Per R.P. Rajesh, Accountant Member. - This appeal is by the assessee against the order of CIT passed under section 263 in respect of assessment year 2002-03.
2. The grounds taken by the assessee are reproduced below:—
"(1)For that the learned CIT has erred in invoking powers under section 263 of the Income-tax Act.
(2)For that the learned CIT has erred in invoking powers under section 263 and setting aside the order passed by the Assessing Officer with a direction to make assessment afresh on the basis of show-cause notice dated 19-10-2004 (copy enclosed) which was not even signed by him.
(3)For that the learned CIT has gone beyond the allegations contained in notice dated 19-10-2004 while passing order under section 263 dated 24-11-2004 and thus has exceeded the jurisdiction by not limiting himself to the allegations in the show-cause notice.
(4)For that the order passed is violative of principles of equity and natural justice and as such fit to be quashed.
(5)For that the learned CIT has erred in making adverse observation with regard to order under section 154 dated 27-1-2003 in the impugned order.
(6)For that the learned CIT has erred in holding that the Assessing Officer has not made adequate enquiry and investigation while framing the order whereas no such allegation was made in the show-cause notice dated 19-10-2004.
(7)For that the learned CIT has failed to appreciate that the order passed by the Assessing Officer was neither erroneous nor prejudicial to the interest of the revenue and thus the very invocation of power under section 263 is wholly illegal and beyond jurisdiction.
(8)For that the learned CIT has erred in invoking powers under section 263 and passing order holding the order of assessment to be erroneous and prejudicial without even pointing out which of the two phraseology used in the section is applicable and as to how the order of assessment is erroneous causing loss to the revenue
(9)For that the learned CIT ought not to have set aside the assessment and directed assessment afresh in the impugned order had he been satisfied about the order being erroneous and prejudicial to the interest of revenue. Non-issuance of specific direction of assessment clearly proves that it is a case of only change in opinion and the assessment order passed is neither erroneous nor prejudicial to the interest of revenue.
(10)For that the whole order is bad in fact and law of the case and is fit to be annulled."
3. In this case the assessee derives income from business run under the name and style of M/s. Hira Panna Jewellers, Patna and also income from ‘other sources’. The assessee filed return on 30-10-2002 showing total income of Rs. 7,77,350. The return was processed under section 143(1). Subsequently, survey under section 133A of the Act was conducted in the business premises of the assessee on 1-11-2002 and on the basis of the same, the case was selected for scrutiny assessment and the assessment was completed on 6-6-2003 under section 143(3) on a total income of Rs. 7,77,350. Subsequently, on the basis of survey report, a proposal was sent by the Assessing Officer by a letter dated 7-10-2004 to reopen the case. The Assessing Officer also wrote a letter thereafter to the CIT adding some more material for the purpose of reopening the case. Accordingly, a show-cause notice was issued to the assessee as to why the assessment order should not be cancelled for a fresh assessment under section 263 of Income-tax Act.
4. The assessee filed a reply which is reproduced below:—
"The order passed by the Assessing Officer on 16-6-2003 for assessment year 2003-04 is neither erroneous nor prejudicial to the interest of revenue. The assessment order has been passed by the Assessing Officer after examination of books of account and on consideration of materials/evidences found in course of survey under section 133A conducted on 31-10-2001 and after taking into account the report of an expert (departmental valuer) with regard to stock-in-trade. Certain extract from the assessment order are quoted below :
"Survey under section 133A of the Income-tax Act has been conducted in the business premises of the assessee on 1-11-2002 - books of account produced have been examined - As per quantitative details furnished by the assessee, the concerned had a closing stock of gold weighing 52475.026 gms. as on 31-10-2001. However, when the business premises was surveyed under section 133A of the Income-tax Act, the assessee was found to be in possession of excess stock of gold weighing 18073.59 gms. as per the calculation furnished in the Survey Report, i.e., 70548.620 - 52475.026, being the stock as per physical verification and the stock as per stock register. It has been found that whereas the figures arrived at in the survey report was based upon a casual recording of weighment shown in the weightage accurate weighment has been made by the registered valuer, named M/s. Devi Lal Baijnath Prasad Zaveri, Center Point, Sumati Place, Boring Road, Patna to whom a reference has been made by none other than the Additional Director of Income-tax (Investigation), Patna himself. Taking the net weight reported by registered valuer as the basis, it has been found that accurate weight of gold calculated on the recognized scientific method adopted by the registered valuer is 33446.876 gms. (net) and not 70548.620 gms. as arrived at and taken in the survey report. The valuers report, as such, disproves the report of survey party that there was an excess stock of 18072.594 gms. between the stock as per stock register and stock as found and calculated in course of survey."
Your Honour’s attention is drawn to recent judgment of Hon’ble Apex Court, in Malabar Industrial Company Limited v. CIT 243 ITR 83, wherein their Lordships have held that the Commissioner has to be satisfied on the twin condition laid down in section 263, that the order of the Assessing Officer sought to be revised is erroneous and that it is prejudicial to the interests of the revenue. Further, their Lordships have held that this 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 and prejudicial to the interest of revenue that the section will be attracted. Their Lordships have further held that every loss of revenue as a consequence of an order of Assessing Officer cannot be turned as prejudicial to the interest of revenue, for example, when the Assessing Officer adopts one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of revenue.
