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Judgment
Per G. E. Veerabhadrappa, Accountant Member - These are assessees appeals arising out of the consolidated order dated 27-3-1992 passed by the Commissioner of Income Tax u/s 263 of the Income Tax Act, 1961 for the assessment years 1977-78 to 1989-90.
The assessee is an individual. Search and seizure action u/s 132 of the Income Tax Act, 1961 was taken against him on 28-3-1988, 29-3-1988 and on 2-4-1988. In the course of search, the following assets were seized at different places :-
(1) Cash Rs. 1,60,000
(2) Jewellery and diamonds Rs. 45,38,595
(3) Shares and debentures Rs. 50,000
Apart from the above valuables, books of account and documents were seized. Certain statements were recorded and loose papers were processed. In answer to question No. 9 in the statement recorded u/s 132(4), the assessee admitted the amount of Rs. 97,79,038 processed in respect of loose papers filed A-34, page 18, represents the undisclosed income from the concealed business activities. Taking into consideration the seized materials, an order u/s 132(5) of the Income Tax Act, 1961 came to be passed determined the total income at Rs. 1,01,00,000. Determining the tax liability at Rs. 52,80,713 and the liability towards penalty u/s 271(1)(c) to the extent of Rs. 1,05,00,000, it was ordered that the entire seized assets would be retained [The order of the Assistant Commissioner of Income Tax (Inv.), Circle 19(1), Bombay, is at pages 25 to 30 in the paper book filed].
Aggrieved by the aforesaid order passed u/s 132(5) of the Income Tax Act, 1961, the assessee filed an appeal to the Commissioner of Income Tax, City VII, Bombay, praying, among other things :
(1) the addition to be made u/s 132(4) may be taken at Rs. 46 lakhs for the assessment year 1988-89;
(2) the assessee may be granted all immunities from penalty under Explanation 5 to section 271(1)(c);
(3) accounted stock belonging to Niki Diamonds of 263.77 carats be released;
(4) all valuables seized to be released.
(The application of the assessee is at pages 31 to 37 of the paper book). The Commissioner of Income Tax, vide his order dated 20th July, 1989 u/s 132(12) of the Act estimated the concealed income to the extent of Rs. 50 lakhs and held that it was not a fit case for computation of penalty. On this basis, the Assessing Officer was directed to retain or release the assets. (Such order of the Commissioner is in pages 40 to 47 of the paper book). An application purported to be u/s 154 was filed by the Chartered Accountants representing the assessee requesting the bifurcation of the said amount of Rs. 50 lakhs for the assessment year 1975-76 to 1989-90 on the basis of the turnover. (Such petition of the assessee is at pages 48 and 49 of the paper book). The Commissioner of Income Tax, Bombay City VII, Bombay, passed his second order dated 24th October, 1989 u/s 132(12) read with section 154 of the Income Tax Act in the following manner :-
"Before the Commissioner of Income Tax, Bombay City VII Matru Mandir, Tardeo Road, Bombay 400007.
No. of the petition : BCVII/S&S/229/87-88
Name and address of : Shri Jayantilal C. Jhaveri, 477,
the assessee Manu Mansion S.V.P. Road, Bombay 4.
Date of search & seizure : 28-3-1988
Date of Order : October 24, 1989
Present for the assessee : Shri H. S. Parikh, C.A.
Order u/s 132(12) Read With Section 154 of the Income Tax Act, 1961
This has reference to my order dated 20th July, 1989. The assessee had filed petition dated 26-7-1989 pressing rectification of the order. The ITOs observations were received. After going through the same I agree that in the petition the assessee had raised the issue of spreading over the amount of Rs. 50 lakhs in the assessment years 1975-76 to 1988-89 on the basis of the turnover of each of the assessment years. The Assistant Commissioner is, therefore, directed to spread over the income of Rs. 50 lacs on the basis of the turnover from the assessment years 1975-76 to 1988-89. Therefore the petition of the assessee is allowed.
Sd/-
(H. C. Srivastava)
Commissioner of Income Tax, Bombay City VII, Bombay."
Based on this order of the Commissioner of Income Tax, additions were made by the Assessing Officer by making the following observations in the assessment order :-
"Income from commission business as per CIT order dated .......... u/s 132(12) of the Income Tax Act, 1961."
