ORDER–Absence of proper enquiry by ITO.
Ratio:
Assessment order passed in undue haste and without making required enquires and proper scrutiny was erroneous and prejudicial to the Revenue.
Held:
The question is as to whether the assessing oficer has performed his duty which he is normally expected to do and as to whether due care has been taken in safeguarding the interests of revenue. The facts and circumstances justified an enquiry and deep scrutiny which the assessing officer has failed to make in this case rendering his order as erroneous and prejudicial to the interests of revenue.
Application:
Also to current assessment years.
Income Tax Act 1961 s.263
ORDER
M.A. Bakhshi, Judicial Member
1. Assessee’s appeal is directed against the order under Section 263 of CIT, Delhi-II dated 25th March, 1987. The appellant company was incorporated on 28th April, 1982 with its registered office at 9-Old China Bazar Street, Calcutta. For assessment year 1984-85, return was filed on 30th June, 1984 declaring a loss of Rs. 17,590. In the return of income the address given was B-72, Himalaya House, Kasturba Gandhi Marg, New Delhi and on that basis the return of income had been filed in Delhi with the Income-tax Officer, Company Circle-I and not in Calcutta. The said return had been signed by Shri Pradeep Jain as Director. The ITO completed the assessment vide order dated 14-2-85 computing the net loss at Rs. 14,296. It was mentioned in the assessment order that assessee carried on the business of purchase and sales of shares and in that process assessee had sold shares of Rs. 17,48,500 during the year. A brief order had been passed by the Assessing Officer by virtue of which an addition of Rs. 3,294 had been made on account of preliminary share issue expenses.
2. On perusal of the records of the company, it was noticed by the Commissioner that all was not well in the manner of assessment and the enquiry made by the Assessing Officer in this case. According to the Commissioner, the Assessing Officer had failed to make basic enquiries in this case insofar as a return of income had been filed by the assessee in Delhi whereas its registered office is in Calcutta. The reasons for the company having filed the return in Delhi giving the address as B-72, Himalaya House, Kasturba Gandhi Marg, New Delhi had not bothered the Assessing Officer at all and no enquiry having been made, the real reason for filing of the return by the company in Delhi had not surfaced. It was found that the Assessing Officer who made the assessment in fact had no jurisdiction over this case if the place of business or the registered office of the company was taken into consideration. This aspect of the matter was found to have been overlooked by the Assessing Officer. The authorised capital of the company was found to be at Rs. 24 lakhs and the Commissioner was of the view on the basis of the records that genuineness of the company, its promoters, shareholders and about its business activity had not been enquired into to the extent as warranted in the circumstances of this case. The company had advanced loans to the tune of nearly Rs. 22 lakhs in respect of which no interest had been shown as received or receivable. The Commissioner felt that this aspect has also been overlooked by the Assessing Officer. Another peculiar aspect noticed by the CIT in this case was that though assessee claimed to have carried on the business during the year in appeal the expenses on account of establishment charges, office maintenance, rent, telephones etc. were not claimed or reflected in the books of accounts. These were the pointers, according to the Commissioner, for the Income-tax Officer for making further enquiries and possibly the corporate veil of the company could be pierced, the Commissioner, accordingly issued a notice dated 9-3-1987 to the assessee to show cause as to why the order of the Assessing Officer passed under Section 143(3) dated 14-2-85 may not be set aside considering it as erroneous and prejudicial to the interests of revenue. Assessee filed a detailed reply objecting to the proposed action. It was explained that at the time of filing of the return of income assessee company felt it necessary to open an office at Delhi and that the return of income was filed looking to the future needs and forecasting difficulties which might arise in subsequent years. The return of income had been filed in Delhi. It was accordingly pleaded that there was no lack of jurisdiction of the Assessing Officer in making an assessment in the case of the assessee as it was not necessary for the company to seek permission from the Income-tax Officer for transfer of registered office from one State to other and that there was nothing in the Income-tax Act preventing the company from filing the return at a place oilier than a place where its registered office was situated. It was also pleaded that objection to the jurisdiction of the Assessing Officer could not be made after finalising of the assessment. The assessee placed reliance on the various judgments in this regard. With regard to the lack of enquiry having been made by the Assessing Officer assessee pleaded that proper enquiries had been made by the Assessing Officer and that sufficient material had been filed before the Assessing Officer to enable him to make the assessment. With regard to the advancement of loans and interest not having been reflected in the income, it was explained that neither any interest was received nor accrued during the year in appeal and as such no interest was disclosed in the books of accounts. This was claimed to be clear from the auditors’ report to the company. With regard to the enquiry relating to the shareholders, assessee’s case before the Commissioner as well as before us is that the enquiry as thought of by the Commissioner was beyond the scope of Assessing Officer as in the case of the company no enquiry relating to shareholders could be made. Assessee having maintained the details of shareholders in accordance with the Companies Act, it was pleaded that the Assessing Officer had justifiably accepted the return without making further enquiries in this case.
