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C.I.T. v. Mohd. Azmal - INCOME TAX REFERENCE No. 99 of 1990  RD-AH 80 (6 January 2005)
Income Tax Reference No. 99 of 1990
Commissioner of Income Tax, Kanpur vs. Shri Mohd. Ajmal, Allahabad.
Hon'ble Prakash Krishna, ,J
The Income Tax Appellate Tribunal, Allahabad has referred following question of law under section 256 (1) of the Income Tax Act ,1961 ( here in after referred to as the Act) for opinion to this Court:-
"Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in quashing the order under section 263 passed by the Commissioner of Income-tax?"
Briefly, stated the facts in the present case are as follows:-
The reference relates to the assessment year 1982-83. The respondent assessee is assessed to Income Tax in the capacity of an individual. For the assessment year 1982-83 the proceedings for assessment was taken by the Assessing Authority. Vide notice on the order sheet dated 7th January, 1985 the respondent assessee was asked to give the details of certain queries which are as follows:-
"7.1.85. Shri S.P. Agrawal (Advocate) attends.
Required as following:-
1) Deposits in the names of Mrs.Bimla Devi Poddar and Mr. Alok Kumar Poddar, Azamgarh. Adjustments to be shown. Variations during A.yr.81-82 in these to be verified.
2) Details of salary a/c.
3) Rent paid to the owner of premises verified by receipts.
4) Amount of publicity Van repairing expenses incurred of vehicles other than assessee's owned with list.
5) Samples of daily reports as sent by agents regarding selling expenses.
6) Agreement with M/s. Avadh Trading Co. regarding sale of goods through them.
7) Details of bonus to dealers and rates of these.
8) Investment allowance to be justified.
9) Details of commission paid by Branch.
Compliance fixed for 16.1.85.
The assessment was completed on 21st January, 1985 in the following words:-
" Return was filed showing a total income of Rs.46,820/-. Notice u/s 143(2) was issued in response to which assessee appeared through his counsel Shri S.P. Agarwal. After scrutiny the total income is accepted at the returned income of Rs.46,820/-."
The Commissioner of Income Tax examined the assessment papers and was of the opinion that the order passed by the Income Tax Officer was not only erroneous but also prejudicial to the interest of Revenue as it did not indicate that he had raised any other query regarding admissibility or allowability of interest expenses as claimed at Rs.29,040/- which was neither looked into nor examined at all by the Income Tax Officer before passing the assessment order. He accordingly initiated proceedings under section 263 of the Act and after giving an opportunity of hearing set aside the assessment on the ground that it has been passed without any evidence or proper enquiries regarding the allowability of interest expenses claimed at Rs.29,040/-. Feeling aggrieved the respondent assessee preferred an appeal before the Income Tax Appellate Tribunal which vide order dated 21st August 1989 had allowed the appeal. The Tribunal was of the view that as the assessment has been framed after scrutiny, it could not have been revised under section 263 of the Act for want of proper enquiry or deeper scrutiny.
We have heard Sri Sambhu Chopra, learned standing counsel for the Revenue. The learned counsel submitted that from the queries made by the Income Tax Officer it is absolutely clear that the respondent assessee had not been asked to explain the allowability of interest amounting to Rs.29,040/- and therefore the order was not only erroneous but also prejudicial to the interest of Revenue. According to him merely the mention of word ''scrutiny' would not make any difference as different items of expenditure claimed by the assessee have to be examined before allowing and if the Income Tax Officer has failed to scrutinize, the items of the expenditure the order is not only erroneous but also prejudicial to the interest of Revenue. He relied upon a decision of Apex Court in the case of Malabar Industrial Co. Limited vs. Commissioner of Income Tax (2000), 243 ITR 83.
Having heard the learned counsel for the parties we find that in respect of allowability of interest amounting to Rs.29,040/- no query was made by the Income Tax Officer during the course of assessment. Further from the queries made by the Income Tax Officer nothing is born out from the assessment order itself. The order appears to have been passed without any application of mind.
The Apex Court in the case of Malabar Industrial Co. Ltd. (supra) has held that an incorrect assumption of fact or incorrect application of law will satisfy the requirement of the order being erroneous. In the same category will fall orders passed without applying principle of natural justice or without application of mind and if due to erroneous order of Income Tax Officer the Revenue is losing tax likely payable by a person it will certainly be prejudicial to the interest of Revenue.
Respectfully following the decision of the Apex Court in the case of Malabar Industrial Co. Ltd. (supra) we find that as the Income Tax Officer had not examined the question of allowability of interest of Rs.29,040/- as claimed by the respondent assessee and the order has been passed without any application of mind and it is also erroneous as well as prejudicial to the interest of Revenue. In this view of the matter the Commissioner of Income Tax was fully justified in initiating proceedings under section 263 of the Act. Further mere mention of words that assessment has been framed after scrutiny would not exclude the jurisdiction of the Commissioner under section 263 of the Act.
In view of the foregoing discussion we answer the question referred to us in negative i.e. in favour of the Revenue and against the assessee. However, there shall be no order as to costs.
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