9911796707
TMI Blog2000 (5) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... , of the IT Act, 1961. 4. The order passed under s. 263 by the CIT, (Central) Kanpur, is without jurisdiction as the CIT failed to appreciate that the order of assessment dt. 27th March, 1997, had merged with the order of the CIT(A) for the asst. yr.1994-95 and that the order under s. 263 passed by the CIT was contrary to the provisions of s. 263 Expln. cl. (c) of the IT Act, 1961, and that the CIT(A) in the appellate order for asst. yr. 1994-95 had considered the matters in respect of which the order under s. 263 has been passed, as issue of deposits as well as, interest payable on them was subject-matter of appeal before the CIT(A) and consequentially the CIT had no jurisdiction under s. 263 for revising the assessment order on that issue. 5. The CIT ought to have considered while framing the order under s. 263 that the assessment had been framed by the AO after making all necessary enquiries and after considering the law applicable in the circumstances of the case and therefore, the order of assessment was not passed in undue haste and without proper enquiry and therefore, such order could not be considered as erroneous within the meaning of s. 263 of the IT Act. 6. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e arguments for both the parties, are of the opinion that the issues raised by the appellate can be dealt with and adjudicated upon by way of decisions of following issues formulated by us. Issue No. 1 Was the notice under s. 263 of the Act dt. 22nd Feb., 1999, issued without proper examination/consideration/perusal of assessee's assessment records by the CIT, and therefore, there was no application of mind as well as exercise of quasi-judicial discretion and judgment by the CIT and, if that being the case, were the notice under s. 263, dt. 22nd Feb., 1999, and consequently the order under s. 263, dt. 22nd March, 1999, bad in law and void ab initio. Issue No. 2 Was the assessment order dt. 27th March 1997, was neither erroneous nor prejudicial to the interest of the Revenue, as claimed by the assessee? Issue No. 3 If the assessment order was erroneous so far as prejudicial to the interest of the Revenue, than the CIT having not given any reason as to how the action of the AO allowing the liability on account of interest payable on deposits under two schemes, namely, 'Golden Fixed Deposit Account' (called as GFDA) and 'Golden Growth Fund' (called as GGF) has render ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leads to one and only one conclusion that the CIT had not applied his mind at all and this could be only because of any of the following situation namely (1) either the A's assessment records were not before the CIT or (2) if the assessment records were with him, he had not examined the same of his own. 2.1. Another submission in support of claim that CIT had not applied his mind or the assessment records were not before him, the learned Senior Advocate submitted that the CIT, while issuing notice under s. 263 of the Act on 22nd Feb., 1999, started with the contention that assessee had claimed interest on the defaulted and lapsed account as well as, on unclaimed matured accounts on which interest was not payable after the date of default/maturity, as the case may be, which is quite wrong on facts because in case of both the deposit schemes, namely, GFDA and GGF, there was no question of any lapsed or unclaimed matured account and in support of this he referred to the terms and conditions of both the schemes (certified copies furnished before the Bench), which are made Annexures 'A' and 'B' to this order. 2.2. Referring to the GFDA Scheme, the counsel, after referring to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the jurisdiction assumed by the CIT for passing an order under s. 263 was also illegal. According to the learned council the jurisdiction to issue notice under s. 263 had been assumed illegally, the order passed under s. 263 on 22nd March, 1999, was bad in law and void ad initio. 3. The learned standing counsel, Shri A.N. Mahajan, on the other hand, disputed the assessee's claim that CIT had not considered the assessee's assessment records or that the same were before the CIT and pleaded that notice under s. 263 was issued on 22nd Feb., 1999, by the CIT after due examination of assessee's assessment records and, therefore, the assessee's claim is unfounded and this was supported by the claim that a proposal from Asstt. CIT (CCI), Lucknow, was received by Fax on 22nd Feb., 1999, and the notice was issued later on the same day. The learned standing counsel alternatively submitted that under the law it is not necessary that the CIT should examine the assessee's records himself before issuing a notice under s. 263, the records can be examined by the subordinate staff also. He, therefore, submitted that the notice under s. 263, issued on 22nd Feb., 1999, and consequently, the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ineness of deposits collected on behalf of the assessee. As a result of detailed investigation so conducted, the AO had come to the conclusion that 50 per cent of the total deposits collected by the agent, which came to Rs. 74,47,02,000 were not genuine and liable to be added in the hands of assessee-company by virtue of provisions of s. 68. 4.4. While drafting the assessment order of the present assessee, the AO accepted the details relating to the investigation on this account carried on and being a part of assessment order of M/s Sahara India Firm for asst. yr. 1994-95 reproduced in paras 3.4 to 3.21 of the assessee's assessment order, as investigations with reference to the genuineness of the deposits in assessee's hands also. 4.5. As per para 3.20 of the assessment order of M/s Sahara India firm so accepted by the AO and made a part of present assessee's assessment order, the issue relating to the genuineness of deposits under the two schemes was concluded as under: "3.20. Inasmuch as the assessee-company has claimed to collect deposits which are largely not open to verification and there is not enough of evidence to establish genuineness of deposits regarding the sou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of 2.5 crores without any interest to its collecting agent, namely, Sahara India Firm. The AO came to the conclusion that the interest bearing funds had been utilised for non-business purposes and since the assessee has born the burden of interest, the interest bearing deposits to this extent have not been used for assessee's business. Consequently, the AO added an amount of Rs. 60 lacs after calculating the notional interest income @ 24 per cent on interest-free loan of Rs. 2.5 crores. 