Hari Om Agarwal vs Income-Tax Officer.
1990 Latest Caselaw 193 Del

ORDER--Absence of proper enquiry by assessing officer.

Ratio:

Where after search the assessment completed by assessing officer accepting cash credit amount without proper enquiries, assessing officer's action could not be said to be erroneous and prejudicial.

Held:

The assessment for the year 1984-85 was framed by the assessing officer under section 143(3) after issue of notice under section 143(2). The wealth-tax assessment of the assessed for the assessment year 1984-85 had also been completed under section 16(3) of the Wealth Tax Act, wherein the assessed had shown all these cash credits as liabilities and which were duly accepted by the Wealth Tax Officer. The Commissioner could only take into consideration the record as it stood on the date on which the assessment order for assessment year 1984-85 was passed namely, 29-11-1984. The Commissioner has taken into consideration the statements of some ladies recorded by the Inspecting Assistant Commissioner (Assessment) after the search had taken place on 21-7-1986 (relevant to the assessment year 1986-87). He would not do so. The said exercise would become purely academic, where ladies' assessments had been completed. The Commissioner had taken action under section 263 and the Tribunal had quashed those actions. The ladies had filed their affidavits on 14-10-1986 and on same date they were also examined by the Inspecting Assistant Commissioner (Assessment) for the purposes of completing the assessment in the case of assessed for the assessment year 1986-87. This assessment order completed under section 143(3) on 29-3-1989 accepted similar cash credits in the names of these ladies. Therefore, it would be a futile exercise to have the assessments made by the assessing officer afresh when similar enquiries into the identities, creditworthiness and the genuineness of the transactions had taken place later. So far as the assessment year 1985-86 is concerned, there are additional reasons why the order of the Commissioner cannot be upheld. Firstly since the assessment for the preceding assessment year which was the first year in which cash credits in the names of those very ladies appeared had been completed under section 143(3), the assessing officer's action in completing the assessments under section 143(1) could be said to be justified. Secondly, since the assessed was neither lady nor a minor, the answer to question in Circular No. 451 dated 17-2-1986 could not assist the department. Further, Item D. (iii) of Annexure II to Circular No. 47 dated 8-7-1986 is to the effect that an assessment once completed under the Summary Assessment Scheme shall not be disturbed under section 143(2) or 154 under any circumstances. Further, circulars of the Board relied upon by the assessed are benevolent circulars and it is a settled proposition by now that such circulars are binding on the Income Tax Authorities. Therefore, in whatever manner the matter is looked at, it is not possible to uphold the order of the Commissioner for the assessment year 1985-86 either.

Application:

Also to current assessment years.

Income Tax Act 1961 s.263

ORDERS

1. These two appeals, filed by the assessed, arise out of the consolidated order dated 24-3-1987 of the learned Commissioner of Income-tax, Meerut for the assessment years 1984-85 and 1985-86.

2. The assessed is an individual. For the assessment year 1984-85 the assessment was completed by the Income-tax Officer under section 143(3) on 29-11-1984 after issuing notice under section 143(2) and for the A. Y. 1985-86 he completed the assessment under section 143(i) on 2-1-1986 on the basis of return date 26-7-1985.

3. However the Commissioner of Income-tax, Meerut, being prima facie of the view that this assessment were erroneous insofar as they were prejudicial to the interests of the revenue, served the assessed with a consolidated notice dated 19-1-1987 under section 263. He noticed that the ITO had accepted the following cash credits without any enquiries, regarding the identities of the depositors, their capacities and the genuineness of the cash credits by acting merely on the confirmatory letters filed along with the letters :-

Sl. No.

Name of the depositors

Amount of deposit

A.Y. 1984-85

A.Y. 1985-86

1.

Smt. Shakuntala Devi

]

]

Rs. 10,000

Rs. 28,500

2.

Smt. Uma Devi

Rs. 10,000

Rs. 10,000

3.

Nirmala Devi on

Rs. 10,000

Rs. 30,000

4.

Urmila Devi 22-12-1983

Rs. 10,000

Rs. 30,000

5.

Brij Bala

]

]

Rs. 10,000

Rs. 31,000

6.

