P.V. Basheer Ahammed Vs. Income-tax Officer - Court Judgment

Excerpt:
if no proper enquiry is made by assessing officer then the order of the assessing officer can be set aside under section 263 as the same is erroneous and prejudicial to the revenue.after recording the submissions of the appellant, the commissioner was led to believe that an enquiry is necessary to find out and quantify the amount of investment made by the appellant in the transportation of the contraband goods. as opportunity had to be given to the appellant further on this aspect of the matter, the commissioner had no other alternative but to set aside the assessment order to make proper enquiries before passing an order in accordance with law. there was no infirmity in the order of the commissioner. this is the most the commissioner can do in the circumstances of the case, especially.....

Judgment:
If no proper enquiry is made by Assessing Officer then the order of the Assessing Officer can be set aside under section 263 as the same is erroneous and prejudicial to the revenue.

After recording the submissions of the appellant, the Commissioner was led to believe that an enquiry is necessary to find out and quantify the amount of investment made by the appellant in the transportation of the contraband goods. As opportunity had to be given to the appellant further on this aspect of the matter, the Commissioner had no other alternative but to set aside the assessment order to make proper enquiries before passing an order in accordance with law. There was no infirmity in the order of the Commissioner. This is the most the Commissioner can do in the circumstances of the case, especially when the appellant had not furnished any material before the Commissioner as to the expenses incurred or the investments made by him in connection with the transportation of the smuggled goods; nor has he demonstrated before the Commissioner that he had already included in his return of income the net profit arising on such transportation by way of brokerage or commission from the smugglers.

Revision under s. 263--NOTICE--Defect therein curable as issue of notice only an administrative act.

Assessee's contention that the notice issued by the Commissioner has branded the appellant as the owner of the contraband goods; whereas the order of the Collector of Customs pointed to the contrary; therefore, the notice itself was defective. This stage of the proceeding, namely, issue of notice under section 263 could be described as only an administrative act on the part of the Commissioner and any flaw in such an administrative act can certainly be cured. It is only after the issue of notice quasi-judicial character of the proceedings begins. It is at this stage that the Commissioner is required to give an opportunity to the assessee and pass such orders as he may deem fit taking into account the submissions made before him.

1. These two appeals are by the assessee. The former is against the order of the Commissioner of Income tax under Section 263 of the Income-tax Act, 1961. The latter is against the order of the CIT (Appeals) arising out of the proceedings consequent to the order under Section 263.

2. The appellant is an individual. The previous year relevant to the assessment year 1984-85 ended on 31-3-1984. The return of income disclosed only a sum of Rs. 14,000 which was accepted by the Income-tax Officer under Section 143(1) of the I.T. Act. The learned Commissioner of Income-tax had information that on 15-9-1983 and 16-9-1983 the Customs and Central Excise Department seized smuggled goods valued at Rs. 1,01,67,775 and that Sri P.V. Basheer Ahammed had arranged for transportation of the contraband goods under seizure. Thereupon, the Commissioner of Income-tax initiated action under Section 263 of the Act and issued show-cause notice to the appellant as to why the assessment order dated 10-3-1987 should not be set: aside. The appellant submitted a detailed reply dated 14-3-1989 and also made oral submissions on 16-3-1989. It was contended that the smuggled goods did not belong to the appellant and the finding of the Collector of Customs was that the owners of the goods were one Yousuf alias Vattaparambath Yousuf and one P. Mohammed Kunhi and not the assessee. It could not be held that the contraband goods belonged to the assessee. There was no basis that the assessment order dated 10-3-1987 suffered from any error prejudicial to the revenue. It was further contended that the details gathered by the learned Commissioner of Income-tax and the nature of investigation and the result thereof to form an opinion other than what is confirmed and held by the Customs Department were not available either in the notice issued under Section 263 of the I .T. Act or in the annexure thereto. Thus, the basis for the formation of the opinion was wanting. It was also contended that even if it is held that the appellant was the owner of the contraband goods in the forbidden business, inasmuch as, there was confiscation of such goods, it has to be viewed as resulting in a total loss of stock-in-trade in the ratio of the decisions of the Supreme Court in the cases of CIT v. S.C.Kothari [1971] 82 ITR 794 and CIT v. Piara Singh [1980] 124 ITR 40.

