AGARWAL FINANCE CO Vs. INCOME-TAX OFFICER

JUDGEMENT

(1.) This is an appeal filed by the assessee against the order passed by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961 for the asst. year 1984-85. The ITO by an assessment order passed on 18-8-1984 computed the assessees total income at Rs. 11,980. The Commissioner on a perusal of the records found that the balance-sheet filed by the assessee showed borrowings from 24 parties aggregating to Rs. 10,90,687. The ITO had accepted the credits as genuine on the basis of the confirmatory letters filed but the assessee. However, a survey conducted subsequently showed that many of the creditors are not available at the address given and the summons served to them had returned unserved by the postal authorities. In the circumstances, the Commissioner was of the opinion that the credits shown by the assessee in the names of the various parties are not genuine. He therefore, issued a notice to the assessee to show cause why the assessment should not be properly revised or modified for considering the genuineness of the cash credits appearing in the names of the above 24 parties, in accordance with the provisions of section 68 of the Income-tax Act, 1961. In reply to the above notice, the assessee submitted that the ITO had accepted the credits of Rs. 10,90,687 on the basis of confirmatory letters filed by him. Since all the relevant information and material was available before the ITO while completing the assessment under section 143(3), the ITO could not be said to have committed any error in making the assessment. There was also no basis to consider that the assessment made by the ITO is prejudicial to the interest of the Revenue. It was also pointed out that the information obtained by the department on the basis of subsequent survey cannot constitute record within the meaning of the term used in section 263 as it stood at that time. Since the Commissioner could not rely on record, which came into the possession of the department after completion of the assessment, it is contended that he had no jurisdiction to act under section 263 by taking into account the results of the survey. It was accordingly prayed that the proposal to modify or revise the assessment under section 263 be withdrawn.

(2.) After hearing the assessee, the Commissioner by his order dated 12-8-1986 observed that in a case where the ITO had not made the normal enquiry which should have been made, and in a case where prima facie, the returned income appears to be understated, the Commissioner has the power to invoke the provisions of section 263. He accordingly set aside the assessment order with a direction that the ITO should redo the same after enquiring into the guanines of the credits appearing in the books of the assessee. Aggrieved with the above order of the Commissioner, the assessee is in appeal before us.

(3.) Shri Seetharaman, the learned representative for the assessee contends that the Commissioner could not have taken into account the results of survey made by the department after completion of the assessment in order to pass the order under section 263. It is submitted that any material obtained after the assessment cannot form part of the record as envisaged in section 263 and it cannot be taken into consideration for the purpose of invoking the provisions of section 263, in view of the decision in the case of Ganga Properties v. ITO, 1979 118 ITR 447 . It was further contended that the ITO while making the assessment was satisfied on the basis of the confirmation letters issued by the creditors that the credits were genuine and that in the absence of any contrary material, there was no basis to suggest that the assessment order was erroneous and prejudicial to the interest of the revenue for the Commissioner to invoke the provisions of section 263. In the circumstances, it is contended that the order passed by the Commissioner under section 263 should be cancelled and the assessment made by the ITO should be restored.