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Prahlad Das and Co. Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(1983)5ITD356(Delhi)
AppellantPrahlad Das and Co.
Respondentincome-tax Officer
Excerpt:
.....the year of assessment involved is 1970-71 for which the previous year ended on diwali 1969.2. the original assessment of the assessee-firm was completed on 28-2-1973 on a total income of rs. 55,411. later on, the commissioner, being of the opinion that the said assessment was erroneous inasmuch as it was prejudicial to the interests of the revenue because the assessee though liable for penalty under section 273(6) of the income-tax act, 1961 ('the act') and the penal interest under section 217 of the act, was not subjected to the said penalty and penal interest by the ito.accordingly, the commissioner issued a show-cause notice to the assessee dated 15-1-1975 recording his aforesaid opinion and stated in the said notice that 'in exercise of powers conferred upon me by section 263 of the.....
Judgment:
1. The assessee in appeal is Prahlad Das & Co. of Sheopurkalan, District Morena, M.P., a registcred firm. The year of assessment involved is 1970-71 for which the previous year ended on Diwali 1969.

2. The original assessment of the assessee-firm was completed on 28-2-1973 on a total income of Rs. 55,411. Later on, the Commissioner, being of the opinion that the said assessment was erroneous inasmuch as it was prejudicial to the interests of the revenue because the assessee though liable for penalty under Section 273(6) of the Income-tax Act, 1961 ('the Act') and the penal interest under Section 217 of the Act, was not subjected to the said penalty and penal interest by the ITO.Accordingly, the Commissioner issued a show-cause notice to the assessee dated 15-1-1975 recording his aforesaid opinion and stated in the said notice that 'in exercise of powers conferred upon me by Section 263 of the Income-tax Act, I propose to make suitable remedial orders'. In reply, dated 28-1-1975, to the said show-cause notice, the stand of the assessee was that neither the penalty under Section 273(6) nor penal interest under Section 217 was leviable. As such, the proposed remedial action was not justified. The proceedings be dropped.

The Commissioner gave consideration to the above stand of the assessee and for the reasons stated in the order under Section 263 of the Act, dated 7-2-1975 went on to hold that the assessee was liable to penalty under Section 273(6) and to the charge of interest under Section 217.

Thereafter, he went on to hold as under : From the above, it is seen that in the assessee's case provisions of Sections 273(6) and 217(1) were clearly attracted. There is nothing on record to show that the Income-tax Officer has satisfied himself at the time of assessment not to initiate penalty proceedings and charge interest. It is, therefore, a clear case in which the provisions of Sections 273(6) and 217(1) have been overlooked by the Income-tax Officer at the time of completing the assessment. The Income-tax Officer's order dated 28-2-1973 is therefore, erroneous, insofar as it is prejudicial to the interests of revenue.

5. In view of the above, I hereby set aside the assessment made by the Income-tax Officer under Section 143(3) for the assessment year 1970-71 and direct him to make a fresh assessment according to law, considering the applicability of provisions of Sections 273(6) and 217(1) of the Incometax Act.

3. After the matter went back to the ITO he (the ITO) treated the said order of the Commissioner to imply that the entire assessment order was set aside and he (the ITO) was to make entirely a fresh assessment order. Having come to that conclusion, the ITO, for the reasons stated in the assessment order, disallowed interest paid of Rs. 21,272 paid to Jiwanlal Amarlal of Sheopurkalan under Section 36(1)(iii) of the Act and that the interest so paid was interest paid to the partners, Prahlad Das and Amarlal. The assessee-firm was liable to pay interest to partners and not to Jiwanlal Amarlal because the assessee-firm did not borrow any money from Jiwanlal Amarlal, constituted by three partners including the two partners of the assessee-firm. The amount standing to the credit balance of these two partners of the assessee-firm at the relevant time was withdrawn and introduced as the borrowed funds of the partners concerned. In this way, the total income as finally assessed was determined at Rs. 76,680.

4. Aggrieved by the said assessment order, the assessee brought the matter by way of appeal before the AAC. Although the assessee-firm had raised certain grounds before him (the AAC), challenging the correctness of the order of the ITO after the aforesaid order of the Commissioner was passed under Section 263, to treat the entire original assessment order being set aside so as to empower him (the ITO) to make the assessment afresh in accordance with law as done in the present case, the AAC for the reasons best known to him has not dealt with this aspect of the case. Since the matter involved is a pure question of law, we have heard both the learned counsel for the assessee, Mr. O.P.Vaish and the departmental representative regarding the correctness of the stand of the assessee stated hereinbefore. According to Mr. Vaish the order of the Commissioner under Section 263 when read in conjunction with the show-cause notice issued by him, the reply of the assessee and the sum and substance of the order of the Commissioner under Section 263 read as a whole, the irresistible conclusion was that the Commissioner by his impugned order under Section 263 has not set aside the entire original assessment order ; he had set aside the original assessment order to the extent that it did not embrace the charging of the penalty under Section 273(6) and the penal interest under Section 217. In this connection, he laid specific emphasis on the words 'considering the applicability of the provisions of Sections 273(b) and 217(1)' towards the end of the said order of the Commissioner which, according to Mr. Vaish, qualifies the directions issued by him (the Commissioner) earlier to the ITO 'to make a fresh assessment according to law'. In support of his argument, Mr. Vaish in the first instance referred to the recent decision of the Delhi High Court in Addl. CIT v. J.K. D'costa [1982] 133 ITR 7. According to Mr.