3. The learned Commissioner of Income-tax on a consideration of the written submission and also the oral submissions made by the appellant gave the direction as follows : In any case, all these facts were not examined by the ITO when he made the assessment on 10-3-1987 since he accepted the return under Section 143(1). Moreover, the ITO has not examined whether the assessee made any investment in transporting the goods or in concealing the goods. It is also not known whether the decision of the Collector passed on 10-6-1985 has become final.

I shall therefore set aside the assessment order passed by the ITO on 10-3-1987 under Section 143(1) with a direction that the present Assessing Officer should redo the assessment after affording a fresh opportunity to the assessee.

4. Sri P. Raghunath, the learned counsel for the appellant referred to the decision of the Collector of Customs in C. No. VIII/10/47/83 CUS ADJ dated 10-6-1985 in extenso. He submitted that the Customs Department has categorically held that the owners of the smuggled goods are one Yousuf alias Vattaparambath Yousuf and P. Mohammed Kunhi. The appellant was only arranging transportation for the smuggled goods.

Such being the finding of the Customs Department, there was no material for the learned Commissioner of Income-tax to hold that the appellant was the owner of the contraband goods. In the notice issued under Section 263, there is a categorical statement on the part of the learned Commissioner of Income-tax about some enquiries made by him revealing the ownership of the goods by the appellant; whereas the materials on record were to the contrary. Even now the appellant is not aware of the kind of investigations made by the Commissioner of Income-tax which pinned the ownership of the goods to the appellant.

The materials on which such opinion was formed was not disclosed to the appellant when the proceedings were initiated. Thus, there is failure of natural justice about which the appellant had complained in his written submission. The Commissioner of Income-tax has not dealt with this aspect of the matter in his order under Section 263. He further submitted that in case the proceeding of the Collector of Customs dated 10-6-1985 was the material before the Commissioner of Income-tax, on the basis of which he proceeded to initiate action under Section 263, he would submit that the Customs Department has not found the appellant to be the owner of the smuggled goods and has emphatically held that the ownership was traceable in the hands of Yousuf and Mohammed Kunhi and not the appellant. Therefore, the inference of the Commissioner of Income-tax that the appellant is the owner of the smuggled goods was based on no material and hence there was no basis for the formation of the belief that the investment in the smuggled goods had escaped the notice of the Income-tax Officer or otherwise not considered by him in the assessment order dated 10-3-1987. Apart from lack of basis for the formation of the belief it has not been shown in the order under Section 263 how prejudice was caused to the revenue by the impugned assessment order and there was no finding on that score. Therefore, he submitted that in the facts and circumstances of the case, the Commissioner's action is without jurisdiction and the order under Section 263 is illegal. He then referred to certain passages in Income tax Law by Chaturvedi and Pithisaria, Fourth Edition, Volume 5, at page 5547 and relied on the following decisions: 5. Sri C. Abraham, the learned senior departmental representative submitted that the assessment was completed under Section 143(1), that is, without scrutiny. The appellant had not furnished details of the commission and brokerage received by him. He had only admitted an income of Rs. 14,000 as commission and brokerage "from various parties". The seizure of the goods had taken place during the previous year ending on 31-3-1983. The appellant had not disclosed the factum of seizure in the statement accompanying the income-tax return for the assessment year 1984-85; nor did he refer to any proceedings pending against him holding him to be the owner of the smuggled goods. As the return was accepted under Section 143(1) of the I.T. Act without enquiry or scrutiny, the Income-tax Officer did not have any opportunity, much less the materials before him, to consider the impact of the seizure of goods from the appellant. When the Commissioner of Income-tax became aware of the proceedings initiated by the Customs Department against the Appellant as respects seizure of goods and when the statement filed by the assessee did not disclose anything about the details of persons from whom commission was received, the learned Commissioner of Income-tax was of the view that the assessment required completion after scrutiny and the acceptance of the return under Section 143(1) was erroneous and prejudicial to the revenue in the facts and circumstances of the case. In view of the Explanation inserted by the Finance Act, 1988 with effect from 1-6-1988 read with Section 23(2) of the Finance Act (No. 13) of 1983 with retrospective effect from 1-6-1988 "record" would include and shall be deemed to have included all records relating to any proceedings under this Act available at the time of examination by the Commissioner of Income-tax.

