Commissioner Of Income-Tax vs Mukand Family Trust.
1987 Latest Caselaw 406 Del

ORDER

Per Shri U. S. Dhusia, Judicial Member - CIT, Agra has moved these applications under section 256(1) in respect of assessment years 1981-82, 1982-83 and 1983-84. Since similar questions have been moved in respect of a common issue, we are disposing them of by this consolidated order. According to the applicant, the following questions are questions of law arising out of the order passed by the Tribunal in ITA Nos. 5193 to 5195 for the asst. years 1981-82, 1989-1983 and 1983-84 which need be referred to their lordships for their opinion :

"1. Whether on the facts and in the circumstances of the case, the Tribunal was correct in holding that the provisions of section 263 are not applicable and in canceling the order of CIT passed under section 263 ?

2. Whether the Tribunals decision that mere failure on the part of the ITO to make enquiries and investigation regarding the assesseds versions and his acceptance of whatever has been said by the assessed in the return and the papers accompanying it without any enquiry regarding sources of income and its ownership is not sufficient to come to the conclusion that the ITOs order is erroneous and prejudicial to the interest of revenue and that something more should be shown indicating loss of revenue and if this is not done, the order of CIT could be said to be suffering from legal infirmity ?

3. Whether the decisions of the Allahabad High Court in the cases of J. P. Srivastava & Sons (Kanpur) Ltd. v. CIT [1978] 111 ITR 326 and that of Punjab and Haryana High Court in the case of CIT v. R. K. Metal works [1978] 112 ITR 145 have been correctly applied in the facts and circumstances of this case ?

4. Whether the Honble Tribunal is legally justified in rejecting the decisions of the Supreme Court and the High Courts quoted extensively in the Annexure A to the CITs order under section 263 and whether its interpretation of the ratio decidendi in these cases is correct ?

5. Whether the fact that in circumstances similar ar to this case, the Honble Tribunal in the two cases mentioned in the statement of facts, has itself found the Commissioners orders under section 263 to be legally correct is in itself sufficient to show that the questions of law do arise from the Tribunals order ?"

Relevant facts to be considered are that the assessed is a family trust which filed its returns of income for the asstt. years 1981-82 to 1983-84. For the asstt. year 1981-82 the return was filed on 11-8-1981 showing an income of Rs. 1,30,483. The ITO made the assessment on 6-10-1982. For the asst. year 1982-83 the return showing an income of Rs. 1,24,150 was filed on 26-8-1982. The assessment was completed on 6-10-1982. For the asstt. year 1983-84, the return showing an income of Rs. 1,28,680 was filed on 26-8-1982 and was completed on 13-7-1983. On going through the assessment orders the CIT was of the view that the assessments were made in haste without making the necessary enquiries. He, therefore, after hearing the assessed caused assessments to be set aside under section 263 of the IT Act, 1961. He directed the ITO to re-do the assessments after making the necessary enquiries. The assessed feeling aggrieved, brought the issue in appeal before the Appellate Tribunal. The Tribunal after hearing he counsel for the appellant as well as the departmental representative was of the view that the assessment orders made by the ITO were neither erroneous nor prejudicial to the interest of revenue. Consequently, it was of the opinion that CIT was not justified in proceeding under section 263 to set aside the assessments. It canceled the order passed by CIT under section 263 in respect of these assessment years and restored the assessments made by the ITO. It is on these facts, the aforesaid questions have been referred for all these three years. We first take up the question suggested for the asstt. year 1981-82. As far as the first question is considered it does not refer to any particular aspect of the finding. The Tribunal had reached a finding after detailed examination of the facts and circumstances of the case and is as contained in its finding in paragraph 13. The Tribunal has brought adequate reason to back its finding. We cannot consider the question to be a suitable question for being referred to their Lordships.

