of proper inquiry by AOIn respect of cash credits, the AO made inquiry and the assessee replied to each and every query of the AO, both in original assessment as well as the reassessment proceedings the AO, thereafter arrived at a conclusion and dropped the reassessment proceedings. Such reassessment proceeding were being monitored by the ACIT and Dy. CIT. The CIT invoked section 263 and held the order of the AO as invalid order being erroneous and prejudicial to the interest of the revenue. Held: Revision was not justified, where all the aspects of the case had been considered in detail by the AO.Revision under section 263--VALIDITYRevision of order dropping proceedings under section 147The AO issued notices under section 148, for three years. Notices were issued in the financial year 1997-98 on 3-6-1997 for first two years and on 12-5-1997 for third year. The AO made order dropping proceedings under section 147 on 7-3-2000 and the same was communicated to the assessee thereafter. The CIT invoked provisions of section 263 and revised the order dropping reassessment.
The assessee contended that as the order dropping the proceeding under section 147 was not communicated to it within two years period in view of section 153(2), consequently, its revision was invalid. Held: A bare reading of section 153(2) shows that the prohibition is to make an order under section 147 after expiry of 2 years from the end of the financial year in which notice under section 148 was served. This section does not prescribe any time limit for serving the order therefore, orders made by the AO on 7-3-2000 was not barred by limitation and thus revision of said order under section 263 was a valid order.
In the ITAT, Indore Third Member Bench R.P. Garg, V.P., I.C. Sudhir, J.M. & T.R. Sood, A.M.In all these appeals preferred by the assessee, the common revisional order under section 263 of the Act for all these four assessment years has been impugned.
The revisional order for the assessment years 1991-92, 1992-93 and 1993-94 has been questioned mainly on the following common grounds that the learned CIT has erred in: (1) holding that the order passed under section 148 in which proceedings initiated under section 148 were dropped without communicating the same to the assessee before the period allowed to pass the order under section 148 read with section 143, are valid in law, disregarding the direct decision of the Honble Supreme Court., (2) treating the copies of dropping the proceedings under section 148, served on the assessee on 8-3-2002 (incorrectly stated as 8-3-2000) are valid in law, as against that he ought to have held and presumed that the said order was not passed and being barred by time-limitation in the absence of service within the statutory period; (3) treating the order passed under section 148, dropping proceedings under section 147, is valid. And also erred in not considering that dropping of the proceedings of order sheet and writing, drop the proceedings in DCR in item no. 64 is valid order whereas the aforesaid action is not at all the order of reassessment and time-limitation for communication of the order dropped, is out of limitation and, therefore, the order passed under section 263 is totally erroneous in law; (4) holding that for action taken under section 263 is sufficient when any order is passed.
(5) holding that the order passed under section 147 is without any proper enquiry and the learned assessing officer has not brought on record sufficient material to justify the proceedings in the face of glaring adverse facts which have been discussed in the order which necessitated the issue of notice under section 263 which is totally erroneous in law as original order under section 143(3) was passed by the Dy. CIT monitoring as stated in the office note that cash credits confirmation has been obtained and considered on lines indicated in Dy.
CIT's letter in the above and without confronting Sunil Agrawal after filing his affidavit before ADI, Ahmedabad, and bye-passed the settled principles of law.
(6) holding that the order is erroneous as well as it is prejudicial to the interests of revenue inspite of all necessary enquiries having already been held before passing the assessment order regarding the creditors-(i) Sejal Enterprises (ii) Sanjay Agrawal (iii) Tarachand Agrawal (iv) Anju Parasramka and (v) Kamal Agrawal.
Ground Nos. 1 to 4-The issues involved in these grounds are as to whether- (i) the dropping of the proceedings under section 148 served on the assessee on 8-3-2002 is valid and barred by time-limitation in the absence of service within statutory period? and (ii) the order passed under section 263 is bad in law as the dropping of proceedings under section 148 was not communicated to the assessee within time-limit? The learned authorised representative submits that the proceedings initiated under section 148 were dropped without communicating the same to the assessee before the period allowed to pass the order under section 148 read with section 143; the order dropping the proceedings under section 148 was supplied to the assessee only on 8-3-2002 which indicates that the said order was not passed earlier and time barred as the same was not served within the stipulated period. He also draws our attention to the contents of pp. 79 to 84 of the paper book and submits that in the notice issued under section 263 of the Act, nothing was mentioned about section 148 proceedings in the notice. He draws our attention to the contents of pp. 132 to 135 of the paper book and submits that proceedings under section 148 were dropped on 7-2-2000 which was never communicated to the assessee and the same has been communicated only on 8-3-2002 vide letter dated 7-3-2002 issued from the office of the learned CIT. The learned authorised representative points out that the said order dated 7-2-2000 regarding dropping of the proceedings under section 148 has been supplied to the assessee only on raising objection by the assessee against the issuance of notice under section 263. He refers pp. 98 to 102 of the paper book, i.e., the reply of the assessee to the notice issued under section 263 of the Act. The learned authorised representative refers the judgment of the Honble Supreme Court in the case of State of Bengal v. M.R. Mandal & Ors. AIR 2001 SC 3471 dt, 3-9-2001, wherein the Honble court was pleased to hold that the order passed, but not communicated has no valid existence in the eyes of law and further that an order passed, but retained in the file without being communicated to the plaintiff can have no force of authority and the same has no valid existence in the eyes of law or claimed to have come in operation in effect. He refers the judgment of the Honble Supreme Court in the case of State of Andhra Pradesh v.Ramakishtaiah & Co. & Ors. 93 STC 409 (SC) wherein it was held that in the absence of communication, the court shall presume that the order was not made on the date it purported to have been made and that it could have been made after the expiry of period of four years prescribed for passing such an order under revision. He also cites the following judgments: The learned Departmental Representative, on the other hand, refers the contents of page no. 8194 of the book on income-tax law authored by Chaturvedi & Pithisaria. He also cites the following judgments: 2. CIT v. Shil Manjunathesware Packing Products & Camphor Works (1998) 231 ITR 53 (SC) The learned Departmental Representative further submits that under section 263, the CIT is empowered to call for and examine the record of any proceeding under the Income Tax Act. The expression covers any proceeding actually taken under the Act.
We have considered the arguments advanced by the parties in view of the material available on record and have gone through the order impugned as well as the judgments relied on by the parties. The first issue for our consideration is as to whether the dropping of the proceedings under section 148 served on the assessee on 8-3-2002, is valid and barred by time-limitation in the absence of service within statutory period. The contention of the assessee against the issuance of notice under section 263 of the Act by the CIT remained that the copies of the orders of dropping the proceedings under section 148 were not served on the assessee. Hence, action under section 263 on the basis of that proceedings initiated under section 148 that these were erroneous insofar as it was prejudicial to the interest of the revenue, was time barred. The facts, in brief, as per the record, are that the assessments for the assessment years 1991-92, 1992-93 and 1993-94 were reopened under section 148 vide notices under section 148 dated 3-6-1997, 3-6-1997 and 12-5-1997, respectively. The proceedings initiated under section 148 were dropped for all the assessment years on 7-2-2000 by order sheet entries under D&CR No. 64, 65 and 66/162.
The CIT was of the view that the order of the assessing officer dropping the proceedings was erroneous and prejudicial to the interests of the revenue and, accordingly, he invoked the provisions of section 263 of the Act and issued notices on 27-2-2002. The assessee objected, the validity of the same on the basis of limitation. The CIT rejected contention of the assessee on the basis that the order for dropping of the proceedings under section 148 was communicated on 8-3-2000 (correct dated 8-3-2002), before passing of order under section 263. A question arises as to whether service of order dropping the reassessment proceedings upon the assessee was necessary and, if so, as to whether it was served upon the assessee or not? Though the entry of the reassessment order in the D&CR is stated to have been shown on 7-2-2000, but there is nothing on record to suggest that order was communicated to the assessee nor is it the case of the revenue that order was sent through registered post to the assessee to presume deemed service thereof upon the assessee. On similar issue, the Ahmedabad Bench of the Tribunal in the case of Smt. Vasantikaben J Dave v. ITO (1989) 76 CTR (7b)(Ahd) 121 has held that effectiveness, enforceability and validity of an order very much depends upon its having been communicated to the person concerned. The communication of an order of assessment to the assessee concerned is, thus, essential requirement for the effectiveness and validity of such an order. The Tribunal has placed reliance on the judgments of the Hon'ble Supreme Court and High Courts in the cases of CIT v. Orient Rubber Works (1984) 145 ITR 477 (SC), Smt. Jileebai Shinde v. CGT (1986) 157 ITR 122 (MP) and CIT v. Badri Prasad Bianwalla (1982) 28 CTR (Cal) 341. In this case before the Ahmedabad Bench of the Tribunal, the relevant assessment orders were never communicated to some of the appellants. The Tribunal arrived at a conclusion that there were no valid and effective orders to be revised by the CIT. We, thus, decide the ground Nos. 1 to 4 in favour of the assessee as in absence of communication there was no valid and effective order to be revised by the learned CIT, hence revision order passed under section 263 was not valid and quashed. The ground Nos. 1 to 4 are thus allowed.