Therefore, when the learned Commissioner of Income-tax became aware of the proceedings against the appellant under the Customs Act, he was entitled to entertain a prima facie belief that the assessment required a thorough scrutiny. Though in the notice issued under Section 263, the learned Commissioner had indicated that the appellant was the owner of the goods seized from him by the Customs Department and as per the orders of the Customs Department it was found that the assessee was not the owner of the goods, but only arranged for the transportation of the smuggled goods there was always an opportunity to the appellant to set right the records and in fact an opportunity was given to the appellant to make his submissions. After considering the appellant's submissions - written and oral - the learned Commissioner of Income-tax felt that these facts were not before the Income-tax Officer when he passed the assessment order and the submissions required detailed examination and in this view of the matter he set aside the assessment order with a direction to redo the same in accordance with law after affording adequate opportunity to the assessee. The CIT is entitled to pass such an order and there is no wanting of jurisdiction on the part of the learned Commissioner of Income-tax. There was material for the formation of the belief and the operative part of his order had not done any prejudice to the appellant because the Commissioner of Income-tax was only setting aside the assessment made without scrutiny for redoing and hence there was no case for the appellant to complain against the action of the Commissioner of Income-tax. He then relied on the following decisions: 6. Having heard rival submissions and having perused the records, we uphold the order of the learned Commissioner of Income-tax under Section 263. The original order of assessment was passed under Section 143(1) of the I.T. Act on 10-3-1987. The Commissioner of Income-tax initiated action under Section 263 on 14-2-1989. Clause (b) of Explanation to Section 263 newly substituted with effect from 1st June, 1988 by the Finance Act, 1988 and as amended by the Finance Act, 1989 coins an inclusive definition of the expression "record" which would include and deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner of Income-tax. In this case, the learned Commissioner of Income-tax stumbled upon the information that there was a proceeding against the appellant by the Customs Department arising out of the seizure of the smuggled goods from him. On an examination of the records, he did not come across any material indicating the seizure of the goods. Nor was there any information about the profit from such business in the assessment, This gave a prima facie belief to the Commissioner of Income-tax that the assessment order made under Section 143(1) without a detailed scrutiny was erroneous and prejudicial to the revenue. Sri Raghunath's argument is that there was no clear finding that the order of assessment was erroneous and prejudicial to the revenue and thus there was no basis for the prima facie belief. We do not accept this contention. The very fact that the learned Commissioner of Income-tax chose to invoke suo motu powers of revision would lead to the inference that according to him the assessment order was erroneous and prejudicial requiring revision. Though a specific finding was recorded in the order about the exact manner in which he treated the order as erroneous and prejudicial, on a reading of the whole order it leaves no doubt in our mind that certain aspects which have a bearing on the assessment have not been either fielded before the learned assessing authority or evaluated and much less was there an opportunity for the ITO to examine those aspects vis-is the assessment. It has been held by the jurisdictional High Court in Malabar Industrial Co.

Ltd.'s case (supra) that the words "prejudicial to the interests of the revenue" are of wide import and they should not be limited to a case where the order passed by the assessing authority can be considered to be one prejudicial to the revenue administration as such. In other words, if the Assessing Officer had not applied his mind to a case in all its perspective the order can be said to be erroneous so far as it is prejudicial to the interests of revenue conferring jurisdiction upon the commissioner of Income-tax under Section 263. Coming to the facts of the case, it was gathered that the contraband goods were seized from the vehicles hired or otherwise arranged by the appellant on 15-9-1983 and 16-9-1983 which fell within the previous year relevant to the assessment year 1984-85 by the Customs Department. When there was no hire charges paid by the appellant for transportation of the contraband articles arranged by him in the return of income or when there was no mention of the investment of moneys in such activities or when there was not even a mention of the commission or brokerage received by the appellant from the smugglers and in such circumstances when the return was accepted without let or hindrance by the Income-tax Officer, the prejudice is writ large on the face of the assessment order itself and, therefore, the commissioner of Income-tax was empowered to initiate action under Section 263 in the ratio of the decision of the Hon'ble High Court of Kerala in Malabar Industrial Co. Ud.'s case (supra).

