COMMISSIONER OF INCOME-TAX VS SMT. D. VALLIAMMAL
1999 P T D 3476
[230 I T R 695]
[Madras High Court (India)]
Before K.A. Thanikkachalam and N. V. Balasubramanian, JJ
COMMISSIONER OF INCOME-TAX
Versus
Smt. D. VALLIAMMAL
Tax Case No.810 of 1984 (Reference No.725 of 1984), decided on 27/06/1996.
Income-tax
----Revision---Jurisdiction to revise assessment order ---CIT cannot set aside assessment: order on the ground that verification of accounts was needed -CIT accepting explanation of assessee---Assessment order was not erroneous---Order of revision was not valid---Indian Income Tax Act. 1961, S.263.
The assessee was carrying on money-lending business. For the assessment year 1974-75, the Income-tax Officer determined the assessee' s total income at Rs.59,050 by his order, dated September 30, 1976. Later, the Commissioner of Income-tax (Administration) called for the records and scrutinised 'the order alongwith the connected records in the case of D Films. On such scrutiny, he noticed that the said D Films owed a sum of rupees one lakh to the assessee as disclosed in the details given by it, but the assessee had not disclosed this amount in her balance-sheet. The Commissioner of Income-tax held that the order passed by the Income-tax Officer, without verifying this investment, was erroneous in so far as it was prejudicial to the interests of the Revenue. The Commissioner of Income-tax issued a notice under section 263 of the Income Tax Act, 1961, to the assessee requiring her to show cause as to why this sum of rupees one lakh should not be treated as her undisclosed income. Before the Commissioner of Income-tax, the assessee submitted that the sum of rupees one lakh was advanced to D Films, Coimbatore, on January 7, .1974, for the purpose of purchasing the lease right of the film "Velikizhamai Viradham"; that before the production of the film, the assessee sold her lease rights to Fathima Trust, Madras 34, for a sum of Rs.1.30 lakhs, that the said Fathima Trust paid a sum of Rs.25,000 and the remaining unpaid amount of Rs.1.05 lakhs appeared in the assessees balance-sheet, as on January 31, 1974, and that, therefore, there was nothing due from the said D Films. On considering the explanation offered by the assessee, the Commissioner of Income-tax felt that as the sum of rupees one lakh. had been shown as a debt owed by the said D Films, the Income-tax Officer should be directed to make a fresh assessment after obtaining necessary clarification from the assessee in this regard. Accordingly the Commissioner of Income-tax set aside the assessment and gave a direction to the Income-tax Officer in this matter. The Tribunal held that the order of the Commissioner of Income-tax was not valid. On a reference:
Held, that the Commissioner of Income-tax set aside the order passed by the Income-tax Officer on the ground that verification of account was needed. This could not be a ground for invoking jurisdiction under section 263. Moreover, when the explanation offered by the assessee was accepted by the Commissioner of Income-tax with regard to the alleged undisclosed income of rupees one lakh, there was no error in the order passed by the Income-tax Officer in the case of the assessee in the assessment year 1974-75. The Commissioner of Income-tax's order of revision was not valid.
C.V. Rajan for the Commissioner.
Nemo for the Assessee.
JUDGMENT
K. A. THANIKKACHALAM, J.---At the instance of the Department, the Tribunal referred the following two questions, for the opinion of this Court, under section 256(-1) of the Income Tax Act, 1961 (hereinafter referred to as the "Act"):
"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in setting aside the order under section 263 of the Income Tax Act, 1961, passed by the Commissioner in relation to the assessment year 1974-75 in the assessee' s case?
(2) Whether, the satisfaction of the Commissioner as to the erroneous and prejudicial nature of the order passed by the Income-tax Officer as contemplated in section 263 of the Income Tax Act, 1961, is confined only to the issue of notice to the assessee under that section, or should it be a must for the purpose of passing an order under the said section, as has been held by the Appellate Tribunal?" .
The assessee is carrying on money-lending business. For the assessment year 1974-75, the Income-tax Officer determined the assessee's total income at Rs.59,050 by his order, dated September 30, 1976. Later, the Commissioner of Income-tax (Administration) called for the records and scrutinised the order alongwith the connected records in the case of Dhandayuthapani Films. On such scrutiny, he noticed that the said Dhandayuthapani Films owed a sum of rupees one lakh to the assessee as disclosed in the details given by it, whereas .the assessee herein had not disclosed this amount in her balance-sheet. The Commissioner of Income-tax held that the order passed by the Income-tax Officer, without verifying this investment, was erroneous in so far as it was prejudicial to the interests of the Revenue. The Commissioner of Income-tax issued a notice under section 263 of the Act to the assessee requiring her to show-cause as to why this sum of rupees one lakh should not be treated as her undisclosed income.
Before the Commissioner of Income-tax, the assessee submitted that the sum of rupees one lakh was advanced to Dhandayuthapani Films, Coimbatore, on Janxary 7, 1974, for the purpose of purchasing the lease rights of the film "Velikizhamai Viradham", that before the production of the film, 'the assessee sold her lease rights to Fathima Trust, Madras 34, for a sum of Rs.1.30 lakhs, that the said Fathima Trust paid a sum of Rs.25,000 and the ,remaining unpaid amount of Rs.1.05 lakhs appeared in the assessee's balance-sheet, as on January 31, 1974, and that, therefore, there was nothing due from the said Dhandayuthapani Films. On considering the explanation offered by the assessee, the Commissioner of Income-tax felt that as the sum of rupees one lakh has been shown as a debt owed by the said Dhandayuthapani Films, the Income-tax Officer should be directed make fresh' assessment after obtaining necessary clarification from she assessee in this regard. Accordingly, the Commissioner of Income-tax set aside the assessment and gave a direction to the Income-tax Officer in this matter.