It is also well-settled that order passed by the Assessing Officer would be erroneous only if the Assessing Officer has not considered all materials or had not done proper examination or enquiry or verification or if the Assessing Officer had completely omitted the issue, in question, from consideration and made the assessment in an arbitrary manner. The condition precedent and stipulated above are absent in the petitioner’s case as it would be apparent from the assessment order as well as assessment record.
It is also well-settled that in absence of any finding that there is any loss of revenue, interference under this section is not justified as held by Hon’ble Madras High Court, in 259 ITR 129. Further, Your Honour’s attention is invited to the decision of Madras High Court in 163 ITR 129 (in reference to 263) and the decision of Hon’ble Supreme Court 105 ITR 212 (in reference to section 147) wherein their Lordships have held that the Assessment Order cannot be said to be prejudicial to the revenue if the department had accepted the assessee’s method of accounting which was a recognized method that had been constantly followed by the assessee, or merely because the Assessing Officer has made it in accordance with one of the two legally permissible methods under the adoption of the order method might have resulted in collection of larger revenue.
It is also well-settled that the power conferred under section 263 is a quasi-judicial in nature and, therefore, the Commissioner must give reasons in his order or otherwise the order would be vitiated. The section also gives power to the Commissioner to make enquiries, either by himself or by his sub-ordinates, into the facts of the case and all relevant facts and material before making an order under section 263 and, therefore, the petitioner is requesting your goodself to go through the assessment order as well as the assessment record including the expert’s opinion obtained by the department. It is also well-settled that a decision of the Commissioner based only on a certain hypothesis is unsustainable and the order is also not sustainable if the same has been passed without considering relevant material. Further, Your Honour’s attention is also drawn to the following judicial decisions whereby the Hon’ble High Court have held the order under section 263 as unsustainable :
(i) Janardan Prasad v. CIT 193 ITR 186 (All.)
(ii) CIT v. Duncan Brothers 209 ITR 44 (Cal.)
(iii) Garden Silk v. CIT 221 ITR 861 (Guj.)
(iv) CIT v. Sattan Das [1998] 230 ITR 591 (MP)
It is, therefore, requested that Your Honour would be kind enough to drop down the proceeding initiated on the basis of mere changes of opinion."
5. The ld. CIT, after considering the reply, rejected the same and passed an order under section 263 of the Act setting aside the assessment order with direction to make a fresh assessment taking into properly the stock and cash found at the time of survey and also after proper appreciation of facts. Aggrieved by the order, the assessee is in appeal before us.
6. The learned counsel, appearing on behalf of the assessee, has referred to the paper books containing pages 1-12 and the other containing pages 1-45 wherein copy of reply to show-cause notice, copy of reply filed in course of assessment proceeding, copy of inventory of stock, copy of objection filed before CIT on inventorization of stock, etc. were enclosed. He placed reliance on the same. Further, he also placed reliance on the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 1 and the case Commissioner Of Income-Tax v. Mohd. Ishaq Mohd. Gulam [2005] 276 ITR 13 (MP). Further, the ld. Counsel challenged the assumption of jurisdiction by CIT on the ground that the show-cause notice itself was not issued by ld. CIT. He referred to the notice placed in the paper book from which it is seen that the show-cause notice was not signed by ld. CIT. It was actually signed by Mr. R.P. Singh, ITO (Tech.) for Commissioner of Income-tax-II, Patna. On the other hand, ld. Departmental representative filed a written submission which is reproduced below for the sake of clarity:—
"In this case assessment order was passed under section 143(3) on 16-6-2003 and assessed income at Rs. 7,77,350. The income shown by assessee in his return was Rs. 7,77,350 and same accepted by Assessing Officer without making any examination of books of account i.e., Cash Book, Ledger, Journal, Nakal Bills & Vouchers etc., maintained by assessee for assessment year under consideration. Even the Assessing Officer did not call and examine the records in form of loose papers, documents, files containing different papers relating to his business and other activities (books of account, bank pass books, bank deposit certificate etc.) which were found & inventorised during course of survey, as per annexure CJ 1 to 40 dated 1-11-2001.
These facts are supported by order sheet entries appearing in assessment folder. These entries were written by Assessing Officer during assessment proceedings itself. As evident from notices given by Assessing Officer regular books of account (not included records found during survey) were called for by him for examination vide notice dated 3-3-2003 on the date of hearing on 13-3-2002 but no compliance was made by assessee on that date. Even after these books of account were never produced before Assessing Officer and accordingly not examined by Assessing Officer at all. No explanation whatsoever was asked by the Assessing Officer and he did not make any inquiry with regards to records and discrepancy found during course of survey in the form of excess Stocks of Cash, Gold, Silver, Diamond, etc. These facts clearly indicate that the Assessing Officer did not discharge his duty as Assessing Officer, for which he was appointed by revenue. The power is given to Assessing Officer by revenue, with certain duties, for which he was bound to discharge as Assessing Officer. He should have acted as investigator. The assessment order passed by Assessing Officer clearly, not only erroneous but prejudicial to interest revenue. Reliance is placed on following decisions :
(i) 101 ITR 1
(ii) Ram Payari Devi Sarogi v. CIT 67 ITR 84 (SC)
(iii) Tara Devi Agarwal v. CIT 88 ITR 323 (SC)
(iv)134 Taxation 493, 494 (All.)