The Assessing Officer, while making these additions in the assessment year 1987-88, made the following observations :-
"In the order u/s 132(12) of the I.T. Act 1961 dated 28-7-1989, the CIT Bombay City VII Bombay has determined the concealed income at Rs. 50 lakhs and spread over was given from the asst. year 1975-76 to the assessment year 1988-89. While determining the income, the learned CIT was of the opinion that the assets were acquired out of unaccounted income generated from the commission income from jewellery business which was not disclosed to the Department previously. The transactions as appearing in the seized diaries were treated as turnover of the assessee and approximately net profit at 2.5% was calculated on the turnover. It was also held by the CIT vide his Miscellaneous order dated 1-11-1989, that no penalty u/s 271(1)(c) of the I.T. Act, 1961 will be imposed in respect of the concealed income from the asst. year 1975-76 to the asst. year 1988-89."
On a scrutiny of the Income Tax records of the assessee and particularly those for the assessment years 1977-78 to 1989-90, the Commissioner of Income Tax, acting u/s 263 of the Income Tax Act, found that the order of assessment passed by the Assessing Officer was erroneous and also prejudicial to the interest of the revenue. His order passed u/s 263 reads as under :-
"Before the Commissioner of Income Tax Bombay City VII Matur Mandir Tardeo Road Bombay 400007.
Order No. : BCVII/U/S 263/46/91-92
Name and address of : Shri Jayantilal C. the assessee Jhaveri, 477
Manu Mansion S.V.P. Road, Bombay 400004.
Assessment year : 1977-78 to 1989-90
Date of order : March 27, 1992.
Present : Shri H. S. Parikh, C.A.
Order u/s 263 of the I.T. Act, 1961
On a scrutiny of the Income Tax records of the assessee and particularly those for A.Ys. 1977-78 to 1989-90 it was seen that the business income worked out on the basis of turnover mentioned in the seized diary was much more than that which was actually assessed by the Assessing Officer. These seized diaries contained details of transactions relating to diamond and jewellery business which was not disclosed to the Department. The total concealed income worked out by the Investigation Wing was Rs. 1.74, Crores on the basis of the aforesaid diary. The exact nature of the entry in the diary was neither examined by the Assessing Officer nor was the income computed on the basis of these seized diaries and seized documents. Secondly, the question and the extent to which the set off could be allowed in respect of the unaccounted seized assets against income computed on the basis of seized documents have also not been looked into. At no stage of the proceedings the assessee was confronted with any of the issues mentioned above. It was also seen that no penalty proceedings for concealment were initiated by the Assessing Officer. Therefore prima facie the orders passed by the Assessing Officer for the above-mentioned assessment years were erroneous in so far as they were prejudicial to the interests of revenue.
(2) Therefore, a notice u/s 263 was issued to the assessee asking him to show cause why the assessments framed by the Assessing Officer should not be enhanced or modified or the orders totally cancelled and directing fresh assessments.
(3) In response to the notice Shri H. S. Parikh, C.A. attended and was heard. Shri Parikh has also submitted written submissions by his letter dated 25th March, 1992 which have been duly considered by me.
(4) The main submission but forwarded by Shri Parikh was an error in issuing one notice u/s 263 for the all the A.Y. 1977-78 to 1989-90 since the proceedings for each asst. year is separate and independent. It was also submitted that the notice was bad and invalid since the assessment orders had been passed pursuant to the directions given by the then CIT in his order u/s 132(12) dated 20th July, 1989 and therefore the present CIT would have no jurisdiction power or authority to review the order u/s 263. It was pointed out that the Assessing Officer was justified in not initiating penalty proceedings in view of the aforementioned order u/s 132(12). It was stressed that the said assessment orders were passed after directions were given by the CIT. In the order u/s 132(12) it was also pointed out that the said orders were passed after due and proper enquiry and cannot be erroneous in law.
(5) It was submitted by Shri Parikh that while passing an order u/s 132(12) dated 20th July, 1989 the entire evidence or material which was seized in the course of the search as well as the statements of various persons recorded in the proceedings u/s 132 were considered by the CIT and thereafter the order as passed. The other submissions made by Shri Parikh are essentially a denial of the mistake pointed out in the notice u/s 263.