4.8. On appeal by the assessee, the CIT(A), as per his order dt. 1st Jan., 1999, decided the issues relating to the aforesaid four disallowances/additions as under: (i) The issue relating to disallowance of an expenditure of Rs. 5,35,29,440 out of claim of expenditure on account of interest payable on deposits under the two schemes has been set aside for fresh disposal because the issue relating to genuineness of deposits to the extent of Rs. 74,47,02,000 has been set aside by him. (ii) The disallowance of Rs. 34,96,173, additions of Rs. 21,09,011 and of Rs. 60 lacs have been deleted as per paras 65 and 76 of his order. 5. Since there was dispute amongst the parties on the point of exa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Items Page Nos. 1. Forwarding letter of the Dy. CIT(Judl). Kanpur 1 2. Notice under s. 263 2 3. Fax copy of the proposal under s. 263 sent by the AO 3-4 4. Postal copy of the proposal under s. 263 5-6 5. Order under s. 263 of the CIT (Central) 7-8 6. Assessee's reply to show-cause notice under s. 263 Annexures 9-17 5.2. Letter No. F. No. Dy. CIT (J)/CIT(C)/Misc./99-2000, dt. 23rd Sept., 1999, signed for the CIT by Dy. CIT (Judicial) and enclosed at p 1 of Departmental Representative's aforesaid letter reads as under: "F. No. DCIT(J)/CIT(C)/Misc/99-2000/dt. 23rd Sept., 1999 By Speed Post To The Sr. Authorised Representative, Income Tax Appellate Tribunal, Allahabad. Sir, Sub: ITA No. 509 in the case of M/s Sahara India Mutual Benefit Co. Ltd.—hearing held on 14th Sept., 1999 before the Tribunal 'A' Bench, Allahabad. Kindly refer to your letter F. No. Sr. AR/ITAT/All/99-2000/dt. 14th Sept., 1999, on the subject mentioned above. In this connection, I am sending herewith certified copy of the notice under s. 263 of the IT Act dt. 22nd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1999. Hearing in the case is adjourned to 1st Nov., 1999." 5.4. On 4th Nov., 1999, the hearing was adjourned to 25th Nov., 1999. On 25th Nov., 1999, the learned senior Departmental Representative Mr. Dogra, appearing on behalf of the Revenue, admitted that (i) proposal for initiating proceedings under s. 263 in case of the assessee under reference for asst. yr. 1994-95 was received by the CIT through fax at 3.15 P.M. on 22nd Feb., 1999, without any enclosure and notice under s. 263 of the Act was issued on the same day, i.e., 22nd Feb., 1999, (ii) the AO had not sent either assessment order or assessee's assessment record for asst. yr. 1994-95 to the CIT either along with the proposal sent by fax or along with the copy of the proposal sent by post, (iii) there was no record of meeting of CIT with AO as well as, of the discussion between them, and (iv) there was no evidence to show that availability of assessee' record with CIT. 5.5. Since the requisite information/record was not furnished and to avoid retraction on the part of the Revenue from the admission made by the learned senior Departmental Representative, he was again directed to produce the file relating to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any evidence with respect to any meeting/discussion between the CIT and the AO then it will be taken that the notice under s. 263 was issued without examination of assessee's assessment records by the CIT and that the CIT had not examined assessee's assessment records even till the passing of the order under s. 263. On this, the learned senior Departmental Representative once again reiterated his admission made on 25th Nov., 1999. 5.7. After admission by the learned senior Departmental Representative twice first on 4th Oct., 1999, and again on 3rd Dec., 1999, that the AO had not sent assessee's assessment records or even assessment order for asst. yr. 1994-95 to the CIT and that there was no evidence with respect to either CIT's meeting/discussion with the AO or availability of assessee's assessment records or assessment order before the notice under s. 263 was issued or even thereafter till passing of order under s. 263, it was quite easy/convenient for the Tribunal to hold that CIT had not examined the assessee's assessment records at any time of the proceedings till the passing of the order under s. 263 of the Act but since the matter was likely to result in serious conseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter dt. Nil from Asstt. CIT, CCI, Lkn. regarding proposal under s. 263 in case of M/s Sahara India Mutual Benefit Co. Ltd. for asst. yr. 1994-95. The case has already been fixed for hearing by the learned CIT Camp Kanpur For 9th March, 1999. The notice of hearing was taken to Lucknow. By the learned CIT himself. Hence, if approved, the letters may be kept in file. Submitted please. Sd/-ACC(T) Sd/- ITO 26-2-1999 15th March,1999 Sri J.J. Mehrotra, authorised representative and Shri R.K. Singh, Controller Finance, attend. Filed written submissions. Discussed. 22nd March, 1999 Order under s. 263 passed. Sd/-" 6. We have considered the rival submissions, facts and circumstances of the case, documents furnished by the learned Sr. Departmental Representative, the contents of letter written by the Dy. CIT (Judl) on behalf of the CIT, Kanpur, dt. 23rd Sept., 1999, proposal sent by the AO, provisions of s. 263 and also the case laws available on the point of prerequisite condition/requirement of examination of assessee's records before issuing a notice under s. 263 or passing of the order under s. 263 of the Act. 6.1. Considering the totality of the circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under s. 263 of the Act was issued, i.e., 22nd Jan., 1999, the AO had not sent either assessee's assessment records or assessment order for asst. yr. 1994-95. (vi) That there was no evidence with respect to the meeting/discussion of the CIT with the AO. (vii) That the learned Sr. Departmental Representative was not aware of the evidence for receipt of assessee's assessment record or assessment order for asst. yr. 1994-95 by the CIT because he has not been supplied with any evidence in this respect. 