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Pt. Lashkari Ram v. CIT - INCOME TAX REFERENCE No. 161 of 1984 [2004] RD-AH 407 (30 July 2004)


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Court No.37

Income Tax Reference No.161 of 1984

Pt. Lashkari Ram, Allahabad v. Commissioner of Income Tax

Hon'ble R.K.Agrawal, J.

Hon'ble K.N.Ojha, J.

The Income tax Appellate Tribunal, Allahabad has referred the following question of law under Section 256 (1) of the Income Tax Act, 1961, hereinafter referred to as the Act for opinion to this Court:

"Whether on the facts and in the circumstances of the case, the Tribunal was correct in holding that despite the inquiries made by the Commissioner of Income-tax beyond the record of assessment, the Commissioner of Income-tax was well within his jurisdiction in passing the order u/s 263 based on the record of assessment?"

Briefly stated the facts giving rise to the present reference are as follows:-

The assessee filed on 23.8.77 a return showing income of Rs.33,310/- which include Rs.28,068/- as profit u/s 42(2) of the Act on the sale of truck No.UPL 9030.  After receipt of the return the I.T.O. made a note ''Investment in new truck No.UTY 355 to be looked into' on the return and issued notice dated 4.3.80 u/s 143(2) read with section 142(1) of the Act requiring the assessee to produce account books and bank pass books etc. on the 17.3.1980.  That day i.e. the 17th March, 1980 the assessee appeared before the Income-tax Officer and filed a revised return showing an  income of Rs.53,310/- instead of Rs.33,310/- as disclosed in the original return.  The increase of Rs.20,000/- in the revised return was accounted for as the profit under Section 41(2) of the Act on the sale of truck No. UPL 9030 which was Rs. 48,068/- and not Rs.2,868/- as shown in the original return.  Originally, the sale price was disclosed Rs.35,000/- and subsequently it was shown Rs.55,000/-.  The assessment was framed on the same day by the Income-tax Officer u/s 143(3) of the Act.  Tax was computed, interest was charged u/s 217 and 139(8) of the Act and penalty proceeding was also instituted and penalty was imposed.

The assessee thereafter filed an application before the C.I.T., Allahabad under Section 273A of the Act  for waiver of penalty and interest. That application led the Commissioner of Income-tax to hold an inquiry.  The Commissioner of Income-tax called for the reports of the I.T.O. on the said application.  Another comprehensive report was called by the Commissioner of Income tax in the same connection from the I.T.O.  The C.I.T. eventually rejected the application of the assessee under Section 73A of the Act on 15.10.81.  However from the said record of assessment, the C.I.T. noticed the following:-

i) The assessment was completed by the Income-tax Officer on the same very date on which date the revised return increasing income of Rs.20,000/- was filed and in due haste the Income-tax Officer did not appear to have made inquiry about the bank accounts copy of which was filed by the assessee.

ii) The Income-tax Officer also did not inquire the reason for variation in the profit u/s 41(2) of the Act  as Rs.28,068/- was shown earlier and Rs.48,068/- later.

iii) The Income-tax Officer also did not consider applicability of Section 271(1) (C) of the Act in respect of income shown in the revised return.

             The Commissioner of Income-tax recorded a finding that the assessment was erroneous in so far as it was prejudicial to the interest of the revenue, and, therefore, he issued notice dated 26.2.82 under Section 263 of the Act to the assessee who appeared through lawyer on the date of hearing i.e. 6.3.82 and ordered fresh assessment after hearing the assessee.

              The assessee came in appeal before the Tribunal.  The Tribunal had dismissed the appeal.

 We have heard Sri Vikram Gulati, learned counsel for the applicant and Sri A.N. Mahajan, learned Standing Counsel, who appears for the Revenue.