7. The next attack by Sri Raghunath, the learned counsel for the appellant was that the notice issued by the Commissioner of Income-tax has branded the appellant as the owner of the contraband goods; whereas the order of the Collector of Customs pointed to the contrary; therefore, the notice itself was defective. This stage of the proceeding, namely, issue of notice under Section 263 can be described as only an administrative act on the part of the Commissioner of Income-tax and any flaw in such an administrative act can certainly be cured. It is only after the issue of notice quasi-judicial character of the proceedings begins. It is at this stage that the Commissioner of Income-tax is required to give an opportunity to the asscssee and pass such orders as he may deem fit taking into account the submissions made before him. In the case of the appellant, the Commissioner of Income-tax had given such an opportunity. The appellant had also pointed out that the smuggled goods were not owned by him and the finding of the Collector of Customs was that the appellant had only arranged for the transportation of such goods. This the Commissioner of Income-tax has not rejected in the order under Section 263. Therefore, the appellant cannot have any grievance against that part of the order of the Commissioner. After recording the submissions of the appellant, the learned Commissioner of Income-tax was led to believe that an enquiry is necessary to find out and quantity the amount of investment made by the appellant in the transportation of the contraband goods. As opportunity had to be given to the appellant further on this aspect of the matter, the Commissioner had no other alternative but to set aside the assessment order to make proper enquiries before passing an order in accordance with law. We do not find any infirmity in the order of the learned Commissioner of Income-tax. This is the most the learned Commissioner of Income-tax can do in the circumstances of the case, especially when the appellant had not furnished any material before the Commissioner of Income-tax as to the expenses incurred or the investments made by him in connection with the transportation of the smuggled goods; nor has he demonstrated before the Commissioner of Income-tax that he had already included in his return of income the net profit arising on such transportation by way of brokerage or commission from the smugglers. Therefore, we reject the contention of the learned counsel for the appellant that the order of the Commissioner of income-tax was wanting in a finding on the materials furnished by the appellant in the course of 263 proceedings.

8. In the result, I.T. A. No. 388 (Coch.)/1989 is dismissed. I.T.A. No.114 (Coch.)/1992 : 9. The grievance of the appellant is that the authorities have held that the contraband goods belonged to the appellant and that the value of such goods in a sum of Rs. 1,01,67,775 remained as unexplained investment in the hands of the appellant.

10. We have heard rival submissions and perused the records. In our considered opinion, the order of the CIT(Appeals) deserves to be set aside and the case is restored to the file of the Income-tax Officer for making a de novo assessment in accordance with the directions of the learned Commissioner of Income-tax under Section 263 of the I.T.Act. Our reasons are as follows: The assessment order dated 22-3-1991 passed under Section 143(3) read with Section 263 summarises the circumstances in which the goods were seized. Then it deals with the explanation of the appellant that he was not responsible for the goods found in the lorry arranged by him and it was the driver who should be held responsible for any contraband articles found in the vehicle. This part of the explanation was rightly rejected by the Income-tax Officer.

Then the Income-tax Officer summarised the gist of the depositions made by S/Sri N.T. Sukumaran, A. Balakrishnan, M. Mukundan, M.K. Nazar, P.K.Ummerkutty and P.V. Usmankutty culled out from the order of the Collector of Customs dated 10-6-1985. However, he held that the appellant was the owner of the goods loaded in Lorry Nos. KLN-4936 and MYG-8229 which were seized on 15-9-1983 and 16-9-1983. The appellant's contention that he was only acting as a transporting agent was rejected by the Assessing Officer as not substantiated by any tangible evidence at alla conclusion diametrically opposed to the one reached by the Collector of Customs, in his adjudication proceedings dated 10-6-1985.

