Dilshad Trading Co. (P) Ltd. Vs. Income-tax Officer - Court Judgment

Excerpt:
1. this appeal is directed against the order dated 28-3-1988 passed by the commissioner of income-tax, bombay city-ill, assuming jurisdiction under section 263 of the act. the ground raised is against invoking of revisional powers and directing the assessing officer to make fresh assessment after proper verification.2. the company was incorporated on 14-6-1982 and the first previous year ended on 31 -12-1982. return declaring loss of rupees thirty-five thousand plus was filed and after adjustments in respect of depreciation and preliminary expenses loss was determined. the business loss along with unabsorbed depreciation was allowed to be carried forward. the assessment was made under section 143(3) on 28-6-1985.3. the case was offered for inspection by the assessing officer shri p.k. kedia, who had completed the assessment, for the purpose of inspection by the la. c. range-iii, bombay during financial year 1985-86, le., soon after the assessment was completed. the i.a.c. found that the assessee entered into an agreement with m/s. pramashaw finance corporation on 19-6-1982 for purchase of office premises in raheja centre, nariman point, bombay for a consideration of rs. 3,15,575 on which the assessee had claimed depreciation and the assessing officer ought to have verified as to whether the ownership rights had actually passed to the assessee during the year and if not the depreciation allowed ought to have been disallowed and further the assessing officer had not obtained any data as to the extent of premises, the rate per square feet on the basis of which purchase consideration was fixed, etc., and, therefore, it did not appear that enquiries into the adequacy of the price paid were made, besides the assessing officer should have done well to inquire whether there were any acquisition proceedings. the i.a.c. further took note of the fact that in case of m/s. crystan fibres & fabrics ltd., a file in the charge of some other assessing officer in the same circle which was inspected by him, office premises in maker chamber no. v at nariman point were purchased on 17-11-1983 and the same was valued by the valuation officer at the rate of rs. 1025 per sq. ft. and, therefore, the rate of purchase on 19-6-1982 could not have been as low as rs. 325 and, therefore, he advised the assessing officer to submit a proposal under section 263 for setting aside the assessment so that the assessment is made after determining the correct price that the assessee might have paid for acquiring the premises. on the basjs of this inspection note, the commissioner of income-tax assumed jurisdiction and issued show-cause notice dated 10-2-1988 after recording the reasons in the annexure to the notice as under: the assessee purchased office premises at raheja chambers, nariman point, for rs. 3,15,505 at the rate of rs. 325 per sq. feet whereas the market value of the property in the same locality at that time was rs. 1025 per sq. feet. at the time of assessment the adequacy or otherwise of the price paid for purchase of the premises was not enquired into by the ito. the asst. is, therefore, erroneous insofar as it is prejudicial to the interest of the revenue.4. vide letter dated 3-3-1988, the assessee made written submissions stating that (i) the price was paid as agreed and why a particular buyer or seller bought or sold at some other price was not assessee's consideration; (ii) the relevant facts and figures on the basis of which the said market value of rs. 1025 per sq. ft. as had been determined had not been given to the assessee; (iii) no comparative figures in respect of transactions have been brought to the notice of the assessee and it was the feeling of the assessee that the rate of rs. 1025 per sq. ft. was an exaggerated amount; (iv) the assessing officer scrutinized the entire account and nothing was kept away from him or not put on record and after examination adjustments were made in the assessment. therefore, itwas erroneous to think that the assessing officer had not considered the value of the premises. he found the same in order; (v) relying upon in the case of ganga properties v. ito [1979] 118 itr 447 (cal.) it was stated that the commissioner could not look to the material brought on record after the date of completion of the assessment; (vi) the notice issued did not specify under which section the charge of income was sought to be levied and how any addition could be made to the profit or loss; and (vii) besides whether the vendor's assessment had been similarly tampered with or not.it was further clarified by the assessee that earlier on 3-2-1981 m/s.fortune hotels and estates pvt. ltd. had sold the office to m/s.pramashaw finance corporation for consideration of rs. 2,43,750. hence the vendors received an appreciation of nearly 30 per cent in a span of one year and three months and the assessee was not aware of any other transaction in the locality which had given a return of more than this rate.5. the commissioner referred to few of the statements and contentions stated by the assessee and formed the view that (i) record showed that at the time of assessment the adequacy or otherwise of the price paid by the assessee for the office premises at raheja chambers was not inquired into; (ii) even considering the principle laid down in the case of ganga properties (supra) it could be seen that the assessing officer failed to make proper enquiry regarding price; (iii) regarding section under which the charge is sought to be levied the answer would depend upon the result to proper enquiry into the transaction; and (iv) action under section 263 could be taken in case where any relief or reduction was granted or an assessment was made without proper verification of the relevant facts and without application of mind to the relevant provisions of law.he, accordingly, set aside the assessment insofar as it related to the aforesaid issue and directed the assessing officer to make fresh assessment after proper verification and in accordance with law.6. at the time of hearing before us, the learned counsel for the assessee, shri trivedi, submitted that the order passed by the commissioner suffered from many discrepancies and to some extent it made a farce because the reply given by the assessee in writing was not considered. because of the manner in which jurisdiction was assumed by the commissioner and the direction given by him the assessee was put to lot of difficulty. consequent to the direction of the commissioner fresh assessment was made on 23-3-1989 whereby an addition of rs. 6,79,700 was made under section 69 as income from undisclosed sources after referring to three sale instances which were altogether different from the sale instance considered by the commissioner. when the assessee preferred an appeal against the fresh assessment the same was set aside by the commissioner (appeals) who observed that since the vendor and the vendee were not related and the transaction was at arms length a greater proof was required to be brought on record by the assessing officer, who should have got this property valued and before relying upon the