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Satya Prosad Sen Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Kolkata
Decided On
Judge
Reported in(1986)16ITD160(Kol.)
AppellantSatya Prosad Sen
Respondentincome-tax Officer
Excerpt:
.....to the assessee at rs. 11,514. the assessee filed an audited account in which two profit and loss accounts appeared. one profit and loss account was appearing for national advertising agency of which shri satya prosad sen was shown as proprietor. the profit and loss account disclosed the net profit of rs. 70,559.48. the second profit and loss account was for national advertising agency and a net loss of rs. 14,182.15 was shown in it. the profit as well as the net loss was carried to the capital account of shri sen where the net profit of rs. 56,377.33 was added to the opening capital of rs. 3,82,598.60. from the resultant balance of rs. 4,38,975.93, the personal withdrawal of rs. 70,685.29 was deducted. thus, the credit balance in the capital account stood at the close of the year.....
Judgment:
1. The assessee is in appeal against the order of the Commissioner under Section 263 of the Income-tax Act, 1961 ('the Act'). The assessee filed his return on 31-10-1980. The assessee disclosed the income from house property at Rs. 448, income from business at Rs. 23,932 and income from interest at Rs. 12,265. Thus, the total gross income was shown at Rs. 36,645. The assessee indicated the admissible deductions at Rs. 8,574 and, thus, the net income was shown at Rs. 28,070. The said income was computed by the ITO on 30-8-1982 and, accordingly, a demand notice was issued dated 30-8-1982 showing the amount refundable to the assessee at Rs. 11,514. The assessee filed an audited account in which two profit and loss accounts appeared. One profit and loss account was appearing for National Advertising Agency of which Shri Satya Prosad Sen was shown as proprietor. The profit and loss account disclosed the net profit of Rs. 70,559.48. The second profit and loss account was for National Advertising Agency and a net loss of Rs. 14,182.15 was shown in it. The profit as well as the net loss was carried to the capital account of Shri Sen where the net profit of Rs. 56,377.33 was added to the opening capital of Rs. 3,82,598.60. From the resultant balance of Rs. 4,38,975.93, the personal withdrawal of Rs. 70,685.29 was deducted. Thus, the credit balance in the capital account stood at the close of the year at Rs. 3,68,290.64. The Commissioner perused the record of the assessee and found that the assessee received from the agency business Rs. 61,30,024 and claimed expenses of Rs. 50,65,138. Further, the assessee claimed the bad debt of Rs. 98,112.

The ITO had completed the assessment under Section 143(1) of the Act and the ITO did not investigate properly into the facts of the case in order to compute the correct income of the assessee. The Commissioner, therefore, came to the conclusion that the order passed by the ITO was erroneous and prejudicial to the interests of the revenue. He, therefore, took action under Section 263 and issued a show-cause notice to the assessee. The assessee appeared and pleaded that the order passed by the ITO was neither erroneous nor prejudicial to the interests of the revenue, and, therefore, the order of the ITO should be maintained.

2. The Commissioner did not consider the explanation in favour of the assessee. He set aside the assessment with a direction to make it afresh after allowing an opportunity of being heard to the assessee.

The Commissioner has not dealt with the matter in details. However, the concluding para of the order of the Commissioner is reproduced below : In view of the above, wherefrom it would be clear that expenses claimed by the assessee have been allowed, without proper verification, as also my earlier order under Section 163 of the Income-tax Act, 1961, dated 25-4-1984 for the assessment year 1979-80, in the instant case, I hold that the assessment for the assessment year 1980-81, completed under Section 143(1) of the Income-tax Act, 1961, is erroneous, being prejudicial to the interests of revenue, for which the said assessment is hereby set aside, with directions to the ITO to complete the assessment afresh as per the provision of law, after giving opportunity of hearing to the assessee.

3. Shri Banerjee, the counsel of the assessee, filed a paper book containing 20 pages. The paper book included the order of the Commissioner under Section 263, letters issued by him for the hearing of the appeal, demand notice issued by the ITO dated 30-8-1982, the order of the Tribunal in the case of the assessee in IT Appeal No. 1099 (Cal.) of 1984 for the assessment year 1979-80, the orders of the Tribunal in IT Appeal No. 315 (Cal.) of 1982 and IT Appeal Nos. 3036 to 3038 (Cal.) of 1973-74, the order of the Commissioner under Section 263 for the assessment year 1979-80, the assessment order of the ITO for the assessment year 1979-80, the order of the ITO dated 28-4-1982 under Section 154/143(3) of the Act and Mr. Sen's drawing for the year 1979.

Shri Banerjee very emphatically urged that in similar situation the action under Section 263 was taken by the Commissioner and the Tribunal vide its order in IT Appeal No. 1099 (Cal.) of 1984 for the assessment year 1979-80 setting aside the order of the Commissioner. He stated that the Tribunal took a different view during the assessment year 1979-80 whereas the contrary view was taken by the Tribunal for the assessment year 1978-79 in IT Appeal No. 315 (Cal.) of 1982. The Commissioner took action under Section 263 having in mind the order of the Tribunal in IT Appeal No. 315 (Cal.) of 1982 and he did not have knowledge of the order of the Tribunal in IT Appeal No. 1099 (Cal.) of 1984. As the order passed by the ITO was neither erroneous nor prejudicial to the interests of the revenue, the order of the ITO should be maintained. Shri Banerjee further referring to the drawings of the assessee urged that the action was taken earlier for low and inadequate drawings. The drawings shown by the assessee during the year under appeal are adequate and, therefore, even on this ground the action of the Commissioner under Section 263 is not justified.

