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Basudev Maneklal Khetan Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Ahmedabad
Decided On
Judge
Reported in(1985)11ITD172(Ahd.)
AppellantBasudev Maneklal Khetan
Respondentincome-tax Officer
Excerpt:
.....section 263. it is an admitted fact that section 1 32(5) deals with releasing or otherwise of the assets seized on the basis of estimated income, pending the regular assessment under section 143 of the act. therefore, to say that assets are required to be retained to safeguard the recovery of the anticipated demand, would require a good amount of material on record against the assessee by bringing on record the facts regarding the assessee having been found a defaulter in payment of taxes or the apprehension of the revenue that once the assets are released, the demand to be raised in future are likely to jeopardised because of the financial position of the assessee or such other factors which may justify such apprehension. nothing is brought on record in this regard.therefore the.....
Judgment:
The conditions are required to be satisfied for legally invoking the provisions of section 263 viz-the order of the Income Tax Officer must be erroneous and also prejudicial to the interest of revenue, since nothing was brought on record in this regard, order under section 132(5) could not be said to be prejudicial to the interest of revenue.

The Income Tax Officer passed an order under section 132(5) with the previous approval of Inspecting Assistant Commissioner making release of certain material seized from the assessee. The assessee afterwards made application to the Commissioner for releasing the seized material as per the order under section 132(5) who in turn wrote to the Inspecting Assistant Commissioner asking for immediate release of seized material in persuance to the order made under s.132(5) and proceedings under section 132 dropped. Subsequently, however, the Commissioner invoked the provisions of section 263 on same ground.

After considering the objection made by the assessee, he set aside the order of Income Tax Officer under section 132(5) and directed to make fresh assessment in accordance with law.

Two conditions are required to be satisfied for legally invoking the provisions of section 263, viz the order of the assessing officer must be erroneous and also prejudicial to the interest of revenue. The order which cannot be contemplated with the scope of section 263. It is an admitted fact that section 1 32(5) deals with releasing or otherwise of the assets seized on the basis of estimated income, pending the regular assessment under section 143 of the Act. Therefore, to say that assets are required to be retained to safeguard the recovery of the anticipated demand, would require a good amount of material on record against the assessee by bringing on record the facts regarding the assessee having been found a defaulter in payment of taxes or the apprehension of the revenue that once the assets are released, the demand to be raised in future are likely to jeopardised because of the financial position of the assessee or such other factors which may justify such apprehension. Nothing is brought on record in this regard.

Therefore the submission of the revenue that order of the Income Tax Officer was prejudicial to the interest of the revenue, could not be accepted. Accordingly, the order of the Commissioner was set aside and the order of the Income Tax Officer was restored.

Revision under s. 263--JURISDICTION OF COMMISSIONER--Order passed by assessing officer under s. 132 The order under section 132(5), made by the Income Tax Officer with the previous approval of Inspecting Assistant Commissioner, which is a condition precedent, is in fact a decision by the Inspecting Assistant Commissioner himself and this order can not be revised, accordingly Commissioner had no jurisdiction to revise order of Income Tax Officer passed under section 132(5).

The Income Tax Officer passed an order under section 132(5) with the previous approval of Inspecting Assistant Commissioner making release of certain material seized from the assessee. The assessee afterwards made application to the Commissioner for releasing the seized material as per the order under section 132(5) who in turn wrote to the Inspecting Assistant Commissioner asking for immediate release of seized material in persuance to the order made under section 132(5) and proceedings under section 132 dropped subsequently, however, the Commissioner invoked the provisions of section 263 on some ground.

After considering the objection made by the assessee, he set aside the order of Income Tax Officer under section 132(5) and directed to make fresh assessment in accordance with law.

