Case Law Details
IN THE ITAT KOLKATA BENCH ‘A’
J. Thomas & Co. (P.) Ltd.
Versus
Joint Commissioner of Income-tax (OSD)
IT Appeal No. 570 (Kol.) of 2012
[Assessment year 2007-08]
OCTOBER 19, 2012
ORDER
Pramod Kumar, Accountant Member
By way of this appeal, the assessee-appellant has challenged correctness of learned Commissioner’s order dated 6th March, 2012, passed under section 263 r.w.s. 143(3) of the Income Tax Act, 1961, for the assessment year 2007-08 on the following grounds :-
1. That on the facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax (hereinafter referred to as ‘Ld. CIT’) has erred in issuing notice dated 10th February, 2012 under the provisions of section 263 of the Income tax Act, 1961 (hereinafter referred to as the ‘Act’) for the assessment year 2007-08, without mentioning any reason for issuance of the same and thereby violating the principles of natural justice.
2. That on the facts and in the circumstances of the case and in law, the Ld. CIT has erred in assuming jurisdiction under the provisions of section 263 of the Act by issuing notice dated 10th February, 2012 for the assessment year 2007-08, based on audit objections raised by the revenue audit department, without application of his mind.
3. That on the facts and in the circumstances of the case and in law, the Ld. CIT has erred in passing an order under the provisions of section 263 of the Act for the assessment year 2007-08, for setting aside the assessment order passed by the Assessing Officer (herein after referred to as ‘AO’) under section 143(3) of the Act on some of the grounds which were never discussed in the show cause notice dated 10th February, 2012 and/or during the course of hearing, thereby depriving the appellant of a fair opportunity to show cause against those grounds.
4. That on the facts and in the circumstances of the case and in law, the Ld. CIT has erred in passing the order under the provisions of section 263 of the Act for the assessment year 2007-08, for setting aside the assessment order passed by the AO under the provisions of section 143(3) of the Act without stating any reason as to why the order passed by the AO is erroneous as well as prejudicial to the interest of revenue.
5. That on the facts and in the circumstances of the case and in law, the Ld. CIT has erred in passing the order under the provisions of section 263 of the Act for the assessment year 2007-08, thereby setting aside the order passed by the AO under the provisions of section 143(3) of the Act on the alleged ground that the said order was erroneous as well as prejudicial to the interest of revenue when the order passed by the AO was neither erroneous nor prejudicial to the interest of revenue.
6. That on the facts and in the circumstances of the case and in law, the Ld. CIT has erred in passing the order under the provisions of section 263 of the Act for the assessment year 2007-08, thereby setting aside the order passed by the AO under the provisions of section 143(3) of the Act on the alleged ground that no verification/enquiry was made by the AO when due verification/enquiry was made by the AO during the course of assessment proceeding and further, when a detailed reply substantiating the stand taken in the assessment order was given by the AO in pursuance of the audit query raised the revenue audit department immediately after the assessment proceedings.
2. The issue in appeal lies in a narrow compass of material facts. On 10th February, 2012, learned Commissioner issued a show cause notice to the assessee, which reads as follows:
“OFFICE OF THE COMMISSIONER OF INCOME TAX, KOLKATA-II, KOLKATA
AAYAKAR BHAWAN, 3RD FLOOR, P-7, CHOWRINGHEE SQUARE, KOL-700 069
No. CIT-II/Kol/U/s.263/C-12/2011-12/9424
Dated: 10.02.2012
To
The Principal Officer,
M/s. J. Thomas & Co. Pvt. Ltd.,
Nilhat House,
11, R.N. Mukherjee Road,
Kolkata-700 001
Sub.: Notice u/s. 263 of the I.T. Act 1961, in your case for AY 2007-08- fixation of hearing – matter regarding-
I have called for and examined the assessment record in your case for assessment year 2007-08. It appears that the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of revenue.
You are requested to appear before me either personally or through an authorized representative in this regard on 21.02.2012 at 2:00 p.m.
Sd/-
[UJJWAL KUMAR]
Commissioner of Income Tax, Kol-II, Kolkata”.
3. It appears that the assessee attended to the proceedings on the said date and demanded to know the reasons on the basis of which assessment order for assessment year 2007-08 was considered erroneous and prejudicial to the interest of the revenue. As to what transpired at the said hearing, it may be useful to refer to the following extracts from written submissions filed by the assessee duly acknowledged by the learned Commissioner as also by the learned Assessing Officer :-
“We write with reference to notice no. CIT-IIfKol/u/s263/C-12/201 1-12/9424 dated 10th February, 2012 issued by your kind self under section 263 of the Income tax Act, 1961 (hereinafter referred to as the ‘Act’) fixing the date of hearing on 21st February, 2012 and further, to the discussion we had with your kindself on that date.
