investigations in the case of the assessee. As the AO could not do the required investigations as expected, the CIT considered that the order passed by the AO 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 p. 4 of his order. It was also claimed before the CIT that in the assessment proceedings for the asst. yr. 1996-97, the facts were investigated by the AO, but the CIT found that the assessee's contention was not correct and principle of res judicata is not applicable. The CIT, therefore, set aside the order of the AO dt. 9th March, 2001, for asst. yr. 1998-99 and directed the AO to make fresh assessment after ascertaining the fair rental value of the property let out b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain decisions of the Hon'ble High Courts. It is also stated by the learned counsel that during the asst. yr. 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 s. 143(3) was passed on 1st March, 1999, by the same AO who has also passed the assessment order for the asst. yr. 1998-99. According to the learned counsel full investigations were made and after detailed working, the learned AO completed the assessment for the asst. yr. 1996-97 and there was nothing to investigate in the matter of brought forward loss because brought forward loss is a long-term capital loss which is brought forward from asst. yr. 1996-97 to be set off from the future long term capital gains and there is nothing to investigate in the matter of brought forward losses. It is stated by the learned counsel that multi-storeyed building on plot no. 2/1/3, Minhajpur Garhi, Allahabad, was under construction since 1994-95 and in the computation chart, it was clearly mentioned by way of a Foot note No. 2 that a building on the said plot in Minhajpur wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w any enquiry made by the AO. The assessee has filed papers including details of letting out of properties in asst. yr. 1996-97, but it is not correct to say that the detailed enquiries were made even in asst. yr. 1996-97. The AO 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 AO has applied his mind to approved valuer's report regarding investment in the house property. The case was taken up for hearing in March, 2001, by the AO after the first hearing in November, 1999. The AO has mentioned the facts in the office note indicating that proper enquiry could not be made and the assessment was made only by making addition of Rs. 8,151 on account of low withdrawals for household expenses. According to the learned Departmental Representative, the AO has not made any effort to investigate the case. The order passed by the AO was erroneous insofar as it is prejudicial to the interests of Revenue. The learned Departmental Representative referred to the following decisions in support of his contention: 1. K.A. Ramaswamy Chettiar & Anr. vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice dt. 30th Sept., 1999, was issued under s. 143(2) and the case of the assessee was heard on 2nd Nov., 1999. On 2nd Nov., 1999, Sri H.G. Agarwal, C.A., attended before the AO on behalf of the assessee. The AO asked for the details of investment in the property and it seems that the AO also asked for report regarding investment in the property. The case was fixed for hearing on 25th Nov., 1999. It appears from the entries on the order sheet that none attended on behalf of the assessee on 25th Nov., 1999 and the AO has written on the order sheet that if any letter has been received, the same should be put up. There is no further entry after 25th Nov., 1999, and after more than a year, the AO issued notice on 5th March, 2001, fixing the case for hearing on 7th March, 2001, giving only two days time to the assessee. On 7th March, 2001, Sri H.G. Agarwal, C.A., attended on behalf of the assessee. On this date, the case was part-heard and adjourned to 9th March, 2001. The AO passed assessment order accepting the return of income filed by the assessee and making addition of Rs. 8,151 on account of inadequate household expenses on the same date, i.e., 9th March, 2001. The AO recorded an o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re him. These facts mentioned by the AO 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 AO has not made any enquiry to find out the correct annual letting value of the properties. 12. The argument of the assessee's counsel that the AO cannot make office note after passing the assessment order because there is no provision of law authorising AO to write office note after passing the assessment order is not correct. Office note is a means of communication to the person working under the AO and also for information to the higher authorities. There are other means of communication and issuing directions and office note is also one of the means of communication and issuing directions to the persons working in the office as well as communication to the higher authorities. There is no provision of law which prohibits the AO to write office note mentioning the facts which the AO feels necessary for the guidance of the staff working under him and communication of facts to the higher authorities for such action as they deem necessary. Therefore, writing of office note after passing the assessment order is per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due to lack of time and the report of the Inspector of income-tax clearly show that proper enquiries for determination of the annual letting value of the properties at 199, Transport Nagar, Kanpur and 24, Chak Road, Allahabad have not been made and annual letting value has not been properly determined by making proper enquiries. Similarly, the AO has not considered investment in the property situated at 2/1/3, Garhi Minhajpur Garhi, Allahabad. He has not even verified the facts mentioned by the approved valuer in his report dt. 16th May, 2000. The AO did not verify the facts stated in the approved valuer's report dt. 16th May, 2000, regarding the rate adopted by the registered valuer and the type of property for which rates have been adopted and whether those rates are applicable to the type of property of the assessee. The AO asked for the details of investment by the owners of the property as well as approved valuer's report and the assessee has also submitted approved valuer's report and details of investment in the property at 2/1/3, Minhajpur Garhi, Allahabad, but furnishing the details and making of enquiry for finding out the veracity and correctness of the facts stated in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The CIT initiated revision proceedings under s. 263 and cancelled the assessment on the ground that the ITO had not made sufficient enquiries before granting registration to the petitioner, and directed the officer to make fresh assessments. The petitioner, without giving reasons as