3. The CIT however, rejected the contentions on behalf of the assessee and recorded a finding that the order passed by the Assessing Officer was erroneous and prejudicial to the interests of revenue. The assessment was accordingly set aside with the direction to the Assessing Officer for remaking the same after giving full opportunity of being heard.
4. Assessee is aggrieved and is in appeal against this order. Apart from 11 grounds of appeal raised, assessee had furnished an application dated 15-10-86 under Rule 11 of the Income-tax Rules for admission of the following additional ground of appeal:
That inasmuch as the learned CIT has held that the ITO, Company Circle I, New Delhi had no jurisdiction over the case of the assessee company, he ought to have annulled the assessment order passed by the ITO instead of setting it aside.
5. Considering the fact that the additional ground raised is purely legal in nature and that no further enquiry was required for disposal of this ground of appeal, we admilted the additional ground of appeal for disposal.
6. The learned counsel for the assessee Shri Harihar Lal contended that the CIT having held that the Assessing Officer, who made the assessment in this case had no jurisdiction, the necessary consequence that would follow should be that order is a nullity and liable to be annulled and not merely to be set aside. Reliance was placed on the decision of the Allahabad High Court in the case of Sant Baba Mohan Singh v. CIT [1973] 90ITR 197 in support of the contention that where an order is a nullity the only course is to cancel the same and not merely to set aside. Reliance was also placed on the Patna High Court decision in the case of CIT v. Shantilal Agarwalla [1983] 142 ITR 778, Shri Hariharlal explained that though assessee had no grievance about the assessment having been made without jurisdiction and no ground of appeal having been raised before the authorities in this regard, it would not be a bar for the assessee to pray for cancellation of the assessment which otherwise was a nullity. Reliance in this connection was placed on the decision of the Madhya Pradesh High Court in the case of CIT v. Ratlam Coal Ash Co. [1988] 171 ITR 141. It was accordingly urged that the assessment order may be declared as invalid so that further proceedings are not taken in this case in consequence of the directions of the Commissioner.
7. Alternatively it was contended on behalf of the assessee that the order passed by the Assessing Officer was in accordance with law and that the proper enquiries in this case had been made before making the assessment. Our attention was drawn to letter dated 11-2-85 filed on behalf of the assessee before the Assessing Officer in the course of assessment proceedings by virtue of which the details as were required had been furnished with the Assessing Officer. Shri Harihar Lal contended that list of shareholders, sundry creditors, secured and unsecrued loans, details of advances was given with confirmations. The details of purchases, sales and stock of shares along with copies of bills and contracts for the purchases and sale of shares was also furnished before the Assessing Officer along with the above mentioned letter, claimed the learned counsel for the assessee. With regard to interest income not having been reflected in the receipts, learned counsel contended that neither any interest was received nor accrued during the year. As such none was reflected in the receipts of the company. Our attention was drawn to the auditors’ report at page 72 of the paper book in which it has been categorically stated that interest would be accounted for on cash basis. As such there was no warrant for the CIT to invoke his powers under Section 263 on this ground. It was further contended that absence of tick marks on the papers filed before the Assessing Officer would not indicate lack of application of mind by the Assessing Officer at the time of making the assessment. Referring to the observation of the CIT that no enquiry about the conduct of the business of the assessee was made by the Assessing Officer, Shri Harihar Lal contended that the facts have been misconceived. Our attention was invited to the assessment order wherein the Assessing Officer has indicated that assessee carried on the business in the purchase and sales of shares during the year in appeal. This position was confirmed by the auditors in their report. It was claimed that assessee did not carry on any other business during the year in appeal. As such invoking of powers under Section 263 on this ground was also claimed to be uncalled for.
