Commissioner of Income Tax and Another vs Dr. K.P. Singh

Both the appeals have been filed by the Department under s. 260A of the IT Act, 1961, against the judgments and orders dt. 15th Oct., 1999, passed by the Tribunal, Allahabad, in ITA Nos. 1394 and 1395 of 1997, for the block period 1987-88 to 1995-96 (upto 14th Sept., 1996). Both the assessees are husband and wife and appeals have common issues. So, their appeals have been decided together.

On 23rd Nov., 2006 and 4th Dec, 2006, both the appeals were admitted on the following substantial questions of law:

Whether no opportunity of hearing is required to be given by the CIT, prior to the approval under s. 158BG of the IT Act, 1961 and was the Tribunal justified in holding to the contrary?

Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that no direction/instruction could be given under s. 158BG to the AO while granting approval to the assessment order?

Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that while granting approval the CIT is not empowered to issue directions under s. 158BG of the Act which are detrimental to the interest of the assessee?

Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the directions issued by the CIT which are detrimental to the interest of the assessee make the assessment order void or nullity to that extent?

Whether on the facts and circumstances of the case, the Tribunal is right in law in directing the AO to tax interest income from FDRs, Sahara and LIC mutual funds on receipt basis?

The brief facts of the case are that both the assessees are doctors and carrying on medical profession. A search action under s. 132 of the IT Act was carried out at the residence and the business premises of the assessee. During the search operation, certain incriminating documents were found. The AO made the additions which were upheld by the first appellate authority. However, the Tribunal has observed that in the instant cases, no opportunity was given by the CIT while giving approval under s. 158BG, so, no enhancement can be made out. Being aggrieved, the Department has filed the instant appeals.

With this background, Sri Shambhu Chopra, learned counsel for the Department read out the provisions of s. 158BG which on reproduction, read as under:

The order of assessment for the block period shall be passed by an AO not below the rank of an Asstt. CIT or Dy. CIT or an Asstt. Director or Dy. Director as the case may be:

Provided that no such order shall be passed without the previous approval of--

(a) the CIT or Director, as the case may be, in respect of search initiated under s. 132 or books of account, other documents or any assets requisitioned under s. 132A, after the 30th day of June, 1995 but before the 1st day of January, 1997;

(b) The Jt. CIT or the Jt. Director, as the case may be, in respect of search initiated under s. 132 or books of account, other documents or any assets requisitioned under s. 132A, on or after the 1st day of January, 1997.

It is his submission that the first four substantial questions of law admitted by a Co-ordinate Bench are related to the direction issued under s. 158BG of the Act.

He further submits that in the instant case, the AO has prepared a draft assessment order which was sent to the CIT for approval. The CIT on the basis of the material available on record, has given certain directions. The AO in compliance of the observations/directions issued by the CIT, passed the assessment order without providing opportunity to the assessee. The same was upheld by the first appellate authority, but Tribunal vide its impugned order observed that:

ultimate impact of all these decisions is that the issues/additions/portions of the assessment order, which has been decided in accordance with the directions of the CIT, gets vitiated and hence is a nullity.

He has drawn the attention to para 20 of the assessment order, where letter dt. 29th Sept., 1997 of CIT has been reproduced while granting the approval by raising various points. He also submits that in para 4, the direction was for recomputation, and in para 5 the amount was Rs. 10 lacs which was found recorded on the loose sheets. The AO has made the addition of Rs. 9 lacs and left out remaining Rs. 1 lac. So, the CIT has directed to compute the entire amount of Rs. 10 lacs. Further, he submits that in para 7, the rate of tax was fixed @ 60 percent which is a statutory provision. So, no direction was given and no enhancement was made out. The CIT has pointed out only the correct legal position. For this purpose, he relied on the ratio laid down in the following cases:

(i) Sakthivel Bankers, Rana Investments, Rana Cotton Yarn, Saraswathi and Co. and L. Saroja Vs. Assistant Commissioner, ;

(ii) Sree Rama Medical and Surgical Agencies Vs. Commissioner of Income Tax, ;

(iii) Lakshmi Jewellary Vs. Deputy Commissioner of Income Tax, ; and

(iv) Rishabchand Bhansali Vs. Deputy Commissioner of Income Tax, .

On the other hand, Sri S.D. Singh, learned senior counsel, assisted by Sri Abhijeet Banerjee, learned counsel for the assessee submits that in the instant case, while granting the approval, the CIT did not provide any opportunity to the assessee. He further submits that the direction issued by the CIT amounts to the enhancement in the addition. The CIT, while according approval, cannot give any direction to the AO to make additions pertaining to undisclosed income of assessee, in the draft assessment order. It is so because:

(i) Power to make block assessment is a statutory power conferred exclusively on the AO. It is not conferred on any other officer or authority.

(ii) CIT is not vested with any power to frame assessment under Chapter XIV-B of the Act.

(iii) CIT has not exercised its power under s. 263 of the Act.

Lastly, learned counsel made a request to uphold the impugned order.

We have heard both the parties at length and have gone through the material available on record. It appears that while granting the approval, the CIT has made some observations. Whether these observations amount to the enhancement of the addition or not, this aspect was not examined by the Tribunal. The Tribunal has not gone into the merit of the observations/directions, if any, made by the CIT. The Tribunal has merely decided the issue on a technical ground.

It may be mentioned that no opportunity is required while giving the approval by the CIT as per the ratio laid down in the case of Rishabchand Bhansali v. Dy. CIT (supra), where it was held that being an administrative action, assessee is not entitled to opportunity of being heard. Further, in the case of Lakshmi Jewellery v. Dy. CIT (supra), it was held that:

...the CIT before making an order approving the order of assessment made by the AO in exercise of his powers under s. 158BG(a) need not give a hearing to the assessee.

Similarly, in the case of Sree Rama Medical & Surgical Agencies v. CIT (supra), it was observed that:

...The provisions of s. 158BG do not contemplate that the CIT should come face to face with the assessee while according approval for the proposed assessment under Chapter XIB-B of the Act. Apart from the language of the provision, the nature of the functions confided to the CIT is inconsistent with the application of the principles of natural justice.

For the examination of the merit pertaining to each addition vis-�-vis CITs report dt. 29th Sept., 1997, we, therefore, refer the matter back to the Tribunal with a direction to examine the same on merit and pass a fresh order as per law after providing reasonable opportunity to the assessee. Hence, answers to the substantial questions of law 1 to 4 are not required specially when the matter is restored to the Tribunal for adjudication.

Regarding the substantial question of law No. 5, after hearing both the parties at length, we find no infirmity in the Tribunal''s order, where the Tribunal observed that the interest income must be taken on receipt basis shown by the assessee from the FDRs, Sahara and LIC mutual funds. The assessee is maintaining the accounts on actual receipt basis and he is not maintaining any account on mercantile basis, as appears from the record.

When it is so, then the answer to the substantial question of law is in favour of the assessee and against the Department. In the result, the appeal filed by the Department is partly allowed.