Ground Nos. 5 and 6The facts in brief are that the assessing officer had accepted the claim of the assessee regarding deposits made by the creditors(i) Sejal Enterprises (ii) Sanjay Agrawal (iii) Tarachand Agrawal (iv) Anju Parasramka and (v) Kamal, Kumar Agrawal. A survey under section 133A of the Act was conducted and enquiries through Investigation Directorate, Ahmedabad, and by the assessing officer, revealed that bogus credits were introduced in the books of accounts.
In some other assessment year the interest paid by the assessee to the creditor was disallowed in the assessment proceedings on the basis that these were related to bogus cash credits. The assessee ultimately went in second appeal before the Tribunal, wherein it was held that the assessing officer should first reopen the assessment, examine the genuineness of cash credits of earlier year and thereafter proceed to disallow interest accrued thereon, especially when these cash credits were allowed in earlier assessment years by the assessing officer.
Accordingly, assessment was reopened under section 147 and 148 which ultimately were dropped. The CIT invoked provisions of section 263 with the finding that the order passed by the assessing officer dropping the proceedings initiated under section 147/148 was an order erroneous insofar as it is prejudicial to the interests of revenue. He has, accordingly, set aside the order of dropping the proceedings for assessment years 1991-92, 1992-93 and 1993-94 with direction to the assessing officer to conduct proper enquiries and frame the proper assessment order on merit in accordance with law after giving opportunity to the assessee. The assessee has opposed the action of the learned CIT in the present appeals before us mainly on the basis that proper and sufficient enquiries were conducted by the assessing officer on earlier two occasions and invocation of the provisions of section 263 by the CIT is nothing, but his own opinion on the matter.
In support of the grounds, the learned authorised representative draws our attention to the contents of p. 34 of the paper book, i.e., notings made by the assessing officer at the bottom of the assessment order under section 143(3) of the Act for the assessment year 1991-92 and submits that the assessing officer had specifically pointed out that this assessment has been made under Dy. CIT, Ujjain, monitoring and after getting his approval, cash credit confirmations have been obtained and scrutinised on the lines indicated in the letter of the Dy. CIT. He also refers contents of pp. 11 to 29 of the paper book i.e.
confirmation certificate from Sejal Enterprises, proprietor Sunil T.Agrawal, Sanjay Kumar Agrawal, Tarachand Agrawal/Smt. Premlata Agrawal, Kamal Kumar Agrawal and Smt. Anju Parasramka. He also refers assessment orders for the assessment years, under consideration, placed at pp. 30 to 43 of the paper book. He also invites our attention to the contents of pp. 46 to 51 of the paper book i.e. copies of notices issued under sections 147/148 of the Act and the reasons shown therein for initiating reopening proceedings. The learned authorised representative submits that sufficient enquiries of the creditors were made during the assessment and reagsessment proceedings and, thus, invocation of revisional proceedings on the basis of change of opinion is not justified. He also cites following judgments in supportUnited Electrical Co. (P) Ltd. v. CIT The learned authorised representative also refers pp. 52 to 64 of the paper book and submits that vide these correspondences, detailed enquiry regarding creditors in dispute were made by the assessing officer. He also refers pp. 65 to 70 of the paper book i.e. particulars of the amount by the creditors explained before the Income Tax Department, Ahmedabad. The learned authorised representative submits that affidavit dated 4-11-1996 of Shri Sunil T. Agrawal, proprietor M/s Sejal Enterprises, confirming the deposit of Rs. 5,60,000 with the assessee and denying the correctness of contrary statement recorded by the department placed at pp. 72 to 74 of the paper book, has not been questioned by the department.
The learned Departmental Representative, on the contrary, justifies the revisional order.
We have considered the arguments advanced by parties in view of the material available on record and have gone through the order impugned as well as the judgments relied on by the learned authorised representative. Thus, the issue to be examined by us is as to whether the claim of the assessee related to the creditors was properly examined by the assessing officer during reassessment proceedings or not. If it was properly examined and then only the reassessment proceedings were dropped by the assessing officer, then only the assessee would be able to succeed in its appeal before us. The basis for invocation of revisional provision by the learned CIT, in his words, is as "perusal of the record indicates that without conducting proper enquiries, proceedings initiated under section 148 of the Income Tax Act were dropped for all the assessment years on 7-2-2000 by order sheet entries under D&CR No. 64, 65 and 66/162. The learned CIT considered the dropping of the proceedings initiated under section 148 as erroneous insofar as it is prejudicial to the interest of revenue.
The contention of the assessee is that on both the occasions, i.e., at the stage of original as well as reassessment, sufficient enquiry regarding the creditors were made. during the assessment year 1991-92, the assessment under section 143(3) was made under Dy. CIT, Ujjain, monitoring and after granting his approval cash credit confirmations were obtained and scrutinised on the lines indicated in the letter of Dy. CIT (page No. 34 of the paper book). The facts are that in these cases, a survey under section 133A of the Income Tax Act was conducted in September, 1996, i.e., after completion of original assessment.
During the survey operation, it was found that the assessee had obtained certain cash credits. On investigation by the Dy. Director (Inv.) Ahmedabad, it was detected that the creditors were not genuine and reported that one Sunil T. Agrawal had admitted to have given only hawala entry, assessee had given an equivalent amount to the creditors at Ahmedabad and had obtained it back as a loan. Similar was the case with Anju Parasramka. In all the three assessment years 1991-92, 1992-93 and 1993-94 these creditors Sejal Enterprises, Sanjay Aggarwal, Tarachand Aggarwal Anju Parasramka and Kamal Kumar Aggarwal. Shri Sunil T. Aggarwal is proprietor of M/s Sejal Enterprises. On the basis of these reports of ADI in some other assessment year, the interest paid by the assessee to creditors was disallowed in the assessment proceedings on the basis that these were related to the bogus cash credits. The assessee ultimately went in second appeal before the Tribunal, wherein it was held that the assessing officer should first reopen the assessment, examine the genuineness of cash credits of earlier year and thereafter only proceed to disallow interest accrued thereon especially when these cash credits were allowed in earlier assessment years by the assessing officer. Accordingly, assessment was reopened under section 147 and 148 which ultimately were dropped. It is the subject matter of revision order. The submission of the learned authorised representative is that ADI, Ahmedabad, had sent a revised report after considering the affidavit of Shri Sunil Aggarwal and on that basis the CIT, Bhopal, in the case of M/s Nutan Synthetics (a sister concern of assessee) has dropped the proceedings under section 263. His further contention is that in the case of the assessee also Shri Sunil. T. Agrawal vide his sworn affidavit dated 4-11-1996 has confirmed his deposit of Rs. 5,60,000 with the assessee, Rs. 3,00,000 with Nutan Synthetics and different deposits with others, and with this clarification that submission before the ADI, Ahmedabad on 22-10-1996 denying these deposits were made under fear, duress and threat (pp. 72 to 74 of paper book). Regarding Smt. Anju M. Parasramka, it was submitted that she is a regular income-tax assessee holding PAN-30-043-PV-5754, the loan was given by her out of her capital from her bank account, interest was paid to her on regular basis.
Photocopies of her pass-book, income-tax return filed with the department, her confirmation for giving loan and computation of her total income for the assessment year 1995-96, were also furnished vide'letter dated 20-12-1999 to the assessing officer (page Nos. 55 to 64 of the paper book). The contention of the assessee is that the assessee produced confirmations of the creditors who are assessees, payments were made through banking channels and none of the creditors has denied genuineness of loan. Its further contention is that queries raised during original assessment proceedings, before ADI and reassessment proceedings were replied by the assessee. The further contention is unless the deponent is cross-examined and the information is found incorrect on the file of assessing officer, the adverse view cannot be taken mechanically. In support, following judgments were relied upon by the learned authorised representative :Kalra Glue Factory v. Sales Tax Tribunal (ii) CIT v. UN. Shah, Proprietor, Shrenik Trading Co. (1973) 80 ITR 396 (Bom)United Electrical Co. (P) Ltd. v. CIT Section 68"Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof, or the explanation offered by him is not, in the opinion of the assessing officer, satisfactory, the sum so credited may be charged to incometax as the income of the assessee of that previous year." Thus, we are of the view that the assessing officer may charge the credited sum with income-tax as income of the assessee of previous year only if in his opinion the explanation offered by the assessee about the nature and source of the money is not satisfactory or in case the assessee has not furnished any explanation. Thus, dropping of the reassessment proceedings by the assessing officer after considering the explanation furnished by the assessee in support of genuineness of creditors, suggests that he was satisfied with the explanation of the assessee and the assessing officer was of the opinion that in the present case, the reassessment does not make out. If an assessing officer is not satisfied with the explanation furnished by the assessee or there is some doubt over the creditors, he may ask the assessee to produce creditors or issue summons to secure their presence before him to examine them. And in that case, the assessing officer cannot use the adverse statement of a creditor against the assessee unless assessee is given opportunity to crossexamine the said creditor. From the record it appears that notices under section 148 for the assessment years 1991-92, 1992-93 was issued on 3-6-1997 and for assessment year 1993-94 on 12-5-1997 (page Nos. 46 to 48 paper book). Reasons for reopening supplied to assessee vide letters dated 20-6-1997 (p. 49 to 51 of paper book). Vide letter dated 17-11-1999, queries were raised by the assessing officer regarding creditors from the assessee fixing date of hearing on 6-12-1999 at 12.30 p.m. (pp. 52 to 54 of paper book). A detailed written reply dated 20-12-1999 (pp. 55 to 64 of paper book) was furnished by the assessee to the assessing officer. And before this reply, reply dt, 3-12-1998 and 21-12-1998 were also furnished to the assessing officer (pp. 65 to 69 of the paper book). Thus, these were sufficient materials on the record of the assessing officer to take a decision as to whether the creditors in question were genuine or not.
