Gauhati H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that no proceedings can be taken under s. 263 of the IT Act, 1961, no proceedings can be taken under s. 263 of the IT Act, 1961, on assessment order completed under s. 143(1) of the IT Act, 1961, even if such orders are prejudicial to the interests of the Revenue ?

Counsel Appeared

K.P. Sharma & Ms. B. Das, for the Revenue : A.K. Saraf & Suresh Agarwal, for the Assessee

JUDGMENT

R.S. MONGIA, ACTG. C.J. :

In this income-tax reference, the following questions have been referred for our opinion :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that no proceedings can be taken under s. 263 of the IT Act, 1961, no proceedings can be taken under s. 263 of the IT Act, 1961, on assessment order completed under s. 143(1) of the IT Act, 1961, even if such orders are prejudicial to the interests of the Revenue ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in quashing the order passed under s. 263 of the IT Act, 1961. In this case ?”

2. Briefly, the facts giving rise to the present reference may be noticed. For the asst. yrs. 1986-87 and 1987-88 summary assessments were made under s. 143(1) of the IT Act, 1961, on 27th March, 1989. The assessee (respondent) is engaged in the business of cultivation and manufacturing of tea. During the years of assessment, referred to above, the sums of Rs. 1,14,97,386 and Rs. 2,90,96,036 were claimed as deduction towards lease rent payment. These were allowed by the assessing authority. However, the CIT exercising powers under s. 263 of the Act passed an order on 27th March, 1991, remanding the case to the AO for the aforesaid years by directing that the same be done after enquiries are made relating to the lease rent. The assessee filed an appeal against the aforesaid order before the Tribunal which was allowed vide order dt. 12th July, 1996 (copy appended as annexure C with this income-tax reference). In fact, two appeals were filed against two separate orders for the two assessment years referred to above. Both the appeals were disposed of by one order. The appellate authority after relying on the judgments reported as CIT vs. Smt. Sangeetha Agarwal (1992) 196 ITR 647 (All) : TC 55R.475, CIT vs. M.M. Khambhatwala (1992) 198 ITR 144 (Guj) : TC 57R.148, Gee Vee Enterprises vs. Addl. CIT 1975 CTR (Del) 61 : (1975) 99 ITR 375 (Del) : TC 57R.211, Smt. Tara Devi Aggarwal vs. CIT 1973 CTR (SC) 107 : (1973) 88 ITR 323 (SC) : TC 57R.206 came to the conclusion that for exercise of power under s. 263, the CIT should not only come to the conclusion that the order of assessment is erroneous but also that the same is prejudicial to the Revenue. Both the conditions must co-exist.

We have heard Mr. K.P. Sarma, learned standing counsel for the appellant, and also Dr. A.K. Saraf assisted by Mr. Suresh Agarwal, learned counsel for the respondent.

The apex Court in Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC) held that both the conditions that the order of assessment is erroneous and the same is prejudicial to the Revenue must simultaneously co-exist before power under s. 263 of the Act can be exercised by the CIT. In other words, a mere erroneous order would not give the power to the CIT under s. 263 to ask the assessing authority to pass fresh orders of assessment.

We are further of the view that there must be some material either intrinsic in the order of assessment itself or otherwise before the CIT to order reassessment or enquiry into the matter. A Division Bench of the Punjab & Haryana High Court in CIT vs. Chawla Trunk House (1980) 18 CTR (P&H) 84 : (1983) 139 ITR 182 (P&H) : TC 57R.340 held that it cannot be disputed that the assessing authority in the summary proceedings under s. 143 may accept the return as it is without holding any enquiry. Consequently, it would follow that the CIT must have some material on the file which ay compel him to pass an order under s. 263 of the Act that the matter needs to be further enquired into. In the present case, the assessing authority accepted the return filed by the assessee whereby deduction for the lease rent to the extent of the amounts mentioned above was accepted. From the order passed by the CIT it is nowhere mentioned as to what was the material with him to order enquiry into the matter by the assessing authority.

For the foregoing reasons, the reply to the questions in the opening paragraph is in the affirmative, i.e., against the Revenue. The Tribunal was justified in quashing the order of the CIT.

[Citation : 250 ITR 747]