Vaish, the powers of the Commissioner under Section 263 though quite wide empower him to pass an order which the circumstances of the case will justify, (he mere fact that there is some minor omission or mistake in the assessment order cannot and did not in the circumstances of the case, more so in the light of the notice under Section 263, justify the action of the Commissioner in setting aside the whole of the assessment order. Such a wholesale cancellation of the assessment with a direction to make a fresh assessment is called for only in cases where there is something totally or basically wrong with the assessment which is not capable of being remedied by amendments to the assessment order itself. Such a situation, according to Mr. Vaish, did not exist in the present case. In the present case the Commissioner having come to the conclusion that there was a defect in the assessment order insofar as the question of levy of penalty under Section 273(b) and the penal interest under Section 217 had not been considered by the ITO, had directed the ITO to consider the question of the levy of the aforesaid penalty and penal interest on merits and in accordance with law after giving the assessee an opportunity of being heard. The Commissioner was neither empowered nor did he in the circumstances of the case direct that the whole assessment should be set aside nor could that be done. To buttress his argument, Mr. Vaish relied on the ratio of the following decisions : Katihar Jute Mills (P.) Ltd. v. CIT [1979] 120 ITR 861 (Cal.), Surrendra Overseas Ltd. v. CIT [1979] 120 ITR 872 (Cal.) and CIT v. Moduri Rajaiah Gari Kishtaiah [1980] 123 ITR 494 (AP).

5. These arguments are strenuously controverted by the departmental representative. According to him, since the order of the Commissioner under Section 263 was not appealed against, the same has become final.

Further, according to the said order of the Commissioner under Section 263 it was apparent that the Commissioner has set aside the whole assessment order which he in law was competent to do. This also found support from the order of the AAC, dated 15-5-1975, who had held that the appeal of the assessee against the original assessment order in view of the setting aside of the assessment order by the Commissioner had become infructuous.

6. We have given consideration to the above arguments. It is correct that the order of the Commissioner under Section 263 having been not appealed against has become final. It is also correct as is clear from the order of the AAC, dated 15-5-1975 at page 7 of the paper book filed by the assessee that he (the AAC) in his said order has construed the aforesaid order of the Commissioner under Section 263 to be one setting aside the whole of the original assessment order. That being the position, we need not go into the question of the scope of the powers of the Commissioner under Section 263 in the matter of setting aside the whole of the original assessment order more so when he (the Commissioner) in the show-cause notice under Section 263 had not so contemplated but had intimated the assessee that there was a defect in the assessment order insofar as the question of levy of penalty under Section 273(6) and the levy of interest under Section 217 was not considered by the ITO and so the assessment order was erroneous inasmuch as being prejudicial to the interests of the revenue. That, however, does not debar us even at this stage to consider the true import of the order passed by the Commissioner under Section 263. As already stated above, the ITO had passed the original assessment order for the year under consideration on 28-2-1973. Therein, the ITO had not considered the question of levy of penalty under Section 273(6) and of interest under Section 217. This aspect of the assessment order came to the notice of the Commissioner. According to him, the non-application of the mind of the ITO in the matter of the charging of the aforesaid penalty and interest had resulted in the assessment order being erroneous inasmuch as being prejudicial to the interests of the revenue. The Commissioner, as is clear from the copy of the notice under Section 263 at page 2 of the paper book, decided to initiate proceedings under Section 263 by issuing the said notice. The action contemplated by the Commissioner under Section 263 as is apparent from para 2 of the show-cause notice is, to use the words of the Commissioner, 'In exercise of powers conferred upon me by Section 263 of the Income-tax Act, 1961, I propose to make suitable remedial orders'. The Commissioner, as is clear from the said notice, did not form an opinion that there was something totally or basically wrong with the assessment order which was not capable of being remedied by amendments to the assessment order itself so as to justify the setting aside in entirety of the assessment order. This proposed action of the Commissioner under Section 263 was opposed by the assessee as is clear from the reply to the said show-cause notice at pages 2, 3 and 4 of the paper book filed by the assessee. The order of the Commissioner under Section 263 is at pages 5 and 6 of the paper book. The relevant extract from that order has been reproduced in paragraph 2 above. A perusal of this order of the Commissioner under Section 263 read as a whole in the light of the show cause notice issued by him and the reply of the assessee more particularly in view of the following appearing in the order under Section 263 makes it clear beyond any shadow of doubt that the Commissioner has not set aside the whole of the original assessment order as presumed by the ITO/AAC and that he (the Commissioner) had set aside the assessment order insofar as it pertained to the non-levy of the penalty under Section 273(6) and interest under Section 217 so as to enable the ITO to make a fresh assessment order according to law in that behalf : It is, therefore, a clear case in which the provisions of Sections 273(6) and 217(1) have been overlooked by the Income-tax Officer at the time of completing the assessment. The Income-tax Officer's order dated 28-2-1973 is, therefore, erroneous insofar as it is prejudicial to the interests of revenue.

5. In view of the above, I hereby set aside the assessment made by the Income-tax Officer under Section 143(3) for the assessment year 1970-71 and direct him to make a fresh assessment according to law, considering the applicability of provisions of Sections 273(b) and 217(1) of the Incometax Act.

The words italicised by us qualify the powers of the ITO in the matter of making fresh assessment order according to law which, as is clear from the above, was confined only in the matter of the leviability, if any, of the penalty under Section 273(6) and interest under Section 217. It is, therefore, clear beyond any shadow of doubt that the Commissioner had not set aside the original assessment order in entirety. The original assessment order was set aside only to the extent that it enabled the ITO to consider the question of the levy of penalty under Section 273(6) and interest under Section 217 in accordance with law. We hold likewise.

7. to 18. [These paras are not reproduced here as they involve minor issues].


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