(6) It was also brought to my notice that the assessee has filed the writ petition before the Bombay High Court and it was contended that the same was likely to come up for admission on Tuesday the 21st March, 1989. However, on enquiry from this office it has been found that the petition has been fixed for admission on subsequent date i.e. 6th April, 1992. Therefore, the question does not arise for not passing the order u/s 263 as the proceedings would get barred by limitation on 31-3-1992.
(7) I have considered the submissions made by the assessees representative and I have also perused the case records.
(8) The assessees plea that no action be taken should be taken u/s 263 till the hearing of the writ petition on Tuesday the 31st March, 1992 cannot be accepted since there is no stay order granted by the Honble High Court. Secondly, the proceedings would get time barred on 31-3-1992. I have no alternative but to pass an order.
(9) The first objection of the assessee is regarding the issue of a common notice for A.Y. 1977-78 to 1989-90. There is nothing illegal or invalid about a notice u/s 263 for more than one assessment year since the issues involved in all the asst. years are similar issues one notice u/s 263 is both legal and valid. Therefore, this argument of the assessee is rejected.
(10) The second argument of Shri Parikh is that the asst. orders were passed by the Assessing Officer pursuant to the directions given by the then CIT in his order u/s 132(12) dated 20th July, 1989 and therefore the present CIT would have no jurisdiction to review the same. By the issue of a notice u/s 263 there is no review of the order u/s 132(12) passed by my learned predecessor. The order u/s 132(12) essentially passed in order to determine whether the seized assets are to be released or to be retained. The issues involved are not decided finally but only in a summary manner in order to arrive at the conclusion whether or not the seized assets are to be released. While passing the assessment orders the Assessing Officer has essentially to consider all material facts including the seized material and then pass a speaking order computing the total income of the assessee. In this connection it is instructive to note that the assessee had himself admitted that the Assessing Officer has passed the assessment order only after following the directions given by the CIT in his order u/s 132(12). Such directions and findings even if given in the order u/s 132(12) by the CIT would be applicable for releasing or not realising of the seized materials in a summary manner. The Assessing Officer at the time of regular assessment to consider the issues independently on the basis of all available evidence before him including the seized documents. Similarly, the question of initiation of non-initiation of the penalty proceedings or concealment has to be decided on the facts of the case in the course of assessment proceedings only. Therefore, it is only the Assessing Officer who at the time of regular assessment has to decide on this issue. This issue cannot be decided in advance. It is fact and the same has admitted that the Assessing Officer has assessment order without making any independent enquiry but has merely followed the 132(12) order. Thus, it is clear that the assessment orders have been passed without making any due and proper enquiry and therefore the orders are erroneous in so far as they are prejudicial to the interests of revenue. In this connection the decision of the Gujarat High Court in the case of Additional Commissioner of Income Tax, Gujarat Vs. Mukur Corporation, is relied upon. The fact that the Assessing Officer did not consider the seized material is also evidence from the fact that the total concealed income worked out by the Investigation Wing was Rs. 1.74 Crores whereas the income assessed is much less based merely on the order u/s 132(12). Thus, it is to be seen that the material facts that lead the Assessing Officer determine the total income has not been determined. Under that circumstances, the provision of Section 263 is clearly applicable. If the proper income would have been determined then penal proceedings would have been started also for the income concealed. It was also stated by the authorized representative, Mr. Parikh that since the seized assets are less than the income determined therefore he pleaded that there was no question of determining income at a higher figure. However, it is to be understood that the total income is to be determined on the basis of the seized assets. In many cases it happens that the assessee himself declares much higher income than the assets found. Therefore his argument that there was no higher income as per the assets cannot be accepted as for determining total income. It is also found that the rate of commission has taken at 2.5% by the Assessing Officer. He has not made any independent enquiry and investigation before adopting the same rate for determination of correct total income.
(11) The question and extent of the set off to be allowed in respect of unaccounted seized assets and the income computed on the basis of the seized documents was also not independently enquired into. Penalty proceedings or concealment have also not been initiated by the Assessing Officer. He has also not given any reasons for non-initiation of penalty proceedings which would go to indicate that he independently considered the matter and arrived at a certain conclusion. The Assessing Officer has also not given any reasons for deviation from the findings given by the DDIT (Inv.) in his appraisal report.