comparative instances the assessing officer should have forwarded the same to the assessee for its comments, besides the assessing officer should also have verified from the assessment record of the vendor whether the consideration was accepted in that case or not. consequent to this direction given by the commissioner (appeals) on 24-10-1989 the assessing officer completed fresh assessment on 14-2-1992 where he adopted market value at rs. 4,51,500 in place of rs. 9,00,000 estimated earlier and considered by the commissioner as also the assessing officer in earlier assessment. consequently the income from unexplained sources under section 69 was made only of rs. 1,36,075. against this assessment again the assessee had preferred an appeal before the commissioner (appeals) and the same was pending. on these facts it was prayed that the revisional order should be vacated.the commissioner's powers of revision are not meant for setting right certain petty discrepancies in the assessment, but they are meant for removing distortion in general. for which reliance was placed in the case of venkatakrishna rice co. v. cit [1987] 163 itr 129 (mad.), besides in this case the assessee has purchased the premises in june 1982 whereas the sale instance considered by the commissioner was of november 1983 and, therefore, there was very wide gap and this material should not have been made a basis for assuming jurisdiction under section 263. besides in the inspection note some reference was made with regard to initiation of acquisition proceedings, but the same was not applicable because the stated price was less than rs.5,00,000 as was the position at that time.7. the learned departmental representative relied in the case of rampyari devi saraogiv. cit [1968] 67 itr 84 (sc) and further placing reliance in the case of gee vee enterprises v. addl. cit [1975] 99 itr 375 (delhi) submitted that if proper enquiries were not made revision would lie. and in this case only direction was issued to the assessing officer to make fresh assessment and subsequent events should not be taken into consideration while deciding the point whether the commissioner correctly assumed jurisdiction or not. in rejoinder shri.trivedi submitted that the decision of the supreme court referred to by the learned sr. departmental representative was considered by their lordships of the madras high court in the case relied upon by him.8. on consideration of the rival submissions and the materials to which our attention was drawn, we are of the opinion that assumption of jurisdiction by the commissioner under section 263 of the act was not justified. the reasons are as follows: we do not find any error in the assessment order nor there was any material on the basis of which it could be said that there was failure on the part of the assessing officer to make enquiries. in the assessment order the assessing officer specifically refers to the fact that the assessee company had purchased office premises, details were filed and after discussion and examination of the details filed, the income was computed after certain adjustments. this is a case of a company and obviously the books of account are audited under the companies act. the assessing officer, admittedly, did not have any material pointing out towards a possibility of the assessee having spent more than what is, stated by way of investment in the office premises. obviously, therefore, the assessing officer could not have resorted to any further probe or investigation. in the course of carrying on of business, an assessee normally makes investments in stock-in-trade, current assets, fixed assets and the like and unless and until it is necessary, on the basis of some material before the assessing officer, to make further enquiries with regard to the payments shown to have been made by the assessee, unnecessary enquiries are not made. in the context of the issue, legal aspect is also required to be kept in mind. assuming for a while that the assessing officer was duty-bound to call for the comparable cases in respect of sale transactions of similar property and there did exist some cases where transfer of office premises was made at higher price, then merely on the basis of this material whether the assessing officer would be justified in making any addition in the assessment. in our openion, there is no provision under the income-tax act whereby any addition can be made to the income of the assessee on these facts. on going through the various provisions of the income-tax act, to our mind, probably section 69b is relevant to the facts. provisions of section 69b can be invoked if (i) it is found that the assessee has made investment, and (it) it is found that the amount expended on making such investment exceeded the amount recorded in that behalf in the books of account, and (iv) either the assessee offers no explanation about such excess amount or the explanation offered is not satisfactory in the opinion of the assessing officer. these three findings are cumulative, to be recorded on gathering the necessary facts, but the basic finding which is to be recorded on clear and cogent material is in respect of the amount expended by the assessee in excess of that shown in the books of account. the onus is on the department to show that the assessee has expended extra amount. therefore, merely because there exist some comparable cases showing higher price in respect of similar transactions it could not be said that the assessee had expended extra amount. therefore, no addition can be made. that is why the assessee's contention before the commissioner that under what provisions of law the addition was sought to be made required full consideration by the commissioner and a categorical finding or decision should have been given by the commissioner, but instead he merely stated that this aspect shall be considered after the assessing officer makes the enquiry. for the sake of clarification we may also add that no addition appears to have been made in the assessment of the seller, at least no such material has been brought to our notice. there also does not exist any other material either by way of confession from some connected person with regard to the extra amount having been spent by the assessee or that the books of account of the assessee were not found to be reliable in any of the years when the records were examined by the commissioner.even in the fresh assessment when the addition is made, we do not find any finding recorded on the basis of clear material in respect of the extra amount having been spent by the assessee.9. the commissioner further states that revision can be taken in case where any relief or reduction was granted or assessment was made without proper verification of relevant facts and without application of mind. these statements are too general to justify revision.moreover, no relief or reduction was granted by the assessing officer.regarding verification of relevant facts we have already dealt with earlier. regarding non-application of mind by the assessing officer we find no material to support such finding.10. we, therefore, set aside the revisional order and restore the assessment order.

