NEW DELHI, JUNE 07, 2009: THE Revenue is aggrieved by the impugned judgment of the Tribunal by which it has set aside the order of the Commissioner of Income Tax dated 18/19.01.2007 whereby he in turn cancelled the assessment order dated 24.03.2005 and directed the Assessing Officer to make a fresh assessment after considering all the aspects of the case including various discrepancies pointed out by him in his order.
The assessee is a builder engaged in the business of construction of properties on a collaboration basis with the owners of the properties. The assessee filed a return dated 31.10.2002 in respect of assessment year 2002-03 declaring a total income of Rs 2,69,210/- The Assessing Officer made specific enquiries with respect to a collaboration project situated at E-5/1, Malviya Nagar, New Delhi-110017. The assessment order also indicates that the assessee had furnished copies of various agreements executed in respect of the Malviya Nagar property as well as the valuation report. The communication which is referred to in the assessment order shows that the assessee offered an additional income of Rs 8,00,000/- purportedly earned from the Malviya Nagar property to buy “peace with the Department”.
The Assessing Officer considering the material on record and the submission of the assessee, included the additional income of Rs 8,00,000/- offered by the assessee with respect to the Malviya Nagar and proceeded to tax the said sum along with income already declared that is a sum of Rs 2,69,210/-. By the said order a total income of Rs 10,69,210/- was brought to tax. Interest under Section 234A, 234B and 234C was also imposed. In addition, penalty proceedings under Section 271(1)(c) of the Act was also initiated.
In the interregnum i.e., during the course of scrutiny, the Assessing Officer had issued summons under Section 131 of the Act to purchasers of various properties in order to satisfy himself as regards the genuineness of the transactions in issue. In the communications dated 27.12.2004 and 28.02.2005 the assessee gave details with respect to other projects i.e., the properties located at Gitanjali Enclave and Defence Colony. Copies of the collaboration agreements, important details with respect to the agreements, area of construction and sale price as also details of receipt of Rs 26 lacs with respect to the property located at Gitanjali Enclave were supplied by the assessee through communication dated 27.12.2004 and 28.02.2005. Similarly, relevant details with regard to the Defence Colony property was furnished by the assessee in a letter dated 28.02.2005. Despite, the disclosure by the assessee of details with respect to all three projects i.e., the Malviya Nagar property as also properties located at Gitanjali Enclave and Defence Colony - a fact which was ascertained by the Tribunal and finds mention in the impugned judgment, the Commissioner issued a notice dated 11.05.2006 to the assessee on the ground that he was of the view that the assessment made in the case of the assessee was both erroneous and prejudicial to the interest of the Revenue.
The reasons which found favour with the Commissioner were as follows:-
1. No examination of books of account was made;
2. No verification were made from the persons to whom summons under Section 131 were issued and no statements were recorded on oath;
3. The surrender of Rs 8 lacs was made on agreed basis, on the sale of project of Malviya Nagar, other projects, which were also in posh colonies of South Delhi, remain untouched and unverified.
4. No proper recordings were made on the order sheet.
The Commissioner formed an opinion that the assessment order required to be cancelled and accordingly, the Assessing Officer was directed to make a fresh assessment. In coming to the said conclusion, the Commissioner articulated the following reasons in his order:
“I am not convinced with the submission of the assessee. The facts of the instant case are not identical to the facts of the cases on which reliance was placed by the counsel of the assessee. Moreover, there is absolutely no evidence that the Assessing Officer called for the books of accounts other than certain details recorded at page 2 of the order sheet. There is also no evidence whatsoever that the assessee produced the books of accounts as stated in the submission. It is evident that the Assessing Officer considered the offer of Rs 8 lakh from the Malviya Nagar project only that too without any basis and without any inquiry and application of mind on the other projects and other aspects of this case. In view of the various discrepancies pointed out above, passing an assessment order without proper verification of the issues that too without even examining the books of accounts is definitely erroneous and prejudicial to the interest of revenue.”