(v) 157 ITR 112
(1) Thali Bai F. Jain v. ITO 101 ITR 1 (Kar.)
There should be error in the order passed by ITO which might be set a bad trend or pattern for similar assess-ments. Assessment without enquiry will be prejudicial and erroneous.
(2) Ram Payari Devi Saraogi v. CIT 67 ITR 84 (SC)
(3) Tara Devi Agarwal v. CIT 88 ITR 323 (SC)
But also because the assessment order is a stereo type order which simply accepts what assessee has stated in his return and fails to make enquiries which are called for in the circumstances of case.
It is not necessary to the CIT to make further enquiries before cancellation of the assessment order of Assessing Officer. The CIT can regard the order as erroneous on the ground that in the circumstances, the case of the Assessing Officer should have made further enquiries before accepting the statement made by assessee in his return.
(4) 134 Taxation 493, 494 (All.)
Where assessment order has made without full enquiries and the case has been remanded to the Assessing Officer by CIT, in exercise of power under section 263 and action confirmed by ITAT, there can arose no referable question to be referred before High Court.
(5) 157 ITR 112
It has been held even if order is found erroneous in one respect initiation proceedings under section 263 cannot be questioned.
It is pertinent to mention here that the Assessing Officer himself send the proposal to CIT-II, Patna for initiation proceedings under section 263 of Income-tax Act vide letter No. 3000, dated 7-10-2004 and letter No. 3293, dated 1-11-2004. The Assessing Officer himself accepted mistake committed by him in passing the assessment order, which gives the strengthen the action of CIT under section 263 of Income-tax Act. Photocopies of proposal of Assessing Officer are enclosed for your kind perusal.
Looking to these fatal mistakes committed and accepted by Assessing Officer, the case records of assessee were called for CIT-II, Patna. After satisfy himself about the mistakes of Assessing Officer in passing the assessment orders, the CIT had issued notice under section 263 to assessee No. 2447, dated 19-10-2004 for hearing on 27-10-2004. The assessee did not appear on this date and moved time petition. Thereafter the A/R of the assessee attended during proceedings under section 263 before CIT and after proper opportunity being heard provided to assessee, the CIT had passed order under section 263 of Income-tax Act. The CIT had clearly mention in the order under section 263 about the mistake committed by Assessing Officer while passing assessment order. He had further explained how the Assessing Officer’s order erroneous and prejudicial to interest of revenue.
On previous hearing the A/R of assessee has raised basic objection and challenged the notice under section 263 by CIT for initiation proceedings on the ground that the said notice was not given by CIT. He further stated that the said notice was signed by ITO, Technical Shri R.P. Singh vide dated 19-10-2004, bearing No. 2447.
I would like to mentioned here that the said notice was given by CIT-II, Patna, who enjoys jurisdiction over the case of assessee. The said notice was signed by ITO, Technical on behalf of CIT. He had further taken the approval and direction to issue the said notice on 19-10-2004 on order sheet (copy of order sheet of 263 folder of CIT office enclosed herewith). In response to this notice the A/R of assessee attended time to time during proceeding under section 263 before CIT-II, Patna. Ample opportunity was provided to assessee to defend his case during 263 proceeding by CIT. The assessee or his A/R did not raised any objection in respect of issuing the notice or not signing by CIT for initiation of proceedings under section 263. Therefore the assessee had not any grievance in this regard during proceedings under section 263. It is, therefore, now he is not in correct to raise such objection at this stage (before ITAT) as per the existing provisions of law. Reliance is placed on following decisions :
(i) Ishwar Das Kungoomal v. Commissioner Of Income-Tax, U.P [1972] 85 ITR 586 (All.)
1st time plea before ITAT Objection not raised before CIT Ishwar Das Kungoomal v. Commissioner Of Income-Tax, U.P [1972] 85 ITR 586 (All.)
At the same time a plea must be taken by assessee before CIT at the time of hearing after the assessee is served with a notice, that reasonable opportunity and time has not been allowed. Unless the assessee does that, he cannot successfully take that plea for the first time before Tribunal, where on facts, it was held that the petition had sufficient time for preparing his case.
(ii) CIT v. Sabitri Das Agarwal 77 ITR 934 , 943 (Assam)
Irregularity in service of notice does not wipe out the proceeding.
If therefore there is any defect in service of notice the entire proceedings are not vitiated. The sin may attach to the proceedings at the stage when an irregularity or illegality has supervened and it may be caused if the provisions of law so allow.
(B) The next objection raised by A/R of assessee that the said not (sic) does not contain the grounds/reasons, which could be said that assessment order passed by Assessing Officer in this case, was an order which could be considered erroneous and prejudicial to interest of revenue.