8. It was further contended that assessee has filed vouchers establishing the sale of share through registered brokers. The CIT has proceeded on mere suspicion which was not warranted, pleaded the learned counsel for the assessee. With regard to the enquiry not having been made in respect of shareholdings, learned counsel contended that this was the first year of the trade of the company and as such the scope of enquiry by the Assessing Officer was limited to the details of shareholders and their confirmations. Learned counsel pleaded that all the details as were relevant had been filed before the Assessing Officer.
Shri Harihar Lal claimed that the company being distinct from the shareholders neither any enquiry could be made nor any addition on account of shareholdings made in the case of company. In this connection reliance was placed on the decision of this Tribunal in the case of Sophia Finance Ltd. v. ITO [1991] 36ITD 369 (Delhi) and in the case of Harvatex Engg. & Processing Co. Ltd. v. ITO [1991] 38 ITD 167. It was accordingly urged that the order of the Commissioner of Income-tax passed under Section 263 may be cancelled or in the alternative of the Assessing Officer may be annulled on the ground of it being a nullity.
9. The learned D.R. Smt. Sheba Bhattacharya contended that the facts and circumstances of this case clearly indicate that the order passed by the Assessing Officer was erroneous and prejudicial to the interests of revenue. It was contended that the records clearly indicate that Assessing Officer did not enquire as to under what circumstances assessee had filed the return of income in Delhi when its registered office was at Calcutta. Smt. Bhattacharya contended that every prudent officer would start the enquiry to find out the circumstances prompting the assessee to file the return at a different place with an officer who would ordinarily not have the jurisdiction over this case. This basic enquiry coupled with other circumstances would throw light as to the manner of enquiry and assessment adopted by the Assessing Officer.
The other factor highlighted by Smt. Bhattacharya is that assessee-has claimed to have carried on the business during the year in appeal. No expenditure on account of salary of employees, rent, telephone, office maintenance were claimed by the assessee. Normally such expenditure would find place in the Profit and Loss account of the assessee. Such an expenditure not having been found to be debited in the profit and Loss account would normally provoke an enquiry. Assessing Officer having chosen not to make enquiry in this regard would certainly go to show that something was fishy about manner of assessment, contended the learned D.R.
10. A company having a share capital of Rs. 24 lakhs was assessed by the Assessing Officer giving two hearings one on 11 -2-85 and another after two days i.e., on 13-2-85. It was contended that completing an assessment in a case in two days may not allways be sufficient to come to a conclusion that proper enquiry has not been made. However, the circumstances of each case, according to the learned Departmental Representative, are to be taken into account in order to consider as to whether the time taken by the Assessing Officer was sufficient for making prudent enquiries. Smt. Bhattacharya contended that some information had been furnished by the assessee and the Commissioner has found that there were not any indications that such information was scrutinized before making the assessment. Smt. Bhattacharya contended that the facts and circumstances of this case are to be taken into account together with the fact that Assessing Officer assumed jurisdiction when he had no powers to make the assessment in this case. The facts and circumstances of this case, according to the leaned D.R., clearly point out towards the inference drawn by the Commissioner that the interests of revenue have suffered by the manner of assessment adopted by the Assessing Officer. The order passed by the Assessing Officer, according to the learned D.R. was erroneous and prejudicial to the interests of revenue and was justifiably set aside and Assessing Officer directed to make fresh assessment in accordance with law.