The decision under section 132(5) regarding release of assets is always by at least two administrative authorities, usually by the assessing officer whose decision is approved by the Inspecting Assistant Commissioner and secondly in case where satisfactory arangement for payments of taxes is made as per the second proviso to section 132(5), the two authorities would be the Income Tax Officer with previous approval of the Commissioner. Under this section, essentially the order contemplates wholly the decision regarding the retention or otherwise of any part or of all the assets seized and remaining in the custody of the department. Therefore, decision taken by the assessing officer for releasing of the assets seized with the previous approval of the Inspecting Assistant Commissioner which is a condition precedent, is, in substance, a decision by the Inspecting Assistant Commissioner himself and this order cannot be revised under section 263. Accordingly in the instant case, the Commissioner had no jurisdiction to revise the order of the Income Tax Officer passed under section 132(5).

Search and seizure--POWERS OF CIT--Realease to assets by order under s.

132(5).

Commissioner has no powers to invoke section 263 with respect to release of assets by order under section 132(5).

Commissioner could not set aside the assessing officer's order for releasing the seized assets as the same was passed with prior approval of Inspecting Assistant Commissioner under section 132(5).

The order passed by the Income Tax Officer under section 132(5) with the previous approval of the Inspecting Assistant Commissioner, was an order by the Inspecting Assistant Commissioner himself and this could not be revised under section 263. Further, to say that assets were required to be retained to safeguard the recovery of the anticipated demand, would require good amount of material on record against the assessee. Nothing was brought on record in this regard. An one of the two conditions of section 263 was not fulfilled, the order of the Commissioner was set aside.

1. In this appeal the assessee challenges the jurisdiction of the Commissioner in respect of revisional power under Section 263 of the Income-tax Act, 1961 ('the Act'). Objection is also raised that considering the merits, the order of the ITO passed under Section 132(5) of the Act should not have been set aside with a direction to pass fresh order after re-verification of the facts and evidence available.

2. In this case, proceedings under Section 132 were taken and the articles including jewellery and ornaments, silver utensils and fixed deposits were seized on 11-12-1981, and order under Section 132(5) was passed on 11-3-1982 for releasing the seized materials and for this, approval of the IAC was also obtained on the same day. On 19-3-1982, the assessee wrote a letter to the Commissioner for releasing the seized materials as per the order under Section 132(5). On 26-3-1982, the Commissioner wrote to the IAC, by name and informed that order under Section 132(5) was passed and the proceedings initiated under Section 132 were dropped. Therefore, the materials seized should be released immediately. Subsequently, however, the Commissioner invoked the provisions of Section 263 vide notice dated 3-4-1982 on some ground. After considering the objections made by the assessee, he set aside the order of the ITO under Section 132(5) and directed him to make fresh assessment in accordance with law. He held as follows: 1. Order under Section 132(5) passed by the ITO has not mentioned any reasons for his decision, though, however, he recorded these reasons in a separate note which formed part of the record.

2. The ITO accepted part of the ornaments seized as belonging to Smt. Premlataben C. Khetan, daughter-in-law of the assessee, and rest of the ornaments were accepted to be belonging to Smt.

Savitriben, wife of the assessee. In doing so, he did not verify the returns filed by the two ladies but merely relied upon a certificate of the chartered accountants to the effect that two ladies were being assessed to wealth-tax in Bombay.

3. In case of Smt. Premlataben, he found on verification of the records of the two ladies at Bombay that returns of wealth for the assessment years 1976-77 to 1981-82 were filed on 12-1-1982, i.e., after the date of the search and, therefore, came to the conclusion that jewellery seized had not been disclosed prior to the search.

Besides in the case of Smt. Premlataben, report of the approved valuer in respect of jewellery was dated 31-12-1981 and the certificate certified that he had personally inspected jewellery, etc., on 31-12-1981 but on that day, the ornaments were in the possession of the income-tax department.

