Judgment:
1. The assessee is aggrieved of the order dated 28-3-1988 of the learned Commissioner of Income-tax, Haryana, Rohtak for the assessment year 1984-85.
2. The assessee is M/s Lachman Dass Bakshi Ram, Gohana (Sonepat)--a registered firm which derives its income from dealing in the purchase and sale of timber goods. The assessee had filed its return on 31-7-1984 declaring an income of Rs. 41,620. The Income-tax Officer had given a notice dated 18-1-1985 to the assessee to which the assessee gave a reply dated 20-3-1985. The assessment was completed by the Income-tax Officer on 29-8-1985.
3. However, the Commissioner of Income-tax noticed that a survey had taken place on 10-10-1984 under Section 133A on the business premises of the assessee-firm after it had filed its return for the assessment year in question and that as a result of the same the Income-tax Officer had identified cash book, ledger and certain loose papers relevant to the period 1-3-1983 to 31-3-1984 which were later impounded under Section 131 on 5-11-1984. Loose papers impounded by the Income-tax Officer consisted of the following :-- (iii) In the balance sheet drawn on 31-3-1984 the assessee had shown cash credits totalling Rs. 96,200 in the names of the following 9 persons:--Sl Name of the creditor AmountNo.9.
Sham Lal 2,500 Total: 96,200 The learned Commissioner noticed that ledger folio was duly recorded against each name on the liability side of the balance-sheet.
However, in the balance-sheet actually filed before the Income-tax Officer on 31-7-1984, the assessee had not shown cash credits in the names of the above 9 persons but only 2 cash credits of Rs. 48,700 and Rs. 47,500 in the names of S/Shri Naresh Kumar and Ashok Kumar (who were the sons of one of the partners namely, Shri Lachman Dass). These two cash credits also totalled to the same figure of Rs. 96,200. The learned Commissioner after perusing the material as also the assessment records of S/Shri Naresh Kumar and Ashok Kumar gave a notice to the assessee under Section 263 on 22-12-1987 on the basis that the cash credits in the names of S/Shri Naresh Kumar and Ashok Kumar were not genuine and that the Income-tax Officer who completed the assessment, had not made any enquiries to ascertain the genuineness thereof and therefore, the assessment order was erroneous in so far as it was prejudicial to the interests of the revenue. The Income-tax Officer had, in his assessment order, had accepted these cash credits.
4. That is how the assessee has come up in appeal before us. Shri Virendra Talwar, the learned counsel for the assessee submitted that the learned Commissioner could not assume jurisdiction under Section 263 in this case since the assessment was completed by the ITO under Section 143(3) after conducting proper enquiries and after obtaining evidence and its verification from the assessment records of the creditors in respect of loans taken from the creditors. Next, he submitted that since in the notice under Section 263, the learned Commissioner had mentioned that he had perused the assessment records of S/Shri Naresh Kumar and Ashok Kumar, it showed that what he had examined could not be called the record of the assessee and therefore, assumption of jurisdiction under Section 263 was improper and invalid.
For this purpose, reliance was placed by him on the decision of the Hon'ble Calcutta High Court in the case of Ganga Properties v. ITO [1979] 118 ITR 447 wherein it was held that the word "record" under Section 263 could not mean the record as it stood at the time of the examination by the Commissioner but it meant the record as it stood at the time when the order was passed by the Income-tax Officer and that since the assessment record s of S/Shri Naresh Kumar and Ashok Kumar were not before the ITO who made the assessment order, the learned Commissioner could not invoke his jurisdiction. Next, it was submitted that even though the learned Commissioner had set aside the assessment order to be made afresh from the return stage after affording an opportunity of being heard to the assessee, the Commissioner having expressed a final opinion on the genuineness of the cash credits, his order was vitiated. For this purpose, reliance was placed by him on the decision of the Hon'ble Gujarat High Court in the case of Addl. CIT v.Mukur Corpn. [1978] 111 ITR 312. In that case, it was held that the only proper course for the Commissioner was not to express any final opinion as regards the controversial points. On the other hand, Ms.
Bharati Mandal, the learned Departmental Representative strongly relied upon the order of the learned Commissioner and sought to justify the same. Reliance was placed by her on the following decisions : She submitted that no enquiries which were provoked by the survey and which the ITO issuing the notice dated 18-1-1985 intended, having been made, the jurisdiction under Section 263 had been rightly exercised by the learned Commissioner. She also submitted that the view expressed by the learned Commissioner was not final but prima facie view and that is why the assessment had been set aside to the Income-tax Officer for being made afresh after giving an opportunity of hearing to the assessee and after keeping in view the directions and discussions contained in his order.
5. We have considered the rival submissions as also the decisions referred to above. No doubt the assessment was completed in this case by the Income-tax Officer under Section 143(3) but that by itself would not disable the Commissioner from exercising his jurisdiction under Section 263 if the requisites of that provision were satisfied. A perusal of the notice dated 18-1-1985 shows that he duly took note of the survey operations which took place on 10-10-1984 and the loose papers which had been impounded. In para 2 of that notice, he did advert to the cash credits in the names of various persons aggregating to Rs. 96,200 which did not appear in the balance-sheet filed by the assessee along with the return and that in the balance-sheet actually filed, cash credits of Rs. 48,700 and Rs. 47,500 only and those too in the names of S/Shri Naresh Kumar and Ashok Kumar had been shown. The Income-tax Officer had asked for the explanation of the assessee as to why different balance-sheets were prepared. In this regard para 7 of the reply of the assessee is relevant. It was in the following terms : -- 7. As regards queries raised by you in Para No. 8, it is submitted that the paper in which the names of S/Smt. Sham Lal, Bhagwan Dass, Chander Singh, Kalu Ram, Sube Singh, Ramji Dass and Sardari Lal appeared were written by our munim, who has since left Gohana without giving notice. We never contacted these persons for obtaining any loan. So the names written on the 1st B/sheet are fictitious. Actually we had taken loan from S/Shri Naresh Kumar and Ashok Kumar who are existing assessees with the Income-tax Deptt.