11. Referring to the contention on behalf of the assessee that assessment having been held as without jurisdiction the order should be declared as nullity and cancelled, Smt. Bhattacharya contended that such an argument was not available to the assessee as it had surrendered voluntarily to the jurisdiction of the Assessing Officer, who made the assessment in this case. It was contended that the jurisdiction of the Assessing Officer to make the assessment could be challenged before the assessment was made. Once an assessment was made the jurisdiction factor could not be challenged. Smt. Bhattacharya explained that the finding of the CIT was that the Assessing Officer had no jurisdiction to make an order in this case as the registered office of the company was at 9-Old China Bazar Street, Calcutta. Commissioner of Income-tax, according to the learned D.R., has not recorded a finding that the order of the assessment was a nullity. Moreover powers of the Commissioner under Section 263 are not to be exercised in favour of the assessee as assessee has been conferred right of appeal separately under the Statute. Smt. Bhattacharya contended that the principles of natural justice have not been violated as assessee will get an opportunity of placing all material before the Assessing Officer while making the re-assessment in accordance with law. Reliance was placed on the following authorities in support of the contention that where it was found by the CIT that the Assessing Officer has acted without jurisdiction the CIT had the right to cancel the order under Section 263 and direct him for making a fresh assessment in accordance with law:
1. CIT v. Panna Devi Saraogi [1970] 78 ITR 728 (Cal.).
2. Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC).
3. Ponkunnam Traders v. Addl. ITO [1972] 83 ITR 508 (Ker.).
Smt. Bhattacharya vehemently argued that the order of the Assessing Officer was erroneous and prejudicial to the interests of revenue. The assessment order not being in accordance with law in consequence whereof a lawful revenue due to the State has not been realised would amount to an erroneous order prejudicial to the interests of revenue, pleaded the learned D.R. The learned Departmental Representative contended that the word ‘revenue’ in Section 263 has wide connotation and is not in terms of money alone. If the interests of administration have suffered there would be a prejudice to the revenue. Smt. Bhattacharya heavily relied upon the decision of the Madras High Court in the case of Venkatakrishna Rice Co. v. CIT [1987] 163 ITR 129 in support of the contention. The learned Departmental Representative contended that the pattern of assessment made in this case would set a bad trend for similar assessments and therefore, for that reason also the order was prejudicial to the interests of administration. It was accordingly urged that the appeal of the assessee may be dismissed.
12. We have given our careful consideration to the rival contentions and have perused the records. We shall first deal with the additional ground of appeal raised before us, namely, that the CIT should have cancelled the assessment as against setting aside of the same on having found that assessment made by the Assessing Officer was without jurisdiction. The facts of this case by now are very clear and we need not repeat the same. It is not disputed by the assessee that its registered office was at 9-Old China Bazar Street, Calcutta and that in the return of income B-72, Himalaya House, Kasturba Gandhi Marg, New Delhi had been indicated. If the address given in the return of income is taken to be correct then possibly the jurisdiction assumed by the Assessing Officer would be found to be in order. The CIT at page 4 of the order has indicated that the Assessing Officer having completed the assessment in a short time even when he had no jurisdiction does give an indication that he was perhaps in collusion with the assessee company and wanted to complete assessment hurriedly to bestow undeserved benefit to the assessee and consequently the interests of revenue were held as not having been taken care of. The Commissioner has also explained that the assessee having been given right of appeal against the orders of the Assessing Officer, the only other course to safeguard the interest, of revenue given by the Legislature was the power under Section 263 to revise the orders which are erroneous and prejudicial to the interests of revenue. In our view, the finding of the Commissioner of Income-tax that the Assessing Officer had completed the assessment even when he had no jurisdiction is only supportive to the reasons given for setting aside the assessment. Even otherwise it is inconceivable that the CIT would have the power to annul an assessment under Section 263 even where the order is without jurisdiction. The powers of the Commissioner under Section 263 are to protect the interests of revenue and not to defeat the interests of revenue. A right of appeal has been given to the assessee against any orders passed by the Assessing Officer. In case the jurisdiction of the Assessing Officer is in doubt assessee has been given a right to challenge the same before an assessment is made. In such circumstances the contention on behalf of the assessee that the CIT ought to have annulled the assessment instead of setting aside the same, in our view, is not well founded. The decision of the Allahabad High Court in the case of Sant Baba Mohan Singh (supra) is inapplicable to the facts of this case. The issue before us is as to