Here also I would like to say that since valid notice was issued by CIT under section 263 of Income-tax Act to give assessee opportunity being heard and accordingly he had availed such opportunity during proceedings under section 263 before CIT, as evident from order sheet maintained by CIT in this respect. The A/R of assessee had put his signature and a reply was also given by A/R to CIT during the hearing of proceeding under section 263. Hence it cannot be said that the said notice suffers any fetal mistake that the (sic) cannot be rectified. Since opportunity being provided by CIT to assessee in this matter and an order under section 263 had been passed after considering the reply of assessee and all relevant fact available before CIT at the time of proceedings under section 263. It is pertinent to mention here that, no any kind of objection was raised by A/R or assessee during pendency of section 263 proceedings before CIT. Hence the objection raised by A/R of assessee at this cannot be entertained at all.
Even if for sake of argument accepted that the notice under section 263 issued by CIT (though it was not suffered any irregularity) suffered irregularity, then also it cannot said the proceedings started under section 263 and order passed in consequence of these proceedings was illegal, void ab initio, as held by the following decisions:—
(i) Commissioner Of Income-Tax v. Prem Syndicate. [1983] 141 ITR 295
(ii) A. Kannon v. State of Tamilnadu 201 ITR 205, 207, 208
(iii) Renu Sagar Power Co. Ltd. v. CIT 234 ITR 782 , 785 (All.)
(iv) Cit, West Bengal Ii, Calcutta v. Electro House 82 ITR 824 , 827 (SC)
(v) Rampyari Devi Sarogi v. CIT 67 ITR 84 , 89 (SC)
Opportunity being heard not provided by CIT - then the ITAT can remand the order to CIT for fresh consideration (but ITAT cannot annulled the order passed by CIT)
(1) Commissioner Of Income-Tax v. Prem Syndicate. [1983] 141 ITR 295
even where the Tribunal find that the assessee was not given reasonable opportunity of being heard, the Tribunal would not be justified in holding that the order passed by CIT was void ab initio. In such a case the ITAT can remand the order to CIT for fresh consideration after providing opportunity being heard to assessee.
(2) A. Kannon v. State of Tamilnadu 201 ITR 205, 207, 208
The laconic order passed by CIT in exercise of Suo motu power of revision was set aside with the direction that the assessee should be given a fair and reasonable opportunity being heard before proceedings further in the matter.
(3) Renu Sagar Power Co. Ltd. v. CIT 234 ITR 782, 785 (All.)
It has been held that where CIT has passed an order under section 263 without giving an opportunity of being heard to the assessee the Tribunal was right in setting aside the order of CIT and remitted back to him to make a order de novo after giving an opportunity of being heard to the assessee.
(4) Cit, West Bengal Ii, Calcutta v. Electro House 82 ITR 824 , 827 (SC)
Rampyari Devi Sarogi v. CIT [1968] 67 ITR 84 , 89 (SC).
Issue of notice not mandatory - Section 263 does not in express forms require a notice to be served as in the case of section 147, section 263 merely requires that an opportunity of being heard should be given to the assessee and the stringent requirement of service of notice under section 147 cannot therefore be applied to the proceeding under section 263.
Gita Devi Agarwal v. CIT [1970] 76 ITR 496 (SC)
CIT v. Hukumchand Mohanlal [1971] 82 ITR 624 (SC)
Discrepancies found during course of survey (Excess stock, cash and other paper & documents) : During course of survey discrepancy was found by survey team, not only in stock/cash found physically at the time of survey but also a large number of papers and documents were found which were inventorised CJ 1 to CJ 40. The Assessing Officer did not examine the issue in respect of discrepancies found in the form of excess stock of Gold, Silver, Diamond and Cash etc. It is pertinent to mention here that till the date of passing assessment order no satisfactory reply was given by assessee to explain the source and nature of excess stock. Even the Assessing Officer miserably failed to investigate and examine the issue in the light of facts available before him, which were gathered by survey team during survey proceedings. Even the Assessing Officer did not examine the records found during course of survey. The Assessing Officer also did not examine the books of account relating to assessment year under consideration which seems to be not found at the time of survey. Though the Assessing Officer mention in his order that books of account examined but the order sheet and body of assessment order do not speak about correctness of his version mention in assessment order.
Looking to these facts, it is amply clear that the Assessing Officer had completed the assessment in undue haste and without making the additions which were called for an account of unexplained/ undisclosed investment in Gold, Silver, Diamond and Cash, as excess ascertained/determined by survey team.
As mention in the proposal moved by Assessing Officer himself the Assessing Officer committed such fatal mistake which attracts the revisionary action under section 263 by the Supervising Officer to rectify fetal mistake and to overcome their revenue loss, which was suffered ference (sic) by Assessing Officer’s mistake, by not making justifiable additions.
Further the assessment order does not speak about the turnover, gross profit, net profit or current assessment year Assessing Officer did not compare with assessee own past history or comparable case. Even rejection books of account was clearly justified, as large number discrepancies noted during survey itself. Hence from this point also the assessment order passed by Assessing Officer was, erroneous and prejudicial to the revenue. The credits appeared in B/S did not examine by Assessing Officer at all in the light of judicial decisions in favour of department and facts warrants, an adverse frence (sic) could be drawn by him as per provisions of Income-tax Act. In same way indirect expenses shown in P & L. A/c. also had not been examined at all. This also strengthen the view that the said order was suffered a lot of mistake which resulting assessment can be considered erroneous and prejudicial to interest of revenue.