4. In respect of Smt. Savitriben also, ornaments received by her mother-in-law, who died in 1975, were not verified properly inasmuch as in the returns for the assessment years 1976-77 and 1977-78, these ornaments were not disclosed. He rejected the submission of the assessee that the Commissioner had no power to invoke section 263 in respect of the order under Section 132(5). He also rejected the submission of the assessee on merits of the case. He further observed that the ITO passed the order in pursuance of an erroneous direction of the IAC, which was obviously prejudicial to the interests of the revenue.

3. At the time of hearing, the learned Counsel appearing on behalf of the assessee submitted a paper book containing 75 pages and made lengthy submissions. Briefly, they are as follows: 1. Considering the voluminuous inquiries and the statements recorded from time to time, it cannot be said that the ITO had not applied his mind. Therefore, there was no error in the order of the ITO. Besides, proceedings under section 132(5) were in respect of summary assessments and not regular assessment. Therefore, there was no question of interests of the revenue being prejudiced. This point can be taken up only on regular assessment which was stilt pending.

2. Since order under Section 132(5) was passed with the previous approval of the IAC, the Commissioner had no jurisdiction on the basis of the ratio laid down in the case of East Coast Marine Products (P.) Ltd. v. ITO [1983] 4 ITD 73 (Hyd.) (SB).

3. Even on merits, the ITO had recorded reasons in detail in a separate sheet forming part of the record and order under section 132(5) only in respect of release of the seized materials cannot be said to be an order without reasons.

4. On merits, in respect of Smt. Premlataben who is assessed to wealth-tax, even if the returns were filed after the search, the ITO had taken various details orally as well as in writing and had also considered the evidence including, inter alia, the place from which the ornaments were found, viz., from the bed-room of the daughter-in-law and the ornaments were claimed by her and accepted as such in the wealth-tax returns. In respect of jewellery certificate, dated 31-12-1981, the approved valuer had personally inspected in May 1981 when also initially valuation report was obtained. Valuation report dated 31-12-1981 was only a subsequent report because for three years the first valuation report was valued as per the direction of the CBDT. 5. In respect of Smt. Savitriben also, the will was verified by the ITO. Not only that, even parties who attested the will were summoned and their statements recorded. Even the return filed under the Estate Duty Act, 1953, was also on record. Besides, there was ample material which was considered by the ITO.4. The learned departmental representative submitted that not only there was an error, but it was prejudicial to the revenue. Since the department apprehended that there might be loss of the revenue if the seized materials were released because if, subsequently, the demand is raised, there might be difficulty in collecting the same. Reliance was placed on the decision of the Gujarat High Court in the case of Addl.

CIT v. Mukur Corpn. [1978] 111 ITR 312. In respect of the ornaments found in the bed-room of the daughter-in-law, it was submitted that the premises of the assessee were the raided and, therefore, it cannot be said that ornaments belonged to the daughter-in-law only. Analogy was sought to be drawn from social affinity which is now recognised even under Section 64 of the Act. Besides, search statements at the time of seizure are recorded only in summary manner and, therefore, there cannot be anything sacrosanct about them. However, subsequent evidence and inquiries are more important. Dealing with the aspect of a finding in stay proceedings given in the order of the Tribunal in stay proceedings, it was submitted that the same cannot be considered final.

5. In reply, the learned counsel submitted that he had not advanced other arguments regarding the order having been passed out of time, etc. Besides, the ITO has passed fresh order under Section 132(5) on the basis of the Commissioner's direction retaining the seized materials. However, regular assessment is not yet taken up.