6.3. If the Revenue's stand till 16th Dec., 1999, on the one hand and the stand taken as per letter dt. 15th Dec., 1999, furnished on 16th Dec., 1999, and the photocopy of a loose sheet claiming the same to be an acknowledgement for return of assessee's assessment records for asst. yr. 1994-95 by the CIT on 17th March, 1999, on the other hand, is considered, then every prudent man will come to one and the only conclusion that there was something wrong in the stand taken by the Revenue i.e., either the stand taken prior to 16th Dec., 1999, was correct or the stand taken thereafter was correct and to decide the issue, we have once again to consider the nature of the proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidence and on which the order is based, must normally be recorded as part of the record. We have come to this conclusion after considering the decision of Hon'ble Supreme Court of India in case of Maharana Mills (P) Ltd. vs. ITO (1959) 36 ITR 350 (SC). In this case, the Hon'ble apex Court was to consider the meaning of the word 'record' appearing in the provisions of s. 35 of the 1921 Act (corresponding to s. 154 of the IT Act, 1961), under which rectification of mistakes apparent from the records was permitted. The Hon'ble apex Court, while considering the meaning of the term 'record' contemplated by s. 35 (a term similar to that used in provision of s. 154 as well as, s. 263 of the IT Act, 1961) held that 'the record' contemplated by s. 35 does not mean only the order of assessment but it comprises of proceedings on which the assessment order is based. 6.9. In view of above discussion and the decision of the Hon'ble Supreme Court, we are of the opinion that the records, as contemplated under s. 263, do not mean only an assessment order but it comprises of proceedings on which the assessment order is based. 6.10. In view of above facts and circumstances, we are of the opini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t-matter of any appeal filed on or before or after the 1st June, 1988, the powers of the CIT under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. (2)...... (not relevant) (3)...... (not relevant) 7.1. From the analytical examination of the provisions of s. 263, it is gathered that features of the power of revision granted by s. 263 are: (i) The CIT may call for and examine the records of any proceedings under the Act. The stage upto the calling of the records is an administrative act but examining of the same by the CIT is a quasi-judicial function. (ii) On examination of such records, the CIT may consider any order passed by the AO as erroneous insofar as, prejudicial to the interest of the Revenue and such a consideration is only after having come to be satisfied on this account and the stage of coming to the satisfaction is also a quasi-judicial stage. (iii) After complying with the aforesaid two stages, the third stage, which is again quasi-judicial in nature in view of the principles of natural justice, is to give an opportunity of hearing to the assessee and als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proposal without examination of the records in first case without calling and examining the records and in second case without examining the records and arriving at the satisfaction, as envisaged in the provisions of s. 263, then there is no question of application of mind by the CIT. In earlier case, i.e., in the absence of records nothing can be said to have been examined, whereas, in latter's case it may be examination of records by the subordinate but the CIT cannot be said to have examined the records if he simply proceeds with the proposal. 7.4. From the above discussion, we are of the opinion that what follows from the legal provisions is that the CIT, before assuming lawful jurisdiction to proceed with the proceedings under s. 263 of the Act, must comply with the following: (i) Assessee's records, which have culminated into passing of the order to be revised must have been before the CIT. (ii) It is the CIT and CIT alone himself who must examine such records, and (iii) After such examination, must have applied his mind before coming to the satisfaction for lawful exercise of quasi-judicial functions. 7.5. Since the lawful assumption of jurisdiction is the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sure was received. (ii) the learned Sr. Departmental Representative admitted this fact during the course of hearing, and (iii) the Revenue has not furnished any evidence for receipt of assessee's assessment records by the CIT and that being the case, the question of satisfaction of the CIT with regard to the erroneousness or prejudicial nature of the assessment order do not arise at all and even if it is assumed to be, then the same cannot be said to be in accordance with the provisions of law, which otherwise means that the assumption of jurisdiction by the CIT, Kanpur, for proceeding with the proceedings under s. 263—which were quasi-judicial in nature, was not in accordance with law and the same is the fate of subsequent proceedings, i.e., passing of order under s. 263. 10. Further the Revenue has taken the stand that records of ancillary actions such as discussions with the AO etc. had not been maintained. This plea is not ascertainable because the process of carrying on for the quasi-judicial proceedings is not one's private affairs. The proceeding under s. 263 of the Act being of quasi-judicial nature, the authority is duty-bound to maintain the complete record of ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant material that is taken/available on record. (iv) that perusal of the assessment record and discussion with the AO need not form part of the official documentation of CIT's satisfaction but are still very much in the knowledge of the CIT concerned, and letter of the learned Sr. Departmental Representative dt. 15th Dec., 1999, which reads as: "The learned CIT has also desired that I may make a brief submission before your honours regarding the records being submitted. 2. All the cases of M/s Sahara Group are perused by the CIT(A) with due attention and concern and most of the deficiencies of the assessments come to light during scrutiny of the appeals and above during inspection and once drawbacks of the case are noticed, a report is either suo motto sent by the AO or the Addl. CIT/Jt. CIT and in some cases even by the CIT. Only later on, action according to the IT Act is initiated. 