In view of facts indicated above and justification given by CIT in order passed under section 263, the order under section 263 of Income-tax Act deserve to be confirmed. Your honour is requested to consider the matter accordingly and decided the issue in favour of department and against the assessee."
7. The learned counsel has filed comments on written submission filed by the Departmental Representative. The same is reproduced below:—
"First Para First Part - Non-examination of books.—No such finding/ allegation either in notice under section 263 page 44 of Department Paper Book or order sheet (in proceeding under section 263) placed at departmental paper book page 42 or in order under section 263 filed along with memo of appeal. Attention is drawn to the order of assessment placed at page 1 of paper book dated 20-2-2006 wherein the Assessing Officer has observed "books of account produced have been examined and the assessee’s authorised representative has been heard". Further, attention is invited to page 45 of second paper book wherein the Assessing Officer has observed "no defect in the books of account have been detected". The learned DR without noticing the above facts has made the submissions which are contrary to law as well as records and has travelled beyond the impugned order which is not permissible. Further he has failed to notice the provisions of law wherein failure to produce books of account leads to order under section 144 and initiation/imposition of penalty for non-production of books under section 271(1)(b) and for non-maintenance of books under section 271A. No such finding/allegation exists either in show-cause notice or order under section 263.
First para second part.—Assessing Officer did not call for loose papers and other documents, bank passbook, etc. found and inventorised during the course of survey. Your honour’s attention is invited to pages 43 and 45 of our second paper book especially paragraphs 7 to 9 wherein the Assessing Officer has considered papers/document/bank pass books inventorised in course survey under section 133A. Attention is also invited to our some of the replies placed in departmental paper book at pages 58 to 62 and to post survey enquiry (order sheet placed at pages 1 to 3 of department paper book) whereby on being satisfied, the entire papers and documents were returned back as per direction of higher authorities.
Second paragraph - Non-production of books.—This submission has already been meted out in our reply of first para first part above and thus not repeated.
Second para second part - No enquiry made regarding discrepancy of stock.—Your honour’s attention is drawn to departmental paper book pages 56, 57, 64 & 65 which are query letter by the Assessing Officer calling for explanation of excess stock-in-trade and on other issues and our replies placed in the said paper book at pages 54, 55 and 59 to 62 whereby it was submitted that the inventory prepared at the time of survey suffers from defects which were pointed out in detail in our petition filed on 7-11-2001 (copy placed at pages 26 to 28 of our second paper book). Even order under section 263 alleges mistake in not considering the gold stock found on the first floor only (last page of 263 order) and therefore the submission of the learned DR is contrary to the impugned order under section 263.
Last para of para 2 and continued up to para 3 - Assumption of jurisdiction and case laws relied thereon.—Attention is invited to the show-cause notice placed at page 44 of departmental paper book. It is submitted that the said notice does not bear the signature of Commissioner of Income-tax and is equally vague. These facts were brought to the notice of Commissioner of Income-tax vide reply submitted on 3-11-2004 copy placed in our paper book pages 10 to 12 wherein reliance was placed on two judicial decisions directly on the issue in 221 ITR 861 (Guj.) and 230 ITR 591 (MP). Gist of decisions is enclosed. Attention is also invited to the impugned order wherein the Commissioner of Income-tax states that the order of assessment suffers from various mistakes (first page of the order), On perusal of the show-cause notice your honour will find that the very assumption of jurisdiction is void ab initio. Firstly, the notice has not been signed by the Commissioner and secondly the Commissioner of Income-tax has travelled beyond the show-cause notice. This fact is also apparent from the order sheet of proceeding under section 263 placed at page 42 of departmental paper book.
Page 3 (middle & last para).—The appellant was never confronted with the papers and materials now referred to by learned DR. The show-cause notice (page 44 of DPB) and the order sheet entry in 263 proceeding (page 42) is testimony of this fact. The appellant is assailing the order of Commissioner of Income-tax on the ground that the notice issued does not bear his signature, the same vague and the authority concerned has travelled beyond the show-cause notice. The reply of the appellant is enclosed at pages 9, 10 to 12 of our paper book wherein at first instance on 27-10-2004 (department call it a time petition), the appellant has contended that the order has been passed with due application of mind, examination of books of account and after conducting proper and thorough enquiry and investigation including the outcome of survey under section 133A.
Pages 4 to 6 are comment on our submission.—The judicial decision relied upon are not relevant and therefore, not applicable to the appellant’s case. The order has been passed after considering the material found in course of survey, examination of books, our replies and the petition submitted before the then Commissioner of Income-tax-2, Patna dated 7-11-2001 (pages 26 to 38 of our second paper book) wherein the very inventorization of stock was challenged.
Pages 8 & 9 - issue of notice not mandatory.—The provisions of the Act require issue of show-cause notice to the appellant before passing of order under section 263. The relevant portion is quoted below:
"He may, after giving the assessee an opportunity of being heard and after making.........."
In the circumstances the judicial decisions relied for the above proposition are mis-conceived. The rest of the submission at pages 8 & 9 are repetitive for which replies have been submitted in preceding paragraphs and therefore not repeated."