6. We have considered the materials to which our attention was drawn.

We have also considered anxiously the submissions made at the Bar. In our opinion, the order of the Commissioner passed under Section 263 requires to be cancelled. Our reasons are as follows: 6.1 Essentially, the order passed under Section 132(5) is an order by the IAC and, therefore, the Commissioner has no power to revise the same. Section 132(5) specifically mentions that order is required to be passed within 90 days of the seizure only with the previous approval of the IAC. Therefore, passing of an order by the ITO after making necessary inquiries is to be done only with the previous approval of the IAC. The order contemplates releasing or otherwise of the material seized and retained in the custody after estimating the undisclosed income in a summary manner to the best of the judgment, calculating the amount of tax on income so estimated, determining the amount of interest as also penalty imposable, specifying the amount that would be required to satisfy any existing liability or those liabilities specified under Section 230A of the Act in respect of which the assessee is in default and thereafter retaining such assets or part thereof as are in his opinion sufficient to satisfy the aggregate of liabilities. The proviso to the same section also enables the ITO, with the previous approval of the Commissioner, to release the assets or such part thereof as he may deem fit. This envisages that decision taken under Section 132(5) regarding release or otherwise is always by at least two administrative authorities, usually the ITO, whose decision is approved by the IAC and secondly, in the cases where satisfactory arrangements for payments of taxes is made as per proviso to Section 132(5), the two authorities would be the ITO with the previous approval of the Commissioner. Under this section, essentially the order contemplates wholly the decision regarding retention or otherwise, any part or fully the assets seized and remaining in the custody of the department. Therefore, the decision taken by the ITO for releasing of the assets seized with the previous approval of the IAC, which is a condition precedent, is in substance a decision by the IAC himself. To put it simply, because of the nature of the proceedings and the extent of inquiry, the character of the order passed under this section will tantamount to only a decision and, therefore, usually the order passed under this section would not contain detailed reasons to arrive at a particular decision as is usually done in the case under appeal. Since the approval of the IAC is a necessary condition and since the TTO is conducting the inquiries, etc., under the direct supervision of the IAC, the decision initially taken by the ITO and approved by the IAC acquires some sort of sanctity and finality so far as the revenue is concerned. It cannot be denied that the IAC is acting in a quasi-judicial capacity and exercises judicial functions.

Therefore, the order passed by the ITO under Section 132(5), with the previous approval of the IAC, is an order by the IAC himself and this order cannot be revised under Section 263. The reliance placed by the learned Counsel for the assessse in the Special Bench decision of the Tribunal in the case of East Coast Marine Products (P.) Ltd. (supra) is rightly placed so as to derive guidance and support though the case was decided with reference to Section 144B of the Act. We are much more fortified in our above view by the decision of the Allahabad High Court in the case of Ramlal Kishore Lal v. CIT [1972] 84 ITR 138. In this case, their Lordships were concerned with revisional powers under Section 263, read with Section 271(1)(c), of the Act. The provisions governing the penalties for the assessment year 1962-63 required previous approval of the IAC. Sub-section (6) of Section 28 of the Indian Income-tax Act, 1922 ('the 1922 Act') provided that: The Income-tax Officer shall not impose any penalty under this section without the previous approval of the Inspecting Assistant Commissioner.

During the assessment proceedings for the year 1962-63, notice for concealment for which proceedings under Section 271(1)(c) of the 1961 Act (corresponding to Section 28(1)(c) of the 1922 Act) were initiated for which an approval of the IAC was sought for. The office of the IAC put up a note stating as under: No penalty on account of cash credit added back as income from undisclosed sources is tenable and may be dropped if approved.

and signed his name below it on 25-9-1963. Thereafter, on 3-10-1963, the ITO made the following entry in the order sheet of his records: This is to inform you that your penalty proceedings started under Section 271(1)(c) for the assessment year 1962-63 have been dropped.

On the above basis, the question arose as to whether the words 'no penalty' written by the IAC constituted an order made under Section 274(2)/271(1)(c) of the Act or not. Their Lordships held that it was an order. While reversing the decision of the Tribunal that it was only a formal requisite of the proceedings before an order could be made, their Lordships observed that it was open to the TAG and will be desirable that when a reference was made to him by the ITO he should apply his mind to the question, whether or not it was a case of penalty or not. They further observed that the ITO made an entry in the order sheet noting that the penalty proceedings had been dropped and they referred in that behalf to the communication received from the IAC and stated that when the ITO made such entries, the ITO cannot be considered to have made an order. [Emphasis supplied]. Similar is the position in the case under appeal. Indeed, therefore, the ITO had no jurisdiction to pass an order under Section 132(5) because such jurisdiction entirely rested with the IAC who took the effective decision releasing the assets. The powers of the ITO had no characteristic of independence nor were unfettered; the jurisdiction, if any, was an administrative one. There was nothing more to be done.

