Commissioner of Income Tax Vs. Bhagwati Jewels Ltd. - Court Judgment

Excerpt:
direct taxation - undisclosed income - sections 256 (2) and 263 of income tax act, 1961 - whether income-tax appellate tribunal correct in law in cancelling order passed by commissioner of income-tax under section 263 by holding that there is nothing in aforesaid order to show that assessment order passed by assessing officer was erroneous and prejudicial to interests of revenue - company issued equity shares to public - inquiries made from assessed and replies received - income-tax officer to make independent inquiry and verification especially when assessed surrendered large sum of money under amnesty scheme - assessed disclosed undisclosed income as being income from other sources - amount offered for being taxed as representing cases of some of subscribers to share capital - precedent referred - in case shareholders not genuine that itself would not mean amount represented undisclosed income of assessed - held, income-tax appellate tribunal not correct in law. head note: income tax reference--question of law--surrender of income under amnesty scheme--ito accepting return without making any addition--cit cancelling order as erroneous and prejudicial to revenue since the same made without independent verification--question of law arises. held : the tribunal came to the conclusion that the order of the ito was not prejudicial to the interest of the revenue and the cit had wrongly exercised the jurisdiction. the tribunal has nowhere dealt with the question raised by the cit namely, that there was no independent verification of confirmation allegedly issued by various shareholders. it is no doubt true that it is stated in the order of the tribunal that inquiries were made from the assessed and replies received but what was important, according to the cit, was that the ito should have made independent inquiry and verification specially when the asessee itself had surrendered a large sum of money under the amnesty scheme. thereforee, the question whether in cancelling the order passed by the cit under s. 263 by holding that there is nothing in the aforesaid order to show that the assessment order passed by the assessing officer was erroneous and prejudicial to the interest of revenue is a question of law. case law analysis : cit v. stellar investment ltd. (1991) 192 itr 287 (del) distinguished. gee vee enterprises v. addl. cit (1975) 99 itr 375 (del) followed. application : also to current assessment years. income tax act 1961 s.256(2) - 1. the petitioner seeks reference of the following question to this court : 'whether, on the facts and in the circumstances of the case, the income-tax appellate tribunal was correct in law in cancelling the order passed by the commissioner of income-tax under section 263 of the income-tax act by holding that there is nothing in the aforesaid order to show that the assessment order passed by the assessing officer was erroneous and prejudicial to the interests of the revenu ?' 2. the respondent had at first filed a loss return of rs. 470 in respect of the assessment year 1986-87. thereafter, it availed of the amnesty scheme and filed a revised return declaring income of rs. 4,42,529 which included a sum of rs. 3,43,000 as income from other sources before the income-tax officer. it was stated that this sum of rs. 3,43,000 had been offered because the department was asking for confirmations from the various subscribers to the shares which were issued. it may be pointed out that this company had issued shares to the public and 4,97,000 equity shares of rs. 10 each had been issued. the total amount of money thus received by the company was rs. 49,70,000 by the issuance of the shares. 3. the income-tax officer accepted the revised return and, without making any addition whatsoever, made the assessment. 4. the commissioner of income-tax issued notice under section 263 of the income-tax act and, after an opportunity was given to the assessed, she came to the conclusion that the assessment order passed by the income-tax officer was prejudicial to the interests of the revenue and she set aside the order and directed a fresh order to be passed. one of the reasons for invoking the jurisdiction under section 263 was that the income-tax officer had accepted the alleged confirmation of various shareholders but had not subjected the said confirmation to independent verification. some of the cases of the shareholders were referred to by the commissioner of income-tax in her order. one other reason given by the commissioner of income-tax was that though the paid-up capital which was raised was rs. 49,70,000, confirmations were received only for an amount of rs. 34,33,750. the third reason given was that trading by the assessed in shares was reflected in the profit and loss account and this was not examined. 5. the income-tax appellate tribunal, however, came to the conclusion that the order of the income-tax officer was not prejudicial to the interests of the revenue and the commissioner of income-tax had wrongly exercised her jurisdiction. we, however, find that the income-tax appellate tribunal has nowhere dealt with the question raised by the commissioner of income-tax, namely, that there was no independent verification of confirmations allegedly issued by various shareholders. it is, no doubt, true that it is stated in the order of the income-tax appellate tribunal that inquiries were made from the assessed and replies received but what was important, according to the commissioner of income-tax, was that the income-tax officer should have made independent inquiry and verification especially when the assessed itself had surrendered a large sum of money under the amnesty scheme. 6. it was pointed out by learned counsel for the assessed that, in a similar case reported as cit v. stellar investment ltd. : [1991]192itr287(delhi) , this court had not called for a reference. prima facie, it may appear that the two cases are similar but there is one essential difference between the two cases. in the stellar case : [1991]192itr287(delhi) , this court had held that, even if it was assumed that the shareholders were not genuine, that itself would not mean that the amount in question represented undisclosed income of the assessed. the essential difference between the two cases is that, in the present case, the assessed itself did disclose undisclosed income of rs. 3,43,000 as being income from other sources. it further represented that this amount was offered for being taxed as representing cases of some of the subscribers to the share capital. we, thereforee, are of the opinion that stellar investment ltd.'s case : [1991]192itr287(delhi) can be of little assistance to the assessed. 7. in view of the ratio of the decision of this court in the case of gee vee enterprises v. addl. cit : [1975]99itr375(delhi) , and the decisions of the supreme court which were relied upon in gee vee enterprises case : [1975]99itr375(delhi) , we direct the income-tax appellate tribunal to state the case and refer the aforesaid question to this court. the petition is disposed of as above. there will be no order as to costs.