8. We have considered the submissions. We have considered the facts made from both the sides in writing and orally. In the course of hearing the Ld. Counsel appearing on behalf of the assessee has raised new ground by that he has challenged the assumption of jurisdiction by the Ld. CIT. It is submitted that show-cause notice issued by Ld. CIT by which he has assumed jurisdiction is not under his seal and signature. Further, he has argued that the notice is also invalid for want of detailed show-cause notice showing how the order of the Assessing Officer is erroneous and prejudicial to the interest of the revenue. For this proposition he has placed reliance on the following two decisions:—
(i) CIT v. Sattandas Mohandas Sidhi [1998] 230 ITR 591 1 (MP)
(ii) Garden Silk Mills Ltd. v. CIT [1996] 221 ITR 861 (Guj.)
Since new legal ground is taken for the first time before us, opportunity was allowed to Ld. Departmental Representative to be heard. The Ld. Departmental Representative has filed written submission inter alia the Ld. Departmental Representative has objected the raising of this issue for the first time before this Tribunal. He has further submitted that the assessee or Ld. Authorised Representative appearing on behalf of the assessee did not raise any objection in respect of issuing notice or not signing by the Ld. CIT for initiation of proceeding under section 263. Therefore, the assessee had no grievance in this regard during proceedings under section 263. It is, therefore, now it is not incorrect to raise such objection at this stage. For this proposition the Ld. Departmental Representative has placed reliance on the decision of Hon’ble Allahabad High Court in the case of Ishwar Das Kungoomal v. Commissioner Of Income-Tax, U.P [1972] 85 ITR 586. The Ld. Counsel has filed a rejoinder on the written submission of the assessee and has reiterated the submissions made earlier.
9. We have considered the submissions on the legal issue raised by the Ld. Counsel appearing on behalf of the assessee. We have also perused the various decisions on which reliance have been placed on the issue whether the Tribunal is empowered to admit new/additional ground raised for the first time before it. In this regard courts have taken view that "while dealing with the subject-matter of the appeal in the exercise of the wide amplitude of its power, the Tribunal may allow the party to take up a new ground of appeal provided ample opportunity is given to the other side to meet this new ground of appeal". This was held by the Hon’ble Gujarat High Court in the case of Commissioner Of Income-Tax, Gujarat-Iii v. Steel Cast Corporation.. [1977] 107 ITR 683. Hon’ble Supreme Court in the case of CIT v. S. Nelliappan [1967] 66 ITR 722 held that the Tribunal has power to permit the appellant to raise a new ground of appeal not set forth in the Memorandum of Appeal. Hon’ble Bombay High Court has held that even without a formal amendment of the grounds set forth in the Memorandum of Appeal, a new ground can be raised - New India Life Assurance Co. Ltd. v. CIT [1957] 31 ITR 844 (Bom.). It is also held that a new ground can be raised provided that new ground does not involve a further investigation into facts and this power is spelt out in rule 11 of Income-tax Rules, 1963. Hon’ble Punjab & Haryana High Court in the case of Vijay Kumar Jain v. CIT [1975] 99 ITR 349 has held that the Tribunal may allow a party to raise a ground which did not press before the appellate authority. In the case of National Thermal Power Co. Ltd. v. Commissioner Of Income Tax [1998] 229 ITR 383, Hon’ble Supreme Court has held that the proposition of law with regard to the powers of the first appellate authority which has been laid down by Hon’ble Supreme Court in the case of Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 6881 , will equally apply to appeals before the Tribunal. Hon’ble Guwahati High Court has held in the case of Amines Plasticizers Ltd. v. Commissioner Of Income-Tax [1997] 223 ITR 173, that leave to raise additional ground can be sought in writing or orally. Hon’ble Allahabad High Court in the case of CIT v. Mohd. Ayyub Agency [1992] 197 ITR 637 has held that "the power of the Tribunal to permit any party to the appeal to raise the question of jurisdiction, which goes to the root of the matter and does }not involve further investigation into facts, cannot be disputed on the plain reading of rule 11 of Income-tax Rules, 1963. Indeed, on such a plea being taken, the Tribunal is under a statutory obligation not only to entertain the plea but also to decide the same after providing sufficient opportunity of being heard to the other side.
This also supported by various other decisions as under:—
(i) Taylor Instrument Co. (India) Ltd. v. CIT [1992] 198 ITR 1 1 (Delhi)
(ii) CIT v. Mahalakshmi Sugar Mills Co. Ltd. [1993] 200 ITR 275 2 (Delhi)
(iii) Mewar Sugar Mills Ltd. v. CIT [1993] 203 ITR 415 (Raj.)
(iv) CIT v. Smt. Khairunnissa Ebrahim [1993] 201 ITR 903 (Ker.)
(v) CIT v. Bhopal Sugar Industries Ltd. [1998] 233 ITR 429 3 (MP)
Hon’ble Bombay High Court in the case of Godavari Sugar Mills Ltd. v. CIT [1993] 199 ITR 351 (FB) has held that "there is nothing in section 254(1) so as to limit the jurisdiction of the Appellate Tribunal in any manner. For reasons which have been set out earlier, the phrase "pass such order thereon" does not in any way restrict the jurisdiction of the Tribunal but, on the contrary, confers the widest possible jurisdiction on the Appellate Tribunal including jurisdiction to permit any additional ground of appeal if, in its discretion, and for good reason, it thinks it necessary or permissible to do so. In that view of the matter, it is quite clear that the Appellate Tribunal has jurisdiction to permit additional grounds to be raised before it even though these may not arise from the order of the first appellate authority, so long as these grounds are in respect of the subject-matter of the entire tax proceedings. In so, holding, the Full Bench has overruled the decision in Ugar Sugar Works Ltd. v. Commissioner Of Income-Tax, Poona. [1983] 141 ITR 326 (Bom.). Further, the above view has been taken applying the ratio of the Supreme Court judgment in Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688 , 693 (SC), where it has been held that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the first appellate authority in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Assessing Officer."
