COMMISSIONER OF INCOME-TAX Vs. MAHENDRA KUMAR BANSAL

JUDGEMENT

(1.) THE Income Tax Appellate Tribunal, Delhi has referred the following questions of law under Section 256(2) of the Income Tax Act, 1961 hereinafter referred to as the Act) for opinion of this Court: (1) Whether, on the facts and circumstances of the case the ITAT is correct in law to set aside the order of CIT passed Under Section 263, holding that it was based on mere suspicion and surmises? (2) Whether, on the facts and in the circumstances of the case, the ITAT is legally correct to hold that the order of the ITO was not erroneous and prejudicial to the interest of revenue? (3) Whether, on the facts and in the circumstances of the case, the ITAT is legally correct to draw a conclusion that the CIT has failed to establish nexus between the stock found at the time of search with the assessment under appeal?

(2.) THE reference relates to the Assessment Years 1983 -84 to 1985 -86. Briefly stated the facts giving rise of the present reference are as follows: The respondent -assessee filed his return of income for the three assessment years in question on 14th March, 1986. As the return for the assessment year 1983 -84 was out of time, the same was regularized by the Income Tax Officer by issuing notice under Section 148 read with Section 147 of the Act. A search was conducted in the premises of the assessee's father on 12th June, 1986. The Commissioner assigned the search cases of the group to the then IAC Range -II, Muzaffarnagar to make assessments of the group at one place. Other Officers at Muzaffarnagar were requested to forward the group cases to the IAC Range II, Muzaffarnagar. However, for the assessment year 1983 -84 the Income Tax Officer completed the assessment on 18th July, 1986 under Section 143(3)/148 of the Act. For the assessment years 1984 -85 and 1985 -86 the assessments were completed on 14th July, 1986 under Section 143(1) of the Act. It appears that for the assessment year 1983 -84 the Income Tax Officer had fixed a date of hearing on 18th July, 1986 and on that date after discussing the case with the counsel for the assessee the assessment was made. Proceedings under Section 263 of the Act were initiated by the Commissioner of Income Tax who vide order dated 29th March, 1989 after coming to the conclusion that the assessments were erroneous and prejudicial to the interest of the Revenue had set aside all the three assessments and remanded for framing de novo assessment after making minimum and proper enquiries. The main ground in the order taken was that the Income Tax Officer had made the three assessments without making minimum and proper enquiries and further the Income Tax Officer had not transferred the case to the IAC Range II, Muzaffarnagar and did not consider the significance of the return which was filed in the month of the raid. The assessment was completed in due haste. Feeling aggrieved, the respondent assessee preferred separate appeals before the Income Tax Appellate Tribunal which vide order dated 11th December, 1990 had allowed the appeals and had set aside the order passed by the Commissioner of Income Tax under Section 263 of the Act. The Tribunal while allowing the appeals has held as follows: 6. I have given my very careful consideration to the facts of the case and the rival submissions. I have stated in earlier part of this order the reasons given by the CIT in holding the orders passed by the ITO to be erroneous and prejudicial to the interest of the revenue. The only observation made by him is that there was a search in the case of the father of the assessee on 12.6.1986 when stock to the extend of Rs. 1,95,015/ - was found. Beyond mentioning this figure he has not referred to the adverse effect of this stock on the three assessments in the case of the assessee for the assessment year 1983 -84, 1984 -85 and 1985 -86. He has referred to the fact that the ITO has failed to make enquiries regarding the sources of the meeting the expenses of the assessee on his education and that how he was carrying on the business while prosecuting studies at Bangalore. Then he has made reference to the enquiry to be made in the case M/s Surender Kumar and Sons for the assessment year 1986 -87. So far as the sources of meeting the expenses of education of the assessee are concerned, the material on record of the ITO does not suggest that there were withdrawals from the capital account of the assessee for meeting such expenses. In addition, he has some income from tuition work. The CIT