COMMISSIONER OF INCOME TAX Vs. VALLABHDAS VITHALDAS

JUDGEMENT

(1.) THESE references were originally heard by a Division Bench consisting of Justice M.S. Shah and Justice D.A. Mehta. The question pertained to the interpretation of section 263 of the Income -tax Act, 1961 ('the Act' for short) namely what would form the records which the Commissioner could place reliance upon for taking an order of assessment in revision. Learned members of the Bench had difference of opinion and the issue, therefore came to be referred to third Judge in terms of section 259 of the Act. To be able to appreciate the point of divergence between the two learned Judges, one may record in brief the background facts from ITR No. 65 of 1998. The reference arose out of the judgment of the Income Tax Appellate Tribunal dated 18th March 1987. The assessment in the case of the assessee individual was completed under section 143(3) of the Act on 19.2.1985. On 27.8.1981, search operations under section 132 of the Act was carried out at the residential premises of the son of the assessee. During search, cash, gold ornaments and other jewellery were seized. It was claimed that such assets belonged to various members of the family. Two statements of Savitaben Vallabhdas, wife of the assessee were also recorded in which, she claimed that some of the assets belonged to her. Upon scrutiny of the record of assessment, the Commissioner of Income -tax, Rajkot noted that the Income -tax Officer had not taken into consideration the explanation of Girishkumar Vallabhadas, son of the assessee and further that he had not considered the various statements of the persons which were recorded at the time of the search. He, therefore, took the order of assessment in revision. After hearing the assessee, the Commissioner set aside the order of assessment and directed the ITO to make fresh assessment. Such order of the Commissioner was taken in appeal by the assessee. One of the grounds raised by the assessee before the Tribunal was that the record pertaining to search and seizure operations at the premises of the son of the assessee did not form part of the record of the assessee's assessment proceedings and therefore, such documents could not form the basis of any action under section 263 of the Act in case of the assessee. The Tribunal upheld the contention and held that the Commissioner could intervene only on the basis of the record of the assessment proceedings of the assessee and that the statements recorded at the time of search of the premises of the son of the assessee cannot form the basis of any action under section 263 of the Act. In the background of such facts, at the instance of the Revenue, the Tribunal referred for the opinion of this Court, the following question of law:

(2.) JUSTICE M.S. Shah was of the view that the issue was covered by the decision of the Supreme Court in the case of CIT v. Shree Manjunathesware Packing Products & Camphor Works : [1988] 231 ITR 53 and noted as under:

(3.) FOR some reason, the reference to the third member remained dormant for a long time. In the meantime, many developments in law took place giving a whole new dimension to this reference to the third member for his opinion.