ORDER
B.L. Chhibber, A.M
These five appeals by the assessee are directed against the orders of the Commissioner, Nashik, under section 263 of the Income Tax Act, 1961.
2. The assessee, an individual, aged 29 years, runs a small shop dealing in cloth and readymade dresses at village Betawad, Tal. Shindkheda, Distt. Dhule. This is a very small village in a backward taluka of Shindkheda of Distt. Dhule. The assessee was not filing his returns of income as, according to him, his income was below taxable limit. On 14-7-1994, survey action was taken at his shop premises. The surveying officers inventorised the stock and also found some books of account which were in the nature of debtors and creditors books. Statement of the assessee was recorded during the course of search and a copy of the same has been placed at p. 7 of the paper book. The assessee’s father Shri Parasram G. Wani, was having his own independent business in fertiliser which was separately being carried in the same shop premises where the assessee was running the business. Since the assessee’s father was not available, certain questions were asked to him about the father’s business in fertilisers. Similarly, the surveying authorities found some evidence to show that the assessee’s mother Smt. Sindhubai P. Wani, had sold certain plots of land from which she gained capital gains. In this regard, the assessee explained that the assessee’s mother had inherited the land form her father. This was an agricultural land which was converted into non-agricultural land and then developed and sold. The plots were sold from 1988 till 1993. The authorities also noted that a residential house was newly being construed. In explaining this construction, the assessee stated that the construction as of the assessee’s father’s house and bulk of the investment had come from sale consideration received by the mother from sale of the house. At the conclusion of the statement, the surveying authorities asked the assessee to disclose income from his own business which the assessee declared as under :
Assessment year
Income (Rs.)
1990-91
20,000
1991-92
25,000
1992-93
27,000
1993-94
35,000
1994-95
31,000
The assessee also, on behalf of his father, declared income from fertiliser business as also agricultural income.
3. After the survey was over, the assessee filed returns for the assessment years 1990-91 to 1994-95. These returns were regularized by issue of notice under section 148. The incomes declared were the same as were declared before the survey party.
4. The assessee’s father, Shri Parasaram G. Wani, also filed his own returns for the assessment years 1989-90 to 1994-95 on 31-8-1994, disclosing income from fertiliser business as also income from agricultural, which were also regularised subsequently by issue of notice under section 148. The statements of income accompanying father’s returns for the assessment years 1989-90 to 1994-95 are placed at pp. 41 to 55 of the paper book. A copy of the statement of affairs as on 31-3-1994 (p. 41) will show that the assessee’s father had shown investment in construction of the building at Rs. 38,34,423. Details of capital account show that the household withdrawals were Rs. 27,470. Similar details are to be found for earlier years also. The agricultural income disclosed in the capital account is Rs. 30,000. These returns were processed for assessment and assessments were duly made on 18-2-1998.
5. The assessee’s mother filed return for the assessment year 1989-90 on 31-8-1994, in which she declared capital gain on sale of plots from land inherited by her. Copy of the statement of income filed by her is to be found on pp. 53, 54 and assessment order is to be found on p. 55 of the paper books.
6. The assessments in the case of the father were taken up in appeal before the Commissioner (Appeals) for assessment year 1990-91 to 1992-93 because in these years additions of Rs. 5,000 for first two years and addition of Rs. 3,000 was made for the last year. The Commissioner (Appeals) deleted the additions as per the appellate order placed at p. 35 of the paper book.
7. From the above, it is clear that all the returns were filed by the concerned parties only after the survey action. It is not as if the returns were filed earlier and then survey was taken which showed some higher income or assets which were not disclosed in the returns. This was a case of a small assessee from a very small village and to the extent possible, the assessing officer had made necessary enquiries. The income shown by the assessee from his cloth business was not accepted and the position of income shown and the income assessed for the assessment years 1990-91 to 1994-95 are as under :
Assessment year
Income shown (Rs.)
Income assessed (Rs.)
