COMMISSIONER OF INCOME TAX Vs. G K KABRA

JUDGEMENT

(1.) Aggrieved by the order of the Income-tax Appellate Tribunal, dated 30/10/1992, passed in Income-tax Appeal No. 1479/(Hyd.) of 1988 declining to refer the following questions to this court on the ground that they are questions of fact and not questions of law, this petition has been filed : "(i) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in quashing the order of the Commissioner of Income-tax passed under section 263, particularly when the assessee was not given sufficient opportunity of being heard? (ii) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in holding that the Commissioner of Income-tax lacks initial jurisdiction, particularly when the conclusion made by the Commissioner of Income-tax in the order under section 263 was on the basis of the information furnished in response to the initial notice?"

(2.) The Tribunal found the following facts. The assessee, an individual, was carrying on a business called Messrs. Detective Devices and Equipment Company. On 31/12/1981, this business was closed and transferred to a private limited company known as Detective Devices and Equipment Company Private Limited. One of the assets held by this business was empty gas-cylinders, the value of which was shown as "nil" in the books inasmuch as 100 per cent. depreciation has been claimed and, accordingly, the Income-tax Officer while making the assessment for the assessment year 1983-84 corresponding to the previous year ending on 31/03/1983, accepted the return showing only profit under section 41(1) of the Act in respect of that business. Subsequently, the Commissioner of Income-tax issued show-cause notice dated 16/02/1988, to the assessee under section 263 asking him to show cause as to why capital gains arising from the transfer of the business should not also be brought to tax. The assessee gave a reply dated 22/02/1988, pointing out that the business of the Detective Devices and Equipment Co. firm was to deal in gas and the gas-cylinders which were purchased had been given to the customers against a security deposit which has been shown as liabilities in the balance-sheet. It was explained by the assessee that since the assessee continued to be the owner of the cylinders and was liable to return the security deposit on cylinders, there was no transfer of the cylinders when the business was transferred to the private limited company. With regard to the question whether capital gains arose from the transaction, the assessee contended that such a situation did not arise from the transaction. Thereafter, the Commissioner passed an order on 30/03/1988, drawing an inference that giving cylinders to the customers was nothing but "hire" and the difference between the "cost price" and "deposit receipts" should be brought to tax as "hire charges". Accordingly, the Commissioner held that completion of the assessment overlooking this point was erroneous and prejudicial to the interests of the Revenue. He, therefore, set aside the assessment order and directed the Income-tax Officer to redo the assessment after giving adequate opportunity to the assessee. The assessee carried the matter in appeal to the Appellate Tribunal. The Tribunal found that while the notice under section 263 related to the assessment of capital gains, the final order made under section 263 related to the inference of "escapement of hire charges" which was quite different and since no specific opportunity was given to the assessee in respect of the "error" subsequently discovered by the Commissioner, the order under section 263 was vitiated in law and had to be cancelled. Accordingly, the Tribunal set aside the order of the Commissioner of Income-tax. The Revenue sought a reference of the questions to this court as the Tribunal declined to refer the same to this court as they are only questions of fact.

(3.) The Commissioner of Income-tax had set aside the assessment order by his order dated 30/03/1988, passed under section 263 of the Act directing the Income-tax Officer to redo the assessment after giving adequate opportunity to the assessee. Therefore, learned counsel for the Revenue submitted before us that the issue relating to the "escapement of hire charges" came up for consideration for the first time only after the reply was given by the assessee to the show-cause notice dated 16/02/1988, indicating the issue and since the assessment order has been set aside, the assessee would get a further opportunity of being heard before the Income-tax Officer at the time of finalisation of the assessment. Therefore, he contended that there was no denial of opportunity at all. Reliance was placed on the decision of the Supreme Court in Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84, and it is submitted that in the circumstances, the finding of the Tribunal that the assessee was not afforded with an opportunity was itself erroneous in law and had to be referred to this court for adjudication.