The ITO could not, by a subsequent order, vary the decision taken by the IAC; it was done so not because the law compelled him to do so, but because he thought it to be a right decision. We, therefore, hold that the Commissioner had no jurisdiction to revise an order passed under Section 132(5) passed with the previous approval of the IAC.6.2 Coming to the aspect of merits also, we find that the revenue has no case. Two conditions are required to be satisfied for legally invoking the provisions of Section 263, viz., the order of the ITO must be erroneous and also prejudicial to the interests of the revenue. The order which cannot be called prejudicial to the interests of the revenue, cannot be contemplated within the scope of Section 263. It is an admitted fact that Section 132(5) deals with releasing or otherwise of the assets seized on the basis of estimated income, pending the regular assessment under Section 143 of the Act. Therefore, to say that assets are required to be retained to safeguard the recovery of the anticipated demand, would require good amount of material on record against the assessee by bringing on record the facts regarding the assessee having been found a defaulter in payment of taxes or the apprehension of the revenue that once the assets are released, the demand to be raised in future are likely to be jeopardised because of the present financial position of the assessee or such other factors which may justify such apprehension. Nothing is brought on record in this regard. On the contrary, on a query from the Bench, the learned Counsel for the assessee informed that there was no justification for such apprehension. With the vide powers, the revenue has regarding recovery of tax etc., we do not feel there is any justification for such apprehension. Therefore, the submission of the learned departmental representative that the order of the ITO was prejudicial to the interests of the revenue cannot be accepted. Moreover, the order under Section 132(5) is basically a summary order in the sense that no detailed scrutiny of the case is required to be done, factual position apart. The enquiry only centres round to find whether any income or wealth has escaped assessment. If on broad enquiries it is found that prima facie there is no reason to believe that such position exists, then before releasing the assets an incidental enquiry regarding advisability or otherwise of retaining assets for outstanding taxes is considered and if no such circumstances exist, the decision for releasing of assets is taken and necessary order passed. Hence, this being a summary assessment based on power motivated with intention to unearth escaping income or wealth, primarily actions are not taken with a purpose to ensure recovery of outstanding dues. Hence, department cannot be allowed to withhold the assets without there being case as such. Since this second condition is not fulfilled, we refrain from commenting elaborately upon the decision in respect of fulfilling the first condition as to whether order of the ITO was erroneous. Suffice it to say that one of the two conditions necessary for invoking provisions of Section 263 is not fulfilled and, therefore, the order of the Commissioner requires to be set aside on this ground also.

6.3 One more aspect which is required to be considered is that on 26-3-1982, the Commissioner has himself intimated to the IAC to release the seized materials immediately. Once this decision is taken by the Commissioner himself, we fail to understand how notice dated 3-4-1982 for proposed action under Section 263 was thought proper. Can it not be said that when the Commissioner issued instructions to the IAC on 26-3-1982 pursuant to order under Section 132(5) dated 11-3-1982, this instruction itself took away the right of the Commissioner to invoke the provisions of Section 263 subsequently After all, the Commissioner, exercising judicial and administrative functions, cannot be expected to take the decision for releasing the seized materials and issue the necessary instructions to his subordinates in this behalf and again, subsequently, have course to the provisions of Section 263 for the purpose of revising his own decision. But since this aspect has not been dealt with at the Bar, we would refrain from giving our final opinion.

7. In the result, the order of the Commissioner passed under Section 263 on 17-4-1982 is set aside and the order of the ITO dated 11-3-1982 is restored.


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