Commissioner of Income Tax vs Sunil Goyal

Prafulla C. Pant, J.—This appeal, preferred u/s 260A of Income Tax Act, 1961, is directed against the order dated 15-7-2005, passed by Income Tax Appellate Tribunal (hereinafter referred as ''ITAT''), Delhi Bench "C", in Income Tax Appeal No. 5352/Delhi/2004, whereby the appeal of the assessee is allowed and the order passed by Commissioner of Income Tax, (hereinafter referred as ''CIT''), passed u/s 263 of the Act, is quashed.

Heard learned counsel for the parties.

The question of law involved in the appeal is as under:

Whether Income Tax Appellate Tribunal has erred in law in quashing the order passed by CIT u/s 263 of Income Tax Act, 1961 and is there any illegality in the order of the CIT directing the Assessing Officer to make assessment de novo after giving the opportunity to the assessee.

Brief facts of the case are that M/s. Kwality Hardware Agencies (respondent/assessee) deals with hardware items. It submitted its return of income for the assessment year 2001-02, showing a total income of Rs. 5,67,479. However, the Assessing Officer, after giving notice completed the assessment u/s 143(3) of the Act, on income of the assessee at Rs. 6,13,310. The CIT, Dehradun, while perusing the order of the assessment of the Assessing Officer found that sundry credits worth Rs. 74,15,976 were not proved to be genuine by the assessee. And also that the advances of Rs. 1,00,000 from one Nishi Tayal was shown without disclosing the source of payment. The CIT, Dehradun, issued notices to the assessee u/s 263 of the Act. No explanation was given by the assessee in response to the notice issued by the CIT. An adjournment was sought before CIT, but on the next date also no-one turned up to place the assessee''s position in response to the notice issued to him. Even no explanation in writing was submitted before the CIT. Consequently, CIT passed the order dated 20-8-2004, cancelling the order dated 23-12-2002, passed by the Assessing Officer and directed him to make a assessment de novo. Aggrieved by said order of CIT, Dehradun, the assessee preferred an appeal before the ITAT, Delhi. The Tribunal after hearing the parties allowed the appeal and quashed the order passed by CIT, Dehradun. Hence this appeal by the revenue.

Learned counsel for the appellant/revenue argued that the impugned order passed by ITAT is erroneous in law as the assessee had avoided to reply the notice issued by CIT u/s 263 of Income Tax Act, 1961. It is further argued that in a case of income of Rs. 5,67,479 shown in the return, the sundry credits of Rs. 74,15,976 were taken as correct by the Assessing Officer after assessing the income at Rs. 6,13,310 u/s 143(3) of the Act. Learned counsel for the appellant further contended that in the circumstances of the case the CIT has rightly exercised its powers u/s 263 of the Act and the ITAT has erred in law in quashing the order passed by CIT.

On the other hand Sri S.K. Posti, learned counsel for the respondent/assessee referring to the cases of Commissioner of Income Tax Vs. Smt. D. Valliammal, and Commissioner of Income Tax Vs. Gabriel India Ltd., argued that for invoking jurisdiction u/s 263 of Income Tax Act, 1961, the following twin conditions must be satisfied: (i) the order passed by Assessing Officer is erroneous; (it) and said order is prejudicial to the interest of the revenue. It is true that the abovementioned two conditions are required to be fulfilled in exercise of powers conferred on CIT u/s 263 of the Act. In our opinion the word ''erroneous'' used in the section includes the expression ''erroneous in law'' as well as ''erroneous in fact''. When the Commissioner of Income Tax was satisfied that the sundry credits were not duly verified, it rightly found that the Assessing Officer has erred in accepting the huge sundry credits. As far as the requirement of ''prejudicial to the interest of revenue'' is concerned if the amount shown on sundry credits is not found verified and becomes part of the taxable income, the interest of the revenue is certainly prejudicially affected. As such, in our opinion, both the conditions were fulfilled in the present case and the CIT had committed no error of law in passing the order dated 20-8-2004.

It is pertinent to mention here that the assessee avoided to give the explanation/reply to the notice issued by CIT which was admittedly served on him. Even otherwise, the CIT has directed the Assessing Officer to reassess the income and still it is open for the assessee to show the books of account for the purposes of verification of the sundry credits of a huge sum shown by him. We do not agree with the reasons given by the ITAT for quashing the order passed by CIT that heavens would have not fallen if one more opportunity was given to the assessee before passing the order. The question of giving further opportunity would have arisen only when the assessee would have sought further date to give the reply. In a casual manner ITAT has mentioned that loans were confirmed by the Assessing Officer, but it has not given any details as a court of fact that what amount was got confirmed by which document.

For the reasons as discussed above, we are of the view that the ITAT has erred in law in quashing the order passed by CIT u/s 263 of the Income Tax Act, 1961, and we find that there is no illegality in the order passed by CIT directing the Assessing Officer to make de novo assessment.

Accordingly the question of law stands answered in favour of revenue and the appeal is allowed. The impugned judgment and order dated 15-7-2005, passed by ITAT, Delhi Bench "C", in Income Tax Appeal No. 5352/Delhi/2004 is hereby set aside.