3. So far as, above two cases are concerned, the deficiencies regarding assessment were seen during judicial and administrative review and later on reports were received on which immediate action had to be taken since they were getting time barred. This would be seen from the note sheets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice of the CIT by any other mode, (including the mode at Serial Nos. (ii), (iii) and (iv), it is mandatory and incumbent upon the CIT to call for assessment records and examine the same vis-a-vis the veracity and correctness of the deficiency brought to his knowledge or of the proposal and get himself satisfied with regard to the erroneous and prejudicial nature of the order likely to be revised. If the CIT does not comply with this mandatory requirement and proceeds blindly, i.e., simply on the basis of such reports/proposal having been received and fails to call for and carry on the examination of records before acting on such report/proposal, the assumption of jurisdiction to issue notice under s. 263 cannot be said to be lawful and consequently the notice under s. 263 so issued cannot be sustained—more so, because of the non-compliance of prerequisite mandatory requirement of examination of records by himself, absence of application of mind and exercise of quasi-judicial discretion, including satisfaction. The quasi-judicial powers of an authority cannot be controlled by any other authority. The proposition of ours is not only clear from the unambiguous provisions of s. 263(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons and directions of the Board. These instructions may control the exercise of the power of the officers of the Department in matters administrative but not quasi-judicial. The proviso to s. 13 is somewhat obscure in its import. It enacts that no orders, instructions or directions shall be given by the Board so as to interfere with the discretion of the AAC of WT in the exercise of his appellate functions. It does not, however, imply that the Board may given any directions or instructions to the WTO or to the CWT in exercise of his quasi-judicial function. Such an interpretation would be plainly contrary to the scheme of the Act and the nature of the power conferred upon the authorities invested with quasi-judicial power." 13.4. The jurisdiction of the CIT for the purpose of s. 263 or s. 264 being as quasi-judicial as it is for the purpose of s. 25 of the WT Act and the prerequisite condition relating to examination of the records being the same, we are of the opinion that the CIT, while exercising his quasi-judicial discretion under s. 263 should not put himself in the control of any other authority—be it a superior or subordinate one. 13.5. Hence a question may arise that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for. Therefore, when the appeal before the AAC was heard the assessee did not press ground No. 10, and the AAC did not deal with that contention in his appellate order. Later, the Addl. CIT issued a notice under s. 263 of the Act to show cause why the order passed by the ITO under s. 154 should not be rectified as being prejudicial to the Revenue. The company filed a writ petition challenging the said notice." On above facts, The Hon'ble Court held that: "(i) the power that the CIT exercises under s. 263 is a power in respect of the order of the ITO. The CIT has no power to revise the order passed by the AAC. When the assessment order of the ITO was rectified by him under s. 154 of the Act, the order in existence was the order as rectified. Vedentam Raghaviah vs. ITO (1963) 49 ITR 314 (Mad) and S. Authanari vs. ITO (1972) 83 ITR 828 (Mad) relied on. The application of the doctrine of merger depends on the nature of the appellate or revisional order in each case. If the original order of the ITO as rectified was the effective and operative order, the same was the subject-matter of appeal before the AAC and the AAC having passed the order thereafter, that was the only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords by the CIT, Kanpur, either before receipt of the proposal from AO by fax on 22nd Feb., 1999, or thereafter and before passing, the order under s. 263 on 22nd March, 1999, we have no option but to hold that the notice under s. 263 issued on 22nd Feb., 1999, was issued by the CIT, Kanpur, without examination of assessee's records and application of his mind as well as, consequential satisfaction, which cannot be sustained. We, therefore, relying on the aforesaid decisions and in the facts and circumstances of the case, quash and set aside the notice under s. 263 dt. 22nd Feb., 1999, and since the CIT has passed an order in consequence upon issue of such notice, we set aside and quash the order under s. 263 dt. 22nd March, 1999, as well. 14.1. Before parting with the matter, we would like to deal with the Revenue's plea raised by way of furnishing a photocopy of two loose papers claiming the same to be acknowledgement for having returned the assessment records of the assessee and of another company by the CIT, Kanpur, on 23rd Feb., 1999, and 17th March, 1999, respectively. By filing these documents, the Revenue has tried, though of course, has not claimed specifically, to esta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia Mutual Benefits Co. Ltd. (in one volume) and the person receiving these records had put his signatures against first two cases without mentioning the number of volumes whereas, against entry of assessee concerned before us the words "received records—one volume" are mentioned. Similarly, on other page there is no mention of number of volumes so far as entries for Kanpur are concerned but against entries of M/s Sahara India Savings and Investment Corporation Ltd., the words "received in one volume" are appearing. 14.3. For all the aforesaid abnormalities and absence of evidence for receipt of the assessee's records were received by the CIT, Kanpur, and, therefore, this piece of evidence is rejected being unreliable. Issue Nos. 2, 3 6 15. With regard to the issue that assessment order passed by the AO on 27th March, 1997, was neither erroneous nor prejudicial to the Revenue the learned Sr. Advocate Mr. Dastur, appearing on behalf of the assessee, submitted that an order passed by the AO can be said to be erroneous if it has been passed in disregard to the legal provisions or in haste without making proper enquiries and will be prejudicial to the interest of the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch relates to the assessee's claim of deduction on account of expenditure incurred towards interest payable on deposits. These disallowances/ additions have been made by the AO by holding that the interest-free advances/ loans/deposits were out of interest-bearing, deposits under the two schemes on which assessee had claimed the expenditure on account of interest. 