Decorous Investment & Trading Co. ... vs Assistant Commissioner Of Income ...
1994 Latest Caselaw 223 Del

ORDER

N. D. RAGHAVAN, J. M. :

This is an appeal of the assessed challenging the revisionary order dt. 23rd March, 1988 of the CIT as erroneous on facts and in law.

2. Relevant facts of the case are briefly these : The assessed, a resident, having the status of public limited company and the accounting period ending with 31st Dec., 1983 for the asst. yr. 1984-85 filed on 30th June, 1984 its return declaring a loss of Rs. 2,84,990. The assessment was completed on 31st March, 1986 determining the net loss carried over at the same figure of Rs. 2,84,990 as shown by the assessed. The company was incorporated on 22nd Nov., 1982 with the object of acquiring, dealing and holding shares, stocks, debentures, debenture stocks, carrying on business of hire purchase and financing the industrial enterprises by way of lending and advancing money, etc. The authorised capital of the company is Rs. 20,00,000 with two lakhs equity shares of Rs. 10 each. The authorised capital is made up of Rs. 8,00,000 through promoters contribution and balance of Rs. 12,00,000 through public issue. From the assessment records it appeared to the CIT that genuineness of share holding has not been verified. The assessment records revealed to him that the assessed company has shown to have advanced money to certain parties but no interest whatsoever was credited to the P&L account. He viewed that the Assessing Officer has failed to verify this aspect. He also found that the assessed-company has shown the purchase of shares to the tune of Rs. 9,06,750 and sale of the shares to the tune of Rs. 5,60,000. He also viewed in this regard that the Assessing Officer has not been able to verify as to whether it was a speculative loss or business loss. Hence the CIT found it fit and proper to set aside the assessment order with the direction to make proper enquiries regarding genuineness of the shareholders and to verify as to whether the loss declared by the assessed-company was a business loss or speculative loss or whether they were bogus loans debited with a view to reduce the profit. Aggrieved thereby the assessed is in appeal before us against the aforesaid revisionary order.

3. The learned counsel for the assessed submitted that : The CIT has erred both in law and on facts in initiating proceedings under s. 263 of the IT Act and in holding that the order made by the Assessing Officer was erroneous insofar as the same was prejudicial to the interest of the Revenue. He has also erred in setting aside the assessment order without granting the assessed a fair and proper opportunity of being heard. The order so passed under s. 263 is also based on no material except on suspicion and surmise. He has in fact set aside the assessment on alleged possibilities, without recording any categorical finding. His finding that the Assessing Officer while making assessment had overlooked the fact that though money had been advanced but no interest was credited, thus making the assessment order erroneous, is based on complete misconception of facts. There was absolutely no material with the CIT to hold that no attempt was made to verify the genuineness of the shares subscribed to the various shareholders. The CIT failed to appreciate that there was sufficient evidence to establish that the shares were allotted to the public in response to the applications received by the company and the subscription had been paid by bank cheques/drafts. He has also erred in holding that no attempt was made to enquire as to whether the loss on sales of shares was speculative or business loss. The said finding is contrary to the material furnished by the assessed in the assessment proceedings. Hence the order under s. 263 of the Act passed by the CIT deserves to be cancelled as the proceedings were initiated under s. 263 of the Act without any material. In support thereof reliance is also placed on the decisions following :

(1) CIT vs. Sophia Finance Ltd. (1993) 113 CTR 472 (Del.);

(2) CIT vs. T. Narayan Pai (1975) 98 ITR 422 (Kar).

(3) J. P. Srivastava & Sons (Kanpur) Ltd. vs. CIT (1978) 111 ITR 326 (All);

(4) CIT vs. R. K. Metal Works (1978) 112 ITR 445 (P&H)

(5) Venkatakrishna Rice Co. vs. CIT (1987) 163 ITR 129 (Mad);

(6) CIT vs. Kashi Nath & Sons (1988) 170 ITR 28 (All);

(7) CIT vs. Stellar Investment Ltd. (1991) 192 ITR 287 (Del); and

(8) CIT vs. Chawla Trunk House (1983) 139 182 (P&H).

4. On the other hand the learned counsel for the Revenue countered, to say in brief, by defending the order impugned.

5. Rival submissions heard and relevant orders read including the concerned pages of the paper book referred to before us as well as the case laws relied upon. The stand of the assessed was that all relevant records were produced before the Revenue authorities including the source of capital as well as the provision of GIR and PAN numbers. The assessment was completed one and half years after filing of the return. Page 248 of the paper book is the notice issued by the revisionary CIT on 3rd March, 1988 under s. 263 of the Act to the assessed. Page 249 of the paper book is the reply of the assessed dt. 19th March, 1988 to the notice dt. 3rd March, 1988, while the order of the CIT is dt. 23rd March, 1988. It clearly reveals, according to the assessed, that the reply furnished by it was not considered by CIT. The reply of the assessed was sent by the post under postal certificate, a copy of which had also been furnished at pages 251 of the paper book as an evidence thereof. Under these circumstances it was reiterated before us that the following points emerged for consideration in the instant case :

(a) Opportunity of being heard to the assessed was not provided by the CIT and that if the assessed did not appear before him still time could been given. Hence the order impugned is not a valid one.

(b) The CIT has raised only one objection that the Assessing Officer has not verified share capital of the company which is only a new company and nothing else. But while passing the order, the CIT refers to two other aspects as referred to in para 2 thereof which unfortunately did not figure in the notice issued by him. As in respect of these other aspects, which would be self explanatory, when a perusal of para 2 thereof is read, nothing was mentioned in the notice issued to the assessed, it could not form part of the order impugned.

(c) Most important flaw in the order impugned is that the CIT does not at all record that the order of the Assessing Officer is erroneous insofar as it is prejudicial to the interest of the Revenue which is a sine qua non and which is absent in the instant case.

