ORDER
S.K. Chander, Accountant Member
1. This appeal by the assessee is directed against the order made by the CIT under Section 263 of the Act for the assessment year 1971-72 in March 1987. The issue before us is whether the CIT had jurisdiclional facts before him to assume lawful jurisdiction for making the impugned order or not. After hearing both the sides and on perusal of the record, the factual picture that emerges is as under.
2. For the assessment year 1971-72, the assessee filed returnon 19-12-1971 declaring total income of Rs. 27,350. The original assessment was completed on 24-4-1973. However, during the process of assessment for the assessment year 1973-74, as mentioned in the order made under Section 143(3)/144B on 18-8-1980 for the assessment year under appeal, the Assessing Officer came in possession of information on the basis of which he had reason to believe that income chargeable to tax for the assessment year 1971 -72 had escaped assessment. Accordingly reassessment was framed on 18-8-1980. That assessment was challenged in appeal.
3. The CIT(A) in appeal bearing No. 373(Central)/Chd/80-81 dated 25-3-19C2 deleted the addition made in the reassessment proceedings. That order of the CIT(A) was challenged in appeal before the Tribunal by the Revenue and the Tribunal in its order in I.T.A. No. 333 of 1982 dated 30-10-1984 reversed the order of the CIT(A) and restored the addition of Rs. 1,12,275. The order of the Tribunal dated 30th October, 1984, had been served upon the assessee and the Revenue before the end of November 1984.
4. The ITO had initiated the penalty proceedings under Section 271(1)(c) in his reassessment order dated 18-8-1980. When he issued show-cause notice to the assessee, the assessee’s Counsel projected to the Assessing Officer that “the aforesaid client of mine preferred an appeal before the Hon’ble Tribunal in the abovesaid assessment year. It is requested to your Honour to keep in abeyance the penalty proceedings started against my client till the decision of appeal”. On such representation the Assessing Officer looked up the record and noticed that the AAC has deleted the addition. Hence, he passed an order dated 28-2-1985 dropping the penalty proceedings.
5. The CIT, thereafter, called for the record and on examination thereof found that the action of the Assessing Officer in dropping the penalty proceedings was prima facie erroneous as well as prejudicial to the interests of revenue within the meaning of Section 263 because the Assessing Officer had merely proceeded on the assertion made before him by the counsel for the assessee that the appeal before the Tribunal was pending. The CIT, therefore, issued show-cause notice to assessee in response to which written submissions were filed contending that the order made by the Assessing Officer dropping the penalty proceedings cannot be treated as an order within the meaning of Section 263(1) of the Income-tax Act, 1961 in terms of the ratio of the Allahabad High Court judgment in the case of Ramlal Kishore Lal v. CIT [1972] 84 ITR 138, that there was no valid penalty order since it was not communicated to the assessee in terms of the ratio of the judgment in the case of Smt. Jijeebai Shinde v. CGT [1986] 157 ITR 122 (MP) and that the CIT, therefore, had no jurisdictional facts to assume lawful jurisdiction.
6. The CIT, however, rejected these contentions by pointing out that the Allahabad High Court judgment was not applicable as it was distinguishable on facts and in so far as Jack of communication of the order dropping the penalty proceedings was concerned, it caused no prejudice to the assessee. The CIT also held that, “the ITO came to be misguided by a wrong and erroneous assertionby the assessee’s Advocate. It was not correct on the part of the learned Advocate to say that his client had filed an appeal before the Tribunal whereas an appeal was filed by the Deptt.”. The CIT, therefore, made the impugned order by which the order passed by the ITO dropping the penalty proceedings was set aside and directions were issued to the Assessing Officer to make fresh penalty order in accordance with law after affording reasonable opportunity of being heard to the assessee.
7. Before us similar submissions were made on behalf of the assessee as were projected before the CIT during the course of proceedings under Section 263. The learned counsel for the assessee projected that merely because the Assessing Officer dropped the penalty proceedings it does not warrant interference in the said order under Section 263. The imposition of penalty is discretionary and the exercise of judicial discretion by the Assessing Officer does not render the order as erroneous as well as prejudicial to the interests of Revenue. The two judgments cited before the CIT and mentioned by us supra were also relied on. The Revenue, on the other hand, submitted that the CIT had jurisdictional facts and, therefore, he rightly assumed jurisdiction and the order made by him cannot be interfered with at the instance of the assessee.