15.3. On the aforesaid facts, the learned counsel submitted that so far, as the issue relating to the allowability of expenditure on account of interest payable deposits under the two schemes was concerned, the total disallowance of interest expenditure was more than Rs. 6.51 crores (the total of above disallowances/additions) and, therefore, the action of the AO could not be said to be erroneous only if it was found after making enquiries as suggested by the CIT, later on, that the disallowance would have been more. The learned counsel, referring to his submissions made while arguing first issue, reiterated his stand that out of total collection in the current year of Rs. 1,52,94,04,000, the collection to the extent of Rs. 1,52,93,36,700 was under the fixed scheme, i.e., GFDA and there was no question of any lapsed or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of interest on lapsed or unclaimed matured accounts. 15.8. The counsel further submitted that even if for the sake of arguments it is assumed that there were some lapsed or unclaimed matured accounts, then it was for the CIT first to make necessary enquiries/verification as to which of the accounts were of that nature, before making such general observations. According to the counsel, it was incumbent upon the CIT first to establish as to how the order was erroneous and then to establish by specific reasons/instances that such order was prejudicial to the case of the Revenue. According to the counsel, the revision of an order with the purpose of making of specific enquiry only is permissible only if the impugned order is found to have been made without making proper enquiries or in haste; otherwise not. Coming to the assessee's case, the counsel submitted that it is now established fact that the order of the AO was passed neither in haste nor without detailed enquiries and, therefore, revision of such an order only for the purpose of making general enquiries cannot be sustained. 15.9. Adverting to the matter regarding the prejudicial nature of the assessment order, the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed matured accounts and as to how the liability had not matured or was not ascertainable—when as per the terms and conditions of both the schemes, the interest was payable on half yearly or yearly basis and since the assessee was maintaining the account on mercantile system, it was obligatory to make provision on the basis of terms and conditions of the scheme, is nothing but a bald and vague statement on the part of the CIT and the order passed under s. 263 based on such vague statement cannot be sustained. 15.12. According to the counsel, the CIT failed to ascribe the reasons for his conclusion and, therefore, the order under s. 263 cannot be sustained as valid and for this purpose relied on the decision in the following cases: (1) CIT vs. R.K. Metal Works, and (2) CIT vs. Late Sunder Lal. 16. The learned Departmental Representative, on the other hand, submitted that the assessment order being silent on the point of allowability of the interest on lapsed and unclaimed matured accounts—a fact to be found only after necessary enquiries, the assessment order was not only erroneous but was prejudicial to the interest of the Revenue and the CIT was justified in revisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal to the effect that "the error envisaged by s. 263 was not one which depended on possibility of guess work but it should be actually an error either of fact or of law", in the light of facts and circumstances of that case, to be the findings of fact based on material on record and rejected the Revenue's petition for reference. 18.2. At the same time, it is also the settled proposition that the order passed by the AO may be brief and cryptic but that by itself is not sufficient reason to hold the order as erroneous and prejudicial to the interest of Revenue and that is so because writing an order in detail may be a legal requirement but cannot render the order erroneous and prejudicial to the interest of the Revenue. This view is fortified by the decision of Hon'ble Allahabad High Court in the case of CIT vs. Goyal Private Family Specific Trust. (a) In this case, the assessee-trust, which was found under a trust deed by way of Smt. Sudha Agrawal with corpus of Rs. 500 for the benefits of the beneficiaries, mentioned therein, filed the returns of income for asst. yrs. 1979-80 and 1980-81 for the first time on 20th Feb., 1982, in the status of private trust. The ITO complet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t error was committed by the ITO in having reached the conclusion that the income of the trust was exempt in its hands and was assessable only in the hands of the beneficiaries. The CIT having failed to point out any error, no error can be inferred from the orders of the ITO for the simple reason that they are benefit of details. It the order is not erroneous, then it cannot be prejudicial to the interest of the Revenue. There is nothing to show in the order of the CIT that the ITO would have reached a different conclusion had he passed a detailed order. So, the conclusion of the CIT that the orders of the ITO are erroneous and prejudicial to the interest of the Revenue are based merely on suspicion and surmises in the absence of any enquiry having been made by him." 2nd para page No. 702 "In the income-tax assessments, all questions boil down to this, whether income has been properly determined and whether the correct rate of tax has been applied. The CIT does not say that the income was higher or that it was assessed on a wrong entity or at a low rate of that any exemption was wrongly allowed. In the absence of such a finding, the assessment orders cannot be said to be erro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue, can be held to be valid. For an order under s. 263 to be valid, there are, in addition to earlier discussed prerequisite conditions, some other requirements such as compliance to the principle of natural justice, satisfaction of the CIT and specification of the reasons for which the order of the AO is considered erroneous and prejudicial to the interest of the Revenue. The power conferred under s. 263 undoubtedly being of quasi-judicial nature, it is imperative on the CIT to explain as to the manner (state in what manner) the order of the AO was considered as erroneous and prejudicial to the interest of Revenue and what is the basis or material for such a conclusion. Though, s. 263(1) vests power in the CIT in the substantive term, but even when a statute (and enactment) vests discretion in any authority saying "if it appears", "if he is satisfied", "if he considers necessary", then also the authority has to judge the circumstances in an objective manner also, because use of the terms for vesting the power does not mean that it is a matter only of subjective satisfaction CIT vs. Shanti Lal Agarwalla (1983) 35 CTR (Pat) 304 : (1983) 142 ITR 778, 783 (Pat). 