Thus, while deciding a tax appeal, the appellate authority - first appellate authority - as also Appellate Tribunal - had jurisdiction to permit additional grounds raised before them, even though those grounds may not have been raised before either the Assessing Officer or the first appellate authority, so long as the points for decision arise from the proceedings which were the subject-matter of the assessment before the assessing authority.
10. In the present case, new question raised by the Ld. Counsel is a question of jurisdiction which goes to the root of the matter and does not involve further investigation of the fact. It is an admitted fact that the notice of Ld. CIT was neither a detailed show-cause notice nor it was under his seal and signature. So, new issue raised by the Ld. Counsel does not require further investigation as it is obvious from the face of it. For the sake of clarity show-cause notice issued is reproduced below:—
"Government of India,
Office of the Commissioner of Income tax-II, Patna,
2nd Floor, Central Revenue Building, Beerchand Patel Path, Patna.
F. No. CIT-II/Pat/Tec/263/2004-05/2447
Dated, Patna the 19th October, 2004
To
Sri Satish Kumar Keshri,
Prop: M/s. Hira Panna Jewellers,
Hira Place, Dak Bunglow Road, Patna
Sub :- Show-cause notice under section 263 of Income-tax Act, 1961 for assessment year 2002-03.
I am directed to convey that from perusal of the case records and assessment order under section 143(3) passed on 16-6-2003 in your case, it appears that the above order dated 16-6-2003 is erroneous insofar as it is prejudicial to the interest of revenue.
In this connection, I am further directed to inform you that an opportunity is hereby given to you to appear before the Commissioner of Income-tax-II, Patna personally or through authorized representative on 27-10-2004 at 11.30 a.m. and to show-cause as to why the above assessment order for the assessment year 2002-03 should not be cancelled for a fresh assessment under section 263 of the Income-tax Act.
Sd/-
(R.P. Singh)
Income Tax Officer (Tech.)
For :- Commissioner of Income Tax-II, Patna."
11. Hon’ble Gujarat High Court in the case of Garden Silk Mills Ltd. v. CIT [1996] 221 ITR 861 on the similar circumstances has held as under:—
"In the show-cause notice, nothing is indicated. The notice is, therefore, vague. It may be, that the Commissioner might have come to the conclusion from the record of the case that there is delay attributable to the assessee but then in that case, the same should have been mentioned in the notice. In the absence of that, it can be said that the notice is vague. The Assessing Officer before whom the proceedings commenced and concluded, who is seized of the facts of the case, would be the best person to mention in his order if at all he is of the view that the delay in concluding has occasioned due to the delay cause by the assessee. Therefore, in absence of any material, it can be said that the notice is vague so far as the second question is concerned."
12. Hon’ble Madhya Pradesh High Court in the case of Sattandas Mohandas Sidhi (supra) under similar circumstances has held as under:—
"That under section 263, notice has to be sent to the assessee and the notice should contain reason as to how the order is prejudicial to the revenue. According to section 282 of the Income-tax Act, a notice or requisition under the Act has to be served on the person either by post or as if it were a summon issued by the court under the Civil Procedure Code. In the present case, neither of the requirement was complied with by the Commissioner. Therefore, the order passed by the Commissioner of Income-tax under section 263 was invalid for want of detailed show-cause notice under his seal and signature."
13. On perusal of show-cause notice through which Ld. CIT has assumed jurisdiction under section 263 in this case is not under his seal and signature and the notice suffers from want of details on the basis of which Ld. CIT came to the conclusion that the order of the Assessing Officer is erroneous and prejudicial to the interest of the revenue. On this ground itself, the assumption of jurisdiction by the Ld. CIT under section 263 is invalid, illegal, hence the same is quashed.
14. Further, on perusal of the entire facts on record it appears prima facie that the order of the Assessing Officer is prejudicial to the interest of the revenue but it is not erroneous and unless the twin conditions are fulfilled, assumption of jurisdiction under section 263 cannot be sustained. The order cannot be termed as erroneous unless it is not in accordance with law. If an officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. Section 263 does not visualize a case of substitution of the judgment of the Commissioner for that of the Assessing Officer, who passed the order, unless the decision is held to be erroneous. Of course, arbitrary exercise of quasi-judicial power certainly would fall within the scope of section 263, that is not the case which is before us. The Assessing Officer has completed the assessment after considering two vital documents (i) survey report and (ii) valuer’s report. He has discussed these two documents in his order so there is application of mind by the Assessing Officer. Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. (supra) has observed that "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 principle of natural justice or without application of mind." Thus, from the reading of the assessment order, it is clear that the Assessing Officer has applied his mind and there is no incorrect application of law by the Assessing Officer.