We would have certainly appreciated such a finding of the Income-tax Officer, though it was different from that of the Collector of Customs, if, and if only, such a finding was based on the results of independent enquiry or investigation. It is on record that none of the persons who deposed before the Collector of Customs was examined by the Income-tax Officer, except perhaps calling for explanation from the appellant who relied on the findings of the Customs Department. Further, a finding reached by the Customs authority entrusted with the task of implementing the Customs Act is entitled, in our opinion, to utmost respect unless the findings are shown to be perverse or based on no material. The Collector of Customs upon an appreciation of the evidence and after affording adequate opportunities to the persons who preferred to appear before him has categorically held as follows : (i) "I hold that Sri Basheer Ahammed had arranged the transportation/ concealment of the contraband goods under seizure. I also hold that Sri Basheer Ahammed had arranged similar contraband landings/concealments and transportations on previous occasions." (Para. 11 (a) of the Collector of Customs proceedings dated 10-6-1985); (ii) "I therefore hold that Sri Yousuf alias Vattaparambath Yousuf was concerned with the contraband under seizure and that it was on behalf of him that Sri Basheer Ahammed had transported and concealed the contraband landed at Kurichiyil Sea Shore in the night of 14/15-9-1983." (Para. 1 l(b) cited supra); (iii) "I therefore hold that Sri P.Mohammed Kunhi is the owner of part of the contraband goods landed at Kurichiyil Sea Shore in the night of 14/ 15-9-1983 and that he had taken part in the contraband landing operations in the night." (Para 1 l(c) cited supra); (iv) "I therefore hold that Sri P.K. Ummerkutty had knowingly given facilities to Sri Basheer Ahammed to conceal contraband in the godown under his control." (Para. 1 l(d) cited supra); (v) "I find no reason to disbelieve the evidence in the statements against Sri P.V. Usmankutty. I find that Sri P.V. Usmankutty had actively assisted Sri Basheer Ahammed in the transportation of contraband goods in the night of 14/15-9-1983". (Para. 11(f) cited supra).

From a careful perusal of the order of the Collector of Customs dated 10-6-1985, it transpires that nowhere has it been suggested or found that Sri Basheer Ahammed was the owner of the contraband goods. The Customs Department and the Income-tax Department are two charming sisters of the Finance Ministry and are parts of the same Central Government. Therefore, a finding reached by one wing of the Government is binding on other wing of the Government unless there are clinching materials to take a different view. From the inception, the appellant has been denying the ownership of the contraband goods and the investigations made by the Customs Department had only proved his participation in the transportation of the contraband goods and there is a definite finding that one Yousuf and Mohammed Kunhi are the owners of the goods. Thus, we hold that the appellant has discharged the onus on his part that he is not the owner of the contraband goods though he was involved in the smuggling operations. There is no material before the Assessing Officer or before the CIT (Appeals) to hold otherwise.

The authorities erred in drawing an adverse inference.

11. The learned Commissioner of Income-tax under Section 263 of the Income-tax Act, 1961, had opined that the Assessing Officer has not examined whether the appellant had made any investment in transporting the goods or in concealing the goods and had further observed that it was not known whether the decision of the Collector of Customs dated 10-6-1985 has become final. No enquiry seems to have been made on these lines even though there is a specific direction in the order under Section 263. Further, it is also necessary to ascertain the commission or brokerage or any such remuneration received by the appellant in assisting the transportation of the contraband goods and whether the same had been reflected in the return of income furnished by the appellant. For all these purposes, we set aside the order of the CIT (Appeals) and restore the issue to the Income-tax Officer to reframe the assessment after giving adequate opportunity to the appellant.

12. In the result, I.T.A. No. 388 (Coch.)/1989 is dismissed and I.T.A.No. 114 (Coch.)/1992 is allowed for statistical purposes.