HIGH COURT OF ALLAHABAD
CIT v. Kamala Prasad Seth
IT REFERENCE No. 27 of 2000
December 5, 2011
1. The present reference under section 256(2) of the Income Tax Act 1961 (hereinafter referred to as the Act) has been made at the instance of the Revenue. The Tribunal has referred the following question of law for opinion to this court:
“Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in taking the view that the assessment orders for the consecutive assessment years 1978-79 to 1983-84 were not erroneous and prejudicial to the interact of the revenue within the meaning of section 263 of the Income Tax Act, 1961 and whether there was any material on record in support of the view of the Income Tax Appellate Tribunal in setting aside the orders appealed against before it.”
2. The reference relates to the assessment year 1978-79 to 1983-84. Briefly stated the facts giving rise to the present reference are as follows:
The assessee, by status an individual, carried on business of manufacture and sale of gillet ornaments. During the course of assessment proceedings, for the assessment year 1984-85, it transpired that the assessee had constructed a cinema building. The matter was referred by the Assessing Officer to the Departmental Valuation Officer, Kanpur, who estimated the cost of construction of cinema building at Rs. 16,33,000/-. The period during which construction was carried on was reported to be from March, 1977 to March, 1983, relevant for assessment years 1978-79 to 1983-84. The Assessing Officer issued notices under section 148 for the above mentioned assessment years. During the course of assessment proceedings for these years, the assessee disclosed the investment in the construction of cinema building at Rs. 6,58,994/-. In support, he filed a report of an approved valuer. The Assessing Officer completed the assessments for the assessment year 1978-79 to 1983-84 vide consolidated order under section 143(3)/148 of the Income Tax Act dated 31.1.1990, on the following income on agreed basis:
1978-79 …. Rs. 40,000/-
1979-80 …. Rs. 40,000/-
1980-81 …. Rs. 15,400/-
1981-82 …. Rs. 20,000/-
1982-83 …. Rs. 25,000/-
1983-84 …. Rs. 30,000/-
3. On examination of the records, the learned Commissioner of Income-tax, Allahabad, felt that the aforesaid assessment order of the Assessing Officer was erroneous and prejudicial to the interest of Revenue. He, therefore, initiated proceedings under section 263 of the Income Tax Act for the assessment year 1978-79 to 1983-84 by issue of a show cause notice. After considering the assessee’s reply and submissions, the learned C.I.T. opined that the assessments had been made by the Assessing Officer in haste on 31.1.1990 when he was going to retire on this date itself. He observed that the order passed by the Assessing Officer for the assessment years 1978-79 to 1983 -84 was sketchy. After referring to the fact that there was vast difference between the investment estimated by the Departmental Valuation Officer and that admitted by the assessee and further pointing out certain deficiency/irregularity in the assessments, the learned Commissioner of Income Tax, Allahabad, held that the order passed by the Assessing Officer was prejudicial to the interest of the Revenue and erroneous. Vide order under section 263 of the Income Tax Act, 1961 dated 30th March, 1992, the assessments were cancelled to be made afresh after considering the valuation report of the Departmental Valuation Officer and allowing reasonable opportunity of being heard to the assessee.
4. The assessee came up in appeal before the Tribunal. The thrust of the arguments advanced on behalf of the assessee was that the conditions laid down in section 263 were not satisfied inasmuch as the orders of the Assessing Officer were neither erroneous nor prejudicial to the interest of the Revenue. After considering the rival submissions, the material to which attention of the Appellate Tribunal was invited and the judicial decisions relied by the learned counsel for the assessee, the Appellate Tribunal held that there appeared to be no error in the orders of the assessing Officer, especially because these were passed after conscious application of mind and after meeting all the arguments of the Departmental Valuer’s report. Vide order dated 31st January, 1995, rendered in I.T.A. Nos. 171 to 176 (All.) of 1993, the proceedings under section 263 of the Income Tax Act were quashed for all the years. The operative part of the Tribunal’s order is extracted below:
“How is the order of the Assessing Officer erroneous has not been established which is an important ingredient, while considering the justifiability of the section 263 of the Income tax Act, 1961. The Hon’ble High Court has held in 170 I.T.R. -28, C.I.T. v. Kashi Nath & Co., that the powers of the Commissioner under section 263 are quasi judicial in character. The C.I.T. must give reasons for his conclusion that assessment order is prejudicial to the interest of revenue. The order under section 263 will not be justified for making fishing and roving enquiries. On a proper appreciation of the material placed before us and after hearing the rival submissions, we are of the view that the orders of the Commissioner of Income Tax under section 263 for all the years under consideration will have to be quashed. We do so. The ration laid down in 170 I.T.R. 28 (All.) (Supra) is fully applicable to the facts of the case. The same view has been expressed by the Hon’ble Allahabad High Court in 188 I.T.R. 608. We are not impressed by the argument of the learned D.R. that the order becomes prejudicial and erroneous because the officer was going to retire shortly or because the I.T.O. completed the assessment in haste. For invoking the provisions of Section 263 the order of the I.T.O. has got to be erroneous legally. Such an exercise has not been made in this case. It has not been pin-pointed that the orders passed by the Assessing Officer were erroneous. When we say that it has not been pin-pointed, we mean to lay down a thesis that there has to be some reasonable basis for holding that the order was erroneous. A simple statement made in the order of the C.I.T. that the order is erroneous will not make it erroneous, if otherwise the order of the Assessing Officer is not illegal.”