to why it did not prefer an appeal to the Tribunal, filed a writ petition in the High Court challenging the validity of the CIT's order under s. 263 of the Act. There was no explanation and the petitioner's firm's petition under Art. 226 of the Constitution of India was dismissed in limine. The Hon'ble Delhi High Court laid down the following proposition of law as per headnote: "It is not necessary for the CIT to make further inquiries before cancelling the assessment order of the ITO. The CIT can regard the order as erroneous on the ground that in the circumstances of the case the ITO should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the ITO is different from that of a civil Court. The statements made in a pleading proved by the minimum amount of evidence may be adopted by a civil Court in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne, 1988. Therefore, the CIT could make use of the materials gathered by him on the date when he issued notice under s. 263 of the Act for the purpose of invoking his jurisdiction under s. 263. In this case, the Hon'ble High Court held as under: "When the ITO is expected to make an enquiry of a particular item of income and if he does not make an enquiry as expected, that would be a ground for the CIT to interfere under s. 263 of the IT Act, 1961, with the order passed by the ITO since such an order passed by the ITO is erroneous and prejudicial to the interest of the Revenue." 15-I. In the case of the assessee before us, the CIT was having before him the following evidence on record: (i) The office note dt. 9th March, 2001, of the AO stating that he has not been able to make proper enquiries due to lack of time and directed the income-tax Inspector to make proper enquiries in the matters mentioned in the office note. (ii) Inspector's report dt. 23rd July, 2001, in which the Inspector has reported the fair rental value of the property at 199, Transport Nagar, Kanpur, let out to sister concern, U.P. Transport Agency, at Rs. 5,000 per month as against Rs. 1,250 per month show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lready made and directing the ITO to make fresh assessment after giving the assessee proper opportunity to prove its case, including the cross-examination of Dr. Vyas as desired by the assessee. On appeal, the Tribunal set aside the order of the CIT for the reason that the CIT has failed to come to a "firm" conclusion about the items in question and that having substantial doubts about the correct allowance of the claim would not lead to the conclusion that the assessment order was prejudicial to the interests of the Revenue. On a reference at the instance of the CIT, the Hon'ble Gujarat High Court held as under as per head note: "Held, that the words "prejudicial to the interests of the Revenue" in s. 263 have not been defined but they must mean that the orders of assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. In the present case, it was obvious that the ITO had committed an error in not making an enquiry into the details as regards both the deductions and also that want of such enquiry had resulted in prejudice to the interest of the Revenue. To this extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al also held that if the AO has not made proper enquiries, the CIT can direct the AO to hold further enquiries in the matter. In this case, the assessee purchased agricultural lands, plotted them out and sold for profit. The AO did not make enquiry whether the assessee undertook an adventure in the nature of trade. It was held that the CIT was justified in setting aside the order of the AO. 19. Similarly, in the case of P.V. Basheer Ahammed vs. ITO (1993) 44 ITD 604 (Coch), the facts of the case were that the AO accepted the return filed by the assessee. Thereafter, the CIT found that the customs department has seized smuggled goods and that the assessee had arranged for transportation of contraband goods under seizure. There was no information in the assessment record about seizure of goods or about profit earned from such business by the assessee. The CIT initiated proceedings under s. 263 and set aside original assessment order with a direction to the AO to reframe it. It was held by the Cochin Bench of the Tribunal that the CIT was justified in setting aside the assessment order of the AO. 20. It is clear from the abovementioned decisions that if the AO has passed order wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the ITO. The Tribunal also found that there was no reason to doubt the contention of the assessee that the books of account had been produced before the AO. In this case, it was held by the Hon'ble Allahabad High Court that no question of law arose from the order of the Tribunal. The facts of this case are distinguishable from the facts of the case of the assessee before us because in the case of the assessee before us, the record shows that there was office note written by the AO himself admitting that proper enquiries could not be made by him due to lack of time. There was Inspector's report dt. 23rd July, 2001, which shows that the annual letting value of two properties and investment in property at 2/1/3, Minhajpur Garhi, Allahabad, was more than the amount of investment shown by the assessee. There were no such facts in the case of Sri Girdhar Gopal Gulati before the Tribunal, which were available in case of Goyal Family Specific Trust. Therefore, the ratio laid down in the case of CIT vs. Goyal Private Family Specific Trust is not applicable. 22. The learned counsel for the assessee also relied on the decision of the Allahabad High Court in the case of J.P. Srivasta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, the question whether the Tribunal was justified in cancelling the revision order cannot be referred to. In the case of the assessee before us, it is clear that there was material before the CIT as discussed in para 15-I on the basis of which the CIT has exercised his power under s. 263 and the ratio in the case of Smt. Kavita Gupta is not applicable. 24. The learned counsel for the assessee relied on the decision of the Hon'ble Allahabad High Court in the case of CIT vs. Smt. Prakashwati (1995) 124 CTR (All) 83 : (1994) 210 ITR 567 (All). In this case the CIT exercised power under s. 263 of the Act and set aside the summary assessment of the assessee. According to Board's circular such assessments could not be revised. It was on these facts that the Tribunal set aside the order of the revision passed by the CIT under s. 263. It was held by the Hon'ble High Court that no question of law arises. The case of the assessee is not covered by the aforesaid decision because the case of the assessee is not a summary assessment case. 25. The learned counsel for the assessee also referred to the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