Saroj Devi on

Rs. 10,000

Rs. 29,000

7.

Padma Goel 23-12-1983

Rs. 10,000

Rs. 20,500

The assessed filed a consolidated reply dated 5-3-1987 in which the following points were raised :-

(1) The assessed was an old assessed.

(2) In the income and expenditure account these loans had been shown.

(3) The ITO had discussed with the assessed and made necessary enquiries for the A. Y. 1984-85. All sources of business and deposits had been placed before the ITO who made verbal enquiries.

(4) The certificates were discussed by the ITO with the assessed and it was explained that each of the depositors was enjoying income and the amount were advanced out of the capitalised income.

(5) In the certificates filed by the depositors they confirmed the fact of deposits and also stated that very soon they would be filing their income-tax returns before the respective ITOs.

So far as the A. Y. 1985-86 is concerned, the assessed explained that the return had been filed under the Amnesty Circulars of CBDT and more particularly under Circular No. 423 dated 26-6-1985. It was also pointed out that the depositors themselves had filed their returns for the assessment year 1985-86 under the Amnesty Circulars of the CBDT and their returns had been completed under section 143(1) on the declared incomes. It was said that along with the returns various documents including income and expenditure account showing all the incomings and outgoings of the investments as well as the certificate of loans etc. had been filed. It was said that in terms of Circulars No. 423 dated 26-6-1985 no roving enquiries could be made. However, the learned Commissioner did not accept these submissions. He held that there was no circular given Amnesty to the assessed that the assessment completed under section 143(1) could not be reopened. He held that no enquiries what so ever had been made by the ITO. Relying upon the answer to the question No. 11 in the CBDT Circular No. 451 dated 17-2-1986. The learned Commissioner observed that the tax-payers who tried to introduce black money and benami investments in the names of ladies or minors would be doing so at their own risk. He also noticed that in the case of the assessed a search had also taken place on 21-7-1986 in the course of which the IAC (Asst.) had recorded the statement of some of the depositors (notably Smt. Shakuntala Devi and Smt. Saroj Devi). Referring to those statements the learned Commissioner took the view that the confirmations were undated and that the returns were filed by the ladies after the completion of the assessment of the assessed for the A. Y. 1985-86. He took the view that the ladies had worked as instruments/dummies of the assessed for making statement in his favor. He took the view that the assessed made investments of Rs. 2 lakhs on 22-5-1984 and in order to cover up these investments, loans of the seven ladies aggregating to nearly Rs. 2 lakhs had been shown on 22-5-1984. He observed that these ladies were not having this much of capital on 1-4-1984. He, therefore set aside the assessments in question holding them to be erroneous insofar as they were prejudicial to the interest of the revenue.

4. On behalf of the assessed the contentions put forward in the written reply filed before the learned Commissioner were reiterated by Shri O. P. Sapra. He also placed reliance on Boards Circular No. 47 dated 8-7-1986, Circular No. 176 dated 26-8-1987, clarifications on Circular Nos. 423, 432, 437 to 441, all dated 15-11-1985 issued by CBDT regarding the declaration of higher income or wealth as also on the following decisions :-

(1) J. P. Srivastava & Sons (Kanpur) Ltd. v. CIT [1978] 111 ITR 326 (All.) (App),

(2) CIT v. Cotton Fabrics Ltd. [1981] 131 ITR 99 (Guj.),

(3) CTI v. Shantilal Agarwalla [1983] 142 ITR 778 (Pat.),

(4) CIT v. Ramaiah, K. Ramakrishna Murthy [1986] 159 ITR 929 (AP),

(5) Venkatakrishna Rice Co. v. CIT [1987] 163 ITR 129 (Mad.),

(6) CIT v. Trustees Anupam Charitable Trust [1987] 167 ITR 129/31 Taxman 335 (Raj.),

(7) CIT v. Punalur Paper Mills Ltd. [1987] 34 Taxman 268/ [1988] 170 ITR 37 (Ker.), and

(8) CIT v. Saroj Devi [1989] 178 ITR 598/44 Taxman 143 (All.).

On the other hand, the learned Departmental Representative Shri S. P. Jain strongly relied upon the order of the learned Commissioner.