It would be clear that the case of the assessee was that the names of 9 cash creditors in the earlier balance-sheet had been written by one 'Munim' who was said to have left Gohana and the case of the assessee was that those persons were never contacted by the assessee for taking loans and therefore, those names were fictitious and that actually loans had been taken from S/Shri Naresh Kumar and Ashok Kumar who were existing assessees with the Income-tax Department. This explanation, therefore, provoked enquiries namely as to whether the 9 names were fictitious. For that purpose no efforts had been made to examine the assessee's 'Munim' who was said to have left Gohana. Connected with the same was the enquiry regarding the genuineness of the cash credits alleged to be in the names of S/Shri Naresh Kumar and Ashok Kumar.
However, on this point, the assessment order dated 29-8-1985 of the Income-tax Officer is absolutely silent. This was a case in which further enquiries were not made by the ITO. The ITO could not remain passive in the face of the material disclosed as a result of the survey which apparently called for further enquiry. It was the duty of the ITO to ascertain the truth of the facts stated since the circumstances of the case were such as to provoke an enquiry. It was incumbent for the ITO to further investigate the facts because the circumstances stated above made such an enquiry prudent. In this connection, the observations of the Hon'ble Delhi High Court in the case of Gee Vee Enterprises (supra) are relevant and need not be quoted. So far as the conduct of the learned Commissioner in perusing the assessment records of S/Shri Naresh Kumar and Ashok Kumar before the issue of notice under Section 263 is concerned, it could at worst be treated as additional material which was usable as supporting material. But it could not be said to constitute the only or the basic ground on which the learned Commissioner chose to exercise his jurisdiction under Section 263. This becomes very clear if the notice under Section 263 is perused as a whole. There the entire sequence of facts is mentioned and it has also been mentioned that the ITO who completed the assessments had not made any enquiries to ascertain the genuineness of the amounts of Rs. 48,700 and Rs. 47,500 shown in the names of S/Shri Naresh Kumar and Ashok Kumar. He had also noticed the discrepancies in respect of entries found in the loose paper (page No. 3). In the case of Rampyari Devi Saraogi (supra) the Supreme Court had occasion to examine a similar matter wherein it was held as follows : Held, that all the additional material was supporting material and did not constitute the basic grounds on which the order under Section 33B was passed, and even if the facts which the Commissioner introduced regarding the enquiries made by him had been indicated to the assessee, the result would have been the same. The assessee had not in any way suffered from the failure of the Commissioner to indicate the results of the enquiries. Moreover, the assessee would have full opportunity of saying to the ITO whether the income assessed in the assessment orders which were originally passed, was correct or not. The assessee could not, therefore, be said to have been denied an opportunity of showing cause against the grounds and materials and the rules of natural justice were not violated.
Even if S/Shri Naresh Kumar and Ashok Kumar had filed confirmatory letters before the ITO and they were existing assessees, the ITO had to examine them in order to satisfy himself about the three well-known requisites of a genuine cash credit namely, identity of the creditor, his capacity and genuineness of the transaction. There is another point also. The learned Commissioner had noticed that the confirmatory letters/affidavits of these two persons were identical and the amounts of credits were mentioned in the reverse order and therefore, the necessity for their examination was accentuated. We were told that Shri Naresh Kumar had filed his return on 15-7-1985, i.e. before the assessment order and that Shri Ashok Kumar had filed his return on 17-11-1985 i.e. after the assessment order dated 29-8-1985. The learned Commissioner had also noticed that S/Shri Naresh Kumar and Ashok Kumar were young persons below 25 years and sons of one of the partners. This was a further point which provoked enquiry. No purchase and sale vouchers of timber in respect of these two persons had been produced before the Income-tax Officer or before the learned Commissioner. We are, therefore, satisfied that on facts the jurisdiction under Section 263 was rightly exercised by the learned Commissioner. Lastly, we come to the expression of opinion by the learned Commissioner by setting aside the assessment of the Income-tax Officer. We do agree that the learned Commissioner while asking the Income-tax Officer to make a fresh assessment, could not express any final opinion as regards the controversial points. In this regard the decision of the Hon'ble Gujarat High Court in the case of Mukur Corpn. (supra) is relevant.
Therefore, it is made clear that even though in para 11 of the impugned order, the learned Commissioner has set aside the assessment to be made afresh from the stage of return after affording an opportunity of being heard to the assessee and also keeping in view the directions and discussions contained in his order, the opinion of the learned Commissioner as to the genuineness of the two cash credits would not prejudice the Income-tax Officer and he shall be free to come to his own conclusion as a result of the further enquiries. With these observations the appeal of the assessee must fail and be dismissed.
6. The appeal accordingly fails and is dismissed subject to what has been stated above.