8. After careful consideration of the rival submissions we find that for determination of the issue whether the CIT had jurisdictional facts for lawful assumption of jurisdiction, we have to determine as to what was the record that CIT could call for and on examination of which he could consider the order passed therein by the Assessing Officer erroneous as well as prejudicial to the interests of revenue. It appears that there is concurrence of judicial opinion that reference to “the record” in Section 263(1) is in respect of the record that was in existence at the time the Assessing Officer passed his order. The materials which were not in existence at the time the Assessing Officer passed the order and came into existence afterwards cannot form part of the record of the proceedings of the ITO at the time he passed the order and such material cannot be taken into consideration by the CIT for purposes of invoking the jurisdiction under Section 263(1) of the Act.
9. We are of the opinion that, “the record of any proceeding” under the Act would include all contemporaneous documents having evidenciary value on the determination of the issue to be examined. It is not material whether at the point of time when the Assessing Officer passed the order, such record was factually before him or not. This is so because if the relevant record is interpreted in any other manner, it may lead to very serious and unpredictable consequences. We say so because at a particular time when the Assessing Officer made an order, there may be material which he should or could have taken into consideration but did not do so. Such material may not have found its rightful place for various reasons in the record in which the proceedings under the Act are in progress and the order is made thereon. The record will include all those documents of which the Assessing Officer was enjoined in law to take judicial notice. The errors of omission or commission by the Assessing Officer resulting from non-consideration of relevant material would make his order erroneous. Whether that order is also prejudicial to the interests of revenue would depend upon the nature of the evidence omitted. To our mind this is the position of law taking into consideration the following judicial authorities :-
(i) Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC);
(ii) Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC); and
(iii) Ganga Properties v. ITO [1979] 118 ITR 447 (Cal.).
10. From the facts of this case, we find that the Assessing Officer dropped the penalty proceedings on the learned Counsel for the assessee pointing out to him that the assessee was in appeal before the Tribunal on the quantum of assessment from which the penalty proceedings under Section 271 (1)(c) emanated. At that point of time, the order of the first appellate authority which was factually before the Assessing Officer indicated that the order was against the revenue as the addition had been deleted as noted by the ITO. It was, therefore, necessary that the result of the proceedings before the Tribunal should have been ascertained by the Assessing Officer before dropping the penalty proceedings. In fact, the order of the Tribunal on the appeal of the revenue in ITA No. 333 of 1982 was made on 30th October, 1984 and was served upon the parties towards the end of November 1984. This order of the Tribunal should, therefore, be considered as part of “the record” within the meaning of Section 263 of the Act as it was in contemporaneous existence when the Assessing Officer considered the issue of dropping the penalty proceedings, its factual absence from ITO’s record notwithstanding. This order being part of “the record”, the CIT could call for and on examination thereof could form an opinion whether the order passed by the ITO was erroneous as well as prejudicial to the interests of revenue.
11. Factually, however, it appears that the order of the Tribunal was not on the file when the Assessing Officer dropped the penalty proceedings. But there was no application of mind by the Assessing Officer on the effect of proceedings before the Tribunal in dropping the penalty proceedings. If the Assessing Officer had considered “the record” with due diligence, he could not have dropped the penalty proceedings because the Tribunal had reversed the decision of the AAC and restored the addition. The CIT, therefore, had to consider and find whether the order made by the Assessing Officer was erroneous as well as prejudicial to the interests of revenue on such facts. The CIT thus had the jurisdictional facts to assume lawful jurisdiction for making an order under Section 263 of the Act.
12. It has been argued before us by the learned counsel for the assessee that dropping of the penalty proceedings by the Assessing Officer was not an order and, therefore, the CIT could not assume lawful jurisdiction. We do not find substance in this contention because the penalty proceedings initiated during the course of assessment with the notice issued to show cause came to an end by the order made by the Assessing Officer dropping the penalty proceedings. It had not caused any prejudice to the assessee. The act of penalty proceedings being dropped and lack of its communication to the assessee did not prejudice the case of the assessee as the assessee had not suffered in any manner. The CIT having assumed lawful jurisdiction on jurisdictional facts, we uphold his order and dismiss the assessee’s appeal.
13. Appeal dismissed.