whether the Commissioner was justified to pass an order under Section 263 in respect of the assessment order made by the Assessing Officer. The challenge before us is on the exercise of powers by the Commissioner under Section 263 and not against the assessment order made by the Assessing Officer. In fact the backbone of assessee’s case is that the order passed by the Assessing Officer is not erroneous. An order which is lawful may not be erroneous. Declaration of the order of assessment made by the Assessing Officer to be a nullity is beyond the scope of this appeal. We may, however, point out that even otherwise the assessee would not succeed on this ground. We may refer to the decision in the case of Rampyari Devi Saraogi (supra). In this case the assessment had been made by the Assessing Officer on the basis of the address declared in the return. The CIT on making enquiries found that assessee neither resided nor carried on any business from the address declared in the returns. The Commissioner was also of the view that the initial capital, sale of jewellery and income from business was accepted without making proper enquiries. The Commissioner held that the assessment had been made in undue haste without proper evidence or enquiry. The assessment was set aside and Assessing Officer directed to make the assessment afresh in accordance with law. The order of the Commissioner was challenged on the ground that the Commissioner had held in the order that Officer having passed the order had no jurisdiction over the assessee on the basis of material which was not confronted to the assessee and as such the order was bad in law. The Hon’ble Supreme Court ultimately upheld the order of the Commissioner under Section 33B of the Income-tax Act, 1922 corresponding to Section 263 of Income-tax Act, 1961 by holding that the assessee would get full opportunity before the ITO and as such the order passed by the Commissioner could not be cancelled. The facts of this case are similar to the facts of the above noted decision of the Supreme Court. The CIT has indicated in the order that the Assessing Officer had no jurisdiction over this case. We do not know whether any enquiry had been made by the Commissioner or not but fact remains that Assessing Officer had not made enquiries about the reasons for giving a different address in the return of income than the address from which the assessee carried on the business or the address at which the registered office of the company was situated. By holding that Assessing Officer had passed an order without making an enquiry in the circumstances of this case would not mean to say that the order of assessment was a nullity more so when we consider provisions of Section 124 of the Income-tax Act, 1961. Under Section 120 of the Income-tax Act, 1961, the jurisdiction of the income-tax authorities are determined. Section 124(3) debars every person entitled to call in question the jurisdiction of an Assessing Officer to challenge the jurisdiction after the expiry of one month from the dale of which he was served with a notice under Sub-section (1) of Section 142 or Sub-section (2) of Section 143 or after the completion of the assessment, whichever is earlier. Section 124(3) is quoted hereunder for the sake of reference :
124(3). No person shall be entitled to call in question the jurisdiction of an Assessing Officer –
(a) where he has made a return under Sub-section (1) of Section 139, after the expiry of one month from the date of which he was served with a notice under Sub-section (1) of Section 142 or Sub-section (2) of Section 143 or after the completion of the assessment, whichever is earlier.
(b) where he has made no such return, after the expiry of the time allowed by the notice under Sub-section (1) of Section 142 or under Section 148 for the making of the return or by the notice under the first proviso to Section 144 to show cause why the assessment should not be completed to the best of the judgment of the Assessing Officer, whichever is earlier.
Assessment having been made by the Assessing Officer on the basis of return filed by the assessee it is not permissible for the assessee to challenge the jurisdiction of the Assessing Officer and on that basis claimed that the assessment order passed was a nullity. In any case we are of the view that this is not the occasion for us to consider as to whether the assessment order passed by the Assessing Officer was with or without jurisdiction. This is so because assessee has been given right of appeal to the first appellate authority under the provisions of the Act. A revision can also be filed under Section 264 before the Commissioner of Income-tax. No right of appeal has been given to the revenue against the order of Assessing Officer. In order to safeguard the interests of revenue, the CIT has been empowered to revise such orders as are erroneous and prejudicial to the interests of revenue. If the contention on behalf of the assessee is accepted, it would amount to the Commissioner acting against the interest of revenue which is not intended under Section 263. We accordingly reject this contention on behalf of the assessee.
13. We now revert to regular grounds of appeal raised by the assessee. Ground No. 1 is in three parts and the finding of the Commissioner that “Assessing Officer had no jurisdiction over this case” has been challenged. We have dealt with this issue in detail while disposing of additional ground of appeal raised by the assessee. In our view, no separate decision is required on this ground.
