1989-VIL-546-GAU-DT

Equivalent Citation: [1990] 184 ITR 149, 86 CTR 167, 48 TAXMANN 379

GAUHATI HIGH COURT

Date: 15.09.1989

SMT. DALJEET KAUR

Vs

COMMISSIONER OF INCOME-TAX

BENCH

Judge(s)  : W. A. SHISHAK., A. RAGHUVIR 

JUDGMENT

The judgment of the court was delivered by

A. RAGHUVIR C. J. -This reference is made at the instance of the assessee under the Income-tax Act, 1961. Daljeet Kaur is the assessee in the case. She was married on April 13, 1975. Her spouse is a partner in firm called Bhupendra Cloth Stores at a place called Hojai in Nagaon district. The assessee submitted three returns on July 25, 1978. For the year 1976-77 she showed an income of Rs. 8,500, for 1977-78 Rs. 8,600 and for the year 1978-79 she showed Rs. 10,100 as her income. The Income-tax Officer, A-Ward, Nagaon, served notice on July 26, heard her authorised representative on July 29, 1978, determined her income at Rs. 8,500 for 1976-77, Rs. 8,600 for 1977-78 and Rs. 10,100 for 1978-79. The Incometax Officer appended a note in the file that action under section 147/263 may be taken if necessary in future. These are the primary facts in the case.

The Commissioner of Income-tax at Shillong informed the assessee that he would reopen the assessment orders and fixed a date for hearing. The assessee desired to be heard in person. As she was enceinte she prayed for a long adjournment for the hearing. Her authorised representative, however, was heard. The Commissioner of Income-tax, after inquiry, recorded that the inquiry made on July 29, 1978, by the Income-tax Officer was scrappy in that the assessee was not examined. The inquiry revealed that no account books were maintained by the assessee. One unsigned paper was filed to show she had earned Rs. 8,500, Rs. 8,600 and Rs. 10,100 for the three assessment years. Her opening balance of account was Rs. 5,000 which amount it was represented she received at her marriage from her parents and relatives. Besides, four receipts were filed to show that she was paid Rs. 100 and in one case Rs. 120 from her pupils. She was represented to have imparted sewing lessons. The particulars of the amounts received on this count were not shown.

The Commissioner of Income-tax, on the above evidence, held that the inquiry held by the Income-tax Officer was done in haste. The assessee had no books of account. The assessee was not examined. Hojai was a small town and it was improbable that students at such a small town paid her Rs. 100 and Rs. 120 towards tuition fees. Besides, by qualification, she passed the Higher Secondary examination and with such qualification as she possessed, she could not have attracted students for tuitions. There was no tangible evidence of proof of any income from sewing lessons. Her accounts showed she withdrew Rs. 1,000 from her deposits of Rs. 28,500 by March 1979. These circumstances did not lend assurance that she had earned any income. The three assessment orders were, therefore, set aside as prejudicial to the Revenue. The Income-tax Officer was directed to hold a de novo inquiry.

The Tribunal, on appeal by the assessee, confirmed the findings recorded by the Commissioner of Income-tax. Thereupon the following question was referred to this court at the instance of the assessee : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the order of the Commissioner of Income-tax by concluding that the assessment orders in question were erroneous in so far as they were prejudicial to the interests of the Revenue ? "

The jurisdiction of the Commissioner of Income-tax under section 263 of the Income-tax Act is vigorously assailed by the assessee. A cognate question is raised as to what forms a record for purposes of section 263 of the Act. That the interests of the Revenue on the facts of the case were not at all prejudicially affected is the principal plank of the assessee in this court

The Commissioner of Income-tax and the Tribunal both held that there was some sort of fraud practised on the Revenue in which the assessee either played a part along with her husband when she filed voluntarily three returns or she connived with her husband and obtained orders from the Income-tax Officer. These conclusions are not recorded in so many words but sufficient suggestions are thrown in the orders to infer such conclusion. The background for the suggestion is that her spouse is a textile trader in Bhupendra Cloth Stores at Hojai. The Commissioner of Income-tax, therefore, suggests not explicitly that inferences can be drawn either as a possibility or as high probability as indicated earlier.

