COMMISSIONER OF INCOME TAX Vs. ARVIND JEWELLERS

JUDGEMENT

(1.) AT the instance of the Revenue, the following questions of law are referred to for the opinion of this Court for the asst. year 1981 82 :

(2.) THE assessee is a partnership firm and had filed its return of income disclosing net loss of Rs. 2,777 in business of purchase and sale of ornaments and jewellery. The ITO issued notices under ss. 143(2) and 142(1) of the IT Act, 1961 along with the requirement letter. After considering the material produced by the assessee and the explanation offered, the ITO has framed the assessment determining the total income at Rs. 32,900. The CIT has found the said order of the ITO as erroneous and prejudicial to the interest of the Revenue and, therefore, issued notice under s. 263 of the Act. The CIT was of the view that there was search at the business premises of the assessee firm and the residential premises of the assessee firm and residential premises of the partners on 28th Nov., 1992. During the course of search, unaccounted cash amounting to Rs. 1,80,000 was seized. Similarly, silver ornaments and jewellery valued at Rs. 7,02,728 were seized. While finalizing the assessment for the asst. year 1981 82, the ITO has added Rs. 15,000 as the assessee's income from undisclosed sources represented by the credits in the accounts of seven parties as mentioned in the order under S. 263 of the Act. After narrating in detail the facts of the case as well as the explanation offered by the assessee in reply to the notice issued under S. 263 of the Act, the CIT has come to the conclusion that the assessment order passed by the ITO under s. 143(3) for the assessment year in question determining the total income at Rs. 32,900 is erroneous and prejudicial to the interest of the Revenue, insofar as the ITO has not carried out any investigation either while adding certain amounts in the total income or while accepting the explanations on the various points as discussed in the said order. The CIT has, therefore, set aside the order passed by the ITO under S. 143(3) with a direction to pass a fresh order in accordance with law after carrying out necessary investigations with regard to various explanations offered by the assessee.

(3.) HEARD Mrs. Mauna Bhatt, the learned counsel appearing for the applicant Revenue and Mr. R.K. Patel, the learned advocate appearing for the respondent assessee. The Revenue's case was, as canvassed by Mrs. Bhatt, that since the material which was available with the ITO was not considered while finalizing the assessment, the order passed on that basis is erroneous and prejudicial to the interest of the Revenue. According to the Revenue, before passing the order, full enquiry and investigation ought to have been made by the ITO and since this was not done, it has caused loss to the Revenue and in this view of the matter, the order so passed was erroneous and prejudicial to the interest of the Revenue and the CIT was justified while taking action under S. 263 of the Act. In support of her contention, she had relied on the decision of the Supreme Court in the case of CIT vs. Manjunathesware Packing Products & Camphor Works (1997) 143 CTR (SC) 406 : (1998) 231 ITR 53 (SC) : TC S57.4434.