14. The crux of other grounds of appeal is that the findings of the Commissioner relating to proper enquiry not having been made is not supported from records. We find that the Commissioner had made following five points in invoking his jurisdiction under Section 263 :
(1) The ITO who made the assessment had no jurisdiction over this case.
(2) The registered office of the company is in Calcutta but the return has been filed by giving address as B-72, Himalaya House, Kasturba Gandhi Marg, New Delhi. Therefore, on this basis also the ITO should not have assumed jurisdiction over the case.
(3) The authorised capital of the company is Rs. 24 lakhs and the ITO did not make any enquiries, this being the first year of the company regarding the genuineness of the company, its promoters, shareholders and about its business activities.
(4) The company had advanced loans to the tune of nearly Rs. 22 lakhs but no interest receivable or received on this loan was shown in the return filed.
(5) The assessee-company did not have any fixed assets nor did it claim any expenses under the essential heads such as establishment charges, office maintenance, rent, telephone, etc.
We shall deal with these points in order to arrive at a conclusion as to whether the Assessing Officer had made an assessment after making proper enquiry or that the assessment was made in undue haste and hurry without proper enquiry.
15. This was the first year of the company which was incorporated on 28th April, 1982 having closed its account on 30th June, 1983. Assessing Officer as per the notice available from records had issued a notice under Section 142(1) indicating the date of issue as 31st January, 1985. The notice had been served upon Shri S.P. Aggarwal , CA. The order sheet does not contain any entry relating to issue of this notice. The entry in the order sheet is dated 11-2-1985. It reads as under :
11-2-1985 : Present Sh. S.P. Aggarwal, CA and detailed papers filed and asked to file-
(1) P.A. Numbers of shareholders;
(2) Auditors’ report;
(3) Books of accounts to be produced on 13-2-1985.
(Sd/ITO)
It is evident that the books of accounts had not been produced by the assessee on the first date of hearing i.e., on 11-2-1985 to support the return which would enable, the Assessing Officer to make enquiries. Another factor that emerges from the above entry is that the assessee has filed some papers voluntarily without Assessing Officer asking in details. This becomes abundantly clear from letter dated 11-2-1985 submitted by Shri S.P. Aggarwal and Co., CAs, on behalf of the assessee. This letter is placed at page 16 of the paper book and it reads as under :
The Income-tax Officer,
Company Circle -I,
New Delhi.
11-2-1985
Dear Sir,
Ref.: M/s. Lampa Trading Co., Limited-Assessment year : 1984-85. As per instructions from our above referred client, we beg to submit as follows :-
(1) The company was incorporated on 28th April, 1982 and closed its first accounts on 30-6-1983. Company commenced business on 13-5-1982. Copies of certificates of incorporation, certificate of commencement of business, Memorandum and Articles of Association are enclosed herewith.
(2) During the year Company issued share capital of Rs. 24,00,000 divided into 2,40,000 Equity Shares of Rs. 10 each. The shares were fully subscribed and paid up. Details of shares capital is given as follows :-
(a) By subscribing to Memorandum and Articles
of Association (70 Equity shares of Rs. 10 each) Rs. 700
(b) Subscription by Promoters - 89,930 Equity shares
of Rs. 10 each Rs. 8,99,300
(c) Subscription in public issue :
1,50,000 equity shares of Rs. 10 each Rs. 15,00,000
-------------
Total: Rs. 24,00,000
-------------
List of shareholders, copy of prospectus, copy of distribution schedule are enclosed herewith.
(3) Details of sundry creditors are enclosed herewith.
(4) Details of Balances with Scheduled Banks are enclosed.
(5) Details of unsecured loans, given by the company with confirmations from parties are enclosed herewith.
(6) Details of advances given with confirmations from a party are enclosed herewith.
(7) Details of preliminary and share issue expenses are enclosed herewith.
(8) Bank Reconciliation statement is enclosed herewith.
(9) Details of purchase, sale and stock of share along with copies of bills and contracts for the purchase and sale of shares are enclosed herewith.