21.2. If the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the Tribunal was justified in reversing that order. In the result, we answer the question in the affirmative and against the Revenue. In the circumstances, we make no order as to costs." (ii)(a) In the case of CIT vs. Late Sunder Lal the facts were that the assessee, Sunder Lal, had filed a return for the asst. yr. 1959-60 on 5th Sept., 1959, in response to a notice under s. 22(2) dt. 2nd May, 1959. In the return, he showed a net loss of Rs. 4,229. In Section D of the return, the assessee claimed that a sum of Rs. 1,02,500 received by him on retirement from the firm styled M/s Ram Kishore Sunder Lal Co. (sic) and was, therefore, not includible in his income. The assessee died on 11th Feb., 1961, but the ITO completed the assessment on 6th Feb., 1964. The ITO did not include the amount of Rs. 1,02,500 in the income of that year on the ground that it was received in April, 1959, and as such, was to be considered in the asst. yr. 1960-61 only. The ITO, thereafter, assessed this amount as capital gain in the asst. yr. 1960-61. An appeal was filed by the assessee against the aforesaid inclusion and the AAC deleted the addition on the ground that the amount was assessable a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at all have been given by the CIT for coming to the conclusion that the order in question was prejudicial to the interest of the Revenue. It is also not possible to accept the argument on behalf of the Revenue that the CIT must be deemed to have adopted the reasoning of the AAC, in as much as, he had authorised the ITO to file an appeal to the Tribunal against the order of the AAC. It is settled law that an order passed by a quasi-judicial authority without giving any reasons for its conclusion is vitiated in law. The order passed by the CIT clearly suffers from this infirmity." (iii) The case of CIT vs. Goyal Private Family Specific Trust have already been discussed. As well as, the case reported in 167 ITR 129 (Raj), in para No. 17.2 and 17.1. (iv) In the case of CIT vs. R.K. Metal Works, an order of revision was passed by the CIT on the ground that the capital borrowed by the assessee-firm was not used entirely for purposes of the assessee's business. There was no indication in the order as to the basis on which the CIT came to the prima facie conclusion that the capital borrowed by the firm was utilised for purposes other than that of the firm's business. The CIT's order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, was well ascertained or determinate, and (iii) thirdly, since the assessee was following mercantile system of accounting and was under obligation to pay for the payment of accrual basis as per the terms and conditions of the two schemes relating to time and the rates, the assessment order dealing with the issue of allowability of assessee's claim of deduction on account of interest payable on deposits under these two schemes cannot be considered to be erroneous and prejudicial to the interest of the Revenue. 23.1. Coming to the next issue that the CIT having not specified any reason as to how and in what manner and to what extent the assessment was erroneous and prejudicial to the interest of the Revenue, we, in view of the decision of various High Courts, including the decisions of the jurisdictional High Court in case of Late Sunder Lal, are of the opinion that the order of revision made by simply making bald statement is not sustainable in law. The assessment order, so far as the issue relating to allowance of interest is concerned, has been passed after making proper and detailed enquiries and consequently it cannot be said to have been passed in haste also. 23.2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1962) 138 ITR 836 (Cal); (2) Remex Constructions/Remex Electricals vs. ITO Ors. (1986) 55 CTR (Bom) 423 : (1987) 116 ITR 18 (Bom); (3) CIT vs. Goodricke Group Ltd. (1993) 116 CTR 625 (Cal); (4) (1989) 33 TTJ 576; (5) Progressive Services Ltd. vs. ITO (1991) 40 TTJ (Cal) 595; (6) Decision of Tribunal, Bombay, in the case of M/s Hill Properties Ltd. (Asst. yrs. 1985-86, 1986-87 and 1987-88) dt. 23rd Nov., 1993; and (7) Tribunal Bombay decision in the case of M/s Seamen's Ltd. for the asst. yr. 1987-88, dt. 21st July, 1999. 24.1. Explaining the facts and circumstances of the aforesaid cases with respect to the issues and the aspects, which were the subject-matter of appeals, the learned counsel derived the ratio of all these decisions with respect to the doctrine of merger. The ratio, as derived, according to the learned counsel, was that even if the appeal before the CIT(A) is only with respect to one or more aspects of the issue, it is the issue as a whole which will be said to be the subject-matter of appeal and not the aspects alone. 24.2. In view of the aforesaid submissions and ratio of the various decisions derived by him, the learned counsel submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /those aspects alone which will be said to be the subject-matter of appeal but it is the issue as a whole itself which will be said to be the subject-matter of appeal. 