Baljees Vs. Assistant Commissioner of Income - Court Judgment

Excerpt:
of proper enquiryassessment of assessee-restaurant was made by the ao after issuing detailed questionnaire, examination of books of account, vouchers, details of opening and closing stock and comparison of gross profit rate with earlier years. however, the cit invoked section 263 on the ground that the assessment was completed in undue haste and without conducting proper enquiries with regard to the cost of raw material and sale price as per menu and other relevant factors for proper assessment. the assessee argued that it was necessary for assuming jurisdiction that there should be a proper and valid reason and the conclusion of the cit should also be based on facts. it was submitted that in the instant case, the cit had not come to a definite conclusion as to how the orders passed by.....

Judgment:
of proper enquiryAssessment of assessee-restaurant was made by the AO after issuing detailed questionnaire, examination of books of account, vouchers, details of opening and closing stock and comparison of gross profit rate with earlier years. However, the CIT invoked section 263 on the ground that the assessment was completed in undue haste and without conducting proper enquiries with regard to the cost of raw material and sale price as per menu and other relevant factors for proper assessment. The assessee argued that it was necessary for assuming jurisdiction that there should be a proper and valid reason and the conclusion of the CIT should also be based on facts. It was submitted that in the instant case, the CIT had not come to a definite conclusion as to how the orders passed by the AO were erroneous and prejudicial to the interest of the revenue. It was vehemently argued that the entire approach of the CIT was faulty and cryptic and on that basis, no order under section 263 could have been passed. Held: The power of the CIT under section 263 is quasi judicial in character and the CIT, has not to record his subjective satisfaction, but to come to a conclusion that the order passed by the AO was erroneous and prejudicial to the interest of the revenue. Thus, as the assessment had been made after relevant enquiries same could not be cancelled under section 263. The revisional order, therefore, was set aside.

1. These two appeals in ITA Nos. 427 & 428/Chd/1996 by the assessee for asst. yrs. 1992-93 & 1993-94 are directed against the orders dt. 5th Jan., 1996, passed under Section 263 of IT Act, 1961 by CIT, Patiala.

The ground of appeal raised by the assessee in both the appeals are common and are being reproduced as below : "1. That, in the facts and circumstances of the case, the learned CIT is not justified in resorting to provisions of Section 263 and thereby cancelling the assessment framed under Section 143(3)." "2. That there is no evidence on record to show that the assessment was done in a hurry, as the assessment was framed after duly screening and scanning the books, which were found to be maintained in normal course of business." "3. That, in facts and circumstances of the case, the learned CIT has erred in law and facts in coming to a wrong conclusion without any evidence on record, that the assessee has suppressed sales and, therefore, this finding is wrong and not sustainable as previous year's GP rate compares favourably with this year's GP rate. There is no evidence on record to show suppression of sales, as sales and purchases are all vouched." 2. Brief facts of the case are these. The assessee is a partnership-firm and is engaged in the business of running a hotel and two restaurants, on The Mal, Shimla. The assessee, in addition, is also engaged in the business of running a counter for the sale of sweets, bakery and ice cream. Assessments for both the assessment years, viz., 1992-93 and 1993-94 were framed by the AO vide assessment orders dt.

25th Oct., 1993 and 27th Jan., 1994 respectively at total income of Rs. 5,93,770 and Rs. 9,52,620 respectively under Section 143(3).

3. The CIT, examined the records of the assessee and noticed that the AO had failed to conduct enquiries with regard to the cost analysis of the cost of raw materials consumed and sale price of the products sold by the assessee as per menu cards in the restaurants and he was of the opinion that the assessment was completed in haste and without conducting proper enquiries with regard to the cost of raw material and the sale price as per the menu and other relevant factors for the proper assessment. The assessment for asst. yr. 1992-93 was completed before earlier year's assessment. The assessment completed for asst.

yr. 1991-92 after conducting proper enquiries had resulted in heavy additions. The learned CIT accordingly issued a show-cause notice dt.

2nd March, 1995, for both the assessment years, i.e., 1992-93 and 1993-94 by observing that the AO had completed the assessment in undue haste and without conducting proper enquiries and the orders were thus erroneous in as much as the same were prejudicial to the interest of Revenue. The assessee furnished a detailed reply dt. 3rd Jan., 1996, with is placed at pp. 39 to 44 of assessee's paper book.

4. The CIT after considering the assessee's reply dt. 3rd Jan., 1996, held that the orders passed by the AO are stereotyped which simply explains what the assessee has stated in its return and the assessments were framed in undue haste and without making any enquiries into the margin of GP involved on the sale of items with reference to expenses on preparation of these items and held that the assessment orders dt.