Being aggrieved, the assessee preferred an appeal to the Tribunal. The Tribunal by the impugned judgment set aside the order of the Commissioner under Section 263 of the Act. While doing so, the Tribunal made the following observations and findings of fact:-
(i) that they had examined the assessment record on their own. From the record, it was revealed that the assessee had filed copious details covering various aspects of the matter. It noted that by a letter dated 27.12.2004 the assessee had given details regarding unsecured loans, taken by him; justification for claiming depreciation on car; investment in fixed deposit with Canara Bank; details of loan given to one Pradeep Arora; Reconciliation Statement in respect of the savings account with Canara Bank, Malviya Nagar Branch; details regarding the names and addresses of persons from whom total construction and consultancy receipts of Rs 75.61 lacs were received; and the explanation as to why no work-in-progress at the end of the year had been shown ;
(ii) reference to a letter dated 14.02.2005 wherein details with respect to Malviya Nagar property were given, in particular, cost and expenses incurred on the Malviya Nagar property, as also copies of sale deeds of two properties in the same locality were filed; referred to letter dated 28.02.2005 which gave details with respect to property located at Gitanjali Enclave. Details with respect to Shop No 5 and 6 in the Malviya Nagar property and copies of relevant agreements as also sale deeds in respect of portions of said property which the assessee had been asked to submit. Details of salary expenses, accounting charges, vehicle maintenance account, entertainment expenses, telephone expenses etc. were also given;
(iii) the confirmation of unsecured loan in the earlier years taken from one Shri Jagdish Chander;
(iv) in the very same letter dated 28.02.2005 details were also given regarding the construction and labour charges in the sum of Rs 52,77,094/- debited to the profit and loss account;
(v) a chart was filed to demonstrate that the value of work-in-progress and the cost of construction was comparable to the valuation certificates. Reference was also made to a letter dated 22.03.2005 wherein the assessee had conceded that it would surrender an additional income of Rs 8 lacs with respect to the Malviya Nagar property in order to buy peace with the Department in lieu of the penalty proceedings being dropped;
(vi) it is also mentioned that the record contained notices issued under Section 131 of the Act in respect of various persons. The Tribunal also seems to have made the effort of going through the order sheet entries of the Assessing Officer which demonstrated that details were sought from the persons summoned.
The Tribunal came to the conclusion that looking at the voluminous record filed with the Assessing Officer it could not be said that the books of accounts were not examined, when the assertion of the assessee was that they were produced before the Assessing Officer for examination; merely on the basis that there is no such reference of examination of books of accounts in the order sheet entries maintained by the Assessing Officer. The Tribunal also observed that a perusal of the summons issued under Section 131 by the Assessing Officer indicated that each one was required to furnish details and documents and that it is not the requirement under Section 131 that the Assessing Officer should record statements of persons who were summoned to give evidence or produce documentary evidence. The Tribunal also concluded that the assessee had furnished details with regard to properties located at Gitanjali Enclave as well as Defence Colony. In this regard, the Tribunal noted the contents of the assessee’s letter dated 27.12.2004 and 28.02.2005 filed with the Assessing Officer. The Tribunal was, thus, of the view that the Assessing Officer had taken care to collect details and facts, and put them on the record; and hence it could not be said that the Assessing Officer’s order was without basis. The Tribunal was of the view that having found the details satisfactory, the mere fact that what had been accepted by the Assessing Officer as satisfactory did not find mention in the assessment order would not render the assessment order liable for a revision by the Commissioner in exercise of power under Section 263 of the Act.
The High Court recalled the parameters and principles laid down by the Courts which govern the exercise power by the Commissioner under the provisions of Section 263 of the Act.
(i) The power is supervisory in nature, whereby the Commissioner can call for and examine the assessment records.
(ii) The Commissioner can revise the assessment order if the twin conditions provided in the Act are fulfilled, that is, that the assessment order is not only erroneous but is also prejudicial to the interest of the Revenue. The fulfilment of both the conditions is an essential prerequisite.