24.3. Coming to the assessee's case, the learned counsel submitted that though the AO seems to have dealt with the issue in this case only by way of dealing with only a few aspects and the assessee had gone in appeal before the CIT(A) with respect to those aspects, which is not so because while considering the allowability of assessee's claim the AO had duly considered the genuineness of the deposits received during the years, quantum of the deduction claimed by the assessee and disallowable portion of assessee's claim and, therefore, it was the issue as a whole which in this case was the assessee's claim of deduction of expenditure on account of interest payable on deposits under these two schemes, which was the subject-matter of appeal before the CIT(A). Similarly, the allowance of assessee's claim of deduction on this account by the AO clearly confirms that assessee's claim was allowed after considering the aspects relating to the allowability on accrual basis. Had it not been the case, then the AO would not ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity had been accepted in the past years as well in subsequent asst. yr. 1995-96. 25.2. During the course of assessment proceedings for asst. yr. 1994-95, the AO considered the assessee's claim of deduction on account of liability provided for interest payable on deposits under these two schemes—which was provided on the basis adopted in previous year, did not deposit the admissibility of the deduction on accrual basis. The AO, however, disallowed part of assessee's claim on the basis of other aspects as detailed below: (i) An expenditure of Rs. 5,35,29,140 being the proportionate liability on account of interest payable on deposits worth Rs. 74,47,200 out of total deposits of Rs. 1,52,94,04,000 received during the current year because the deposits to that extent were considered as ungenuine and had been added but assessee's income by invoking, the provisions of s. 68 of the Act. (ii) The AO disallowed an interest amounting to Rs. 34,96,173 out of assessee's total claim of interest on this account by holding that an amount equal to the average balance of Rs. 23,30,78,196 has always remained with the assessee's collecting agent M/s Sahara India Firm, of which no interest was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not given the correct details of the written down value and it was not known how the disallowance of Rs. 3,15,343 had been arrived at by the ITO. Under these circumstances, it was pleaded that the ITO should be directed to work out the correct WDV of the building in the light of the previous appellate order—the AAC in assessee's appeal for the asst. yr. 1964-65 had held that the building in question was of second class and depreciation was allowable at 5 per cent, and allowed depreciation @ 5 per cent of such WDV. (ii) Dealing with these contentions, the AAC inter alia observed as under: "7. The next contention relates to an alternative ground, ground No. 6, where the rate of depreciation is disputed. Here it is contended that the ITO was not justified in disallowing Rs. 9,74,788 by taking the allowance of the depreciation at 5 per cent as claimed by the appellant. It is contended that the ITO has allowed depreciation @ 2.5 per cent only and the same rates should be taken for disallowance under s. 40(a)(v) taking the depreciation in that manner." (iii) After this appeal to the AAC, which was disposed of on 3rd April, 1974, the CIT issued a notice dt. 5th March, 1975, und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iction is limited to the appeal preferred before him. There were certain orders which are not appealable for the AAC but certain types of allegations can be taken up in an appeal by separate appeals. Apart from those two cases if an assessment is the subject-matter of appeal then any ground which was held in favour of the assessee can also be held against him though the appeal was preferred by the assessee. This jurisdiction of the AAC is indisputable. In this case the question is whether the quantum of allowance or disallowance or depreciation was the subject-matter of appeal or not. It is true that whether depreciation should be calculated on the basis of 12 months or it should be calculated on the basis of 11 months was not a specific aspect which was agitated before the AAC nor did he give any direction on this aspect of the matter but he had this aspect kept open for adjudication by him even though not taken by the assessee. Then, on that, he could have allowed 5 per cent or 2.5 per cent depreciation and should have directed the ITO to compute the same on such basis as he considered fit and proper, namely, 11 months or 12 months on the view that the employee of the assessee wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . yrs. 1972-73, 1973-74 and 1974-75 along with copies of the P L a/cs and balance sheets. The 1st ITO (respondent No. 1 herein), on perusal of the returns and while passing the assessment orders, took the view that the petitioner did not maintain a day-to-day Stock Book in respect of materials consumed in both the business and that in the absence of the same, it was not possible to verify the book results and that it was necessary to ascertain the book results on the basis of estimates. The gross profit shown by the petitioner in respect of construction business was 13.77 per cent, 14.63 per cent and 16.35 per cent for the three years, respectively, while the ITO estimated it at the flat rate of 17.5 per cent for all the years. The gross profits shown by the petitioner in respect of electrical business was 11.64 per cent, 11.82 per cent and 22.87 per cent, respectively, for the relevant assessment years and that was estimated by the ITO at 12.5 per cent for the first two assessment years, while retaining the gross profit shown by the petitioner for the last assessment year. (ii) The petitioner carried three appeals against the orders of assessment passed in respect of the three ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct which was considered by the AAC. The submission is not correct. The order under s. 263 of the Act clearly sets out that the point for consideration was that the payments made to Kampani and M/s Architect Combine were expenses of trading nature and, therefore, deemed to have been covered by the estimate of gross profits. The petitioner had filed the appeals before the AAC because of the decision of the ITO that the gross profits disclosed by the assessee could not be accepted in the absence of day-to-day Stock Book, and, therefore, gross profit has to be ascertained by estimate. It is, therefore, obvious that on this aspect of the matter, the CIT should not have exercised revisional powers." 