ORDER–Assessment made without proper enquiry.
Ratio & Held:
The assessments admittedly having been completed in one hearing only and without requiring the presence of the settlor of the trust, a notice under section 263 was rightly issued as the Commissioner was of the opinion that assessments were made in haste and without proper and adequate enquiries and, therefore, these were erroneous and prejudicial to the interests of the revenue.
Application:
Also to current assessment years.
Income Tax Act 1961 s.263
ORDER
S. Grover, Judicial Member
1. These two second appeals are directed against the common order dated 22-11-1984 passed by the Commissioner, Agra under Section 263 of the Income-tax Act, 1961 (‘the Act’) vacating the assessments framed on 25-11-1982 on returned incomes of Rs. 35,073 and Rs. 42,230 in the status of an AOP in respect of the assessment years 1979-80 and 1980-81, respectively. The assessee filed returns in the name and style of Mahendra Garg (P.) Family Specific Trust, Noorigate Agra on 3-2-1982 declaring incomes as stated above.
In respect of the assessment year 1979-80 the following entries in the order sheet were made by the ITO before completing assessment :
23-11-1982 Issue notice under Section 143(2)
Sd/-ITO
25-11-1982 Shri D.K. Agarwal, CA attends. Copy of
trust deed filed. Discussed. Assessed.
Sd/- ITO
2. From the pattern of assessments and the sequence of events, the Commissioner opined that the entries showed that the books of account of the trust were never produced before the ITO which could be scrutinised to check up the correctness of the claims regarding trust income and its activities. The Commissioner also took notice of the fact that no tick marks whatsoever had been made on any of the papers filed along with returns and the ITO had not obtained the copies of capital accounts of the beneficiaries and had also not scrutinised the same. The assessments admittedly having been completed in one hearing only and without requiring the presence of the settlor of the trust, a notice under Section 263 was issued on 26-10-1984 as the Commissioner was of the opinion that assessments were made in haste and without proper and adequate enquiries and, therefore, these were erroneous and prejudicial to the interests of the revenue requiring the assessee to show cause as to why the assessments completed in a hurry and without proper scrutiny should not be set aside with directions to redo the same from the stage of filing the returns after giving the trust a reasonable opportunity of being heard.
3. The date of hearing was fixed for 2-11-1984 when a telegram was received for adjournment. Shri Mahendra Garg and Smt. Usha Devi, trustees were informed by the Commissioner’s office vide letter dated 5-11-1984, served on the said trustees on 12-11-1984, that they were allowed to file written arguments by 19-11-1984. Neither anybody attended nor any reply was filed till 19-11-1984, as stated by the Commissioner in his order, who proceeded to dispose of the proceedings initiated under Section 263 on the basis of evidence available on record.
4. Reproduction of paragraph 2 of the Commissioner’s order gives us the facts as also indicate the evidence on record and project that certain essential documents and evidence which normally are taken on record for completing assessments, were not there and the ITO did nothing even to complete bare formalities much less process the returns as is required :
Assessee Mahendra Garg (P.) Family Specific Trust, Noorigate, Agra claimed to have come into existence with effect from 17-7-1977 by a trust deed executed by Smt. Premwati wife of Shri Gulab Chand, resident of Church Road, Agra, as settlor who set aside a sum of Rs. 500 for the benefit of Smt. Usha Devi wife of Shri Mahendra Garg, son of Shri Sriram, Master Umesh Garg, Master Vikas Garg and Master Navin Garg sons of Shri Mahendra Garg. Shri Mahendra Garg son of Shri Sriram, resident of 15/92, Noorigate, Agra and Smt. Usha Devi wife of Shri Mahendra Garg resident of 15/92, Noorigate, Agra have been appointed as the trustees of the trust. The returns have been signed by Shri Mahendra Garg, the trustee of the trust. The incomes shown in the returns have been considered exempt on the ground that the trust is a specific trust and, therefore, the incomes in the hands of the trust are exempt and the shares should be considered in the hands of the beneficiaries under Section 161 of the Income-tax Act, 1961. The trust filed copies of trading and profit and loss account and balance sheet. The copies of capital accounts of the beneficiaries have not been filed in either of the years. The commodity of trading has been shown as Gilet ornaments and commission from PIC. How and in what manner and with what capital the trust conducted its business relating to the Gilet ornaments is not at all clear from the papers filed. The ITO has not cared to examine whether the incomes shown to have been earned by the trust really belonged to it or to the persons who had earned this income by their personal efforts. The ITO has not cared to obtain the details of commission from the assessee. No certificate of commission is available on the record. The ITO has not tried to obtain the same from the assessee, for the verification of the correctness and the source.