Judgment:
1. This appeal is directed against the order dated 28-3-1988 passed by the Commissioner of Income-tax, Bombay City-Ill, assuming jurisdiction under Section 263 of the Act. The ground raised is against invoking of revisional powers and directing the Assessing Officer to make fresh assessment after proper verification.

2. The company was incorporated on 14-6-1982 and the first previous year ended on 31 -12-1982. Return declaring loss of rupees thirty-five thousand plus was filed and after adjustments in respect of depreciation and preliminary expenses loss was determined. The business loss along with unabsorbed depreciation was allowed to be carried forward. The assessment was made under Section 143(3) on 28-6-1985.

3. The case was offered for inspection by the Assessing Officer Shri P.K. Kedia, who had completed the assessment, for the purpose of inspection by the LA. C. Range-III, Bombay during financial year 1985-86, Le., soon after the assessment was completed. The I.A.C. found that the assessee entered into an agreement with M/s. Pramashaw Finance Corporation on 19-6-1982 for purchase of office premises in Raheja Centre, Nariman Point, Bombay for a consideration of Rs. 3,15,575 on which the assessee had claimed depreciation and the Assessing Officer ought to have verified as to whether the ownership rights had actually passed to the assessee during the year and if not the depreciation allowed ought to have been disallowed and further the Assessing Officer had not obtained any data as to the extent of premises, the rate per square feet on the basis of which purchase consideration was fixed, etc., and, therefore, it did not appear that enquiries into the adequacy of the price paid were made, besides the Assessing Officer should have done well to inquire whether there were any acquisition proceedings. The I.A.C. further took note of the fact that in case of M/s. Crystan Fibres & Fabrics Ltd., a file in the charge of some other Assessing Officer in the same circle which was inspected by him, office premises in Maker Chamber No. V at Nariman Point were purchased on 17-11-1983 and the same was valued by the Valuation Officer at the rate of Rs. 1025 per sq. ft. and, therefore, the rate of purchase on 19-6-1982 could not have been as low as Rs. 325 and, therefore, he advised the Assessing Officer to submit a proposal under Section 263 for setting aside the assessment so that the assessment is made after determining the correct price that the assessee might have paid for acquiring the premises. On the basjs of this inspection note, the Commissioner of Income-tax assumed jurisdiction and issued show-cause notice dated 10-2-1988 after recording the reasons in the annexure to the notice as under: The assessee purchased office premises at Raheja Chambers, Nariman Point, for Rs. 3,15,505 at the rate of Rs. 325 per sq. feet whereas the market value of the property in the same locality at that time was Rs. 1025 per sq. feet. At the time of assessment the adequacy or otherwise of the price paid for purchase of the premises was not enquired into by the ITO. The asst. is, therefore, erroneous insofar as it is prejudicial to the interest of the revenue.