As no reasons for initiating the above proceedings on the company were mentioned in the aforementioned notice dated 10th February, 2012 issued by your kindself, it was humbly requested during the course of the hearing to state the same so that we can file a detailed written submission before your kindself to explain as to why the order passed by the Assessing Officer is not erroneous as well .as not prejudicial to the interest of revenue. Your kindself mentioned that there are no provisions in the Act which make it mandatory to state any reason for issuance of the notice under the provisions of section 263 of the Act. Further, your kindself has mentioned that notice has not been issued at your instance but the said notice has been issued at the instance of the revenue audit department who has raised an audit objection for the captioned assessment year. However, your kindself was kind enough to show us the file containing the reasons for which the revenue audit department has raised their objections.
During the course of discussion, your kindself asked the Assessing Officer to attend the hearing and he also joined the hearing. During the course of the hearing, your kindself has instructed us to file a copy of the reply to the office of the Assessing Officer as the proposal for revision has been recommended from the office of the Assessing Officer. During the course of the discussion, the Assessing Officer had stated that a suitable reply was given to the query raised by the revenue audit party and he had requested the revenue audit department to drop the query raised by them. Since, the revenue audit party was not convinced by the reply given, the proposal for revision was sent to CIT’s office”.
4. It is in this backdrop that the learned Commissioner has passed the impugned revision order, which is reproduced below :-
“From the accounts of the company it was noticed that the assessee sold two buildings at a total of Rs.9,35,00,000/-. In the computation of capital gains, the assessee claimed the cost of acquisition of the land and building separately. No enquiry was made into this aspect of the case. It is notable that, in the final accounts for AY 2005-06, composite value for land & building was shown as asset. It is also a fact that the cost of acquisition as claimed by the assessee was accepted by the A.O. without any verification of the Fare Market Value on the relevant date. It also appears that the set off of unabsorbed depreciation of Rs. 1,16,66,995/- was allowed imperfectly. Further, in the computation of tax, no surcharge and education cess was levied. Hence, proceedings u/s. 263 of the I.T. Act was initiated.
The A.R. of the assessee-company was heard in the matter. I hold that the order passed by the AO is erroneous as it is prejudicial to the interest of the revenue.
The assessment order is set aside. The AO is directed to reframe the order after giving due opportunity to the assessee of being heard”.
5. Aggrieved, assessee is in appeal before us.
6. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position.
7. We find that there is no reason whatsoever set out in the show cause notice as to why the Commissioner was of the view that the assessment order is erroneous and prejudicial to the interest of the revenue. Unless the Commissioner specifically sets out such reasons in the show cause notice, and hears the assessee on the same, it is not open to him to exercise his revision powers under section 263 of the Act. Undoubtedly, in the impugned revision order, learned Commissioner does mention about a few points, ostensibly borrowed from revenue audit objections, on the basis of which revision proceedings were initiated, but it was not even the Commissioner’s case that he had any opinion of his own, beyond this borrowed opinion, to even consider the assessment order as erroneous and prejudicial to the interest of the revenue. Clearly, therefore, the conditions precedent, under section 263 were not satisfied, for initiating revision proceedings were not satisfied. We have also noticed that in the operative portion of his order, learned Commissioner has not mentioned any reasons whatsoever for coming to the conclusion as to why the assessment order was considered to be erroneous and prejudicial to the interest of the revenue. In a rather majestic tone, learned Commissioner notes that “the A.R. of the assessee-company was heard in the matter” and hurries upto conclude that “I hold that the order passed by the AO is erroneous as it is prejudicial to the interest of the revenue”, but then he does not realize that when he is exercising a quasi judicial authority, as he was exercising in this case, he has to speak his mind through his order and he must set out reasons as to why he holds so. Unless the Commissioner records reasons for coming to the conclusion as to why he thinks order is erroneous and prejudicial to the interest of the revenue, he cannot assume jurisdiction under section 263. The manner in which impugned order is passed leaves a lot to be desired, and it does not show any application to mind. Such an action cannot meet any judicial approval. In any case, unless categorical finding is given about what is wrong in the order, the matter cannot be set aside to file of the Assessing Officer for fresh examination. In view of these discussions, as also bearing in mind entirety of the case, we vacate the impugned revision order. The assessee gets the relief accordingly.
8. In the result, the appeal filed by the assessee is allowed.