2. We have the same finding for the second question as well which refers to the failure of ITO to undertake such enquiries as were necessary according to CIT before making the assessment. In our opinion, the answer to this question even if referred to their lordships will not be able to change the effect of the order of the Tribunal. According to the Tribunal, it was not merely an error committed by the ITO which entitled the CIT to proceed under section 263 of the Act. The CIT must show that the error was prejudicial to the interest of revenue. CIT has not brought out anywhere in his order that the erroneous order passed by the ITO had been prejudicial to the interest of revenue. Unless this was established that the errors had been to the interest of revenue it not possible for us to hold that CIT would be justified for assuming jurisdiction under section 263 and cancel the assessment order. Taking this view of the matter we are of the view that on useful purpose will be served by referring this question to their Lordships.

3. As far as question Nos. 3 and 4 are concerned these are in our opinion vague and full of ambiguity. These are, in our view undoubtedly unsuitable for being referred to their Lordships.

4. As none of the questions sought to be referred has been found to be an eligible question the request of the applicant Commissioner to refer the questions cannot be allowed.

5. We now take up the questions proposed for the asstt. years 1982-83 and 1983-84. Since similar questions as were sought to be referred for the asstt. year 1981-82 have been proposed for the asstt. years 1982-83 and 1983-84 they have to meet with the same fate and treatment as the questions proposed for the asstt. year 1981-82. None for that year has been found eligible for being referred to their Lordships. We cannot find similar questions for the subsequent two years as eligible for being referred to their Lordships.

6. In the result, the applications for all the time three years, therefore, fail and are dismissed.

Per Shri Anand Prakash, Accountant Member - In my opinion a mixed question of facts and law arises out of the order of the Tribunal and question not deserves to be referred to the Honble High Court.

The other questions are covered by question No. 1. Hence separate reference thereof is not necessary, therefore, accept the revenues reference and refer question No. 1 for the valued opinion of the Honble High Court.

AS PER BENCH

As it has not been possible for us to come to an agreed conclusion in this reference application, the following question is referred for the valued opinion of the Honble Third Member :

"Whether, on the facts and in the circumstances of the present case, a mixed question of law as follows arises out of the order of the Tribunal :

1. Whether on the facts and in the circumstances of the case, the Tribunal was correct in holding that the provisions of section 263 of the Income-tax Act, 1961 are not applicable and in canceling the order of the Commissioner of Income-tax, passed under section 263 ?"

THIRD MEMBER ORDER

Per Shri Ch. G. Krishnamurthy, president - In disposing of these reference application filed by the Commissioner of Income-tax, Agra the learned brother s who heard these reference applications had a difference of opinion. The question raised by the learned Commissioner of Income-tax for reference to the Honble High Court are as under :

"1. Whether on the facts and in the circumstances of the case, the Tribunal was correct in holding that the provisions of section 263 are not applicable and in cancelling the order of the CIT passed u/s 263 ?

2. Whether the Tribunals decision that mere failure on the part of the ITO to make enquiries and investigation regarding the assesseds versions and his acceptance of whichever has been said by the assessed in the return an the papers accompanying it without any enquiry regarding sources of income and its ownership is not sufficient to come to the conclusion that the ITOs order is erroneous and prejudicial to the interest of revenue and that something more should be shown indicating loss of revenue and if this is not done, the order of the CIT could be said to be suffering from legal infirmity ?

3. Whether the decisions of the Allahabad High Court in the cases of J. P. Srivastava & Sons (Kanpur) Ltd. v. CIT [1978] 111 ITR 326 and that of Punjab and Haryana High Court in the case of CIT v. R. K. Metal Works [1978] 112 ITR 445 have been correctly applied in the facts and circumstances of the case ?

4. Whether the Honble Tribunal is legally justified in rejecting the decisions of the Supreme Court and the High Court is quoted extensively in the Annexure A to the CITs order u/s 263 and whether its interpretation of the ratio disdained in these cases is correct ?

5. Whether on the facts and in the circumstances of the case, the Honble Tribunal in the two case mentioned in the statement of facts has itself found the Commissioners order under section 263 to be legally correct is in itself sufficient to show that the question of law do arise from the Tribunals order ?"