4. Vide letter dated 3-3-1988, the assessee made written submissions stating that (i) The price was paid as agreed and why a particular buyer or seller bought or sold at some other price was not assessee's consideration; (ii) The relevant facts and figures on the basis of which the said market value of Rs. 1025 per sq. ft. as had been determined had not been given to the assessee; (iii) No comparative figures in respect of transactions have been brought to the notice of the assessee and it was the feeling of the assessee that the rate of Rs. 1025 per sq. ft. was an exaggerated amount; (iv) The Assessing Officer scrutinized the entire account and nothing was kept away from him or not put on record and after examination adjustments were made in the assessment. Therefore, itwas erroneous to think that the Assessing Officer had not considered the value of the premises. He found the same in order; (v) Relying upon in the case of Ganga Properties v. ITO [1979] 118 ITR 447 (Cal.) it was stated that the Commissioner could not look to the material brought on record after the date of completion of the assessment; (vi) The notice issued did not specify under which Section the charge of income was sought to be levied and how any addition could be made to the profit or loss; and (vii) Besides whether the vendor's assessment had been similarly tampered with or not.

It was further clarified by the assessee that earlier on 3-2-1981 M/s.

Fortune Hotels and Estates Pvt. Ltd. had sold the office to M/s.

Pramashaw Finance Corporation for consideration of Rs. 2,43,750. Hence the vendors received an appreciation of nearly 30 per cent in a span of one year and three months and the assessee was not aware of any other transaction in the locality which had given a return of more than this rate.

5. The Commissioner referred to few of the statements and contentions stated by the assessee and formed the view that (i) Record showed that at the time of assessment the adequacy or otherwise of the price paid by the assessee for the office premises at Raheja Chambers was not inquired into; (ii) even considering the principle laid down in the case of Ganga Properties (supra) it could be seen that the Assessing Officer failed to make proper enquiry regarding price; (iii) regarding Section under which the charge is sought to be levied the answer would depend upon the result to proper enquiry into the transaction; and (iv) action under Section 263 could be taken in case where any relief or reduction was granted or an assessment was made without proper verification of the relevant facts and without application of mind to the relevant provisions of law.

He, accordingly, set aside the assessment insofar as it related to the aforesaid issue and directed the Assessing Officer to make fresh assessment after proper verification and in accordance with law.

6. At the time of hearing before us, the learned counsel for the assessee, Shri Trivedi, submitted that the order passed by the Commissioner suffered from many discrepancies and to some extent it made a farce because the reply given by the assessee in writing was not considered. Because of the manner in which jurisdiction was assumed by the Commissioner and the direction given by him the assessee was put to lot of difficulty. Consequent to the direction of the Commissioner fresh assessment was made on 23-3-1989 whereby an addition of Rs. 6,79,700 was made under Section 69 as income from undisclosed sources after referring to three sale instances which were altogether different from the sale instance considered by the Commissioner. When the assessee preferred an appeal against the fresh assessment the same was set aside by the Commissioner (Appeals) who observed that since the vendor and the vendee were not related and the transaction was at arms length a greater proof was required to be brought on record by the Assessing Officer, who should have got this property valued and before relying upon the comparative instances the Assessing Officer should have forwarded the same to the assessee for its comments, besides the Assessing Officer should also have verified from the assessment record of the vendor whether the consideration was accepted in that case or not. Consequent to this direction given by the Commissioner (Appeals) on 24-10-1989 the Assessing Officer completed fresh assessment on 14-2-1992 where he adopted market value at Rs. 4,51,500 in place of Rs. 9,00,000 estimated earlier and considered by the Commissioner as also the Assessing Officer in earlier assessment. Consequently the income from unexplained sources under Section 69 was made only of Rs. 1,36,075. Against this assessment again the assessee had preferred an appeal before the Commissioner (Appeals) and the same was pending. On these facts it was prayed that the revisional order should be vacated.