(12) In view of the above discussion I am of the opinion that the orders framed by the Assessing Officer for A.Y. 1977-78 to 1989-90 are erroneous in so far as they are prejudicial to the interests of revenue. I therefore set aside all these assessments with a direction to the Assessing Officer to re-do the same after independently valuation all the available evidence on record including the seized material and also after giving the assessee a reasonable opportunity of being heard.
Sd/-
(B. D. Roy)
Commissioner of Income Tax, Bombay City VII, Bbay."
The assessee is aggrieved. The assessees learned counsel reiterated the contentions that were raised before the learned Commissioner of Income Tax in the proceedings u/s 263 and also the grounds of appeal raised in the memorandum of appeal. It was argued the Commissioner of Income Tax has not come to a definite conclusion that the order passed by the Assessing Officer is erroneous. The learned counsel for the assessee argued that there was no error in the order of assessment when it has followed the order of the superior officer like the Commissioner of Income Tax. The learned counsel for the assessee further argued that there was no material in the possession of the succeeding Commissioner of Income Tax to show that the order passed by the Assessing Officer is erroneous. There is no material to show that such order has caused any prejudice to the interest of the revenue. Heavy reliance was placed on to the decision of the Bombay High Court in Commissioner of Income Tax Vs. Gabriel India Ltd., . The learned counsel argued that the power conferred on the Commissioner of Income Tax u/s 263 is in the nature of supervisory jurisdiction and cannot be used for substitution of his judgment to that of the Income Tax Officer. The provisions of section 263 would not enable to Commissioner to re-examine the accounts and determine the income himself at a higher figure. According to learned counsel there must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute, on an incorrect or incomplete interpretation, a lesser tax than what was just has been imposed. According to the learned counsel, the exercise of statutory power is dependent upon existence of certain objective facts, the authority before exercising such powers must have material on record to satisfy it in that regard. The Assessing Officer has followed the instructions of the Commissioner of Income Tax at the first instance. Such order cannot be termed as erroneous. Relying upon the decision of the Punjab High Court in Commissioner of Income Tax Vs. Kanda Rice Mills, , it was argued that it is not open to the Commissioner, acting u/s 263, to merely observe that the order is erroneous without giving his considered opinion based on some material. Reliance was placed on to the decision of the Madhya Pradesh High Court in CIT v. Ratlam Coal Ash Co. [1988] 171 ITR 141. It was argued that the assessee has furnished all the information to the Commissioner of Income Tax in the proceedings u/s 132(12) and also to the Assessing Officer while passing the assessment order. The learned counsel submitted that in such an event where the assessment is completed after considering all these facts, such order cannot be termed as erroneous and prejudicial to the interest of the revenue. The learned counsel for the assessee further argued even on merits the assessee is bound to succeed inasmuch as the order passed by the Commissioner u/s 132(12) is after appreciating the facts and circumstances of the case and after the scrutiny of the seized material.
The departmental representative, on the other hand, strongly supported the order passed by the Commissioner of Income Tax u/s 263 of the Income Tax Act. The learned departmental representative submitted the whole scheme of section 132 relates to search and seizure action by the department. The provisions of section 132 make an inroad into the privacy of the citizens. Section 132 is essentially a procedural section and it is a comprehensive code in itself. When the assets are seized in an action u/s 132, it is incumbent upon the authorities to determine in a summary manner the likely concealed income and to calculate the amount of tax, interest and penalty that may arise due to the concealment of income and to retain that part of the assets and to release the remaining portion. This is a safeguard inbuilt in the system and to ensure the quick disposal of the seized assets. An order u/s 132(5), the learned departmental representative submitted, is not an order of assessment. It is open to any person to object to the order passed u/s 132(5) by making an application to the Chief Commissioner of Income Tax. This is provided u/s 132(11) and section 132(12) enables the Chief Commissioner to pass such orders as he thinks fit in relation to an order passed u/s 132(5) of the Act. The learned departmental representative relied upon the following authorities in support of the above submissions :-
(1) MAMCHAND and CO. AND OTHERS Vs. COMMISSIONER OF Income Tax, WEST BENGAL II, AND OTHERS.,
(2) Director of Inspection and Others Vs. K.C. and Co. and Others,
(3) Joginder Singh Vs. Commissioner of Income Tax and Another,
(4) Gulab and Company and Another Vs. Superintendent of Central Excise (Preventive) and Others,
(5) C. Venkata Reddy and Another Vs. Income Tax Officer (Central) I, Banglore and Others, and
(6) V. Govindarajulu v. ITO [1990] 32 ITD 1 (Mad).