(10) Power of Attorney in our favour is enclosed herewith. We hope, you will find the above in order.
Kindly provide us an opportunity, if any further details are required by our goodself.
Thanking you,
Yours faithfully,
for S.P. Aggarwal & Co.
Chartered Accountants
sd/-
(S.P. Aggarwal)
Two facts are glaring from this letter. One is that the letter was furnished voluntarily by the assessee without any requirement from the Assessing Officer and that the power of attorney in the case of Chartered Accountant was also filed for the first time along with this letter. This fact assumes importance on the background and in the circumstances of this case that on 4th February, 1985, notice under Section 142(1) had been served upon Shri S.P. Aggarwal, CA, when he was not authorised to receive notice on behalf of the assessee or to represent the assessee. One wonders as to how a notice could be served upon a Chatered Accountant on behalf of the assessee when it was not known to the Assessing Officer that he had been engaged to represent the case.
16. The only other entry before the assessment was made in this case is that of 13-2-1985 which reads as under :
13-2-1985 : Present Sh. S.P. Aggarwal, CA and files auditor’s report, examined the books of accounts on test check basis and the case discussed.
(Sd/ITO)
From the above entry it is clear that books of accounts had been produced for the first time on 13-2-1985 and the Assessing Officer had passed an order immediately thereafter on 14-2-1985. If we compare the two entries made on 11-2-1985 and 13-2-1985, it is evident that the information sought by the Assessing Officer on 11 -2-1985 specifically about the permanent account numbers of shareholders had not been filed by the assessee, whereas on 11 -2-1985, the Assessing Officer specifically records that assessee was asked to file permanent account numbers of shareholders. On 13-2-1985 Assessing Officer records that the auditor’s report has been filed but the entry is silent about the permanent account numbers of shareholders. It is true that the Assessing Officer may not make enquiries from the company about the shareholders when complete names and addresses of the parties and permanent account numbers are furnished but it is not true and correct in law to say that the ITO should not or cannot make enquiries in regard to the genuineness of the shareholdings. The Assessing Officer may make enquiries and collect evidence to show that apparent is not real. The material cannot come to surface without making any effort. The question that assumes importance in this is whether in the circumstances of this case some enquiry was warranted or was the Assessing Officer justified in blindly accepting what the assessee had disclosed. The question is not as to whether the assessee has disclosed the truth or not. The question on the other hand is as to whether the Assessing Officer has performed his duty which he is normally expected to do and as to whether due care has been taken in safeguarding the interests of revenue. The facts and circumstances of this case, in our view, justified an enquiry and deep scrutiny which the Assessing Officer has failed to make in this case rendering his order as erroneous and prejudicial to the interests of revenue. We may hasten to add that on making proper enquiries it may not always result in making the additions to the income disclosed but an officer entrusted with the job of collecting the revenue is supposed to take due care and caution in making an assessment in the case of assessees. We agree with the contention raised on behalf of the revenue that whether assessment has been made in undue haste or hurry would depend on the facts and circumstances of each case. Making an assessment in two days may be sufficient in certain cases but in cases like that of the assessee, completing an assessment in two days time without making relevant enquiries would undoubtedly be an assessment made in undue haste and hurry.
17. When can we say that the assessment has been made without proper enquiry or scrutiny? No hard and fast rules can be laid down in this regard. The question shall have to be determined on facts of each case. Broadly speaking when apparent does not seem to be real and when the facts on record would clearly give rise to suspicion and the Assessing Officer has not made enquiries, there should be no difficulty in holding the assessment has been made without making proper enquiries. In our view, this is a case where on the basis of material on record a strong suspicion is raised against the correctness of the state of affairs disclosed by the assessee. To say that suspicion has arisen in this case is not to say that there is proof enough to say that what the assessee has disclosed is not correct. What we are emphasising is that a suspicion is mother of enquiries which under normal circumstances Assessing Officer should have made in this case. After making enquiries and placing material on record a proper assessment could be made. It would serve a dual purpose if what the assessee has stated is correct that would come to surface and the suspicion ordinarily arising from the material on record would be clear to the advantage of the assessee as well as to the advantage of the revenue. On the other hand, if enquiries revealed that the state of affairs disclosed by the assessee were not straight forward and correct, the interest of the revenue could be protected by making proper assessment.