In case of his dissatisfaction, he was at liberty to ask the assessee to produce the creditors or issue summons to them to verify their confirmations about the credits to the assessee. The assessing officer was, however, satisfied with the genuineness of the creditors, hence he opted to drop the reassessment proceedings vide order dated 7-2-2000.
We, thus, answer the issue in affirmative that claim of the assessee related to the creditors was properly examined by the assessing officer during the reassessment proceedings. The view taken by the learned CIT in the revisional order that explanation furnished by the assessee was not sufficient to drop the reassessment proceedings is, thus, nothing but a change of opinion, which is not allowed to be made a basis for invocation of revisional provision under section 263 of the Act. The dropping of the reassessment proceedings, therefore, cannot be termed as erroneous and prejudicial to the interest of revenue.
ITA No. 269/Ind/2002-The first appellate order has been impugned by the assessee mainly on the following grounds that the learned CIT has erred in (1) bringing the gross profit of Rs. 27,39,871 in place of correct gross profit of Rs. 38,10,724 and, therefore, has erred in not understanding the gross profit arrived @ 9.22 per cent in place of correct GP at the rate of 11.25 per cent as per regular practice of accountancy adopted by the assessee and has erred in taking account of income of Rs. 40,000 already considered in trading account; (2) calculating the average sale price per metre at Rs. 81.85, whereas the survey was carried out in September, 1996 and the average sale price of August, 1996 is Rs. 72.87 per metre and, accordingly, incorrectly calculated the trading profit of Rs. 19,600 by making adjustment of expenses from sales in recasting trading account and furthermore has erred in considering the administrative expenses and selling expenses in trading account.
(3) setting aside the interest paid to (1) Smt. Anju Parasramka (Rs. 18,000); (2) Sejal Enterprises (Rs. 27,000); (3) Premlata Tarachand Agrawal (Rs. 22,500); (4) Sanjay Agrawal (Rs. 16,500); and (5) Kamal Kumar Agrawal (Rs. 3,000), which is consequential to the principal amount invested in the assessment years 1991-92 and 1992-93; and (4) holding that the order is erroneous and prejudicial to interests of revenue.
The facts in brief are that during this year assessment was framed under section 143(3) on 7-2-2000. A survey under section 133A of the Act was carried out on 11-9-1996 wherein stock was found short by Rs. 2,12,583 for which the assessee surrendered Rs. 40,000, but in the return of income, the assessee had offered only Rs. 5 lakhs instead of Rs. 5,40,000 for making adjustment of expenses from sales. The CIT has observed that the assessee had included the stock which was found short by Rs. 2,12,588 in the sales and has increased sales by this amount for which the assessee had prepared cash sales vouchers memo nos. 566 dated 31-3-1997 for Rs. 2,12,589. What assessee should have added in the sales account was not amount of stock found short but the amount which had fallen short plus profit thereon, because the sale would include not only purchase price but also the profit element thereon. The assessing officer did not look into this aspect and has ignored the fact that retraction of surrender of Rs. 40,000 was not in order. The CIT observed further that the assessing officer should have conducted proper enquiries to look into the genuineness of cash credits with reference to credit, worthiness, identity of the creditor and genuineness of the transactions taken in the assessment years 1991-92 and 1992-93, on which interest has been claimed to have been paid during the year relevant for the assessment year, under consideration.
Against this revisional order, the assessee is in appeal before us on the aforesaid grounds.
So far as the matter relating to payment of interest to creditors on the credits taken in the assessment years 1991-92 and 1992-93 is concerned, we have already decided the genuineness of the credits in these assessment years in favour of the assessee in the above appeals and thus interest claimed to have been paid to these creditors during the year relevant for the assessment year in question, is held genuine and thus there was no occasion before the CIT to invoke provisions of section 263 of the Act. Ground No. 3 is thus allowed in favour of assessee.
In support of ground Nos. 1 and 2, the learned Authorised Representative draws our attention to contents of pp. 137 to 145 of paper book, i.e., particulars of sales-tax as on 31-3-1997 including sales invoices, debit notes and ledger and submits that profit has already been considered in trading account. The learned Departmental Representative, on the contrary, banks upon the revisional order and submits that profit earned on stock should have been shown.
After considering the arguments of parties in view of the material available on record, we find force in the submission of the learned Authorised Representative as, in support of its claim the assessee had furnished cash sales voucher memos dated 31-3-1997 for Rs. 2,12,589 with the submission that profit had already been considered in trading account. Thus, the basis for invocation of provisions of section 263 is not correct. Ground Nos. 1 and 2 are thus, allowed in favour of the assessee.
Ground No. 4 is consequential in nature which does not need independent adjudication. 19. In the result, the appeal is allowed.
I have perused the proposed order of learned JM carefully but could not persuade myself to agree with the findings and conclusions arrived by him in respect of ITA Nos. 266-268/Ind/2002 & ground No. 3 of ITA No.269/Ind/2002. The relevant brief facts are as under: Assessee had obtained loans from certain parties, which Were accepted during the assessment proceedings. In the meantime, during the course of survey, it was found by Dy. Director (Inv.), Ahmedabad, that certain parties Were giving only hawala entries. It was also found that loans given to the assessee were bogus. In some of the cases of assessee, interest on unsecured loans were disallowed and the matter came before the Tribunal, where it was held that interest could not be disallowed unless and until such loans were also disallowed. On the basis of this observation, cases for assessment years 1991-92, 199293 and 1993-94 were reopened under section 148. The reopening was dropped for all these years on 7-2-2000 by order sheet entries under D&CR Nos. 64, 65 & 66/162. While examining the records, CIT was of the view that sufficient enquiry has not been made before dropping the reopening proceedings and thus notice under section 263 was issued. In response to the notice, it was submitted that assessee was served the order regarding dropping of proceedings on 8-3-2002, therefore, same was time-barred and not available for revision. It was also submitted that assessing officer had conducted sufficient enquiries before dropping the proceedings and, therefore, such dropping could not be called erroneous and prejudicial to the interests of revenue. Both these contentions were not accepted by learned CIT and the order was held to be erroneous insofar as it is prejudicial to the interests of revenue and same was set aside with a direction to conduct proper enquiries and frame proper assessment order in accordance with the law.
In respect of ground Nos. 1 to 4, learned authorised representative submitted that reassessment proceedings initiated under section 148 were dropped without communicating same to the assessee before the period allowed to pass reassessment order under section 143(3) was supplied to the assessee only on 8-3-2002, after assessee took objection before CIT regarding the service. Since dropping order was served on 8-3-2002, it indicated that same was not passed earlier and was thus time barred. He then referred to pp. 98 to 102, which is copy of the reply given in response to notice under section 263 in which reliance was placed on the decision of Supreme Court in the case of State of Bengal v. M.R. Mandal AIR 2001 SC 3471, wherein it was observed by Hon'ble Supreme Court that order passed but, not communicated, has no valid existence in the eyes of law. Similarly, an order passed, but kept in the file without communicating the same to the plaintiff can also have no force of law and the same has no valid existence in the eyes of law. He also relied on State of AP v.Ramakishtaih & Co. 93 STC 409. He also relied on CIT v. Sree Narayana Chandrika Trust (1995) 212 ITR 456 (Ker), CIT v. Carborandum Universal Ltd. (1999) 240 ITR 99 (Mad), Kalyankumar Ray v. CIT (1991) 191 ITR 634 (SC), CIT v. Balkrishna Malhotra (1971) 81 ITR 759 (SC), Peeru Lal Mohan Lal v. CIT (2002) 257 ITR 198 (Raj) and CIT v. Smt Raniraj Kaur (1997) 140 CTR (MP) 207: (1997) 222 ITR 665 (MP).
On the other hand, learned Departmental Representative referred to section 263 and submitted that CIT would have powers of revision if he considers that any order passed is erroneous in so far as it is prejudicial to the interest of revenue. This clearly shows that whether that order has been served or not is not a fetter for revisionary powers. The real issue is whether CIT had powers to revise that order or not. He further submitted that the expression 'any proceedings under the Act' would cover any proceedings factually taken under the Act and the power of revision extends to all orders passed by any officer under the Act. He strongly relied on CIT v. Madras Palayakat Co. (P) Ltd. (1969) 74 ITR 642 (Mad), CIT v. Christian Mica Industries Ltd. (1979) 120 ITR 627 (Cal), CIT v. Shree Manjunatheshware Packing Products & Camphor Works (1998) 231 ITR 53 (SC) and Swarup Vegetables Products v.CIT (1991) 187 ITR 412 (All). He also referred to sub-section (2) of section 263 which provides that order under section 263 can be passed within two years from the end of financial year in which order sought to be revised was passed. In this case, proceedings under section 147 were dropped on 7-2-2000, and revisionary order has been passed on 22-3-2002, i.e., well within two years from the end of financial year in which dropping order was passed.