5. From the entries made in the order sheet it has already been projected that the ITO issued notice under Section 143(2) of the Act on 23-11-1982. The implication of such notice is important because it is required to be issued only if the ITO is not satisfied about the correctness of the return filed and considers it necessary or expedient to verify the correctness and completeness of the returns by requiring the presence of the assessee or the production of evidence in this behalf. The relevant provision in this regard are contained in Clause (b) of Sub-section (2) of Section 143 as follows :
(2) Where a return has been made under Section 139, and–
(a) ** ** **
(b) whether or not an assessment has been made under Sub-section (1), the Income-tax Officer considers it necessary or expedient to verify the correctness and completeness of the return by requiring the presence of the assessee or the production of evidence in this behalf ;
the Income-tax Officer shall serve on the assessee a notice requiring him, on a date to be therein specified, either to attend at the Income-tax Officer’s office or to produce, or to cause to be there produced, any evidence on which the assessee may rely in support of the return.:
6. On 25-11-1982 Shri S.K. Agarwal, chartered accountant filed a copy of the trust deed but no other documents as pointed by the Commissioner, like copies of the capital accounts of the beneficiaries and the source of funds by which the business was conducted etc., etc. On the abovestated facts the assessments were certainly erroneous. The absence of vital evidence for completion of assessments coupled with the fact that the settlor settled only a sum of Rs. 500 and that the income returns were very substantial naturally indicated that the assessments were prejudicial to the interests of revenue and, therefore, the Commissioner’s invoking of powers under Section 263 cannot be said to be unjustified or wrong.
7. Shri C.S. Agarwal, advocate stated that the trustees had shown the net income in trust’s returns and filed all the details, i.e., trading account, profit and loss account, profit and loss allocation account, balance sheet, opening stock list, closing stock list, sundry debtors list, interest received details, commission received details, the beneficiaries’ capital account, details of expenses and other details as asked by the ITO at the time of assessment. Required to substantiate his averment of having filed the documents in view of the learned Commissioner’s assertion in paragraph 2 of his order, which we have reproduced above, Shri Agarwal stated that such details were filed in other similar cases and, therefore, presumption was in the assessee’s favour. He also was not in a position to explain the assessee’s stand vis-a-vis, the entries made on 25-11-1982 when the ITO stated that only trust deed copy was filed. In relation to the learned Commissioner’s observation that there was no response to the notice served on 12-11-1984. Shri Agarwal stated that representation was not made because according to the assessee, the learned Commissioner was sitting with a closed mind and no useful purpose could have been served. The learned advocate was not in a position to elaborate this statement in view of the fact that the Commissioner, was passed the impugned order, was in his post only for short time. Shri Agarwal also very strongly argued that on 24-11-1982 the assessee had filed a letter dated 24-11-1982 before the ITO which gave all the details like names and addresses of beneficiaries, name and address of trustee, settlor’s relation with the beneficiaries, etc., as also allocation of profit and loss between beneficiaries. A copy of the said letter is given to us at pages 14 to 16. It may be mentioned here that in the said letter trust fund is stated to Rs. 500 and other contents reveal that necessary vital information was not filed with the return. Since the letter was not even marked by the ITO it only goes to prove the Commissioner’s assertion that the ITO did not apply his mind, neither had any material to frame the assessments.
8. For the assessee copies of accounts of the beneficiaries were sought to be placed before us for the two years under appeal, but since the same were not established to have had been filed before the ITO we have not accepted such documents as forming part of the record. Shri Agarwal also made part of his paper book copies of Tribunal orders in certain family trust cases of Agra and submitted that the present case being similar, the Tribunal orders should be followed. We, however, find the facts in the present case to be peculiar and, therefore, find no guidance from those orders.
9. For the revenue Shri K.K. Sharma in reply very effectively supported the Commissioner’s order and submitted that on the facts there could be no other approach then the one taken by the learned Commissioner. He particularly emphasised that the Commissioner’s version that accounts of beneficiaries had not been filed was not even attempted to be controverted for the assessee.
10. In rejoinder Shri Agarwal persisted that copies of capital accounts of the beneficiaries were on the ITO’s record. On a query from the Bench Shri Agarwal insisted that there was no rule which provided that if the Commissioner makes wrong statement the assessee must rebut by an affidavit. However, except making bald assertion Shri Agarwal was unable to establish the existence of said documents on record. In the alternative Shri Agarwal also submitted that at best non-filing of the documents, as stated in the Commissioner’s order, was an error.
11. Alternative contentions are not strange bed fellows but sometime these have the effect of diluting and demolishing the case altogether. It would be strange if a motorist is to say that he was cautiously driving at the time of accident and alternatively he was miles away from the scene of accident. Shri Agarwal’s contentions are also similar in character, inasmuch as, he primarily insisted that the documents were on record and in the alternative that non-submission was at best an error.
12. In view of all the facts, therefore, we are of the considered view that the Commissioner rightly vacated the assessments of 25-11-1982 and directing de novo assessments from the stage of filing of the returns.
13. In the result, appeals dismissed.
B. Gupta, Accountant Member
1. Ordinarily I would have fallen in line with the decisions of the Tribunal Delhi Benches in the cases of Gauri Shanker (P.) Family Trust [IT Appeal Nos. 5332, 5333 and 5334, dated 19-3-1985] and Mukand Family Trust [IT Appeal Nos. 5193 to 5195, dated 25-6-1985] on which the learned authorised counsel of the assessee has placed reliance and by which the orders of the Commissioner, passed under Section 263 had been cancelled but I find that the facts in the present case are significantly distinguishable. Since the learned authorised counsel for the assessee has not been able to establish that the material/details as mentioned in paragraph 2 of the Commissioner’s order had been furnished before the ITO before he completed the assessment and since the assessee had failed to furnish any reply to the show-cause notice issued by the Commissioner prior to the passing of the impugned order under Section 263, I would agree with the conclusion arrived at by the learned Judicial Member in the special facts and circumstances of the case.
2. The appeals by the assessee fail and are hereby dismissed.