Judgment:
Shiva Kirti Singh and Jayanandan Singh, JJ.
1. Heard learned Counsel for the Revenue. Inspite of notice nobody has appeared on behalf of the assessee.
2. On an application Under Section 256(2) of the Income Tax Act (the Act) as it existed prior to the National Tax Tribunal Act, 2005, this Court formulated the question of law and directed the Income Tax Tribunal, Patna Bench, Patna to state the case to this Court for its opinion. Accordingly the Tribunal stated the case in connection with R.A. No. 49 (Pat)/1997 arising out of I.T.A No. 432(Pat)/1994 relating to the assessment year 1990-1991 on the following question of law:
whether on the facts and in the circumstances, of the case, the Income-tax Appellate Tribunal was justified in quashing the order of the Commissioner under Section 263 specially when the assessee has not maintained any account and there is no material on record to show that enquiry was made regarding the genuineness of expenditure incurred?
3. The assessments in question are of the assessment years 1990-1991 of the assessee, Sri Mukul Kumar. On account of copyright of a grammar book gifted by the father of assessee in the year 1984 the assessee received a royalty income of Rs. 1,34,143/- and claimed expenses of Rs. 1,05,717/-. The assessing officer allowed the expenses to the extent of 50% of the royalty income and completed the assessment Under Section 143(3) of the Act.
4. The Commissioner Income Tax (CIT), Patna in course of examination of assessments in the light of provisions of Section 263 of the Act noticed that royalty amount in the hands of the assessee was on account of gift of copyright of a book by the father of the assessee and hence, he came to a tentative conclusion that it was gift income and there could not be any question of claiming any deduction for expenditure in respect of gift income. Hence, show cause notice Under Section 263(1) of the Act was given to the assessee indicating that the CIT was of the view that royalty was a gift from the father of the assessee and not his income and hence, there was no question of allowance of any expenditure from receipt of a gift. The notice further mentioned that the assessment of gift after treating the same as income and allowance of expenditure by the Assessing officer at the rate of 50% of the gifted royalty amount had led to erroneous assessment which was prejudicial to the interest of revenue.
5. On behalf of the assessee cause was shown and it was pointed out that gift by the father of the assessee was not of a particular royalty amount but was of the copyright of the book. It was further shown that in order to earn royalty income from such copyright, certain acts like revising the book, taking care of its popularity and marketing are required and hence in absence of books of account and vouchers only 50% of the royalty income was allowed as expenses after assessee had met the queries of the Assessing Officer and furnished the letter of the publisher, M/s Bharti Bhawan to show that the revision of book etc was responsibility of the person who had the original copyright.
6. It appears that after considering the cause shown by the assessee the CIT did not give any finding that the royalty amount was in itself a gift and hence, no expenditure could have been allowed in respect of the royalty income. However, the CIT came to a finding that there was no enquiry by the Assessing Officer before allowing 50% of the royalty amount as expenditure and hence, he passed the order for making a reassessment after proper enquiry.
7. The assessee preferred an appeal against the order of CIT before the Tribunal which has been allowed by order dated 17.3.1987 out of which the reference and Tax case has arisen.
8. The Tribunal on consideration of materials and letters considered by the Assessing Officer has came to the opinion that an enquiry had been held in respect of claim of the assessee and on facts the Tribunal was satisfied that there was no irregularity or illegality in the order of Assessing Officer on the ground made by the CIT that there was no enquiry before allowing the 50% of the income as expenditure.
9. In the aforesaid facts and circumstances, this Court is required to answer the reference which is on the question of law already noticed above.
10. On going through the statement of the case and other relevant materials this Court finds that the Income Tax Appellate Tribunal set aside the order of the Commissioner Under Section 263 of the Act on appreciation of a pure question of fact that the Assessing Officer had undertaken and held reasonable enquiry by calling for explanations from the assessee and in view of such finding it interfered with the order of Commissioner who had erroneously come to a finding that no enquiry was held by the Assessing Officer. Thus, there being materials on record to show that enquiry was made regarding the expenditure claimed, this Court is of the view that the Income Tax Appellate Tribunal was justified in quashing the order of the Commissioner.
The reference is answered accordingly.