The learned departmental representative submitted that the order passed either u/s 132(5) or u/s 132(12) is in the nature of interlocutory order and does not in any way conclude the assessable income. The departmental representative strongly argued that, in the facts and circumstances of the case, the Assessing Officer, acting u/s 143, must act on his own. He should examine the material and arrive at the correct income. It has been held by various Courts that in passing an assessment if the Assessing Officer just follows any instruction or observation made by any others, the assessment is liable to be set aside. There should be an application of mind by the Assessing Officer in relation to the determination of the income. Reliance was placed on to the following authorities :-
(1) Gordhandas Desai P. Ltd. Vs. V.B. Kulkarni, Income Tax Officer and Others,
(2) Income Tax Officer, "F" Ward and Others Vs. Eastern Scales (Pvt.) Ltd.,
(3) Lampa Trading Co. v. ITO [1992] 42 TTJ (Delhi) 465
(4) Venkatakrishna Rice Company Vs. Commissioner of Income Tax,
(5) Gee Vee Enterprise Vs. Additional Commissioner of Income Tax, and
(6) Swarup Vegetable Products Industries Ltd. (No. 1) Vs. Commissioner of Income Tax, .
The learned departmental representative argued the Assessing Officer has passed the order by blindly following the order passed by the Commissioner of Income Tax u/s 132(12) of the Act, without any application of the mind. The learned departmental representative argued that the ratio laid down by the Bombay High Court in Gabriel India Ltd.s case (supra) is distinguishable on facts. The learned departmental representative further argued the Commissioner of Income Tax, acting u/s 132(12), has gone beyond the prayer made by the assessee when he granted the spreading of the income. According to the learned departmental representative, the Assessing Officer has gone on record to say "that I am following the directions of the CIT". In the facts and circumstances of the case, the Assessing Officer has not applied his mind. That itself is sufficient to render his order erroneous and prejudicial to the interest of the revenue.
In reply the learned counsel for the assessee submitted that when the assessee made the statement u/s 132(4), he was under tension. Immediately thereafter, it was clarified that the concealed income was not to the extent of Rs. one crore and odd. Further it was replied that the order u/s 132(12) is binding on the Assessing Officer and it has a purpose and the Commissioner of Income Tax has the power to decide the issue and his finding has a bearing on the assessment. Even the Commissioner of Income Tax, in the proceeding u/s 263, has no material to hold that the order passed u/s 132(12) is erroneous.
We have considered the rival submissions in the light of the material to which our attention was drawn at the time of hearing. Before a finding is given on the validity of the proceedings u/s 263 of the Act, it would be necessary to go into the provisions of section 132 of the Income Tax Act, 1961. Search and seizure is a serious invasion of the rights of the subjects. It was really not known at earlier stages to common law. When it was for the first time introduced, it was confined only to stolen goods, but its usefulness soon forced its recognition and it was, from time to time, extended to such likes as searches and seizures as are contemplated under the Income Tax Law. It is true that sometimes the over zealousness of the authorities led to its abuse and for that reason various safeguards are provided. The provision of section 132 is a complete code in itself and it is also held by the Courts and such provision is procedural and self-contained. Reference may be made to the decision of the Honble High Court of Jammu and Kashmir in K. C. & Co.s case (supra). The Punjab & Haryana High Court, in the case of Joginder Singh (supra), observed as under :
"When section 132 is considered as a whole, it reveals that it has its own procedure for the search, seizure, determination of the point in dispute, quantum to be retained and also the quantum of the tax and interest on the undisclosed income, in relation to the amount seized. It has its own procedure for application under sub-section (11) in the place of appeal. It has all the fortifications of a code. The general provisions of the Act like the assessment u/s 139, etc., cannot be invoked in this provision. This provision exists in complete isolation of the other provisions of the Income Tax Act and the general provisions of the Income Tax Act neither can creep from underneath these fortifications nor can overlook with favour or disfavour over these to influence the procedure or judgment in the proceedings u/s 132."