After considering the rival submissions carefully and going through the relevant material on record and judgments cited by the parties, I am inclined to agree with learned Departmental Representative. The issue before us is not validity of the order passed for dropping of proceedings under section 147.. The issue before us is whether CIT had powers to revise order dropping such proceedings. Section 263(1) reads as under : "The CIT may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the assessing officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
From the plain reading of the section, it becomes very clear that CIT has powers to make revision against any order passed in any proceedings which are found to be erroneous in so far as they are prejudicial to the interests of the revenue. Such power arises on passing of an order in any proceedings and not after order has been served.
Learned author, Chaturvedi & Pithisaria, in their Commentary on Income Tax Law, Fifth Edn. at p. 8194, has opined that the expression 'any proceedings under the Act' is not related to any particular assessment year. The expression covers 'any proceedings' factually taken under the Act. It has been further opined that power of CIT is not confined only to an order of assessment passed by the assessing officer, but it extends to all orders passed by him if the CIT considers that such orders are erroneous insofar as they are prejudicial to the interests of the revenue. Similar view was expressed by the Hon'ble Calcutta High Court in CIT v. Christian Mica Industries Ltd. (supra). Similar view was also expressed by the Hon'ble Madras High Court in CIT v. Madras Palayakat Co. (P) Ltd. (supra). It is also important to note that section 263(1) has used the expression 'and if he considers that any order passed which means the limitation would start from the passing of the order. Though I have no quarrel with the contention of learned authorised representative that, if an order is not serviced, the same cannot be called a valid order but that is not the issue before us.
Cases cited by learned authorised representative are of the effect that if an order is not served, that order would not be considered valid order, but that is not the issue before us. The question before us is whether CIT has jurisdiction to revise the order or not. Therefore, cases cited by learned authorised representative are of no help to the assessee. In this background, I hold that learned CIT had jurisdiction to pass this revisionary order and the same has been passed well within time as prescribed under section 263(2). I think dropping of proceedings under section 147 was of beneficial nature to the assessee and the same must have been verbally communicated to the assessee, as it was dropped through entry in DCR and not by way of order. This is evident that no enquiry was made by the assessing officer and no reply has been furnished by the assessee after the proceedings were dropped.
This, clearly shows that assessee was aware of dropping of these proceedings. The dropping of proceedings under section 147 was done on 7-2-2000 and the revisionary order has been passed on 22-3-2002 i.e.
within two years from the end of financial year when the order dropping the proceedings under section 147 was made.
Apropos ground Nos. 5 & 6, the brief facts of the case are that unsecured loans from 5 parties namely, (1) Sejal Enterprises, (2) Sanjay Agrawal, (3) Tarachand Agrawal, (4) Anju Parasramka, and (5) Kamal Kumar Agrawal, were accepted by the revenue authorities in original assessment proceedings. Later on, during the survey proceedings and enquiries through Investigation Directorate, Ahmedabad, it was revealed that such creditors are not genuine. In the meantime, interest on some creditors was not allowed to the assessee, being interest on bogus creditors and assessee came in second appeal before the Tribunal, where it was observed that assessing officer should first reopen the assessment and examine the genuineness of such credits in earlier years and only then question of disallowance of interest should be decided. In view of these observations, assessments of the assessee were reopened under section 147 for assessment years 1991-92, 1992-93 and 1993-94. This reopening was dropped later on. The CIT has invoked the provisions of section 263 in respect of these dropping of proceeings initiated under section 147/148 holding that such dropping order was erroneous in so far as it is prejudicial to the interest of the revenue. The dropping of the proceedings was set aside with a direction to assessing officer to conduct proper enquiries and frame proper assessment after providing opportunity to the assessee.
Before us, learned authorised representative submitted that assessments were completed under section 143(3) for all the relevant years on 20-7-1993, 20-10-1993 and 31-3-1995 for assessment years 1991-92, 1992-93 and 1993-94 respectively. He referred to pp. 11 to 19 and submitted that confirmations in respect of all the loans were filed. He then referred to p. 34, which is copy of the assessment order for assessment year 1991-92 under section 143(3), where in the office note, it has been mentioned that assessment was framed in accordance with the directions of Dy. CIT, Ujjain Range, because the case had come under Dy. CIT, Monitoring. He then referred to pp. 40 to 51 of the paper book, which is copy of the notices issued under section 148 and the reasons for reopening the assessment. He contended that sufficient enquiries were made during the assessment and thus, revisional proceedings on the basis of change of opinion was not allowed under the law. In this regard, he relied on CIT v. Omrao Industrial Corpn. (P) Ltd. (2000) 246 ITR 346 (All) and United Electrical Co. (P) Ltd. v. CIT (2002) 258 ITR 317 (Del). Then he referred to p. 52 to 54 where detailed enquiries were made by the assessing officer. He, then, referred to pp. 55 to 64, which is copy of reply given by the assessee in respect of such enquiries. He also referred to pp. 65 to 74 which are copies of reply submitted at Ahmedabad and affidavit furnished there regarding such loans. He also relied on the following decisions:Kalara Glue Factory v. Sales Tax Tribunal (ii) CIT v. UM. Shah, Proprietor, Shrenik Trading Co. (1973) 90 ITR 396 (Bom);United Electrical Co. (P) Ltd. v. CIT On the other hand, learned Departmental Representative contended that no proper enquiries were made by the assessing officer during 147 proceedings. Same were dropped without sufficient enquiry. He submitted that report of Investigating authorities were before him, still he did not bother to raise appropriate questions. He submitted that failure to conduct proper enquiries would render an order passed as erroneous. In this regard, he relied on Smt. Tara Dem Aggarwal v. CIT (1973) 77 ITR 323 (SC). He also relied on Swarup Vegetable Ind. v. CIT (supra). He also contended that dropping order was passed without application of mind and thus same should be held to be erroneous and in this regard he relied on Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC). He also contended that revisionary powers of CIT are of wide amplitude and even material which has been on record after assessment can also be taken into consideration for exercising such powers. In this regard, he relied on CIT v. Shri Manjuna thesh ware Packing Products & Camphor Works (supra).
I have considered the rival submissions carefully and have gone through the relevant material on record. First of all, I would like to observe that what is challenged before us is revision order passed under section 263 and not reopening of the assessment initiated under section 147/148. In view of these facts, the decisions of CIT v. Omrao Industrial Corpn. (P),Ltd. (supra) and United Electrical Co. (P) Ltd. (supra), are of no help to assessee because same were rendered in the context of reopening of assessment under section 147 and 148. Coming to the facts of the case, I find that some investigations etc. were conducted at Ahmedabad in which it was found that loans raised by the assessee were not genuine. In the meantime, interest on certain unsecured loans was disallowed and assessee had come before the Tribunal in respect of that disallowance. While adjudicating that issue, it was observed by the Tribunal that assessing officer should first reopen the assessment and determine the genuineness of loans only after that, question of disallowance of interest would arise. The proceedings under section 147/148 were taken in this background. Even if assuming it was not a direction to the assessing officer to reopen the assessment, it was definitely an observation by the Tribunal and since time was available for reopening of assessment proceedings, action was initiated accordingly. The reasons for reopening given by the assessing officer are that during the enquiries conducted through DDI, Ahmedabad, the said loans were found to be not genuine. Copies of the reasons are placed from pp. 49 to 51. Then, once proceedings under section 147/148 were initiated, a letter was written on 7-11-1999 in which various queries were raised. Query no. 10 related to the unsecured loans. In response to these queries, assessee had replied on 20-12-1999 and copy of such reply is placed on record at pp. 55 to 64.
1 would again emphasis that reopening of the proceedings under section 147/148 is not challenged before us. Once the proceedings were reopened specifically for the purpose of examining the genuineness of loans, the assessing officer was duty bound to make proper enquiries and consider all the relevant material on record and determine the genuineness of loans. However, from the letter written by assessing officer, queries were definitely raised, but in the reply it was simply stated by the assessee that these parties were regular assessees and their photocopies of pass books have been submitted and their confirmations have been filed. After this, assessing officer did not bother to raise any more questions. When the report of investigating authorities was before him that these people have indulged in only entry transactions or hawala transactions, which means cheques were obtained from these parties and cash was simultaneously returned to them. We also find that copies of replies placed at pp. 65 to 71 are dated 21-12-1998 i.e.
before the enquiry was started by the assessing officer on 17-11-1999 (see p. 52 letter of assessing officer written to the assessee) which very clearly mean that these documents were not filed before the assessing officer. Reassessment proceedings were dropped merely on the basis of simple reply which clearly shows that there was no proper application of mind. It is well settled position that failure to make proper enquiries will' also render an order to be erroneous and in the case before us where assessments were reopened in the light of material obtained by the department that certain loans were not genuine, still assessing officer simply accepted the same on the basis of letter without raising further enquiries or obtaining relevant material or asking the assessee to produce such persons. Not a single question was asked about report of Investigation Agencies.