Aggrieved, the assessee filed an appeal before the Appellate Tribunal, contending that in the absence of any definite conclusion arrived at by the Commissioner of Income-tax as to the erroneous or prejudicial nature of the assessment order passed by the Income-tax Officer, he should not have set aside the assessment, thereby giving a direction to the Income-tax Officer to make fresh assessment, and that, therefore, the order passed by the Commissioner of Income-tax under section 263 of the Act was without jurisdiction. The Tribunal held that the Commissioner of Income-tax has merely stated that it would be fair arid reasonable to have the assessment set aside and give direction to the Income-tax Officer to make fresh assessment, after getting necessary clarification and he has not found that the order passed by the- Income-tax Officer was prejudicial to the interest of the Revenue. Therefore, the Appellate Tribunal held that the order passed by the Commissioner of Income-tax under section 263 of the Act was without jurisdiction.
Learned standing counsel appearing- for the Department submitted that on a scrutiny of the order passed by the Income-tax Officer alongwith the connected records, the Commissioner of Income-tax found that in the balance-sheet belonging to -the assessee; a sum of rupees one lakh due from Dhandayuthapani Films was not shown. Therefore, the Commissioner of income-tax came to the conclusion that there is undisclosed income of rupees one lakh in the case of the assessee. The fact remains that the Income-tax Officer has not conducted enquiry with regard to the omission of rupees one lakh due from Dhandayuthapani Films. Therefore, in order to verify the account and pass an appropriate order, the Commissioner of Income-tax thought fit to set aside the order made by the Income-tax Officer and directed him to re-do the assessment on this aspect, after getting clarification from the assessee. Hence, it cannot be said that the order passed by the Commissioner of Income-tax was without any finding as to whether the order passed by the Income-tax Officer is erroneous and prejudicial to the interests of the Revenue. Therefore, according to learned standing counsel, there is no infirmity in the order passed by the Commissioner of Income-tax under section 263 of the Act.
We have heard learned standing counsel appearing for the Department and perused the records carefully.
A scrutiny of the income-tax records of the assessee as well as the other connected file of Dhandayuthapani Films disclosed the fact that the latter owed a sum of rupees one lakh to the assessee as disclosed in the details filed by it. This investment as advance of rupees one lakh did not find a place in the balance-sheet and other details filed by the assessee. This gum of rupees one lakh advanced on January 7, 1974, appears to have escaped the notice of the Income-tax Officer, according to the Commissioner of Income tax. Therefore, completion of the assessment for 1974-75, without verifying this investment, which has been omitted to be shown by the assessee was considered as erroneous in so far as it is prejudicial to the interests of the Revenue. Hence, the jurisdiction under section 263 of the Act was invoked.
The assessee submitted before the Commissioner of Income-tax that a sum of rupees one lakh was, in fact, advanced to Dhandayuthapani Films, Coimbatore, on January 7, 1974, for the purpose of purchasing the lease rights of the film "Velikizhamai Viradham", which was then under production. However, before the production was completed, the assessee instructed the producer, Dhandayuthapani Films, to sell the lease rights to Fathima Trust, Madras 34, for a sum of Rs.1.30 lakhs. The producer, Dhandayuthapani Films, accordingly, sold the lease rights to, the Fathima Trust as per the assessee's instruction. A sum of Rs.25,000 was paid by the Fathima Trust to the assessee and the balance remaining unpaid, viz., Rs.1,05,000 has been admitted by the assessee in her balance-sheet, as on March 31, 1974. Hence, it is clear that there is no escapement of income, inasmuch as the investment of rupees one lakh has been admitted by the assessee not in the name of Dhandayuthapani Films, but in the name of Fathima Trust. Dhandayuthapani Films, Coimbatore, being a producer is in the practice of making adjustments in respect of advances received from distributors after the picture is released. As "Vellikizhamai Viradham" was released only in the accounting period, relevant for 1975-76 assessment in the case of Dhandayuthapani Films, this adjustment has been made only in the accounting period April 1, 1974, to March 31, 1975. This is the reason for the commission on the part of the assessee to admit this investment and on the part of the producer to show this amount under distributor's advance outstanding, as on March 31, 1974. This explanation offered by the assessee was accepted by the Commissioner .of Income-tax. When the explanation offered by the assessee was accepted by the Commissioner of Income-tax, with regard to the alleged undisclosed income of rupees one lakh, then there is no error in the order passed by the Income-tax Officer in the case of the assessee in the assessment year 1974-75. Therefore, in the present case, after the enquiry, the Commissioner of Income-tax has not given any categorical finding that the order passed by the Income-tax Officer on this aspect was erroneous and prejudicial to the interests of the Revenue. On the other hand, the Commissioner set aside the order passed by the Income-tax Officer on the ground that verification of account is needed, with a clarification of the assessee. This cannot be a ground for invoking jurisdiction under section 263 of the Act. Therefore, on the factual finding, we consider that the order passed by the Tribunal in holding that the Commissioner of Income-tax has no jurisdiction to invoke the provisions of section 263 of the Act is in order.
Accordingly, we answer the question referred to us in the affirmative and against the Department. No costs.
M.B.A./3123/FC Reference answered.