The provisions of section 132 of the Act vest in the Income Tax Authorities powers very dangerously wide and even drastic in nature, but the safeguards are inbuilt in the section itself. There are detailed rules setting out the procedure for making the search and seizure and for the custody of what has been seized. Sub-section (5) of section 132 deals with the special cases where, on search, money, bullion, jewellery and other valuables believed to be undisclosed income or property are seized. What is seized cannot be kept by the departmental authorities with them indefinitely. Sub-section (5) requires that a summary enquiry must be made by the Income Tax Officer with a view to ascertain how much of the seized valuables should be retained against the concealed tax dues. The balance must be forthwith released. The second proviso to sub-section (5) also provides that where a person concerned has paid or made satisfactory arrangements for payment all the Income Tax dues, which are summarily estimated under sub-section (5), the seized assets shall be released. The provisions of section 132(5) may conveniently be reproduced :-
"(5) Where any money, bullion, jewellery or other valuable article or thing (hereafter in this section and in sections 132A and 132B referred to as the assets) is seized under sub-section (1) or sub-section (1A), the Assessing Officer, after affording a reasonable opportunity to the person concerned of being heard and making such enquiry as may be prescribed, shall, within one hundred and twenty days of the seizure, make an order, with the previous approval of the Deputy Commissioner, -
(i) estimating the undisclosed income (including the income from the undisclosed property) in a summary manner to the best of his judgment on the basis of such materials as are available with him;
(ii) calculating the amount of tax on the income so estimated in accordance with the provisions of the Indian Income Tax Act, 1922 (11 of 1922), or this Act;
(iii) determining the amount of interest payable and the amount of penalty imposable in accordance with the provisions of the Indian Income Tax Act, 1922 (11 of 1922), or this Act, as if the order had been the order of regular assessment;
(iii) specifying the amount that will be required to satisfy any existing liability under this Act and any one or more of the Acts specified in clause (a) of sub-section (1) of section 230A in respect of which such person is in default or is deemed to be in default, and retain in his custody such assets or part thereof as are in his opinion, sufficient to satisfy the aggregate of the amounts referred to in clauses (ii), (iia) and (iii) and forthwith release the remaining portion, if any, of the assets to the person from whose custody they were seized :
Provided that if, after taking into account the materials available with him, the Assessing Officer is of the view that it is not possible to ascertain to which particular previous year or years such or any part thereof relates, he may calculate the tax on such income or part, as the case may be, as if such income or part were the total income chargeable to tax at the rates in force in the financial year in which the assets were seized and may also determine the interest or penalty, if any, payable or imposable accordingly :
Provided further that where a person has paid or made satisfactory arrangements for payment of all the amounts referred to in clauses (ii), (iia) and (iii) or any part thereof, the Assessing Officer may, with the previous approval of the Chief Commissioner or Commissioner, release the assets or such part thereof as he may deem fit in the circumstances of the case."
It is clear from the above that u/s 132(5), the Assessing Officer, after affording a reasonable opportunity to the person concerned of being heard and making such enquiries as may be prescribed, shall, within specified days of the seizure, make an order estimating the undisclosed income in a summary manner and also calculate the amount of tax, interest and penalty imposable in accordance with the provisions of the Income Tax Act. Such determination shall be made as if the order had been made the order of regular assessment and, thereafter, retain in his custody such assets or part thereof as are in his opinion sufficient to discharge the assessees liabilities and forthwith release the remaining portion of the seized valuables. The entire scheme of section 132(5) does not substitute the assessment of income to be made under the provisions of section 143 of the Act. But it is more concerned with the retention and/ or release of the valuables seized. The failure to proceed u/s 132(5) renders the seizure invalid. The order u/s 132(5) should be passed within the prescribed period from the date of the seizure. All these are the safeguards provided to see that the seized articles are not kept with the department indefinitely unless there is a prima facie case for their retention. The provisions are intended to expedite the return of the seized assets after retaining assets due by way of tax, interest or penalty to Government. The seizure of the assets has been made in the belief that the assets represent undisclosed income or property. But the Assessing Officer cannot merely rest on this belief. He must make a summary enquiry after notice to the person concerned and the latter has an opportunity to show that he had duly disclosed this income. If he cannot do this, the Officer is entitled to proceed on the basis that it is undisclosed income and, on the relevant material, make a broad estimate of the tax withheld. The amount of such tax, which truly belongs to the Government, is retained by the Assessing Officer