(iii) An order is erroneous when it is contrary to law or proceeds on an incorrect assumption of facts or is in breach of principles of natural justice or is passed without application of mind, that is, is stereo-typed, in as much as, the Assessing Officer, accepts what is stated in the return of the assessee without making any enquiry called for in the circumstances of the case, that is, proceeds with “undue haste”.
(iv) The expression “prejudicial to the interest of the Revenue” while not to be confused with the loss of tax will certainly include an erroneous order which results in a person not paying tax which is lawfully payable to the Revenue.
(v) Every loss of tax to the Revenue cannot be treated as being “prejudicial to the interest of the Revenue”. For example, when the Assessing Officer takes recourse to one of the two courses possible in law or where there are two views possible and the Commissioner does not agree with the view taken by the Assessing Officer which has resulted in a loss (2007-TIOL-203-SC-IT)
(vi) There is no requirement of issuance of a notice before commencing proceedings under Section 263 of the Act. What is required is adherence to the principles of natural justice by granting to the assessee an opportunity of being heard before passing an order under Section 263.
(vii) If the Assessing Officer acts in accordance with law, his order cannot be termed as erroneous by the Commissioner, simply because according to him, the order should have been written “more elaborately”. Recourse cannot be taken to Section 263 to substitute the view of the Assessing Officer with that of the Commissioner.
(viii) The exercise of statutory power under Section 263 of the Act is dependent on existence of objective facts ascertained from prima facie material on record. The evaluation of such material should show that tax which was lawfully exigible was not imposed.
The High Court observed that there is no requirement under Section 263 of the Act to issue a notice before embarking upon a revisionary proceedings. To that extent the submission of the counsel for the Revenue has to be accepted. What is mandated under Section 263 of the Act is that once the Commissioner calls for and examines the record, pertaining to the assessee, and forms a prima facie view that the order passed by the Assessing Officer is both erroneous and prejudicial to the interest of the Revenue, he is obliged to afford an opportunity to the assessee before passing an order, to the prejudice of the assessee. In the instant case, the Commissioner sought to accord such an opportunity to the assessee by putting him to notice as regards aspects which the Assessing Officer had failed to scrutinize. During the course of the revisionary proceedings this was conveyed to the assessee by way of a notice dated 11.05.2006. It is not disputed that in the order dated 18/19.01.2007 the Commissioner has referred to certain other issues which did not form part of the initial notice dated 11.05.2006. It was always open to the Commissioner to put such issues/discrepancies, found by him based on material on record, to the assessee. It is to be noted, however, that the counsel for the assessee vehemently denied that the assessee had been given any opportunity to meet issues other than those to which reference has been made in the Commissioner’s notice dated 11.05.2006. For this purpose, the counsel for the assessee sought to place reliance on the impugned judgment passed by the Tribunal, wherein this aspect of the matter has been discussed elaborately.
The threshold condition for reopening the assessment is that before passing an order an opportunity has to be granted to the assessee and, such an opportunity granted to the assessee is a necessary concomitant of the enquiry the Commissioner is required to conduct to come to a conclusion that an order for either an enhancement or modification of the assessment or, as in the present case, an order for cancellation of the assessment is called for, with a direction to Assessing Officer to make a fresh assessment. This defect cannot be cured by first reopening the assessment and then granting an opportunity to the assessee to respond to the issues raised before Assessing Officer during the course of fresh assessment proceedings. It is the requirement of Section 263 of the Act that the assessee must have an opportunity of being heard in respect of those errors which the Commissioner proposes to revise. To accord an opportunity after setting aside the assessment order, would not meet the mandate the Section 263 of the Act. If such an interpretation is accepted it would make light of the finality accorded to an assessment order which cannot be reopened unless due adherence is made to the conditionalities incorporated in the provisions of the Act in respect of such powers vested in the Revenue.
The findings returned by the Tribunal are pure findings of fact. No substantial question of law has arisen for consideration. Resultantly, the appeal is dismissed. No order as to cost.
(See 2009-TIOL-300-HC-DEL-IT in 'Income Tax')
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