1990-91
20,000
22,000
1991-92
25,000
27,000
1992-93
27,000
29,000
1993-94
35,000
38,000
1994-95
41,000
42,000
8. Later on, the Commissioner, Nashik, scrutinised the record and noted that instead of verifying the documents found during the course of survey, the assessing officer had simply estimated the income. According to him, the income so estimated by the assessing officer was without any basis and that for determining the correct income, the assessing officer should have confronted the assessee with the material available in his possession. He accordingly invoked his jurisdiction under section 263 and after giving an opportunity of being heard to the assessee held that proper enquiries were not made in respect of :
(i) estimation of income by the assessing officer,
(ii) no enquiries in respect of other activities, investments such as fertiliser business and sale of plots,
(iii) household expenses,
(iv) expenses incurred for cost of construction, and
(v) sundry creditors.
He accordingly set aside the orders nf the assessing officer and directed him to make de novo assessments after making proper enquiries on the different activities of the assessee as indicated above.
9. Shri K.A. Sathe, the learned counsel for the assessee, submitted that it is to be noted that the assessments have taken place only after survey. There was nothing to indicate that earlier to the survey the assessee was assessed or any possibility of underassessment existed. The income returned by the assessee was the same as was declared during the course of survey which apparently met satisfaction of the surveying officers. This income also was not accepted by the assessing officer and the made some further additions to the income disclosed. Since the assessee was not maintaining books of account as such and was maintaining only register of debtors and creditors, and since this was a case of petty shop-keeper, this did not warrant and further enquiry. The learned counsel further submitted that as regards the so-called other activities of the assessee, the learned Commissioner ought to have considered that these activities of fertiliser business or sale of plots had nothing to do with the assessee. These facts were pointed out by the assessee to the Commissioner and he should not have persisted in asking the assessing officer to make enquiries. When independent assessments had already taken place and assessments of the assessee’s father was subject-matter of appeal proceedings also, there was nothing apparently to connect these activities to the assessee and further enquiry was not warranted. The learned counsel further pointed out that it is interesting to note that in the assessments which have subsequently been made by the assessing officer in compliance to orders under section 263, except the additions made to the assessee’s cloth income, the assessing officer has not made any addition on account of fertiliser business or on account of the fertiliser business of the assessee’s father. Since the capital gains shown by the assessee’s mother were for assessment year 1998-90, action for assessment year 1989-90 could not have been taken in the assessee’s case. The learned counsel further submitted that the Commissioner has not taken note of the assessee’s submissions in regard to the household expenses, cost of construction or sundry creditors. He has simply asked the assessing officer to make further enquiries. He, therefore, submitted that there is no justification on the part of the Commissioner to invoke his jurisdiction under section 263 and set aside the assessments which had been completed by the assessing officer under section 147 read with section 143(3) after making necessary enquiries.
10. Shri C.M. Bhake, the learned Departmental Representative, strongly supported the orders of the Commissioner. He submitted that since the assessing officer had failed to make necessary enquiries, the Commissioner was justified in invoking his jurisdiction under section 263 and setting aside the orders of the assessing officer with directions that he should make de novo assessments after making necessary enquiries.
11. I have considered the rival submissions and perused the facts on record. In passing the order under section 263, it is expected that the Commissioner should be prima facie satisfied about the erroneous nature of the assessment which has caused prejudice to the revenue. Beyond stating that no further enquiries are made, there should be some material which must be pointed out to show that how lack of enquiries have caused prejudice to the revenue. This has not been done by the Commissioner in the present case. Reference in this behalf may be made to the decision of the Chandigarh Bench of the Tribunal in N.S. Ichhopani v. Assistant Commissioner (1997) 58 M (Chd) 73 : (1995) 55 ITD 88 (Chd), where the Bench has observed as under :
“Setting aside an assessment is no ordinary matter. In fact, in tax laws as in other laws, certainty and finality are the prerequisites of a good tax administration. 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 Commissioner under section 263.”,
It was held that the Commissioner has to come to a definite conclusion that the order passed by the assessing officer was erroneous and prejudicial to the interests of revenue. The Commissioner cannot sit in judgment over the discretion exercised by the assessing officer. Reference may also be made to the decision of the Mumbai Bench in the case of Jhulelal Land Dev. Corporation v. Dy. Commissioner (1996) 56 ITD 345 (Bom) which has also followed the decision of the Bombay High Court in Commissioner v. Gabriel India Ltd. (1993) 203 ITR 108 (Bom). A mere failure to cause enquiries alone is not sufficient for assuming jurisdiction under section 263, unless some prima facie and positive material is pointed out how lack of enquiries has caused prejudice to the interests of revenue. There was thus no basis for assuming jurisdiction under section 263. The Commissioner was not justified in directing enquiries to be made in regard to trading of fertilizers which was the business of the assessee’s father, who was separately assessed to tax. Similarly, there was no justification for directing enquiries to be made in regard to the construction of the house which was being shown by the father of the assessee who was separately assessed to tax. It has to noted that in the de novo assessments in pursuance of the orders under section 263, the assessing officer has rightly not made any addition on account of fertilizer business or on account of cost of construction of the house. Similarly, the plot of land was sold by the mother of the assessee and she had shown capital gains and she was separately assessed to tax. The learned Commissioner did not appreciate that the assessee was staying with his father and mother and that the withdrawals for household expenses as shown by the assessee and his father were adequate and sufficient for a family residing in a village area and also having agricultural income. The direction of the Commissioner to cause enquiries regarding sundry creditors is also for causing fishing enquiries resulting in harassment of the assessee. No prima facie fact or material has been pointed out why these creditors were not acceptable and how enquiry is going to result in assessment of escaped income. In fact, the learned Commissioner cannot order fishing enquiries as held by the Bombay High Court in the case of Garbriel Income Ltd. (supra). Accordingly, I hold that the Commissioner, Nashik, was not justified in invoking his jurisdiction under section 263. Accordingly, the orders passed by him are quashed.