18. Let us consider the records as were before the CIT when he initiated action under Section 263. As per the auditors’ report the registered office of the company was at Calcutta. The address as per the return was that of Delhi. The record was silent about the circumstances under which the assessee gave the address of Delhi for the purposes of assessment. It is also evident from the records that the Assessing Officer had not made any enquiry about this aspect of the matter. This goes to the very root of the issue about the manner of assessment made by the Assessing Officer. Even before the CIT assessee has not come forward with evidence to show that the change of address in the return of income was bonafide. The explanation faintly given by the assessee is not supported or justified by any evidence. We have already referred to the order sheet entries which also point out to the fact that the assessment in this case was made in undue haste and hurry. The assessment was not getting time barred either. Why the Assessing Officer did not consider it necessary to make enquiries in this case about the shareholdings, about the genuineness of the company and the genuineness of the business sought to be carried on by the assessee more so when the loss was claimed to be set off against he future profits of the company.
19. Interestingly the company has not incurred any expenditure on account of its employees, rent or telephone expenses. It may be so that the assessee might not have incurred any expenditure on these basic necessities of business but would it provoke an enquiry by the Assessing Officer or not is a question not difficult to answer. The absence of tick marks on the papers furnished by the assessee may not be sufficient to hold that assessment is made in undue haste and hurry but then facts and circumstances of the case are to be taken into account as to whether the assessment has been made in undue haste and hurry, or not.
20. An explanation has been furnished before the CIT as well as before us as to why interest receivable on loans of about Rs. 22 lakhs had not been disclosed in the return. The explanation is that the interest was to be shown on cash basis. The explanation may or may not be acceptable is a different matter but what is important is as to whether the Assessing Officer had made ‘enquiries as warranted in this case. Considering the facts and circumstances of this case, we are convinced that the assessment in this case had been made in undue haste and hurry without making proper enquiry.
21. In such circumstances whether an assessment is erroneous or prejudicial to the interests of revenue has best been explained by their Lordships of the Madras High Court in the case of Venkatakrishna Rice Co. (supra). The learned Judges in this case have explained the expression ‘prejudicial to the interest of revenue’. It has been held that the said expression cannot be construed in petty fogging manner but must be given a dignified construction. In the opinion of the Learned Judges the word ‘revenue’ in Section 263 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 or throne. Their Lordships have further held that the interests of revenue are not to be equated to rupees and paisa merely. The revenue according to their Lordships, does not live by tax alone. The interests of revenue are not tied up merely with realising as much revenue as much possible, willy-nilly, merely looking to the productivity aspect of taxation, The jurisdiction of the Commissioner under Section 263, according to their Lordships, 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 revenue. It has accordingly been held that expression ‘prejudicial to the interests of revenue’ must be regarded as involving a conception of acts or orders which are subversive of administration of revenue. There must be some grave error in the order passed by the ITO 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. Their Lordships further held that there might be a case where the Commissioner might wish to interfere with a order of the ITO in order to safeguard the fair name and reputation of Income-tax Department without any thought of going into the particular aspects of assessments. Their Lordships have further explained that the scope of Section 263 is to cover also such cases which bring prejudice to the revenue administration. The section, according to the Learned Judges, is not necessarily meant to sheer escapement of revenue.
22. Applying the law laid down by their Lordships of the Madras High Court in Venkatakrishna Rice Co.’s case (supra), the order of the Assessing Officer in our considered opinion is erroneous and prejudicial to the interests of revenue. It was not necessary for the Commissioner to demonstrate as to how much revenue must have been lost by the inaction of the Assessing Officer by making an assessment in undue haste and hurry. The Commissioner has sufficiently demonstrated in his order as to how the order passed by the Assessing Officer on the facts and in the circumstances of this case was prejudicial to the interests of revenue administration. We thus have no hesitation to uphold the order of the Commissioner passed under Section 263 and reject the appeal of the assessee.
23. In the result, appeal of the assessee is dismissed.