The decision relied by learned authorised representative are of no help to assessee. For example, the decision of Mehta Parikh & Co. v. CIT (supra) laid down that affidavit filed by a person cannot be dismissed lightly, but in the case before us, affidavits were not filed before assessing officer or CIT, but the same were filed before DDIT (Inv.), Ahmedabad. Similarly, in the decisions of Kishanchand Chelaram v. CIT (supra) and Kalra Glue Factory v. Sales Tax Tribunal (supra) where it was held that no evidence could be admitted without providing opportunity for cross-examination, has no relevance because enquiries were conducted by DDI, Ahmedabad and those matters are not under challenge before us as we have already emphasised above. In CIT v. U.M.Shah (supra), Hon'ble Bombay High Court was concerned whether loans were genuine or not and issue before us is whether order passed by assessing officer is erroneous insofar as prejudicial to the interests of the revenue. In CIT v. Metachern Industries (supra), court was concerned with the scope of section 68 and it was held that once the person is produced before the income-tax authorities, the onus of assessee would be over. In the instant case, we are dealing with the scope of section 263 and that is precisely the issue that no persons were produced before the assessing officer and that is why along with other factors, the order was held to be erroneous in so far as it is prejudicial to the interests of the revenue. On the other hand, the Hon'ble Supreme Court in Malabar Industrial Co. Ltd. v. CIT (supra) has clearly laid down that if there is no application of mind by the assessing officer, then CIT would have powers to revise such order.
Similarly, Hon'ble Supreme Court in CIT v. Shree Manjunathesh ware Packing Product (supra) has held that revisional powers conferred on CIT under section 263 are of wide amplitude and he can examine the records which were not before the assessing officer. In view of these pronouncements, I find nothing wrong with the order of learned CIT and confirm the same.
I agree with learned JM in respect of finding and conclusions arrived at by him in respect of ground Nos. 1 & 2. As far as ground no. 3 is concerned, as I have held in abovenoted paras that assessing officer had not conducted proper enquiries and proceedings under section 147 were dropped without application of mind, the said loans cannot be held to be genuine and the fate of allowance of interest on the same would depend after the loans are established to be genuine or bogus.
Therefore, I uphold the order of learned CIT partly and same is allowed in respect of ground No. 3 and quash in respect of ground No. 1 & 2.
Since there is a difference of opinion between the JM and AM, the matter is being referred to the Hon'ble President of the Tribunal with a request that the following questions may to referred to a Third Member or to pass such order as the Hon'ble President may desire: 1. As to whether the dropping of the proceedings under section 148 served on the assessee on 8-3-2002 is invalid and barred by time-limitation in the absence of service within the statutory period? 2. If answer to question No. 1 is in affirmative, then as to whether the revisional order under section 263 becomes invalid in consequence? and 3. As to whether under the facts and circumstances of the case, the order passed under section 263 is bad in law on merits of the case? As to whether order passed under section 263 related to allowing the, claim of payment of interest to the creditors by dropping of the reassessment proceedings by the assessing officer is invalid under the facts and circumstances of the case? As there is a difference of opinion between JM and AM, the President,, Tribunal has referred the matter under section 255(4) of the Act for my opinion, as Third Member, on the following points: (a) As to whether the dropping of the proceedings under section 148 dated 7-2-2000, served on the assessee on 8-3-2002 is invalid and barred by timelimitation in absence of service within statutory period? (b) If answer to Question No. 1 is in affirmative, then as to whether the revisional order under section 263 becomes invalid in consequence? (c) As to whether under the facts and circumstances of the case, the order passed under section 263 is bad in law on merits of the case? (a) As to whether order passed under section 263 related to allowing the claim of payment of interest to the creditors by dropping of the reassessment proceedings by the assessing officer is invalid under the facts and circumstances of the case? Brief facts of the case are assessment for the first three years viz., assessment years 1991-92, 1992-93 and 1993-94, were completed respective only 20-7-1993, 20-10-1993 and 31-10-1995. The assessment for assessment year 1997-98 was completed on 7-2-2000.
The office note in the assessment order for the assessment year 1991-1992, inter alia, states as under: This assessment has been made under Dy. CIT, Ujjain Range, Ujjain monitoring and after getting approval vide his letter No.DC/UJJN/DCIT/Nmon/92-93/1535 dated 15-12-1992.
Cash credit confirmations have been obtained and scrutinised on the lines indicated in the Dy. CIT's letter noted above.
'Thereafter, notices were issued under section 148 for first two years on 3-6-1997 and for the third year on 12-5-1997. The reasons recorded for issue of notices under section 148 for these years are as under: During the course of assessment proceedings for assessment year 1994-95, while verifying the genuineness of credits introduced in various names, enquiries were conducted through ADI, Ahmedabad and AD, Indore and as per their report the following unsecured loans were bogus : During the course of the assessment proceedings for assessment year 1994-95, while verifying the genuineness of creditors introduced in various names, enquiries were conducted through ADI, Ahmedabad and ADI, Indore and as per their reports the following unsecured loans were bogus : During the course of assessment proceedings for assessment year 1994-95, inquiries were conducted through, ADI, Ahmedabad, to verify the genuineness of credit introduced in the various names. As per ADI's report, the loan of Rs. 1,85,348 in the name of Shri Gulabwala, Ahmedabad, was not genuine as per the statement of this person recorded before ADI.It seems that the proceedings initiated under sections 147/148 were dropped by the assessing officer by the order dated 7-2-2000 by observing as under : (i) For the assessment year 1991-92Proceedings filed after verification and considering reply of the assessee.
(ii) For the assessment year 1992-93- "Keeping in view the reply of the assessee and due verification proceedings filed.
(iii) For the assessment year 1993-94Proceedings filed after discussion of the case with the Addl. CIT. " It is further seen that these orders were served on the assessee only on 8-2-2002 and entries made in the DCR by mentioning 'proceedings' were shown to the assessee.
The CIT in exercise of his power under section 263 issued a notice to the assessee on 8-2-2002 for revising the order. On being made aware that the assessment sought to be revised under the said notice were made much prior to the limitation within which the CIT could rectify, these notices were dropped. Fresh notices were issued on 27-2-2002 for exercising the jurisdiction under section 263 against the orders dropping proceedings under section 147. Grounds on which the jurisdiction under section 263 is being exercised are certain cash credits in the names of five persons are as under: In the forth year viz., assessment year 1997-98, the dispute is only with regard to disallowance of interest pertaining to the aforesaid cash credit.
The assessee raised objection before the CIT that the impugned order dated 7-2-2000 dropping proceedings under section 148 which are sought to be revised, has been communicated to the assessee on 8-3-2002, which was barred by limitation as prescribed by the sub-section 2 of section 153; i.e. made before two years from the end of financial year in which notice under section 148 was issued and the notice having been issued on 3-6-1997, the limits expired on 31-3-2000 and since they were communicated to the assessee on 8-3-2002, they have no valid existence in the eyes of law, in view of Supreme Court decision in the case of State of West Bengal v. M.R. Mandal 2001 AIR (SC) 3471. Reference was also made to the decision of Madras High Court in the case of CIT v.Carborandum Universal Ltd. (1999) 240 ITR 99 (Mad) and in the case of CIT v. Sree Narayana Chandrika Trust (1995) 212 ITR 456 (Ker).
The CIT, however, rejected the contention of the assessee by observing as under : "I have considered submissions of the counsel. Madras High Court in the case of CIT v. Madras Palayakat Co. (P) Ltd. (1969) 74 ITR 642 (Mad), has held that 263 is applicable in any proceedings under the Act. It is not confined to an order of assessment only and it extends to all orders passed by the assessing officer, CIT v. Christian Mica Industries Ltd. (1979) 120 ITR 627 (Cal). It has been held by Calcutta High Court in this case that dropping the proceedings after obtaining the approval of the IAC is also an order which can be revised under section 263 of the Income Tax Act. As regards the submissions that the order has not been communicated, it is stated that before passing of order under section 263 of the Income Tax Act, even this compliance has been made and order sheet entries vide which proceedings were dropped under section 148, were communicated on 8-3-2000 and thereafter, the matter was discussed with the assessee's counsel before passing this order under section 263. The order dropping the proceedings has thereby been served before invoking section 263. " The assessee's contention that the order of the assessing officer was neither erroneous nor prejudicial to the interest of the revenue, was also rejected by the CIT by observing that before dropping proceedings212 ITR 456 under section 147, the assessing officer has not conducted proper inquiry and has not brought on record sufficient material to justify dropping of the proceedings in the glaring adverse facts. According to him, this was a case of inquiry under section 133A through Investigation Directorate at Ahmedabad and by assessing officer which revealed that bogus creditors were introduced in the books of accounts which necessitated reopening of assessment and on examination again through Investigation Directorate at Ahmedabad and the assessing officer in which it transpired that the lenders were given money which was flown back to the assessee in the form of cash credits. Similarly, for interest also, only accommodation entries were taken and in some assessment years, when interest disallowance relating to bogus cash credits were disallowed in the course of assessment proceedings, the Tribunal held that the assessing officer should first reopen the assessment, examine the genuineness of cash credit and thereafter proceed to disallow interest. According to CIT, the assessing officer did not carry out proper investigation and enquiries to look into the genuineness of the cash credits, the genuineness of transactions, creditworthiness of the lender and identify of the persons. He therefore, set aside the order of the assessing officer dropping the proceedings under section 147 with a direction to the assessing officer to frame proper assessment after considering the submissions of the assessee.