has not recorded any finding on the inadequacy of such expenses. He has also referred to the enquiries to be made in the case of Surinder Kumar and Sons for the A.Y. 1986 -87. The period for this assessment year falls beyond the three assessment years i.e. 1983 -84, 1984 -85 and 1985 -86. Even, in the case of that firm, the stock found as a result of search was on 12.6.1986 which will be relevant for the assessment year 1987 -88 and not for the assessment year 1986 -87. The CIT has not given any reasons in his order as to how there was a nucleus between the availability of stocks on 12.6.1986 with the assessments for the assessee for the A.Ys. 1983 -84, 1984 -85 and 1985 -86 and for that matter even with the case of M/s Surinder Kumar and Sons for the A.Y. 1986 -87. As a mater of fact, the CIT has made no comments on the stock except referring to the figure. Even the assessments may have been made in haste but the mere fact that the assessments were made in haste and the orders were cryptic would not render such assessments erroneous and prejudicial to the interest of the revenue unless some material is brought on record by the CIT to show that the ITO did not consider such material or did not appreciate the material while making the assessments. The order passed by the CIT, in my opinion, is therefore, passed on mere suspicion and surmises. For this proposition, I rely upon the judgment of the Hon'ble High Court of jurisdiction in the case of CIT v. Goel Family Private Trust : [1988]171ITR698(All) . In the case, before the Allahabad High Court, the CIT in his order Under Section 263 had observed as under: The assessment made in haste/hurry without proper and adequate enquiry/investment is erroneous and prejudicial to the interest of revenue....The Hon'ble High Court held that the order of the ITO could not be held to be erroneous and prejudicial to the interest of the revenue, which was passed merely on suspicion and surmises. In the absence of any enquiries having been made by him, this judgment of jurisdictional High Court applies on all fours to the facts of the case before me. The judgments of the Hon'ble Supreme Court in the case of Ram Piari Devi Sarogi : [1968]67ITR84(SC) and Smt. Tara Devi Agarwal 88 ITR 263 were duly referred to before the Hon'ble Allahabad High Court in the case of Goel Private Family Trust : [1988]171ITR698(All) . In view of the various judicial authorities relied upon by the learned Counsel for the assessee and the CIT having not brought on record the material, non -consideration of which caused prejudice to the interest of the revenue and not even the learned D.R. having brought any such material before me at the time of hearing of the appeal I am inclined to hold that the order passed by the CIT is based on mere suspicion and surmises. I have already discussed in the earlier part of this order that the CIT has failed to establish nexus between the stock found at the time of search with the assessments under appeal and even with the firm M/s Surinder Kumar & Sons for the A.Y. 1986 -87. He has even not given any finding about the inadequacy of the withdrawal for meeting the expenses on the technical education of the assessee at Bangalore. 7. In view of these facts it cannot be said that the orders passed by the Income Tax Officer were prejudicial to the interest of the revenue. I am, therefore unable to sustain the order passed by the CIT under Section 263 of the Income -tax Act, 1961, for all the three assessment years. The same are cancelled.

(3.) KRISHNA Agarwal, on the other hand, submitted that the assessment for the assessment year 1983 -84 which was made under Section 143 (3) 148 of the Act the Income Tax Officer had considered various documents and after considering the same and discussing with their counsel had framed the assessment which could not be said to have been made in due haste or without proper enquiry. So far as the assessment for the assessment years 1984 -85 and 1985 -86 are concerned he submitted that the same have been passed under Section 143(1) of the Act and in view of the decision of this Court in the case of Commissioner of Income Tax v. Smt. Brij Bala (2006) 156 Taxman 244 (Alld.) and Circular No. 176 dated 28th August, 1987 proceedings under Section 263 of the Act was not called for as the said circular was issued by the Board and is binding upon the departmental authorities. He has also relied upon a decision of the Gujarat High Court in the case of Commissioner of Income Tax v. Vikrant Crimpers (2006) 282 ITR 503.