We find that the record relevant to the spouse or that of the firm of Bhupendra Cloth Stores was not before the Income-tax Officer or before the Commissioner of Income-tax. Therefore, the assessee assails the suggested inferences and argued that the conclusions arrived at by the Commissioner of Income-tax or by the Tribunal are mere conjectures. If the inferences of the two authorities are left out, what remains is that the assessee had no income of her own because at Hojai, the assessee could not have imparted lessons or held sewing classes and earned any income in the relevant three assessment years. On these primary facts, the assessee contends that if no income accrued or was earned by her and she filed returns showing income, the Revenue is not prejudicially affected as in such a case where no tax is to be paid, the Revenue levied and can collect some income.

In this background, the scope of the words "erroneous and prejudicial to the interests of the Revenue" contained in section 263 is highlighted on behalf of the assessee by learned counsel who appeared for her. The scope and ambit of the above words is covered in many decided cases. In numerous cases, the words "error" and "prejudicial" were held to be two disjunctive factors. Learned counsel for the assessee argued that the two are not disjunctive. In our view, this contention advanced on behalf of the assessee is well founded.

We have sorted out a large number of cases where this contention was considered by the High Courts. To start with in Civil Rule No. 182 of 1982 and batch rendered on July 21, 1989 (Rajendra Singh v. Superintendent of Taxes), this court considered a similar issue. The issue in that case arose under the Tripura Sales Tax Act, 1976. Section 21 of the Act enabled a Commissioner to revise the orders if they were erroneous and prejudicial to the interests of the Revenue. The width and ambit of the power of these words was considered by Justice Dr. Saraf, speaking for the Division Bench of himself and Srivastava J. We respectfully agree with all that has been observed in the following passage by the learned judges :

"The power of suo motu revision under sub-section (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise the power of suo motu revision under this sub-section : (i) the order is erroneous ; (ii) by virtue of the order being erroneous, prejudice has been caused to the interests of the Revenue. It is not sufficient that the order is erroneous. It must be erroneous and also prejudicial to the interests of the Revenue, otherwise the Commissioner cannot exercise power under this sub-section. Likewise, it is not sufficient to exercise power under section 20(1) that the order in question is prejudicial to the interests of the Revenue ... From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an officer acting in accordance with law makes a certain assessment and determines the turnover of a dealer, the same cannot be branded as erroneous by the Commissioner simply because according to him the order should have been written more elaborately. "

A decision of the Calcutta High Court in Russell Properties Pvt. Ltd. v. A. Chowdhury, Addl. CIT [1977] 109 ITR 229, delineated in similar terms the amplitude of these words contained in section 263 of the Income-tax Act, 1961, at page 243. The Calcutta High Court held :

"It is not sufficient that the order was merely erroneous. It must be erroneous in so far as it is prejudicial to the interests of the Revenue. Again, it is not sufficient for the order in question to be prejudicial. An order must be erroneous so as to be prejudicial to the interests of the Revenue. It may, however, be stated that anything which is prejudicial to the interests of the Revenue would be erroneous and that anything which is not lawful would be prejudicial to the interests of the Revenue. For the ingredients or the requirements of the section, reliance may be placed on ..."

The Madhya Pradesh High Court in Maharaja Raja Pawer Dewas (H. H.) v. CIT [1982] 138 ITR 518, in like terms, held at page 524

"Under section 263(1) two pre-requisites must be present before the Commissioner can exercise the revisional jurisdiction conferred on him. First is that the order passed by the Income-tax Officer must be erroneous. Second is that the error must be such that it is prejudicial to the interests of the Revenue. If the order is erroneous, but it is not prejudicial to the interests of the Revenue, the Commissioner cannot exercise the revisional jurisdiction under section 263(1) of the Act. "

This passage in the Madhya Pradesh case was extracted and followed in V. G. Krishnamurthy v. CIT [1985] 152 ITR 683 by the Karnataka High Court. Instances like this can be multiplied.