In the appeal filed before the Tribunal, the assessee submitted that there was no valid and effective order of the assessing officer for dropping the proceedings under section 147, and therefore, revision under section 263 is not valid. And on merits also the assessee's contentions is that the claim of the assessee relating to the creditors was properly examined by the assessing officer during the reassessment proceedings and the view taken by the CIT in the revisional order that explanation furnished by the assessee was not sufficient to drop the reassessment proceedings, was thus, nothing but a change of opinion, which cannot be allowed to be made a basis for invocation of revisional provision under section 263 of the Act.
The revenue's contention, on the other hand, is that issue before the Tribunal is not the validity of order passed for dropping of proceedings under section 147, but whether the CIT has powers to revise that order. The order of dropping was made on 7-2-2000, and the revisionary order has been passed on 22-3-2002, i.e., within two years from the end of financial year of the droppings the proceedings under section 147. It was, therefore, a valid order. On merits, he submitted that some investigations were conducted at Ahmedabad in which it is found that loans raised by the assessee were not genuine. Interest on these unsecured loans was disallowed by assessing officer in subsequent year and assessee had come before the Tribunal and while adjudicating that issue, the Tribunal observed that the assessing officer should first reopen the assessment and determine the genuineness of loan. Only after that the proceedings under section 147/148 were taken in this background and even if this was not a direction to the assessing officer to reopen the assessment and the time was available for reopening of assessment proceedings, and therefore, action was validly initiated. The reasons for reopening were given, which was not challenged by the assessee and when it was reopened specifically for the purpose of examining the genuineness of loans, the assessing officer was duty bound to make proper inquiries and consider all the relevant material on record and determine the genuineness of loans. The assessing officer did not bother to make proper inquiry in the light of report of the investigation authority before him stating the parties were indulging in only entry transactions or hawala transactions.
According to him, the reassessment proceedings were dropped merely on the basis of simple reply which clearly shows that there was no proper application of mind, and therefore, CIT was justified in setting aside the assessment with a direction to re-make the same after proper inquiries.
The rival contentions of the parties are considered. In so far as the question of validity of order dropping reassessment proceedings is concerned, in my opinion, the same cannot be said to be invalid, merely because it was communicated late. What the provisions governing time-limit under section 153 say is that it prohibits passing of an order after a stipulated period. In case of an order under section 147, the time-limit is prescribed under section 153(2) as under : 153(2)No order of assessment, reassessment or recomputation shall be made under section 147 after the expiry of (one year) from the end of the financial year in which the notice under section 148 was served: (Provided that where the notice under section 148 was served on or after the 1-4-1999 but before the 1-4-2000, such assessment, reassessment or recomputation may be made at any time up to the 31-3-2002.) On a bare reading of this provision one can say that the prohibition to make an order under section 147 after the expiry of 2 years from the end of financial year in which the notice under section 148 was served.
This section does not prohibit the serving of the order under any time-limitation. The notice under section 148 for the three years was issued in the financial year 1997-98 on 3-6-1997 in first two years and on 12-5-1997, in third year. Therefore, the time-limit within which the order under section 147, could be made was 31-3-2000, being 2 years from the end of financial year 1997-98 ending on 31-3-1998. Apparently, therefore, the orders made by the assessing officer on 7-3-2000 are not, barred by limitation. The learned counsel, however, submitted that an order though made within time-limit provided under section 153(2), would be barred by limitation if they are not communicated within such period. The orders which were served on 8-3-2002, are, therefore, not valid order. I do not find any merit in this contention of the assessee. No such provision is there in Income Tax Act to provide that order must also be communicated within such time-limit prescribed for making the order. Making of an order and communication of such order are two separate actions and law provides a time-limit for the first and not for the second. An order passed within the prescribed limit, in my opinion, can be communicated subsequently and for that there is no barrier of any time-limit. It is true that an order to be effective must be served on the aggrieved party or against whom it is passed/made as to seek redressal; the assessee have to take appropriate measures for appeal, revision or rectification within a particular time. The assessee has no such redressal to seek as the dropping the proceedings under section 148 was in its favour by which he was not aggrieved. In any case, the legislature has taken care of such a position and the time-limit for further action or remedial action is provided from the receipt of the order so that a person does not loose right to challenge the action/order of an authority on account of the fact that service of the order was made after the expiry of the period within which the appropriate remedy could be sought by an assessee. See in this connection the provisions of first appeal-Section 246 provides an appeal against an order under section 147 by virtue of clause (b) of section 246(1) read with clause (b) of section 246(1A) and time-limit to file an appeal thereagainst is prescribed under section 249(2) as 30 days from the date of receipt of order or the date on which intimation of the order sought to be appealed is served. Here, the service is made the starting point for limitation and not the date of order. A petition for rectification of an order by virtue of section 154(7) is to be made within four years from the date of the order passed. Here the Courts have invariably taken the date of passing the order as date of service and the logic is that unless it is served he cannot anticipate of filing an application for rectification. Again, section 263 dealing with revision prescribes time-limit of two years from the end of financial year in which the order sought to be revised, was passed, but under section 264 dealing with revision of assessee's application prescribes a timelimit of one year from the date on which the order in question was communicated to him or the date on which he otherwise came to know about it, whichever is earlier. Provision of limitation for taking an action within a specified time also provides for exclusion of the period taken in obtaining the copy of an order appealed against or sought to be revised/rectified. As aforesaid, the two actions of an authority for making/passing an order and communicating the impugned order are different actions and not synonymous and are differently understood in the fiscal and other statutes. When, therefore, time-limit is prescribed for first action and no time-limit is prescribed for the second, one need not have to read such limitation for both the actions.
The assessee relied upon the decision in the case of M.R. Mardia (supra). In that case the order was not communicated at all and, therefore, that was held to be not valid order. In the present case, the order was communicated to the assessee on 8-3-2002 before the exercise of jurisdiction under section 263 and therefore, the decision of the Supreme Court in the aforesaid case would be of no help to the assessee.
In the case of Sree Narayana Chandrika Trust (supra), the Kerala High Court noted the question, but declined to answer the same. In this case, a reference was made to earlier decision of the Kerala High Court in the case of Government Wood Workshop v. State of Kerala, wherein the High Court observed as under: "The order of any authority cannot be said to be passed unless it is in some way pronounced or published or the party affected has the means of knowing it. It is not enough if the order is made, signed, and kept in the file, because such order may be liable to change at the hands of the authority who may modify it, or even destroy it, before it is made known, based on subsequent information, thinking or change of opinion.
To make the order complete and effective, it should be issued, so as to be beyond the control of the authority concerned, for any possible change or modification therein. This should be done within the prescribed period, though the actual service of the order may be beyond that period." It is not known that what were the provisions of the particular State Act. In Income Tax Act, the provisions are clear and the time-limit is provided only for making an order and not for communicating the same.
This case also, therefore, is of no help to the assessee.
Similar is the position with regard to the cases referred to by the learned counsel of the assessee. The first and second questions are, therefore, decided against the assessee. Consequently, the order under section 263 would be a valid order.
As regards the third question of difference on merits, I find the following appear from the record in connection with the cash credits: (i) Income Tax Officer's letter dated 6-12-1991 to M/s Dewas Silk Mills, whereby the assessing officer required the assessee to furnish certain information, the relevant item i.e. Querry No. 25 is reproduced below with reply: "25. Please give the list of creditors of above Rs. 10,000. The mode of receipt and mode of payment of the amount i.e. in cash, cross/bearer cheques/demand draft etc." The list of creditors is already attached with the audited accounts.
Confirmation of new loan creditors giving their complete address, GIR No./PA No. are enclosed." (iii) Vide assessee's letter dated 4-8-1992 addressed to the assessing officer, Dewas, the assessee has stated in para 6 as under: "6. List of new cash credits giving the GIR No. Wards etc. of the remaining creditors is enclosed along with their confirmations." (iv) The assessing officer.vide letter dated 5-10-1992 required the assessee to make further compliance on the lines indicated below: (III) I have gone through the confirmation letters filed by you in support of the following cash creditors You are requested to please file supporting evidence in respect of the above credits with a view to establishing their credit worthiness.
Also, please arrange to produce the creditors indicated at Sr. No. 2, 4, 5, 8, 12 & 13. " (v) In assessee's letter dated 6-11-1992, addressed to the assessing officer, the assessee vide para 3 has stated as under: "3. The cash creditors listed in above sheet are duly supported with respective confirmations. All of them are assessees and their complete addresses and GIR No./PA No. stand submitted. As most of them are from Bombay, Ahmedabad, Delhi and other distant places. Further, confirmations, if necessary, may please be had from their respective ward of assessments." (vi) In assessment order for assessment year 1991-92 dated 20-7-1993, the following office note is incorporated : (vii) The assessment for assessment year 1992-93 was completed under section 143(3) on 22-10-1993 without making any disallowance of interest on these cash credits.