and the balance forthwith released. The Supreme Court in Pooran Mal Vs. The Director of Inspection (Investigation), New Delhi and Others, found it difficult to see how this can be described as confiscation. It has been held by the Supreme Court in the said case that an enquiry contemplated under sub-section (5) is not a substitute for regular assessment or reassessment. The Assessing Officer, having jurisdiction, will proceed with the assessment in due course and determine the correct amount of tax payable. In the meantime, the assets retained are only by way of sequestration to meet the tax dues found to be eventually payable. The order u/s 132(5) does not in any way affect the Assessing Officer from making a proper estimation of income while making regular assessment u/s 143 of the Act. In other words, it would be open for the Assessing Officer to arrive at a different figure of concealed income while making regular assessment than what has been determined while acting u/s 132(5) of the Act. Sub-section (11) of section 132 provides a remedy to a person who has any objection against an order passed u/s 132(5). Sub-section (11) simply provides a complete remedy to get an order u/s 132(5) corrected. Where such objection is filed, the Chief Commissioner or Commissioner is empowered to dispose the same. The authority can pass such orders on the application as it thinks fit, after giving the applicant an opportunity of being heard. Either the provisions of section 132(5) or the provisions of section 132(12) are not concerned with the assessment of income but are mainly concerned with the retention or release of the seized valuables. For that purpose, such authorities may be required to estimate the income, which was not disclosed to the department, the tax due thereon and the interest and the penalty due thereon. The whole exercise, which is a summary determination, does not in any way whittle down the duty of the Assessing Officer to make a fair estimate of the income under the provisions of section 143 of the Act. The Assessing Officer must assess the income not being solely guided by the order passed by him either u/s 132(5) or by the Chief Commissioner/Commissioner passed u/s 132(12) of the Act. The proceedings of assessment are described as quasi-judicial because they have certain, though not all, attributes of a judicial proceeding and the conclusions or decisions taken by the Officers have some attributes of a judicial decisions. One such attribute is that the Officer should act independently and arrive at his own conclusions. The Bombay High Court, in DINSHAW DARABSHAW SHROFF Vs. COMMISSIONER OF Income Tax, CENTRAL., , has observed that although, no doubt, an Income Tax Officer making an assessment is not strictly acting as a Court of Law but it is clear that he is acting in a quasi-judicial capacity and he ought to conform to the elementary rule of judicial procedure, and in particular to conduct the case himself, and not allow somebody else, even his superior Officer, to take the conduct out of his hands. It has also been judicially recognized that the Officer should act on the basis of his own opinion and not on the opinion, advice or dictates of a superior authority. In the case before us, the impugned assessments, except in the assessment year 1987-88, the Assessing Officer proceeds without application of his own mind that the income from commission business is as per the order of the Commissioner passed u/s 132(12) of the Act. Even in the assessment year 1987-88, he is more guided by the order passed by the learned Commissioner u/s 132(12) of the Act and in not initiating the penalty in all these years, he is very much guided by the order of the Commissioner passed u/s 132(12) of the Act. There is complete lack of application of mind on the part of the Assessing Officer. The Assessing Officer has not applied his mind to the facts of the case before determining the income for the purposes of assessment. In our view, this action of the Assessing Officer itself renders his order erroneous and consequently prejudicial to the interest of the revenue. It is wrong to presume that the order of the Commissioner passed u/s 132(12) gives any direction to the Assessing Officer in the matter of determination of income for the purposes of assessment. The order passed either u/s 132(5) or u/s 132(12) is in the nature of interlocutory order and does not in any way determine the income that would be assessable. The order of assessment in any year does not show the independent application of the amount by the Assessing Officer to be facts of the case. It has been held by the Delhi High Court in Gee Vee Enterprises case (supra) that it is incumbent on the Income Tax Officer to further investigate the facts stated in the return when circumstances would make such an enquiry prudent and that the word erroneous in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an enquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. In the facts before us, the Assessing Officer has simply followed the order of the Commissioner passed u/s 132(12) without independently examining. The failure on the part of the Assessing Officer to make proper enquiries about the correct assessable income in the case of the assessee has caused prejudice to the interest of the revenue. The learned Commissioner, acting u/s 263, has only set aside the assessment with a direction to re-do the same after examination of all the available evidence on record, including the seized material. Such order of the learned Commissioner passed u/s 263 cannot be found fault with. In the light of the above discussion, we uphold the order of the Commissioner of Income Tax.