6. Our attention was also drawn to pages 50 to 81 of the paper book furnishing with the particulars of shareholders for public issue. Pages 82 and 83 of the paper book is a list of confirmation from shareholders which runs up to page 117. Pages 118 to 123 are again the list of confirmations from shareholders for public issue. Pages 124 to 206 are the certificates with reference to the allotment of shares applied for by the shareholders. Page 207 of the paper book is the details of purchases of shares. Our attention was also further drawn to page 26 of the paper book in regard to quotations in the list of Delhi Stock Exchange; page 40 of the paper book in regard to market quotation pertaining to equity shares; and page 43 thereof being the letter dt. 12th April, 1983 of the Delhi Stock Exchange Association Ltd. addressing the assessed-company. The grievance of the assessed further focussed before us was that if the CIT was not accepting the Assessing Officers approach in making the assessment, then he could have had reference to certain assesseds who are in Delhi locally for the purpose of verification and that the CIT cannot have a blank power to set aside the assessment as correctly made by the Assessing Officer and that in any event it cannot be said as speculative nature as it is thought of by the Revenue.

7. Our attention was also drawn to the decision in the case of Stellar Investment Ltd., cited supra, the judgment of which is available at page 252 of the paper book, which has also referred to the decision in the case of Gee Vee Enterprises vs. CIT (1975) 99 ITR 375 (Del). Our further attention was also drawn to the earlier order of the Tribunal dt. 9th Nov., 1988 in the case of Khosla Foundry Ltd. furnished at page 261 of the paper book, particularly para 8 thereof, at page 268. When the case of Stellar Investment Ltd. went up to the Delhi High Court under s. 256(2) of the Act it was held that there was no question of law, according to the assessed, and which was not controverter before us. Thus, the order dt. 15th Jan, 1990 of the Tribunal in Stellar Investment Ltd., has become final in view of the decision of the Hon'ble Delhi High Court, the assessed urged before us. After the said decision of the Delhi High Court, the assessed emphasised, a similar issue came up before it in the case of Sophia Finance Ltd. cited supra, and our specific attention was drawn to para 11 of the judgment as very important.

8. Further, it was highlighted before us that while the notice of the CIT made reference to the genuineness of the capital contribution, his order required the Assessing Officer to enquire into the advances for which no interest was charged; and whether the purchase and sale of shares amounted to speculative business as well as whether the shareholders were genuine. In this connection it was emphasised before us that in the present case the absence of notice in respect of advances for which no interest has been charged and whether purchase and sale of shares constituted a speculative business, has rendered the order null and void, since if part of the order is vitiated on account of any defect the whole order would get vitiated by becoming null and void. In respect of this contention reliance is placed by the assessed on the decision in the case of Dhirajlal Girdharilal vs. CIT (1954) 26 ITR 736 (SC) at 740. The Hon'ble Supreme Court has opined therein that it is well established that when a Court of fact acts on material, partly relevant and partly irrelevant, it is impossible to say to what extent the mind of the Court was affected by the irrelevant material used by it in arriving at its finding and that therefore such a finding is vitiated because of the use of inadmissible material.

9. Further, it would be worthwhile, instead of referring to various case laws relied upon by the assessed throwing light on the issue and discussing the same, to extract one of the relevant paragraphs in this connection from the judgment in the case of Venkatakrishna Rice Co., cited supra, as below :

"In our judgment, the expression "prejudicial to the interests of the Revenue" is not to be construed in a petty - fogging manner, but must be given a dignified construction. It may be noted that the use of the expression "Revenue", in our opinion, is significant. It denote some kind of abstraction of symbol in the same sense in which the expression "crown" is used to distinguish it from any person enthroned. The interests of the Revenue is not to be equated to rupees and paise, merely. There is a biblical saying that we do not live by bread alone. Varying this saying, it may be said that the Revenue does not live by tax alone. In this sense, therefore, the interests of the Revenue are not tied up merely with Realizing as much revenue as possible, willy nilly, merely looking to the productivity aspect of taxation. The jurisdiction of the CIT under s. 263 is undoubtedly a supervisory jurisdiction. It is intended for interference in special cases to counteract orders which are erroneous as well as prejudicial to the interests of the Revenue. In this context, therefore, the expression "prejudicial to the interests of the Revenue" must be regarded as involving a conception of acts or orders which are subversive of the administration of Revenue. There must be some grievous error in the order passed by the ITO, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the CIT might think to be prejudicial to the interests of Revenue administration. There might be cases where the CIT might wish to interfere with an order of the ITO in order to safeguard the fair name and reputation of the IT Department without any thought of going into the particular aspects of the assessment. Assessments which are mala fide, politically and communally motivated may be, however, set aside as being prejudicial to the interests of the Revenue. It is unnecessary for us to illustrate the point any further. All that we wish to observe is that the scope of the interference under this section is not to set aside merely unfavorable orders and bring to tax some more money to the treasury. Nor is the section meant to get at sheer escapement of revenue which, as is well known, is taken care of by provisions elsewhere in the Act such, for instance, as s. 147 of the Act. The prejudice must be prejudice to the Revenue administration."

10. After a careful analysis of the issue in question, on the facts and in the circumstances of the case before us, in the light of the aforesaid case laws relied upon by the assessed, particularly of the ratio decidendi of the Hon'ble Supreme Court, cited supra, we are of the considered opinion, after a due examination of the rival submissions made before us, that the order impugned herein deserves to be quashed. We, thus, sustain the stand of the assessed being not convinced with the arguments raised on behalf of the Revenue though we have to appreciate that the learned representative on behalf of the Department made his strenuous efforts to rescue the order impugned.

11. In the result, the appeal of the assessed is allowed hereby.