(viii) The Assistant Commissioner, Circle-I, Ujjain, vide his letter dated 20-6-1997, addressed to the assessee, in assessment year 1991-92, has stated the reasons for reopening the assessment as under : "During the course of assessment proceedings for assessment year 1994-95, while verifying the genuineness of credits introduced in various names, enquiries were conducted through ADI, Ahmedabad and assessing officer, Indore and as per their report the following unsecured loans were bogus : (ix) Similarly, for assessment year 1992-93, the Assistant Commissioner ' Circle-I, Ujjain vide his letter dated 20-6-1997, addressed to the assessee has stated the reasons as under: "During the course of assessment proceedings for assessment year 1994-95 while verifying the genuineness of credits introduced in various names, enquiries were conducted through ADI, Ahmedabad and assessing officer, Indore and as per their report the following unsecured loans were bogus: You are again directed to submit your return in response to the said notice." (x) The Assistant Commissioner, Circle-I, Qjain, vide his letter dated 20-6-1997, addressed to the assessee has stated similar reasonse for assessment year 1993-94 as under : "During the course of assessment proceedings for assessment year 1994-95, while verifying the genuineness of credits introduced in various names, enquiries were conducted through ADI, Ahmedabad to verify the genuineness of credits introduced in the various names. As per ADI's report, the loan of Rs. 1,85,348 in the name of Shri P.Gulabwala, Ahmedabad, was not genuine. (as per the statement of this person recorded before ADI. " You are once again directed to submit your return in response to the said notice. " (xi) The Assistant Commissioner, Circle-I, Ujjain, made enquiries about these cash credits vide his letter dated 6-4-1998 addressed to the assessee, has stated as under (for assessment year 1991-92): "You are requested to please submit the following details/information in connection with your assessment: 1. Copy of account of all such parties, where new unsecured loan has been introduced. Kindly mention the cheque/DD number name of bank, branch, date etc. Also give their present postal address. This information Is essential to ascertain the genuineness of the cash credits introduced. Kindly note that the onus of proving their genuineness lies on you. Failure in this regard would constrain the department in treating these as unexplained cash credits under section 68 of the Act." (xii) assessee vide his letter dated 25-5-1998 submitted information to the Assistant Commissioner for assessment year 1991-92, which are as under: "With reference to your query No. 1, we wish to inform you that the assessment was completed under section 143(3) under the DC monitoring and accordingly the order was also passed after the approval of Dy.
CIT. During the assessment proceedings, the confirmation, postal addresses, GIR number, statement of income and copy of return of the parties from, whom loans are taken during the year were submitted vide our letters dated 24-3-1993/15-5-1993 which are already on record.
(1) With reference to your letter dated 20-6-1997 stating that the loans of the following persons are bogus as per the report of ADI, Ahmedabad, due to the statement of Shri Sunil Agrawal given to him.
In this connection, please find herewith the copy of affidavit of Shri Sunil Agrawal dated 4-11-1997 (i.e. after his statement before ADI, Ahmedabad) duly notarised on stamp paper. In this affidavit, he has clearly mentioned that the loans given by him and his family members are genuine and the statement given by him was under pressure and duress. We are also enclosing herewith the confirmation, GIR number and copy of return submitted to department in support of genuineness of loans introduced. Hence, the above cash credits should not be added to our income under section 68 of the Income Tax Act.
(2) This is brought to your notice that again considering the considered issue amounts to change of opinion which is not permissible in law and is merely to harass the assessee which could be avoided. In case statement of Shri Sunil Agrawal before ADI is to be considered, kindly allow us cross-examinations as per ruling of Hon'ble Supreme Court in case of Kalra Glue Factory v. Sales Tax Tribunal (1987) 167 ITR 498 (SC) and CIT v. U.M. Shah, Proprietor Shrenik Tradmg Co. (1973) 90 ITR 396 (Bom).
With reference to the loan of Shri Swaroop Jain, Arun Sangar and Ashok Jain, we wish to clarify that we had given the address of these parties as per the address mentioned by them on their confirmations and return submitted to the Income Tax Department.
However, we are also enclosing herewith letter of Shri Swaroop and Ashok Jain dated 24-7-1997 with their confirmation of loan and their new addresses. Hence, the all cash credits are genuine and should not be added to our income under section 68 of the Income Tax Act." (xiii) Almost similar reply was given by the assessee for the assessment year 1992-93 stating as under : "With reference to your query about new loans introduced during the year under review, we would like to bring to your kind notice that the case was selected for scrutiny under section 143(3) of Income Tax Act.
Details of all loan introduced with their confirmations, GIR number, statement of income and income-tax return are already on record, vide our letter dated 24-3-1993. We have already proved the genuineness of parties during the course of proceeding for assessment year 1992-93.
(I) With reference to your letter dated 20-6-1997 stating that the loans of the following persons: are bogus as per the report of ADI, Ahmedabad, due to the statement of Shri Sunil Agrawal given to him, we submit here the affidavit of ShriSunil Agrawal dated 4-11-1997 (i.e. after his statement before ADI), duly notarised on stamp paper. In this affidavit, he has clearly mentioned that statement given by him was under pressure and duress. We are also enclosing herewith the confirmation, GIR number and copy of return submitted to department in support of genuineness of loans introduced. Hence, the above cash credits should not be added to our income under section 68 of the Income Tax Act." (xiv) Again, for assessment year 1991-92, the assessee vide letter dated 20-6-1998 enclosed present addresses (available with the assessee on the date). All these persons are from whom new loans were introduced, during the year under review. The letter reads as under: "We are enclosing herewith the present address (available with us as on the date) of the persons, from whom new loans were introduced during the year under review." (xv) Assistant Commissioner, Ujjain vide his letter dated 17th Nov., 1999, required the assessee with regard to Ahmedabad loans, in para 4, (a) Smt. Anju M. Parasramka, it is found that she has no capacity to advance loan and (b) amount deposited by Shri Tarachand Agrawal was not supported by the documents. The case was fixed on 6th Dec., 1999. The assessee, reply vide letter dated 20-12-1999, as under: (a) With reference to the loan of Rs. 1,20,000, given by Smt. Anlu M.Parasramka, we would like to clarify that Anju Parasramka is a regular income tax assessee and her PAN is 30-043-PV-5754. The loan was by her out of her capital from her bank account. Interest was paid to her on regular basis. In support to this we are enclosing herewith photo copy of pass book of Smt. Anju M. Parasramka, copy of her income-tax return filed with the department, her confirmation for giving loan and computation of her total income for the assessment year 1995-96. From above, it is very clear that loan was given by her out of her capital from her bank account.
(b) With reference to the loan given by Shri Tarachand Agrawal, we would like to clarify here that a loan of Rs. 1,50,000 was given by Shri Tarachand Agrawal to the firm out of his capital. He was a regular income-tax assessee. Later on, he died and on request of his wife, Smt.
Premlata Agrawal, loan was transferred to her account and interest paid to her on regular basis. As documentary evidence, of this, we are enclosing herewith, confirmation letter given by Shri Tarachandji Agrawal, confirmations given by Smt. Premlata Agrawal, her copy of income tax return and her balance sheet for various years.
(xvi) Again, vide letter dated 21-12-1998, the assessee submitted information as under: (1) The copy of bank statement of (i) Sh. Tarachand Agrawal, (ii) Sejal Enterprises (iii) Sanjay Agarwal and (iv) Anju M. Parasramka. are attached. The detailed copy of account of the Nutan Synthetics & Dewas Silk Mills are also attached herewith since 1990-91.
(2) Details of interest received from M/s Dewas Silk Mills and Nutan Synthetics are as under : The abovementioned interest received were deposited in the General Co-op. Bank Ltd. Branch, Lal Darwaja. The copies of bank statement is attached herewith.
The abovementioned interest received were deposited in the General Co-op. Bank Ltd., Branch, Lal Darwaja and Madhupura Mer. Bank Ltd. Br.
Shahibaug. The copies of bank statement is attached herewith. (III) Shri Sanjay Agarwal : M/s Dewas Silk Mills, Nutan Synthetics The abovementioned interest received were deposited in the General Co-op. Bank Ltd. Branch, Lal Darwaja. The copies of bank statement is attached herewith.
The abovementioned interest received were deposited in the General Co-op. Bank Ltd. Branch, Lal Darwaja. The copies of bank statement is attached herewith.
"Rs. 40,000 received from Mr. Manglesh J. Shah on dated 7-5-1991, Cheque No. 342469 of Bank of Baroda.
Rs. 40,00,0 received from Mrs. Kalpanadevi Agrawal on 7-5-1991 Cheque No. 488777 of State Bank of India.
The above referred loans taken were deposited in Sejal Enterprises. The copy of confirmation accounts are attached herewith.
Rs. 60,000 received from Kalpanadevi Agarwal on dated 1-7-1991 Cheque No. 988778 of State Bank of India.
1. Mr. Manglesh J. Shah 1, Dharamnath Soc., Shahibaug Nr. Rajasthan Hospital, Ahmedabad.
4. The copy of bank statement of the person who had given a loan to the Sejal Enterprises are attached herewith.
(xvii) The assessee has also filed a copy of the letter to Dy. Director of Incometax (Inv.), Ahmedabad, in response to his letter dated 3rd Dec., 1998 stating as under : (3) Copy of statement of source of lending (Sejal Enterprises and Sanjay T. Agarwal) fund to Dewas Silk Mills & Nutan Synthetics attached herewith. In case of Tarachand Agarwal and Anju M. Parasramka, the source of lending are as explained above.
(4) A copy of bank pass book and statement of interest received and withdrawal (M1s Sejal Enterprise and Sanjay T. Agarwal) are attached herewith.