4. Shri Pachau, the senior departmental representative, on the other hand, very strongly supported the order of the Commissioner and urged that, the assessee disclosed the receipt in one account at Rs. 61,30,024 and in other account at Rs. 11,01,883. The deductions were claimed straightaway at Rs. 50,65,137 and Rs. 9,01,048 apart from the administrative and office expenses. It shows that the ITO though completed the assessment under Section 143(1) but the ITO did not investigate into the facts where it was necessary for him to investigate. As the income was not correctly computed, the order passed by the ITO was incorrect, inadequate and incomplete in a material respect under clauses (1)(a) and (1)(b) of Explanation to Section 143.

He, therefore, urged that the order passed by the Commissioner should be maintained.

5. It has been indicated that the assessee was carrying on business of advertising agency and the assessee filed his return on 31-10-1980 showing the net income of Rs. 28,070 which included the interest income of Rs. 12,265 and the assessment was completed under Section 143(1) on 30-8-1982 and on the same date the demand notice under Section 156 of the Act was issued to the assessee. The summary assessment is to be made provided the ITO is in a position to determine the correct income of the assessee without his presence or production of any documents on the basis of the return along with which the necessary papers such as profit and loss account, balance sheet, statements, evidences, etc., are produced. This is very clear on the basis of the CBDT Circular No.201, dated 5-7-1976 [see Taxmann's Direct Taxes Circulars, Vol. I, 1985 edn., p. 876]. Moreover, if the assessment under Section 143(1) has not been made correctly and the ITO has not investigated into the facts, the assessment made by the ITO even under Section 143(1) will be erroneous and prejudicial to the interests of the revenue.

This'position is very clear from clauses (1)(a) and (1)(b) of Explanation to Section 143 which runs as follows : (1) an assessment under Sub-section (1) shall be deemed to be incorrect, inadequate or incomplete in a material respect, if- (a) the amount of the total income as determined under Sub-section (1) is greater or smaller than the amount of the total income on which the assessee is properly chargeable under this Act to tax ; or (b) the amount of the tax payable as determined under Sub-section (1) is greater or smaller than the amount of the tax properly payable under this Act by the assessee ; or The assessee filed the audited profit and loss account and balance sheet. The record of the revenue is available which was perused and he has filed the list of sundry debtors/creditors, loans and advances, outstanding liabilities, bank account, etc., but no trading account was drawn by the assessee for his business No. 1 and business No. 2. The business No. 1 is indicated in the profit and loss account in which the receipt has been shown at Rs. 61,30,024.92 whereas the business No. 2 is mentioned in the profit and loss account where the receipt has been shown at Rs. 11,01,883. The assessee had shown these receipts in the profit and loss account and immediately there below, had deducted Rs. 50,65,137.63 and Rs. 9,01,048.94 with the caption 'paid and due'. The assessee has not indicated the details or the nature of the deductions made from the gross receipt for Rs. 50 lakhs and odd and Rs. 9 lakhs and odd. Further, the assessee had claimed deduction for salary, bonus, bank charges and other office and administrative expenses and has claimed the bad debt of Rs. 98,112.70. The bad debt is essentially a question of fact-CIT v. Johilla Coalfields (P.) Ltd. [1984] 146 ITR 276 (MP). The ITO merely on production of the profit and loss account cannot get satisfied that the debt claimed by the assessee became bad during the year or a part of it was doubtful or it was a premature debt. The bad debt can only be determined with reference to the facts relating to the period, the financial status of the debtor, the action taken by the assessee, etc. It is very clear that the ITO without being satisfied and looking into the Explanation to Section 143(1) completed the assessment under Section 143(1) ignoring the facts that he could have investigated into the payments of Rs. 50 lakhs and odd and Rs. 9 lakhs and odd which were directly deducted from the gross receipts and further the assessee claimed the administrative expenses of Rs. 10,96,000 and Rs. 2,39,000 and odd. The assessee's total receipts in business No. 1 and business No. 2 are for Rs. 72,31,000 and the assessee claimed straightaway deduction for Rs. 59 lakhs and further deduction of administrative business expenses of Rs. 13,35,000. These figures of receipts and expenditure were before the ITO. The ITO also allowed bad debt without investigating into the nature of the bad debt.

This shows that the ITO did not investigate into the facts where he was required to investigate into the facts before computing the total income of the assessee. If the assessing officer failed to investigate into the facts before making the assessment, the situation so arising on the failure of the ITO to investigate into the facts would lead to the conclusion that the order passed by him is erroneous and prejudicial to the interests of the revenue.

6. Shri Banerjee in course of the arguments indicated that the ITO can make the summary assessment if the total income disclosed by the assessee is below the limit prescribed by the CBDT, This fact is correct. But the circular of the CBDT explaining the mode of completing the summary assessment has been quoted above. It is very clear from the circular of the CBDT that the summary assessment shall be made provided the ITO is satisfied on the basis of the documents produced by the assessee along with the return that the income can be computed without the presence of the assessee or calling for further documents. The scheme of the summary assessment has not been followed correctly when the ITO did not look into the deduction of outright gross receipts and the expenses and particularly the bad debt.

7. The argument of Shri Banerjee is not correct that the issue is covered by the IT Appeal No. 1099 (Cal.) of 1984. The action under Section 263 for the assessment year 1979-80 was taken for low drawings.

The action under Section 263 for the year under consideration had not been taken on this ground. Therefore, the assessee does not derive any support either by the order of the Tribunal in IT Appeal No. 1099 (Cal.) of 1984 or any other order passed in his case for earlier years.

Therefore, this argument of Shri Banerjee is not accepted. Under the said circumstances, the order passed by the ITO was erroneous and prejudicial to the interests of the revenue and, therefore, the Commissioner was justified in setting aside the order of the ITO.Consequently, the order of the Commissioner is maintained.


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