25th Oct., 1993 and 27th Jan., 1994 for asst. yrs. 1992-93 and 1993-94 respectively were erroneuos and prejudicial to the interests of Revenue. He accordingly cancelled the assessment orders to be made afresh after making further necessary enquiries in GP margin shown with reference to the sale price of these items and cost of raw material used in the preparation of the items sold. The assessee is in appeal before us against the orders passed by the CIT under Section 263.

5. The learned counsel for the assessee filed two paper books running from pp. 1 to 49A which have been placed on record. He submitted that both the assessment orders were passed by the AO under Section 143(3) after due verification of the audited .books of accounts, vouchers, details of opening and closing stock and its valuation. He specifically took us to paras 2 and 3 of the assessment order for asst. yr. 1992-93 (pp. 45 to 47 of the paper book) and pp. 2 & 3 of assessment order for asst. yr. 1993-94 (pp. 48 to 49A of the paper book), in which the AO has observed that the books of accounts, bills, vouchers, bank statements, details of opening and closing stock have been test checked and verified. In the same paras, the AO also compared the GP rate of the assessee for the years under reference with the earlier years. He further submitted that the returns of income were accompanied by audited accounts. Detailed questionnaires were issued by the AO to which replies were furnished by the assessee. The cases for both the assessment years were selected under Selective Scrutiny Scheme of the CBDT and the assessments were framed after examining the books of accounts and other relevant replies to the questionnaires. He submitted that the order under Section 263 was a quasi-judicial order and it was necessary for assuming jurisdiction that there should be a proper and valid reason and the conclusion of the CIT should also be based on facts. It was submitted that in the instant case, the CIT had not come to a definite conclusion as to how the orders passed by the AO were erroneous and prejudicial to the interest of the Revenue. It was vehemently argued that the entire approach of the CIT was faulty and cryptic and on that basis, no order under Section 263 could have been passed. The learned counsel of the assessee submitted that the assessment orders passed by the AO under Section 143(3) were based on records, audited statements and after verification. As such, it cannot be said that the AO has passed the orders in undue haste.

6. The learned counsel relied on the Patna High Court decision in CIT v. Shanti Lal Agarwala (1983) 142 ITR 778 (Pat) for the proposition that the CIT has to point out as to how the order sought to be cancelled is prejudicial to the interest of the Revenue. It could not be a matter of subjective satisfaction of the CIT ; rather the entire circumstances have to be judged in an objective manner. He further relied on the decision of Calcutta High Court in the case of Jai Kumar Kankaria v. CIT (2001) 251 ITR 707 (Cal) for the proposition that the revisional authority could exercise his power under Section 263 only when the order passed by the assessing authority was erroneous in so far as it was prejudicial to the interest of the Revenue. The term 'erroneous' could be looked into only from the facts and circumstances which were placed before the assessing authority at the time of the assessment. There was no scope for reopening of the assessment on a subsequent event or on any new material. The learned counsel also relied on the Punjab & Harayana High Court decision in CIT v. R.K.Metal Works (1978) 112 ITR 445 (P&H) for the proposition that in passing an order of revision under Section 263 of the Act, it is necessary for the CIT to state in what manner he considered that the order of the AO was erroneous and prejudicial to the interests of the Revenue and the basis for such a conclusion. The learned counsel while relying on the decision of Punjab & Harayna High Court in the case of CIT v. Kandas Rice Mills (1989) 178 ITR 446 (P&H) argued that it was necessary for the CIT to come to a firm conclusion for passing an order under Section 263. The Hon'ble High Court had set aside the order as the CIT had cancelled the assessment by stating that certain points deserved consideration. He further relied on the Rajasthan High Court decision in CIT v. Trustees Anupam Charitable Trust 1987) 167 ITR 129 (Raj) and submitted the error envisaged by Section 263 was not one which depended on possibility or guess work, but it should be actually an error of fact or of law. Reliance was also placed on the decisions in the following cases : (i) N.S. Ichhopani v. Asstt. CIT (1997) 58 TTJ (Chd) 73 : (1995) 55 ITD 88 (Chd); (ii) Jhulelal Land Development Corporation v. Dy. CIT (1996) 56 ITD 345 (Bom); The counsel vehemently submitted that the setting aside an assessment is not an ordinary matter. In fact, in Tax Laws and in other laws certainty and finality are the pre-requisite of good tax administration and the orders of the subordinate authorities should, therefore, not be cancelled or set aside on mere whims and fancies; there must be very compelling reasons for interference by the CIT under Section 263 and in the instant case, the CIT had without reaching a firm conclusion that the order passed was, in fact, erroneous had left the enquiries to be made by the AO and prayed that in view of the submissions, the order passed dt. 5th Jan., 1996, by the learned CIT should be cancelled.