14.1 The survey report has worked out the total weight of stock held on the date of survey at 70548.620 gm. and had worked out the difference between the stock found on physical verification and as recorded in the stock register at 18673.59 gm. and had treated the discrepancies to be excess stock whereas the report of the Government Valuer obtained by the Additional Director of Income-tax (Investigation), Patna and forwarded to the Assessing Officer has reported the weight of the gold ornament at gross 7607.300 gm. and 3483.996 gm. respectively. The valuer’s report had also reported that the weighment of the gold ornaments have been done by them on actuaries basis and that in calculating the weight and the quality, consideration were given to the metal impurities etc. that are common practice followed by the goldsmith in determining the net weight and worth of any particular item of ornament. Further, it is found that the Assessing Officer had taken the inherent defect in method of valuation adopted in an improper manner by the survey team vis-a-vis, the scientific and authentic method adopted by the Government Valuer. The Assessing Officer had taken the weighment and the value specified by the latter authority as the basis for framing the assessment order and had on that basis Assessing Officer refrained from making any addition in the goods account or on account of unexplained investment in the acquisition of those assets. It appears that the Assessing Officer had adopted the report of the Government Valuer in good faith and in a bona fide manner as the true and correct report of a superior and technical expert in the line of the work more so, when the documentary evidence under reference had been obtained by no less an authority than the Additional Director of Income-tax (Investigation), Patna, and when such a report had been passed on to the Assessing Officer. He was bound to adopt the same. There may be a mistake in the valuer’s report and consequently loss to revenue but then the action of the Assessing Officer cannot be levelled as erroneous and order may be prejudicial to the interest of the revenue but if it is not erroneous the same cannot be cancelled by the ld. CIT while exercising jurisdiction under section 263. Even if, there was an error in the Government Valuer’s report this was the error committed by the Government Valuation Officer but not by the Assessing Officer and if due to mistake in the report of the valuer some obvious mistake has occurred, remedies in section 154 and not under section 263. So far, the Assessing Officer is concerned, he has acted in good faith and in a bona fide manner. Thus, the provision of section 263 is contemplated to cover within its ambit & scope, the error which is committed by the Assessing Officer, and not those errors which are committed by any other authority. Thus, the assumption of jurisdiction by ld. CIT under section 263 is also invalid and illegal on this score.
15. On merits also, we find that the decision of ld. CIT, in setting aside the order that too without any specific direction, is also not sustainable. On perusal of entire facts on record it is apparent that the Assessing Officer has made necessary enquiries, and has also confronted the assessee on alleged excess stock and on being satisfied with the evidences adduced, has not drawn any adverse inference. Thus in our view, the issue of alleged excess stock was fully adjudicated upon. Vide reply dated 24-3-2003 (pages 39 to 42 of assessee’s paper book), it was brought to the notice of Assessing Officer that the inventory prepared at the time of survey suffers from various defects which were discussed in detail vide petition filed before CIT on 7-11-2001 (pages 26 to 38 of assessee’s paper book). On the strength of petition dated 7-11-2001 it was submitted that the inventory of stock lacks credibility. It is apparent on perusal of inventory that item-wise weighment were not undertaken. For example, Sl. No. 1 of the inventory mentions churi having gross weight of 1589 gms., Sl. Nos. 7 & 8 mentions locket having gross weight 219 & 300 gms., Sl. No. 13 mentions Kundan locket set having gross weight of 1219.400 gms., Sl. No. 21 mentions churi and neckless having gross weight of 757 gms., Sl. No. 25 mentions bala churi set having gross weight of 1100 gms., Sl. No. 26 mentions kamardhani and churi having gross weight of 456 gms. (page 6 onward of assessee’s paper book). The case of the department is that a number of items were weight together. However as illustrated above, the inventory nowhere mentions the total number of pieces weight together. Further, nothing incriminating was found during the course of survey indicating suppression of GP and/or undertaking purchase and sale beyond those recorded in books. Excess stock in any business could be generated by adopting two methodologies, one by suppressing GP from year to year and the other by undertaking transaction (purchase and sale) outside the books of account. No finding to this effect has been recorded by ld. CIT nor any such material has been found in course of survey. Rather, to the contrary, the Assessing Officer has recorded a categorical finding (page 45 of assessee’s paper book) that "nothing incriminating relating to purchase and sale of ornaments (gold, silver, etc.) outside the books of account have been found in course of survey under section 133A. No defect in the books of account has been detected. Hence, the trading result has been accepted". Thus, the assumption of the ld. CIT regarding possession of excess stock is based merely on suspicion and surmises and, therefore, the ld. CIT has restrained himself from giving any specific direction while exercising extraordinary power under section 263. The concluding portion of order under section 263 is reproduced below:—
"I, therefore, set aside the case to the file of the Assessing Officer to make a fresh assessment taking into account properly the stock and cash found at the time of survey and also by proper appreciation of facts."
Therefore, on merit also, we find that the Ld. CIT was not justified in treating the order of the Assessing Officer as erroneous and prejudicial to the interest of the revenue. Therefore, on merit also, the order of the Ld. CIT is not sustainable.
16. As a result, order of the Ld. CIT under section 263 is not legally and factually sustainable, hence the same is quashed.
246/306
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