The learned Judicial Member was of the opinion that the findings reached by the Tribunal in its order were purely findings of facts and those findings did not give rise to any question of law. What actually happened was that the assessments made by the ITO were considered by the CIT as erroneous and prejudicial to the interests of the revenue and for that reason were set aside the exercise of the powers of the CIT u/s 263 of the IT Act, 1961. It is to this order objection was taken to by the assessed before the Tribunal, by raising various points and facts showing that the ITO completed the assessments not in haste or hurry as was supposed by the CIT, but after a proper and due enquiry and after calling for all the relevant documents material and evidence. The Tribunal on appeal against the order of the CIT held that the ITO made proper enquiries, considered all the facts necessary and relevant and then came to the conclusion to which he did. It could not in the circumstances be said that those assessments were made in haste or hurry so as to be called erroneous so as to cause prejudice to the interests of the revenue. The Tribunal, therefore, set aside the order passed by the CIT u/s 263. It was aggrieved by this order of the Tribunal that the CIT filed the reference application stating that the questions extracted above arise out of the order of the Tribunal. The learned Judicial Member held that since the findings arrived at by the CIT were found to be improper and since the assessments made by the ITO were found to be proper and justified the conclusion reached by the CIT was incorrect and that those finding recorded by the Tribunal to the above effect, was a pure finding of fact based upon appreciation of evidence which did not give rise to any question of law. The learned Accountant Member hale that in his opinion a mixed question of law and fact arose out of the order of the Tribunal and at least question No. 1 deserves to be referred to the High Court for its opinion. He further held that since the other questions were covered by question No. 1 separate reference of those questions was not necessary. In other words, in so far as the reference of question Nos. 2 to 5 were concerned, both the Members agreed that they need not be referred to the High Court as question of law arising out of the order of the Tribunal. There was thus a difference of opinion with regard to the question No. 1 while Judicial Member holds that that was a question of fact, the learned Accountant Member hold that that was a question of law. Now the matter is before me as a Third Member to express my opinion in this matter.

2. Before I express my opinion, it is necessary to notice a few facts which are material fir the purpose of disposal of this difference of opinion. This difference of opinion arose in respect of assessments made for the assessment years 1981-982, 1982-83 and 1983-84. These appeals are disposed of by the Tribunal by a consolidated order. The assessed was assessed in the status of AOP for the assessment years under consideration, returns warren filed by the assessed on 11th August, 1981, 25 August, 1982 respectively a for these three years. The assessments under section 143(3) of the IT Act, 1961 were completed on 6 the October, 1982 for the first two years an don 17th July, 1983 for the third year. Subsequently the CIT held the view that these assessments were made in a hurry and haste and proposed to set aside them as erroneous and prejudicial to the interests of the revenue in exercise of his powers u/s 263 of the IT Act, 1961. Pursuant to the show cause notice issued by the CIT, the assessed filed on 31st August, 1984 a detailed explanation which was quoted in full in the order passed by the Tribunal which I do not think it necessary to reproduce here. But it was mentioned clearly in that order that in the reply to the notice, it was mentioned that the ITO made every enquiry i.e. necessary to be made in this regard. It was also pointed out to the CIT that for the assessment year 1980-81 which was the first year of the assessment, the ITO issued various notices and fixed a number of dates for the hearing when details and explanation on various points were called for and examined. During the course of assessment proceedings the assessed filed the following documents :-

(a) Copy of the trust deed.

(b) Bank certificate.

(c) Profit & Loss Account.

(d) Balance-sheet

(e) Account of the beneficiaries

(f) Original vouchers of the parties in whose arhat the business was done.