(xviii) Another letter was also written to the Dy. Director of Income-tax (Inv.) Ahmedabad, by stating that- Shri Kamal T. Agarwal has given a loan of Rs. 60,000 by Ch. No. 004317 dated 4-4-1991 to Sanjay T. Agrawal. In our earlier submission, we submit a bank statement, balance sheet, etc., Shri Kamal T. Agrawal has been assessed to income-tax since long. He was assessed in Calcutta prior to 1998-99. His source of income was commission and interest income.
Late Shri Tarachand Aggrawal deposited Rs. 50,000 on dated 18-3-1991 and Rs. 1,00,000 on dated 5-4-1991 to Dewas Silk Mills. He also deposited Rs. 50,000 on dated 3-7-1991 to Nutan Synthetics. Shri Tarachand was assessed to income-tax since 1988-89. His source of income was salary income and interest. Further, Shri Tarachand Agarwal had taken loan from S.B. Kadia, B.D. Kadia, Narayan S. Mali and Viniladevi. Out of all these loans and accumulated funds from above referred income, he had deposited the said sums to Dewas Silk Mills and Nutan Synthetics. The confirmation of all loans submitted earlier.
Shri P.N. Doshi has deposited Rs. 50,000 to Sanjay T. Agrawal, Shri P.N. Doshi assessed to income-tax since long. His source of income was commission and interest. Nowadays he resides in Surat.
Details of interest in respect of Shri Tarachand Agrawal and Anju M.Parasramka. are as under: I hereby produce the cash book and ledger from 1990-91 to 1996-97, in case of M/s Sejal Enterprise and Sanjay Agrawal for your honours' verification.
(xix) An affidavit of Shri Sunil T. Agrawal sworn on 4-11-1996 was also filed which readsas under: I, Sunil T. Agarwal, Prop. of Sejal Enterprise aged about 29 years, resident of 87, Lav Kush Tenament Bungalow Area, Kubernagar, Ahmedabad hereby solemnly declare as under: (1) That, summons under section 131 was issued to me and in compliance with summons, I remained present and my statement was recorded on oath by income-tax official, Shri R.P. Meena, on 22-10-1996 at Ist Floor, Aaykar Bhavan, Ahmedabad.
(2) That, various many questions were asked during the course of taking my statement on oath.
(3) That, after asking me three-four questions, the income-tax official gave me threatening and created a terrific and tremendous roar and tension in my mind by highlighting' imprisonment and fine under IPC Act. I had given statement to some of questions to the best of my knowledge and information. But by reasons of mental tension, panic, atmospheric pressure and duress, certain statements were recorded under pressure which were not intended to be recowed by me.
(4) That, I was under heavy pressure, mental tension and was very much afraid of such imprisonment and fine while replying to questions during the course of taking my statement.
(5) That, thereafter, the income-tax officials asked me as to what are the deposits given by me in (i) M/s.Dewas Silk Mill (ii) M/s Nutan Synthetics (iii) J.M.T. Granite Exports and I replied that I have given deposits i.e. (i) Nutan Syntheties, Dewas about Rs. 3,00,000 (ii) Dewas Silk Mills about Rs. 5,60,000 and (iii) J.M.T. Granite Exports about Rs. 50,000 in the name of different members of family.
(6) That, during the course of taking my statement, threatening was continued and after putting me in such a condition of heavy pressure, mental tension and great fear in mind, of imprisonment and fine, the income-tax officials put me in duress condition and by reason of pressure and panic, I was compelled to admit to the effect that deposits in the firms, i.e., (i) Nutan Synthetics, Dewas (ii) Dewas Silk Mills and (iii) J.M.T. Granites Exports are only hawala entries and all these entries are bogus entries. The income-tax officials, after giving threatening, given an assurance that in case I admitted to the effect that deposits given by me in the above firms are hawala entries and all these entries are bogus entries, no action will be taken against me and in case I do not admit then extreme actions under Income Tax Act and IPC Act will be taken against me.
(7) That, I was under heavy pressure, mental tension and frightened of imprisonment and fine and in such a panic and duress condition, I was asked to reply to one of the questions by admitting to the effect that I have not given deposits to M/s Nutan Synthetics, Dewas Rs. 3,00,000 M/s Dewas Silk Mills Rs. 5,60,000 and J.M. Granites Exports Rs. 50,000 and further compelled me to state that these are only hawala entries and all these entries are bogus entries and accordingly I replied in the same way which is far from truth. I was also compelled to say that interest on deposits was returned to Ashok Khandelia in cash, but this is also not correct and far from truth.
(8) That, I say on oath that, in fact, it is true that I have given deposit to (1) M/s Nutan Synthetics, Dewas Rs. 3,00,000 (ii) M/s Dewas Silk Mills Rs. 5,60,000 and (iii) J.M.T. Granites Exports Rs. 50,000 and I, further, affirm that these are neither hawala entries nor bogus entries.
(9) That, I have purchased immovable property, viz. house in Kuber Nagar in 1993 from M/s Sugam Builders, Manpasand Estate, Bapu Nagar, Ahmedabad for purchase price of Rs. 1,00,000 and in respect of purchase price of this property, I was compelled to say that the total price of the said property is Rs. 1,50,000 for which Rs. 1,00,000 was paid from the bank account of my wife and remaining Rs. 50,000 was paid "on money" by cash.
By reasons of pressure, mental tension and panic condition of fear of imprisonment and fine, I was compelled to admit that the payment for the said property was given by cheque of Rs. 1,00,000 and balance of Rs. 50,000 in cash as "on money" which is far from truth. The correct fact is that the said property was purchased at a price of Rs. 1,00,000 and payment of Rs. 1,00,000 was given by cheque from bank account of my wife.
In view of the above stated facts, I affirm and declare that the statements recorded with income-tax officials on 22-10-1996 regarding hawala entries and bogus entries, payment of "on money" for immovable property purchased and interest amounts returned to Ashok Kumar Khadelia in cash is hereby retracted as being recorded under pressure and duress.
(xx) Thereafter, the assessing officer dropped the proceedings by order dated 7-2-2000, as extracted in para 5 above of this order.
In these circumstances, my opinion is that the assessing officer has made proper inquiries and dropped the proceedings, after due consideration of the reply and details submitted by the assessee.
Further, the order of the assessing officer cannot be said to be erroneous, insofar as prejudicial to the interest of the revenue. As observed by the Supreme Court in the case of Malabar Industrial Co. v.CIT (2000) 243 ITR 83 (SC), the CIT has to satisfy twin circumstances viz. Order of the assessing officer sought to be revised is erroneous and (2) that the order is prejudicial to the interest of the revenue.
Section 263 cannot be invoked to correct each and every mistake and/or error committed by the Income Tax Officer. It is only when the order is erroneous that section will attract. In this case it is not the case of CIT that the cash credit were bogus or not genuine. The only reason to set aside his order is the assessing officer has not made proper inquiry, that in my opinion is not correct, if one analyse the facts and circumstances in right perspective. We have narrated above the history of examination of these cash credits in the original assessment and in the reassessment proceeding both by the assessing officer, Assistant Commissioner and Dy. CIT, who were monitoring the assessment and after proper discussion, the proceedings for reopening were dropped. As observed by the Bombay High Court in the case of CIT v.Gabriel India Ltd. (1993) 203 ITR 108 (Bom), the order cannot be termed as erroneous unless it is not in accordance with law. If the Income Tax Officer acting in accordance with the law, makes certain assessment, the same cannot be branded as erroneous by the CIT simply because, according to him, the order should have been written more elaborately.
This section does not visualise a case of substitution of the judgment of the CIT for that of the Income Tax Officer, who passed the order, unless the decision is held to be erroneous. Bombay High Court visualised where the Income Tax Officer while making an assessment, examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimates himself. The CIT, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and, left to the CIT, he would have estimated the income at a higher figure than the one determined by the Income Tax Officer. That would not vest the CIT with power to re-examine the accounts and determine the income himself at a higher figure. This is because the Income Tax Officer has exercised the quasi-judicial power vested in him in accordance with the law and- arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion. In that case also, the Income Tax Officer made inquiry with regard to the nature of expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these were part of the record of the case. Bombay High Court held that the claim was allowed by the Income Tax Officer on being satisfied with the explanation of the assessee. This decision of the Income Tax Officer, Bombay High Court, held, could not be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard. In that case also the CIT even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income Tax Officer to re-examine the matter that was held to be permissible.
In the present case also, the assessing officer made inquiry and the assessee replied to each and every query of the assessing officer, both in the original proceedings as well as in the reassessment proceedings and arrived at a conclusion for reope ning proceedings and dropping the proceedings after due consideration of reply and facts submitted by the assessee.'Here also the CIT has not given any finding that the cash credits were not genuine and that interest paid by them was not allowable as deduction. In the facts and circumstances, in our opinion, CIT was not justified in invoking provisions of section 263 for revising the order of dropping of reassessment proceedings under section' 147 of the Act, of the assessing officer, which, as aforesaid, were dropped by the assessing officer after due and proper inquiries.
The order of the CIT on merits, is therefore, not sustainable, and accordingly requires to be vacated.
In the result, appeals of the assessee are allowed. The matters will now be listed before the Division Bench for consequential order.