12. Before I part with, these appeals, I must state that the question of propriety of the concerned decision also is to be considered. The learned Commissioner failed to appreciate that the assessee was a small assessee and there was nothing to indicate on record that there was any large scale evasion or avoidance on the part of the assessee or that any substantial revenue had escaped taxation. When a higher authority, like the Commissioner sits in judgment over the orders passed by the assessing officer, he should also see that valuable time of the department is not wasted in making petty enquiries for petty revenue. Here, in the present case, it is noted that a very small assessee was unnecessarily targetted and considerable hardship was being caused to the assessee on account of cancelling the assessments already made. The orders passed by the assessing officer were brief, apparently for the reason that it was the case of a small assessee, but that by itself is not sufficient to brand the assessment orders as erroneous and prejudicial to the interests of the revenue. Reference in this regard may be made to CIT v. Goyal Private Family Specific Trust (1988) 171 ITR 698 (All). It is felt by me that such type of action erodes confidence of small assessees in the fairness of the department and does not also serve the cause of the revenue because in fact no substantial revenue was involved. In this connection, I would place reliance on the judgment of the Hon’ble Madras High Court in the case of Venkatakrishna Rice Co. v. CIT (1987) 163 ITR 129 (Mad). Following observations of the Hon’ble High Court on pp. 156 and 157 of the said judgment are very significant :
“In our judgment, the expression ‘prejudicial to the interest of the revenue is not to be construed in a petty-fogging manner, but must be given a dignified construction. It may by noted that the use of the expression ‘Revenue’, in our opinion, is significant. It denotes some kind of abstraction or symbol in the same sense in which the expression ‘Crown’ is used to distinguish it from any person enthroned. The interest of the revenue is not to be equated to rupees and paise merely. There is a biblical saying that we do not live by bread alone. Varying this saying, it may be said that the revenue does not live by tax alone. In this sense, therefore, the interests of revenue are not tied up merely with realising as much revenue as possible, willy nilly, merely looking to the productivity aspect of taxation. The jurisdition of the Commissioner under section 263 is undoubtedly a supervisory jurisdiction. It is intended for interference in special cases to counteract orders which are erroneous as well as prejudicial to the interests of the revenue. In this context, therefore, the expression ‘prejudicial’ to the interests of the revenue, must be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the order passed by the Income Tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of revenue administration. There might be cases where the Commissioner might wish to interfere with an order of the Income Tax Officer in order to safeguard the fair name and reputation of the Income Tax department without any thought of going into the particular aspects of the assessment. Assessments which are mala fide, politically and communally motivated may be, however, set aside as being prejudicial to the interests of the revenue. It is unnecessary for us to illustrate the point any further. All that we wish to observe is that the scope of the interference under this section is not to set aside merely unfavourable orders and bring to tax some more money to the treasury, Nor is the section meant, to get at sheer escapement of revenue which, as is well known, is taken care, of by provisions elsewhere in the Act such, for instance, as section 147 of the Act. The prejudice must be prejudice to the revenue administration.”
13. In the result, the appeals are allowed.