7. Learned Departmental Representative strongly and very vehemently supported the order of the CIT and filed written submissions which have been placed on record. She submitted that the orders for both the assessment years, i.e., 1992-93 and 1993-94 were completed by the AO prior to the completion of assessment for asst. yr, 1991-92 which resulted in heavy additions of Rs. 42,46,621 and as on 5th Jan., 1996, i.e., the date on which CIT passed the orders under Section 263, there was sufficient material before him to believe that the assessment for both these years had been completed in undue haste before passing the assessment order for asst. yr. 1991-92 and without making proper enquiries with regard to the cost analysis and the sale price analysis as per menu card. The orders were passed by the CIT after going through the accounts of the assessee for all the three years, i.e., asst. yrs.

1991-92, 1992-93 and 1993-94 and it was found that in respect of all the years, position of trading results was the same. It was further stated that the assessee had not issued any cash memo in respect of the sales made at the counter with the result that the authenticity of actual sales made at the counter and entered in the books of accounts was not verifiable and thus, the CIT rightly formed the opinion that the assessments had been made without making any enquiries into the margin of GP involved on the sale of items. She further submitted that the powers of the CIT under Section 263 are in the nature of supervisory discretion and are of wide amplitude and Section 263 confers powers on the CIT to call for and to examine the record of any proceeding, subsequent events relating to assessment and he can base his decision/satisfaction upon any record relating to any proceedings under this Act available at the time of examination by the CIT. She also relied on the following decisions of the Hon'ble Supreme Court : Relying on these judgments, learned Departmental Representative strongly supported the impugned orders.

8. In the rejoinder, the Authorised Representative for the assessee distinguished the facts as reported in the case laws cited by the learned Departmental Representative with the facts of the case of the assessee before us. He also brought to our notice that although a charge was made out for effecting counter sales without cash memos, but even while framing assessment for asst. yrs. 1991-92 to 1993-94 no fault was found by the AO in respect of the counter sales. The AO in asst. yrs. 1992-93 and 1993-94 and even earlier year had accepted the sales, purchases, book results and no addition was made.

9. We have carefully considered the submissions of both the sides and have also gone through the orders by the AO as well as by the CIT. A perusal of the orders passed by the CIT indicates that the assessment orders passed by the AO under Section 143(3) have been cancelled on the ground that the desired enquiries have not been made and the assessments have been framed in undue haste.

In our opinion this cannot be a sufficient ground for cancellation of the assessments. The AO, while framing the assessment under Section 143(3) in the case of the assessee, has clearly stated in the preamble of the assessment order that the cases have been selected under the Selective Scrutiny Scheme of the CBDT and the assessment has been framed under Section 143(3) after issue of detailed questionnaire, examining the books of accounts, vouchers, details of opening and closing stocks, comparison of GP rate. While making the assessment order, it is the satisfaction of the AO who made enquiry and it should be the touchstone to base the validity of the assessment order passed by him. The CIT cannot substitute his subjective view in place of the findings of the AO. Various Courts have held that the power of the CIT under Section 263 is quasi-judicial in character and the CIT, therefore, has not to record his subjective satisfaction, but to come to a conclusion that the order passed by the AO was erroneous and prejudicial to the interests of the Revenue. The CIT cannot sit in judgment for the discretion exercised by the AO. He can legally interfere with the assessment order only after he finds that the order is both erroneous and prejudicial to the interests of the Revenue. In the instant case, what we find is that the CIT has neither looked into the submissions before him on behalf of the assessee nor come to a firm conclusion that the assessment order was erroneous and prejudicial to the interests of Revenue. The various case laws pointed out by the assessee's counsel and referred to above make it abundantly clear that the CIT must state the reason for intervention before assuming jurisdiction under Section 263 and while passing the order under Section 263 must come to a conclusion that the order passed by the AO was not only erroneous but also prejudicial to the interests of the Revenue, as such, it is not correct to say that the orders passed by the AO under Section 143(3) was in undue haste and without proper enquiry made. We have, therefore, no hesitation to hold that the impugned orders stand vitiated for the reasons mentioned above and are hereby cancelled.

10. In arriving at this conclusion we also draw strength from the ratio of Supreme Court judgment in the case of Malabar Industrial Co. Ltd. v.CIT (2000) 243 ITR 83 (SC), wherein their Lordships have held that the phrase "prejudicial to Revenue" must be read in conjunction with an errpneous order. In the appeals before us, the assessments were framed by the AO as per law and after making detailed enquires and the learned CIT could not sit over the judgment of the AO by resort to his reversionary powers under Section 263.

11. In the result, both the appeals filed by the assessee in ITA Nos.

427 & 428/Chd/1996 are allowed.