The Commissioner's powers of revision are not meant for setting right certain petty discrepancies in the assessment, but they are meant for removing distortion in general. For which reliance was placed in the case of Venkatakrishna Rice Co. v. CIT [1987] 163 ITR 129 (Mad.), besides in this case the assessee has purchased the premises in June 1982 whereas the sale instance considered by the Commissioner was of November 1983 and, therefore, there was very wide gap and this material should not have been made a basis for assuming jurisdiction under Section 263. Besides in the inspection note some reference was made with regard to initiation of acquisition proceedings, but the same was not applicable because the stated price was less than Rs.5,00,000 as was the position at that time.

7. The learned Departmental Representative relied in the case of Rampyari Devi Saraogiv. CIT [1968] 67 ITR 84 (SC) and further placing reliance in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 (Delhi) submitted that if proper enquiries were not made revision would lie. And in this case only direction was issued to the Assessing Officer to make fresh assessment and subsequent events should not be taken into consideration while deciding the point whether the Commissioner correctly assumed jurisdiction or not. In rejoinder Shri.

Trivedi submitted that the decision of the Supreme Court referred to by the learned Sr. Departmental Representative was considered by Their Lordships of the Madras High Court in the case relied upon by him.

8. On consideration of the rival submissions and the materials to which our attention was drawn, we are of the opinion that assumption of jurisdiction by the Commissioner under Section 263 of the Act was not justified. The reasons are as follows: We do not find any error in the assessment order nor there was any material on the basis of which it could be said that there was failure on the part of the Assessing Officer to make enquiries. In the assessment order the Assessing Officer specifically refers to the fact that the assessee company had purchased office premises, details were filed and after discussion and examination of the details filed, the income was computed after certain adjustments.

This is a case of a company and obviously the books of account are audited under the Companies Act. The Assessing Officer, admittedly, did not have any material pointing out towards a possibility of the assessee having spent more than what is, stated by way of investment in the office premises. Obviously, therefore, the Assessing Officer could not have resorted to any further probe or investigation. In the course of carrying on of business, an assessee normally makes investments in stock-in-trade, current assets, fixed assets and the like and unless and until it is necessary, on the basis of some material before the Assessing Officer, to make further enquiries with regard to the payments shown to have been made by the assessee, unnecessary enquiries are not made. In the context of the issue, legal aspect is also required to be kept in mind. Assuming for a while that the Assessing Officer was duty-bound to call for the comparable cases in respect of sale transactions of similar property and there did exist some cases where transfer of office premises was made at higher price, then merely on the basis of this material whether the Assessing Officer would be justified in making any addition in the assessment. In our openion, there is no provision under the Income-tax Act whereby any addition can be made to the income of the assessee on these facts. On going through the various provisions of the Income-tax Act, to our mind, probably Section 69B is relevant to the facts. Provisions of Section 69B can be invoked if (i) it is found that the assessee has made investment, and (it) it is found that the amount expended on making such investment exceeded the amount recorded in that behalf in the books of account, and (iv) either the assessee offers no explanation about such excess amount or the explanation offered is not satisfactory in the opinion of the Assessing Officer. These three findings are cumulative, to be recorded on gathering the necessary facts, but the basic finding which is to be recorded on clear and cogent material is in respect of the amount expended by the assessee in excess of that shown in the books of account. The onus is on the department to show that the assessee has expended extra amount. Therefore, merely because there exist some comparable cases showing higher price in respect of similar transactions it could not be said that the assessee had expended extra amount. Therefore, no addition can be made. That is why the assessee's contention before the Commissioner that under what provisions of law the addition was sought to be made required full consideration by the Commissioner and a categorical finding or decision should have been given by the Commissioner, but instead he merely stated that this aspect shall be considered after the Assessing Officer makes the enquiry. For the sake of clarification we may also add that no addition appears to have been made in the assessment of the seller, at least no such material has been brought to our notice. There also does not exist any other material either by way of confession from some connected person with regard to the extra amount having been spent by the assessee or that the books of account of the assessee were not found to be reliable in any of the years when the records were examined by the Commissioner.

Even in the fresh assessment when the addition is made, we do not find any finding recorded on the basis of clear material in respect of the extra amount having been spent by the assessee.

9. The Commissioner further states that revision can be taken in case where any relief or reduction was granted or assessment was made without proper verification of relevant facts and without application of mind. These statements are too general to justify revision.

Moreover, no relief or reduction was granted by the Assessing Officer.

Regarding verification of relevant facts we have already dealt with earlier. Regarding non-application of mind by the Assessing Officer we find no material to support such finding.

10. We, therefore, set aside the revisional order and restore the assessment order.