The Commissioner of Income-tax concluded that the assessee had no income of her own and if this circumstance alone is relevant, to repeat, then one fails to see how the Revenue is prejudiced by the Income-tax Officer's order. This is repeated and mentioned to show that unless other circumstances are juxtaposed with the trade of her husband, the conclusion that she had no income cannot attract section 263 power of the Commissioner of Income-tax. Therefore, it is necessary to clutch at the jurisdiction. There must be evidence to infer that the interests of the Revenue suffered prejudice due to fraud attempted either by the assessee or by her spouse. There is no material to implicate the assessee in any fraud by herself. Even the test of probability or high probability is juxtaposed to the circumstance that Hojai was a small town. She was not so well qualified. Her story of income by tuitions and lessons in sewing is too good to be true. The next important aspect emerging from the circumstances is that of the test of probability or of high probability leading to a fraud. The record of the Income-tax Officer reveals that the spouse of the assessee is a trader in a small town dealing in textiles and no other items. The assessment orders of the firm or those of her husband were not part of the record, not scrutinised, in which case what is there to infer fraud as probability or high probability to have been practised or that she connived with her husband to defraud the Revenue.

In the Calcutta High Court case in Ganga Properties v. ITO [1979] 118 ITR 447, the aspect of record was put in the correct perspective (at P. 452) :

"Therefore, the materials which were not in existence at the time the assessment was made but afterwards came into existence cannot form part of the record of the proceeding of the Income-tax Officer at the time he passes the order and, accordingly, it cannot be taken into consideration by the Commissioner for the purposes of invoking his jurisdiction under this section, for he is not an appellate authority under this section and exercises only a revisional jurisdiction and hence he can only take into consideration the record as it stood before the Income-tax Officer and the materials in such record for the purposes of ascertaining whether the order in question was erroneous and prejudicial to the interests of the Revenue."

We respectfully adopt the reasoning and conclusion reached in that case.

The Supreme Court in the case of Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 reiterated what they held in the case of Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC). In the later case, in point of time, at page 328 it is held :

"Even when an income has not been earned and is not assessable, merely because the assessee wants it to be assessed in his or her hands in order to assist someone else who would have been assessed to a larger amount, an assessment so made can certainly be erroneous and prejudicial to the interests of the Revenue. If so - and we think it is so - the Commissioner under section 33B has ample jurisdiction to cancel the assessment and may initiate proceedings for assessment under the provisions of the Act against some other assessee who according to the income-tax authorities is liable for the income thereof."

The Supreme Court reached the above conclusion on the facts of that case and what is of importance is that the Supreme Court did not consider the issues as to what forms the record for the purpose of section 263 of the Income-tax Act, 1961, in that case. The case of King v. Nat Bell Liquors Ltd. [1922] 2 AC 128 (PC), illustrates the insurmountable difficulty faced by courts in identifying a record or the record when it is concealed in the inscrutable face of a sphinx (P. 59). Lord Sumner discovered the record in that case as William Hazlitt, the English essayist, said in another context, "almost in tears".

We hold on the facts of the case that the instant case is of non est record or of non est evidence to probabilise any fraud. Learned counsel for the Revenue argued that the assessee, to benefit her spouse, submitted voluntary return and the conclusion recorded by the Commissioner of Income-tax and the Tribunal are well-founded on facts. Counsel further emphasised that the assessee had no income and at a small place like Hojai, she could not have earned any amounts and relied on decisions in CIT v. Pushpa Devi [1987] 164 ITR 639 (Patna), CIT v. Smt. Rambha Devi [1987] 164 ITR 658 (Patna), CIT v. Smt. Pushpa Devi [1988] 173 ITR 445 (Patna), CIT v. Smt. Manju Didhoria [1988] 173 ITR 458 (Patna), CIT v. Geeta Devi Agarwal [1988] 174 ITR 601 (Patna), CIT v. Smt. Sharda Devi Lath [1989] 175 ITR 566 (Patna) and CIT v. Smt. Krishna Devi [1989] 175 ITR 591 (Patna).

In each of the above cases, it was inferred as a fact that the interests of the Revenue suffered prejudice. There is no general principle laid down in any of the cases for this court to follow as a precedent. In the instant case, we hold that there was nothing in evidence and also on record to hold that the assessee defrauded the Revenue or that the Revenue suffered any prejudice.

For the aforesaid reasons, we answer the question referred in the negative, in favour of the assessee and against the Revenue. No costs.

 

 

 

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