Before parting with this order, we may briefly discuss the ratio of the decisions relied upon by the learned counsel for the assessee. In the case of Gabriel India Ltd. cited (supra), an issue before the Tribunal related to a deduction of a sum of Rs. 99,326 described as plant re-lay out expenses. A query was made by the Income Tax Officer in regard to the nature of the above expenditure and the assessee explained, besides letter dated 19th September, 1975, that it had been incurred in connection with the merger of two existing plants for the manufacturing of shock absorbers, which were located side by side at its factory at Mulund. The case of the assessee was that as the lay out of the two plants was not conducive, the management decided to merge those two plants and re-lay out the same according to the flow of operations conducive to more production. The above expenditure was claimed to be a business expenditure allowable as deduction in the computation of the income. The Assessing Officer accepted the explanation of the assessee and allowed the same as deduction. The Commissioner, acting u/s 263, held that in the light of the principles enunciated by the Supreme Court in Sitalpur Sugar Works Ltd. Vs. Commissioner of Income Tax, Bihar and Orissa, , the expenditure was in the nature of capital expenditure. On these facts, the Tribunal held that the Commissioner was not correct in his opinion that the Income Tax Officer did not apply his mind to the facts of the case before allowing the aforesaid claim inasmuch as the Income Tax Officer has raised a specific query in the course of assessment proceedings in regard to the same and the assessee has submitted an explanation. The Tribunal accepted the assessees version and vacated the proceedings u/s 263. On a reference, the Honble Bombay High Court held that the decision of the Income Tax Officer, in the facts and circumstances of the case, could not be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard. It was also pointed out by the Honble Bombay High Court that the Commissioner himself even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and the expenditure was not revenue expenditure but capital in nature. He simply asked the Income Tax Officer to re-examine the matter. Thus, the Bombay High Court held, was not permissible. In the case before us, on going through the order passed by the Assessing Officer, we find the application of mind by him is totally absent. He is guided more by the order passed by the Commissioner u/s 132(12) of the Act. The Assessing Officer has abdicated his duty to assess proper income, after the study of the seized material and other relevant information. In the case of Ratlam Coal Ash Co. cited (supra), it was found by the Commissioner of Income Tax that the Income Tax Officer framed an assessment on a total income of Rs. 35,000, as against the returned income of Rs. 26,324, just two days after the return was filed, without ascertaining as to how the amount of total income was arrived. The Honble Madhya Pradesh High Court had observed that where the Income Tax Officer made the assessment in undue hurry accepting what the assessee stated in the return without making any enquiries, the Commissioner would be justified in holding the order of the Income Tax Officer to be erroneous. But in that case, the Tribunal found that the assessee had furnished all the requisite information and the Income Tax Officer considered all the facts and completed the assessment. The Tribunal also came to a finding that the assessment was made after making proper enquiries. On those facts, it was held by the Honble High Court that the order of revision was not valid. In the facts of this case, we have already observed that the Assessing Officer has not applied his mind. Even within the ratio laid down by the Honble Madhya Pradesh High Court, such an order passed by the Income Tax Officer would be clearly erroneous. In Kanda Rice Mills case (supra), another case to which reliance is placed by the assessee, we may observe in that case the Commissioner has not given his opinion or even considered that cited cases or arguments raised by the assessee but he merely observed in his order u/s 263 that certain points deserved consideration. In absence of a firm conclusion arrived by the Commissioner, his order was held liable to be set aside. In the impugned order before us, the Commissioner elaborately deals and definitely concludes that the order of the Assessing Officer is erroneous and also prejudicial to the interest of the revenue. To hold that the Income Tax Officers order is erroneous, it would be suffice if there is a non-application of mind by the Income Tax Officer. As we have already observed, even at the cost of repetition, the Assessing Officer was guided more by the order passed by the learned Commissioner u/s 132(12) of the Act, than an application of his mind to the facts of the case.
9.1. It is not necessary for the Commissioner of Income Tax, acting u/s 263, to point out any errors, if any, in the order passed by the Commissioner u/s 132(12) of the Act. While the Commissioner acts u/s 263, he is concerned with the assessment order and the records for assessment, he need not have to comment anything about the order passed u/s 132(12) of the Act.
In the result, the appeals stand dismissed.