Sri Gulati, learned counsel for the applicant submitted that the assessment was made on agreed basis and the applicant had furnished all the details which were asked for by the Assessing Officer and, therefore, even if there is no discussion in the assessment order it cannot be said that the assessment order has been passed without any application of mind.  He submitted that the assessment order had been passed after the applicant had filed the revised return enhancing the value of the sale price of the truck sold during the year in question and also enclosing the copies of the statement of the bank account and other particulars.  He further submitted that the proceedings under Section 263 of the Act cannot be initiated if the Assessing Officer has failed to initiate penalty proceedings at the time of completion of the assessment.  He relied upon a decision of the Delhi High Court in the case of Addl. Commissioner of Income Tax, Delhi-I v. J.K. D'Costa, (1982) 133 I.T.R.7, wherein the Delhi High Court has said that the mere fact that there is some minor omission or mistake in the assessment order it cannot justify the action of the Commissioner in setting aside the whole of the assessment order and further Section 263 of the Act refers to a particular proceeding that is being considered by the Commissioner and it is not possible, when the Commissioner is dealing with the assessment proceedings and the assessment order, to expand the scope of the these proceedings which are being sought to be revised by the Commissioner.  As the proceedings for the levy of a  penalty are proceedings independent of and separate proceeding from the assessment proceedings and there is no identity between the two, the assessment cannot be said to be erroneous or prejudicial to the interest of the revenue because of the failure of the Income Tax Officer to record his opinion about the leviability of penalty in the case. He further relied upon a decision of the Madhya Pradesh High Court -Indore Bench in the case of Commissioner of Income Tax v. Ratlam Coal Ash Company, (1988) 171 ITR 141 wherein it has been held that an order of assessment cannot be revised merely because the Income Tax Officer had not made proper enquiries.  

    Sri A.N. Mahajan, appearing for the Revenue, submitted that from perusal of the assessment order it is absolutely clear that the Income Tax Officer had not applied his mind at all to the various issues on which the applicant was asked to furnish the details.  He submitted that the assessment order has been passed without any application of mind and, therefore, the Commissioner of Income tax was well within the jurisdiction to initiate the proceedings under Section 263 of the Act.  He relied upon a decision of  the Hon'ble Supreme Court in the Case of Malabar Industrial Company Ltd. v. Commissioner of Income Tax, (2000) 243 ITR 83 (SC).

              Having heard the learned counsel for the parties we find that the Income Tax Officer had passed assessment order in the following terms:-

"Assessed u/s 143 (3) on total income of Rs.55,000/- after giving deduction u/s 80 c on agreed basis.  Issue notice of demand and challan.  Penalty notices u/s 273 (C) and 10(1) of CDS has also been issued."

                The aforesaid order was passed in the notice of demand issued under Section 156 of the Act.  From perusal of the aforesaid order it cannot be termed as a speaking order. Moreover, no reasons have been assigned. In the assessment order it has also not been dealt that earlier the applicant was asked to furnish certain details and the assessee had furnished those details by filing a revised return.  There is no mention of the details, which had been furnished by the assessee.  The Hon'ble Supreme Court in the case of Malabar Industrial Co.Ltd. supra), has held as follows:-

"A bare reading of this provision makes it clear that the prerequisite to the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue.  The commissioner has to be satisfied of twin conditions, namely, (i) the order of the assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue.  If one of them  is absent - if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to section 263(1) of the Act.

` There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted.  An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous.  In the same category fall orders passed without applying the principles of natural justice or without application of mind."   (Emphasis supplied)

In the present case the Commissioner of Income Tax by initiating the proceedings under Section 263 of the Act had given reasons as to why the order is erroneous and prejudicial to the interest of the Revenue. Even if it is held that no penalty proceeding having been initiated by the Income Tax Officer in course of the assessment proceeding, the Commissioner can exercise jurisdiction under Section 263 of the Act on other valid grounds.   Therefore, the order of the Commissioner of Income tax does not suffer from any illegality.  The Tribunal was justified in upholding the order of the Commissioner of Income Tax.  

In this view of the foregoing discussion, we answer the question referred to us in the affirmative i.e. in favour of the Revenue and against the assessee.  However, there shall be no order as to costs.




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