It was also pointed out that the parties in whose names commission business was conducted were genuine parties and several other details furnished to the ITO were also mentioned in that notice. The CIT, however, after considering the explanation came to the conclusion that the assessment could still be said to have been completed in haste and hurry without exercising proper care and caution. These assessments were, therefore, set aside and the ITO was directed to make fresh assessments after making an enquiry. Then there was appeal before the ITAT against the order passed by the CIT u/s 263. It was contended before the Tribunal that the assessed had filed all the necessary details before the ITO, the ITO made through enquiry and after satisfying himself he came to the conclusion that the trust was genuine and that the income was correctly disclosed. It was also submitted that the assessed pointed out to the CIT that all the transactions were made through account payee cheques and they were cleared through banks and that the bank certificate in that regard was filed. It was further submitted that full details which required to be filed and which were required to be examined by the ITO were filed and were examined by the ITO and, therefore, the assessment made by him could not be said to be erroneous. Still the CIT held that the assessments made were erroneous and prejudicial to be interests of the revenue without giving any finding thereon in his order passed u/s 263. Reliance was placed upon the decision of the Allahabad High Court in the case J. P. Srivastava & sons (Kanpur) Ltd. v. CIT [1978] 111 ITR 326 where the Allahabad High Court held that in proceedings u/s. 263, the CIT should examine the case on merits and that the could take action only if he had rejected the pleas raised on behalf of the assessed. Reliance was also placed before the Tribunal on an order passed by the Tribunal in another case namely Gauri Shanker (P.) Family Trust, Agra where under similar circumstances the orders passed by the CIT u/s. 263 were set aside by the tribunal as not being prejudicial to the interests of the revenue. The Tribunal after considering all the material and the cases relied upon, came to the conclusion that the orders passed by the ITO could not be said to be orders passed without proper enquiry much less in haste and hurry. The categorical finding given by the Tribunal was that the CIT was wrong in saying that that the assessments made by the ITO were in haste and hurry and therefore caused prejudice to the interests of the revenue. The Tribunal referred to all the details filed by the assessed before the ITO on the various types of examination that the ITO conducted before the assessments were finalised. The entire history of he creation of the trust as well as the trust deed were explained to the ITO and he was satisfied as to its genuineness. The Tribunal also noted that the ITO mentioned in his assessment order that he had gone through the trust deed and refers to the observations made by him that nothing was done in contravention of the terms and conditions of the deed. The Tribunal also noted that the ITO mentioned that the trust executed some business and earned profits, that the trust invested money in certain other concerns and derived interest for that benefit of the beneficiaries, that since the trust deed specified the shares of the beneficiaries, the trust would not be assessed to tax but only beneficiaries in respect of the income that fell to their share, as provided for in section 161 of the II Act, 1961. The Tribunal also noted that the profit & loss account, balance-sheet and other details were filed before the ITO and were examined by him. In vies of this overwhelming evidence, the Tribunal held that it was not proper on the part of the CIT to say that the ITO had not properly examined the accounts and came to an erroneous conclusion. The Tribunal further noticed that the CIT nowhere held as to how the assessments made by the ITO were prejudicial to the interests of the revenue nor he did give any finding that the documentary evidence produced by the assessed was either insufficient to prove the assesseds case or was not genuine. The Tribunal also pointed out that the CIT did not point out any material to say that the income disclosed by the trust did not belong to it but to some one else. The Tribunal, therefore, held that the ruling of the Allahabad High Court helps the assesseds case. The Tribunal also found that the facts of the case were similar to the facts of th case obtaining in the case of Gauri Shanker (P.) Family Trust decided by the Tribunal under identical circumstances in favor of the assessed. Eventually, the Tribunal held that the orders passed by the ITO could neither be erroneous nor prejudicial to the interests of the revenue and that the CIT was not justified in setting aside the assessments.

3. In my view, the findings recorded by the Tribunal that the orders passed by the ITO were either erroneous nor prejudicial to the interests of the revenue were pure findings of fact based upon ample material. It cannot be said on the facts of this case that the ITO had not examined the evidence and then completed the assessments in haste and hurry. All the findings recorded by the Tribunal in its order go to justify the improper exercise of jurisdiction by the CIT u/s. 263 and that the findings recorded by the Tribunal were pure findings of fact.

4. In my view, therefore, those findings of fact do not give rise to any question of law. As I have already mentioned in the beginning, that there is a difference of opinion between my learned brothers only with regard to question No. 1 and in my opinion, and for the reasons mentioned above even that question is a pure question of fact and not a mixed question of law and fact requiring reference to the Honble High Court for its opinion. Therefore, these reference applications are liable to be rejected.

5. The matter will now go before the regular Bench to pass the final order in accordance with the opinion for the majority view.