Madhya Pradesh H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in reversing the order of the CIT made under s. 263 and restoring that of the ITO on the ground that the CIT had not made out a case that the assessment order framed by the ITO was erroneous in so far as it was prejudicial to the interests of the Revenue ?

Counsel Appeared

Mukati, for the Revenue : T.N. Singh, for the Assessee

G.G. SOHANI, J.:

As directed by this Court, the Tribunal, Indore Bench, has referred the following question of law to this Court for its opinion :

” Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in reversing the order of the CIT made under s. 263 and restoring that of the ITO on the ground that the CIT had not made out a case that the assessment order framed by the ITO was erroneous in so far as it was prejudicial to the interests of the Revenue ?”

2. The material facts giving rise to this reference, briefly, are as follows : On an examination of the income-tax record of the assessee, the CIT found that in the return filed by the assessee for the asst. yr. 1976-77, the assessee had shown a total income of Rs. 26,324. The CIT noted that as against the income shown in the return, the ITO framed an assessment on a total income of Rs. 35,000 just two days after the return was filed, without ascertaining as to How the amount of total income was arrived at. The CIT considered that as the ITO failed to make proper enquiry both as regards the receipt of Rs. 73,500 and the expenses of Rs. 44,873 shown by the assessee, the order passed by the ITO was prejudicial to the interests of the Revenue. The CIT accordingly issued a notice to the assessee under s. 263 of the IT Act, 1961 (hereinafter referred to as ” the Act “). The assessee, appeared before the CIT and contended that the order of the ITO could not be held to be erroneous and prejudicial to the interests of the Revenue as to confer jurisdiction on the CIT to pass an order under s. 263 of the Act. It was contended that all the details were furnished and the relevant documents were produced by the assessee at the time of assessment, that the books of account were also produced and that the ITO had passed the order of assessment after proper enquiry and after application of his mind. The CIT, after taking into consideration the explanation of the assessee, held that the ITO had framed the assessment in a hurry, without any proper enquiry and as such it was prejudicial to the interests of the Revenue. The CIT, therefore, set aside the order passed by the ITO and directed the ITO to make a fresh assessment according to law. Aggrieved by the order passed by the CIT, the assessee preferred an appeal before the Tribunal. The Tribunal held that the CIT, in his order, had failed to specify as to how the order passed by the ITO could be held to be prejudicial to the interests of the Revenue. The Tribunal further held that the proceedings under s. 263 of the Act could not be held to have been rightly initiated. The Tribunal, therefore, allowed the appeal preferred by the assessee. Aggrieved by the order passed by the Tribunal, the Revenue submitted an application for making a reference but that application was rejected. The Revenue thereupon submitted an application under s. 256(2) of the Act before this Court which was allowed. That is how the aforesaid question of law has been referred to this Court for its opinion.

Having heard learned counsel for the parties, we have come to the conclusion that this reference must be answered in the affirmative and in favour of the assessee. It is well settled that where the ITO made the assessment in undue hurry, accepting what the assessee stated in the return without making any enquiries, in the circumstances of the case, the CIT would be justified in holding the order of the ITO to be erroneous. In the instant case, however, the Tribunal has found that the assessee had furnished all the requisite information and that the ITO, considering all the facts, had completed the assessment. The Tribunal further held that in the circumstances of the case, it could not be held that the ITO had made the assessment without making proper enquiries. In view of these findings, the Tribunal, in our opinion, was justified in law in reversing the order passed by the CIT.

Our answer to the question referred to this Court is, therefore, in the affirmative and in favour of the assessee. In the circumstances of the case, parties shall bear their own costs of this reference.

[Citation : 171 ITR 141]