1. This appeal of the assessee relates to the assessment year 1977-78 and arises out of the order of the Commissioner, Jabalpur, dated 29-3-1985, passed under Section 263 of the Income-tax Act, 1961 ('the Act').
2. The proceedings which had been earlier started by the ITO by an order under Section 146 of the Act, were filed by him by an order sheet entry dated 31-3-1983. The aforesaid order sheet entry of the ITO was treated by the Commissioner as an order and the aforesaid order of the ITO filing the proceedings was found to be erroneous and prejudicial to the interests of the revenue by the Commissioner for the following reasons : The assessment for the assessment year 1977-78 was completed by the ITO on 30-9-1980 under Section 144. The assessee applied for reopening of the said assessment under Section 146. The ITO reopened the assessment vide his order dated 12-1-1981 under Section 146. The reopened proceedings under Section 146 was filed by the ITO on 31-3-1983. Failure on the part of the ITO to take the proceedings in accordance with the provisions of Section 143 of the Income-tax Act, rendered his order of filing the proceedings erroneous and prejudicial to the interests of the revenue.
A notice dated 22-3-1985 was served on the assessee to show cause why suitable orders may not be passed under Section 263. An opportunity of being heard was given to the assessee by fixing the hearing date on 29-3-1985. On receipt of the show-cause notice, the counsel for the assessee appeared before the Commissioner and the main contention of the learned counsel is that the ITO's inaction to proceed with the assessment or his not talcing up assessment proceedings does not amount to an order and his inaction to proceed with the assessment is not survived by any subsisting or existing order which can give rise to the Commissioner in invoking the provisions of Section 263. Since the ITO has not initiated the assessment proceedings, the order sheet entry passed by. the ITO dated 31-3-1983 cannot be termed as an order and, therefore, the Commissioner has no power to invoke jurisdiction under Section 263. After hearing the learned counsel for the assessee the Commissioner following the decision of the Punjab and Haryana High Court in CIT v. Damyanti Mehta and Yash Raj Mehta  83 ITR 502, held that the order sheet entry made by the ITO dated 31-3-1983, is an order and since this order is erroneous and prejudicial to the interests of the revenue, he set aside the same with directions to the ITO to pass fresh order computing the total income properly after proper enquiry. As against this order of the Commissioner, the assessee is in appeal before us.
3. The learned counsel for the assessee reiterated the contentions made before the Commissioner. He further contended before us that mere order sheet entry made by the ITO dated 31-3-1983 cannot be treated as an assessment order passed by the ITO as the assessment records were not before him to apply his mind to the return of income filed by the assessee. He took support from the same decision, namely, the decision relied upon by the Commissioner in Damyanti Mehta and Yash Raj Mehta's case (supra) in support of his case and contended that since the ITO has not applied his mind, the filing of proceedings by the ITO cannot be treated as an order and since the same is not an order, the Commissioner cannot exercise jurisdiction under Section 263.
4. The learned departmental representative merely supported the order of the Commissioner.
5. We have carefully considered the facts and circumstances of the case and the arguments advanced by both the sides. The extract of the order sheet entry made by the ITO dated 31-3-1983 reads as under : As per ITO's control register, there is pendency of assessment for assessment year 1977-78, reopened under Section 146 on 12-1-1981.
The limitation subsists up to 31-3-1983. However, the case records are not traceable. The case has been received on transfer from ITO, Rajnandgaon. The proceedings are, therefore, filed. Action under Section 263 shall be taken after searching the case records.Sd/ The aforesaid order sheet entry was treated by the Commissioner as an order passed by the ITO relying upon the decision of the Punjab and Haryana High Court in the case of Damyanti Mehta and Yash Raj Mehta (supra). The facts and the decision given by their Lordships of the Punjab and Haryana High Court in the aforesaid case are as under : The Income-tax Officer, who had completed the assessment of the assessee for the assessment year 1960-61, having come to know of the sale of the factory of the assessee on September 1, 1959, thought that there was considerable profit in the transaction and issued a notice under Section 34(1 )(a) of the Indian Income-tax Act, 1922, for the assessment year 1960-61. The assessee filed an objection that the sale had in fact been nullified owing to certain circumstances and as such there was no sale. This objection was accepted by the Income-tax Officer and he dropped the proceedings by his order 'proceedings filed' made on February 28, 1963. The Commissioner of Income-tax acted under Section 33B and cancelled the order of the Income-tax Officer filing the proceedings and directed him to continue the proceedings under Section 34(1)(a). On appeal against this order, the Appellate Tribunal held that the order of the Income-tax Officer filing the proceedings amounted to an order of assessment or reassessment and therefore no proceeding could be instituted under Section 33B by the Commissioner. On a reference : Held, that in every case it has to be determined, on the facts and circumstances thereof, as to whether the words 'proceedings filed' do or do not amount to an order of assessment or reassessment. In the present case, the words 'proceedings filed' clearly amounted to an order of reassessment. The Income-tax Officer clearly stated on February 27, 1963, that the assessee's letter was seen and 'proceedings to be filed', and on February 28, 1963, the proceedings were in fact filed. It clearly discloses that the Income-tax Officer did apply his mind and came to the conclusion that there was no sale of 1959 and there was nothing else he could do but close those proceedings by a reassessment order. Consequently, the Commissioner was precluded from revising the order by reason of Section 33B(2)(a) of the Act. (p. 502) In our opinion, the Commissioner has not properly appreciated the facts and the decision given by the Punjab and Haryana High Court before applying the same to the facts of this case. The important test that is laid down by their Lordships of the Punjab and Haryana High Court to find out whether the words 'proceedings filed' amount to an order of assessment or reassessment is that the ITO should have applied his mind in the assessment proceedings before him. In the aforesaid case, the ITO reopened the assessment under section 34(1)(a) of the Act after having come to know of the sale of the factory of the assessee on 1-9-1959, for the purpose of taxing the profit earned by the assessee in the transaction. After having received the reply from the assessee for the notice issued by him that there was no such sale, the ITO dropped the proceedings which he had reopened under Section 34(1)(a) by using the words 'proceedings filed'. This order of the ITO was held to be an order of reassessment by their Lordships of the Punjab and Haryana High Court as the ITO has applied his mind before filing the proceedings.
Now, coming to the facts of the case under consideration before us, first of all it may be mentioned that the predecessor ITO no doubt reopened the assessment by his order dated 12-1-1981 under Section 146, the successor ITO filed the proceedings on the ground that the records are not traceable. This action was taken by the successor ITO in view of the fact that the limitation for the assessment subsists only up to 31-3-1983. When we examined the reasons given by the ITO for filing the proceedings, it is clear that the ITO has not applied his mind to the assessment proceedings which were reopened by the predecessor ITO under Section 146. Further the last sentence in the order sheet clearly indicates that the ITO has filed the proceedings merely to give a handle to the Commissioner to take action under Section 263. Since the ITO has not applied his mind before filing the proceedings, the order sheet entry made by the ITO on 31-3-1983 which is the last day of limitation for the assessment to be made in this case, cannot be treated as an order passed by the ITO. When once we held that the order sheet made by the ITO is not an order, the Commissioner has no power to exercise jurisdiction under Section 263 as the same is not an order much less an assessment order. We, therefore, quash the order of the Commissioner passed under Section 263 and the appeal filed by the assessee is accordingly allowed.