5. We have heard Shri A. N. Mahajan, learned Senior Standing counsel on behalf of the Revenue. Nobody has appeared on behalf of the respondent-assessee.
6. Shri Mahajan, learned counsel states that the Assessing Officer without making any enquiry in respect of the investment made in the cinema building and without taking into consideration the reports submitted by the Departmental Valuation Officer had accepted the statement given by the assessee and that too on the last date of his retirement. He further submitted that assessment order has been passed without application of any mind. He, therefore, submitted that the Commissioner of Income Tax Allahabad was well within his right in setting aside the assessment order in exercise of its power under section 263 of the Act. In support of the aforesaid pleas he has placed reliance upon the following decisions:
Malabar Industrial Co. Ltd. v. CIT  243 ITR 83/109 Taxman 66 (SC);
CIT v. Bhagwan Das  272 ITR 367/142 Taxman 1 (All.); and
CIT v. Deepak Kumar Garg  299 ITR 435 (MP)
7. In the case of Malabar Industrial Co. Ltd. (Supra) the Supreme Court 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 interest 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 interest 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.”
8. In the case of Bhagwan Das (supra) following the decision of the Supreme Court in the case of Malabar Industrial Co. Ltd. (Supra) this court has held that an order which has been passed without application of mind will also fall under the expression erroneous and prejudicial to the interest of the Revenue. Since the Income-tax Officer has granted exemption to the assessee in respect of income from agriculture and poultry-farming without any discussion and without any application of mind, respectfully following the aforesaid decision, we are of the opinion that the Tribunal had committed error in holding that the assessment order in so far as it granted exemption to income from agriculture and poultry-farming was not erroneous or prejudicial to the interests of the Revenue.
9. In the case of Deepak Kumar Garg (Supra) the M.P. High Court has held that in the case in hand, after hearing the authorised representative, the Commissioner has recorded a clear finding that the order of the Assessing Officer was erroneous as well as prejudicial to the interests of the Revenue. From the order of the Assessing Officer, it is clear that for want of time, the Assessing Officer had done only a semblance of enquiry and that too, in a very slipshod manner, as is clear from the post script in the order of the Assessing Officer. The Assessing Officer accepted the version of the assessee without proper enquiry and as a result a substantial amount of taxable income was not brought to tax. In such a case the assessment order would be erroneous and prejudicial to the interests of the Revenue because law enjoins upon the Assessing Officer to make the assessment order bringing all taxable income to tax. The enquiry held in perfunctory manner could not be said to be a proper enquiry before passing the assessment order. This cannot be a ground to shut out the jurisdiction of the Commissioner of Income-tax that an adequate enquiry was conducted by the Assessing Officer.
10. Applying the above principles in the present case, the Assessing officer has passed a single order for six assessment years in question under section 148 of the Act. The proceedings were initiated on the basis of differences as found in the investment shown by the assessee and as per property valued by the departmental valuer. The Assessing Officer had determined the income with the following observations
“The assessee was totally dis-satisfied with the investment estimated by the Departmental Valuer and got his properties valued by the Approved Valuer and submitted it in support of the investment made by him. After examination of the books of account both the valuation reports reply filed and financial position of the assessee, net income is estimated as under to which he agreed to be assessed.”
11. In our considered opinion the order passed by the Assessing Officer shows complete non application of mind. He has not discussed as to what was the difference between the value estimated by the departmental valuer as also given by the assessee’s valuer and what was the reason for determining the income at such a low figure. The Commissioner was therefore, perfectly justified in setting aside the assessment in exercise of powers under section 263 of the Act as the assessment order was erroneous and prejudicial to the interest of the Revenue.
12. In view of the foregoing discussions we answer the question referred to us in negative i.e. in favour of the Revenue and against the assessee.
13. On the facts and circumstances, the parties are left to bear their own cost.