26.3. CIT vs. Goodricke Group Ltd. (i) Shortly stated, the facts are that the CIT exercised his jurisdiction under s. 263 of the IT Act, 1961, in respect of the asstt. yr. 1977-78 as, according to him, the order passed by the ITO was erroneous, inasmuch as, the ITO came to the conclusion that only 7/12th of the head office expenses should be taken into account for disallowing the expenses as provided under s. 44C. He also observed that the ITO erred in calculating the correct amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuation was determined by the AO at Rs. 3,57,257 for all the 3 years, the assessee received from its members the following amounts as their contribution: Rs. (1) 1985-86 9,70,642 (2) 1986-87 7,96,023 (3) 1987-88 3,85,573 The learned CIT on scrutiny of records took the view that the assessments in question were erroneous and prejudicial to the interest of the Revenue. (ii) In response to s. 263 notice the assessee raised several objections before the CIT. Inter alia, they are that the assessment had already merged with orders passed by the learned CIT(A); that the assessment orders were not prejudicial to the interest of the Revenue and that the amount received by the assessee from its shareholders did not partake the character of rent as it was only a reimbursement of expenses made by them to the assessee-company and finally that in law it were the shareholders occupying the flats who were real owners thereof and as such there was no question of the liability of the payment of any income from house property by the assessee-company. (iii) The learned CIT disagreed with the assessee on all counts. To be stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly, what was sought to be reopened by the CIT under s. 263 concern/the determination of the annual value inasmuch as he wanted to take into consideration the compensation received by the assessee-company from its shareholders, which was in excess than the annual value determined by the AO on the basis of municipal taxes. In deciding this aspect of the matter, we are unable to concern ourselves as to whether the procedure adopted by the AO accorded with law or not. The scope for our consideration is rather limited, namely, as to whether the issue raised by the assessee in the three appeals before the CIT(A) and the one stated to be opened by the Administrative Commr. on the scrutiny of the assessment records were similar or dissimilar. Surely at both the ends the subject-matter was the correct determination of the annual value of the property in question. 11. Once this appeal was examined by the CIT(A) the assessment order rendered by the AO ceased to exist and got merged in the appellate order which cannot be subjected to any revisional jurisdiction. In saying so get support from various authorities, to mention the one on which reliance has been placed by the assessee that is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty—amounting to Rs. 15,82,21,950 in the total turnover meant for the purpose of computation of deduction under s. 80HHC. The AO had also excluded from the total turnover so taken an amount of Rs. 22,66,000 being the value of goods purchased by the assessee from a place outside India and exported directly from that place to some other place outside India. (ii) On appeal by the assessee, the CIT(A), as per his order dt. 30th Nov., 1999, allowed the assessee's claim relating to the consideration of the export amounting to Rs. 22,66,000 as part of export turnover as envisaged in s. 80HHC. (iii) After the order of the CIT(A) dt. 30th Nov., 1990, the CIT, as per his order dt. 26th March, 1992, revised the assessment order and directed the AO to recompute the deduction allowable under s. 80HHC after including the amounts of sales-tax and excise duty collected amounting to Rs. 15,82,21,950 in the total turnover because, according to the CIT, the failure on the part of the AO to include this amount in the total turnover had resulted, while calculating the export provided in terms of s. 80HHC, in an order which was erroneous insofar as prejudicial to the interest of the Revenue. (iv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether depreciation should be calculated on the basis of user of the building for 12 months or of 11 months was not a specific aspect which was agitated before the AAC nor was it one on which he gave any direction: Held, that as the quantum of depreciation was the subject-matter of appeal, the CIT had no jurisdiction under s. 263 to revise the order with reference to this aspect." We find that the decision of the jurisdictional High Court in the case of Remex Constructions relied upon by the learned counsel, cited supra, is also in favour of the assessee. In this case, the AO estimated the gross profit and it was the subject-matter of appeal before the CIT(A). Accordingly, it was held that the CIT did not have jurisdiction to revise the assessment under s. 263 on the ground that certain expenses were disallowable. In the light of these two decisions and also the decisions of the Tribunal cited by the learned counsel for the assessee, which we have referred to hereinbefore, we have to hold that the assessment order had merged with the order of the CIT(A) on the question of the deduction under s. 80HHC and accordingly, the CIT did not have jurisdiction to the assessment order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dering one or more or all aspects involved in that issue, it cannot be said that AO had not considered the issue or has considered only a few aspects. That being the case, if such an action of the AO is brought before CIT(A) by way of appeal—even with respect to those very few aspects which have been considered by the AO, it cannot be said that the subject-matter of appeal were only those issues. On the contrary, it is the issue as a whole which will be said to be the subject-matter of appeal and consequently by virtue of application of the doctrine of merger, the order of the AO with respect to that issue as a whole will be said to have merged with the order of the CIT(A). This is the ratio of decisions discussed supra. 29. So far as, the assessee's case is concerned, as we have already said that the issue before the AO was the allowability of assessee's claim of deduction on account of liability for interest payable on deposits under the two schemes, the facts that AO had dealt only with one or few aspects of the issue and the fact that those aspects were only in appeal before the CIT(A) will not be hindrance for the applicability of doctrine of merger because in view of the r ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