5. I have considered the rival submission as also the decisions referred to above. So far as the assessment year 1984-85 is concerned, the assessment was framed by the Income-tax Officer under section 143(3) after issue of notice under section 143(2). The copy of the statement of assessable income which accompanied the assesseds return shows that the statement of income and expenditure was also filed. We also find that the wealth-tax assessment of the assessed for the A. Y. 1984-85 had also been completed on 11-3-1985 under section 16(3) of the Wealth-tax Act, 1957 where in the assessed had shown all these cash credits as liabilities and which were duly accepted by the Wealth-tax Officer. Explanation (b) to section 263(1) defined "record" to include all records relating to any proceeding available at the time of examination by the Commissioner. However this amendment was made by the Finance Act, 1989 with effect from 1-6-1988 only and therefore, this definition could not be said to be available to the Commissioner either on the date on which he issued the notice under section 263 (19-1-1987) or on the date on which he passed the impugned order under section 263 (24-3-1987). The result is that the Commissioner could only take into consideration the record as it stood on the date on which the assessment order for the A. Y. 1984-85 was passed namely, 29-11-1984. The learned Commissioner has taken into consideration the statement of some of these ladies recorded by the IAC (Asst.) after the search had taken place on 21-7-1986 (relevant to the A. Y. 1986-87). He could not do so. Even if for the sake of argument, one were to proceed on the basis that sufficient enquiries as the nature of the case provoked, were not made by the ITO while completing the assessment order dated 29-11-1984 for the A. Y. 1984-85, the said exercise would become purely academic on account of the following reasons :-

(1) In the case of the ladies at Sl. Nos. 1, 2, 3, 4 & 7 where assessments had been completed, the Commissioner had taken action under section 263 and the Appellate Tribunal had quashed those action, copies of the orders of the Tribunal having been placed by the assessed on the paper book.

(2) The ladies had filed their affidavits on 14-10-1986 and on same date they were also examined by the IAC (Asst.) for the purpose of completing the assessment in the case of the assessed for the A. Y. 1986-87. This assessment order completed under section 143(3) on 29-3-1989 accepted similar cash credits in the names of these ladies. Therefore, it would be a futile exercise to have the assessment made by the ITO fresh when similar enquiries into the identities, creditworthiness and the genuineness of the transactions had taken place later.

6. So far as the A. Y. 1985-86 is concerned, there are additional reasons why the order of the learned Commissioner cannot be upheld. Firstly, since the assessment for the preceding assessment year which was the first year in which cash credits in the names of those very ladies appeared, had been completed under section 143(3), the ITOs action is completing the assessments under section 143(3) could be said to be justified. Secondly, since the assessed was neither a lady nor a minor the answer to question No. 11 in Circular No. 451 dated 17-2-1986 could not assist the department. Further, Item D (iii) of Annexure II to Circular No. 47 dated 8-7-1986 is to the effect that the assessment once completed under the Summary Assessment Scheme shall not be disturbed under section 143(2) (b) or 154 under any circumstances. Then there is the following observation of the Member (R & A) quoted in Circular No. 176 dated 25-8-1987 (copy on the assesseds paper book) which are stated to reflect the views of the Board on the subject with reference to the guidance sought by the Commissioner as to whether remedial action under section 263 could be taken in case completed under "Summary Assessment Scheme" where glaring and apparent mistakes in computation of income had been detected resulting in substantial loss of revenue :-

"No remedial action is necessary in summary assessment cases, as the revenue loss if any is consciously suffered by the Government to utilise resources for scrutiny and investigation of larger cases. In such cases, CIT should only inform Audit that the cases are completed under the Summary Assessment Scheme."

The above Circular of the Board shows that excepting those cases where made under section 143(1), as in the present case for the A. Y. 1985-86, no action under section 263 was to be taken by the Commissioner. Circulars of the Board relied upon by the assessed, are benevolent Circulars and it is a settled proposition by now that such circulars are binding on the Income-tax authorities. Therefore, in whatever manner the matter is looked at, it is not possible to uphold the order of the learned Commissioner for the A. Y. 1985-85 either.

7. In the result, the appeals filed by the assessed are allowed.