Commissioner Of Income Tax - Petitioner(S v. Arvind Jewellers - Respondent(S

INCOME TAX REFERENCE No. 173 of 1989 For Approval and Signature: HON'BLE MR.JUSTICE D.A.MEHTAHON'BLE MS.JUSTICE H.N.DEVANI ======================================================= COMMISSIONER OF INCOME TAX - Petitioner(s)Versus ARVIND JEWELLERS - Respondent(s) ======================================================= Appearance : MR MANISH R BHATT for Petitioner No(s).: 1. MR RK PATEL for Respondent No(s).: 1. ======================================================= CORAM :HON'BLE MR.JUSTICE D.A.MEHTA HON'BLE MS.JUSTICE H.N.DEVANI Date : 06/07/2005 ORAL JUDGMENT (Per : HON'BLE MR.JUSTICE D.A.MEHTA) 1.Following two questions have been referred by the Income TaxAppellate Tribunal, Ahmedabad Bench 'C' under Section 256(2)of the Income Tax Act, 1961 (the Act), at the instance ofCommissioner of Income Tax. 1.The Assessment Year is 1981-82 and the relevant accountingperiod is Samvant Year 2036. The assessee, a partnershipfirm, sought registration in terms of provisions of Section185 of the Act. The Assessing Officer passed an order on17.11.1983 granting registration to the assessee firm in thefollowing words. 1.The Commissioner of Income Tax (Investigation), Gujarat(hereinafter referred to as the C.I.T.) initiated actionunder Section 263 of the Act by issuing show cause notice on04.06.1984. The assessee filed reply to the show causenotice on 09.07.1984 and 22.07.1984. However, the C.I.T. forthe reasons stated in his order dated 23.11.1984 rejectedthe explanation of the assessee and held that the order madeby the Assessing Officer under Section 185(1)(a) of the Actgranting registration to the firm was erroneous andprejudicial to the interests of revenue. As a consequence,he set aside the order with a direction “to pass fresh orderaccording to law after carrying out necessary investigationwith regard to the genuineness of the firm.” 1.The assessee carried the matter in appeal before theTribunal. The Tribunal allowed the appeal vide its orderdated 19.09.1986 holding that the order made by the C.I.T.was bad in law. That C.I.T. had referred to only certainquestions out of the statement recorded of the partners todraw the inference that the firm may not be genuine. Inother words, according to Tribunal, the C.I.T. had doubtedthe genuineness of the firm by reading the statement of thepartners in a truncated manner. The Tribunal has held that adocument has to be read as a whole in order to decide itsimportance instead of picking up answers to one or twoquestions, which may favour one party or the other. TheTribunal has further found on reading the various statementsof the partners that when the said docuements are read as awhole, it was difficult to concur with the view taken by theC.I.T. while initiating proceedings under Section 263 of theAct. 1.The Tribunal has further found that the basis for initiationof proceedings under Section 263 of the Act appeared to bethe factum of a search conducted under Section 132 of theAct at the premises of the firm and the partners. Finally,the Tribunal finds “We find from the material already onrecord that the I.T.O. had, in fact, made properinvestigation before granting registration u/S. 185(1)(a) ofthe Act.” 1.It is this order which is assailed by the Ld. StandingCounsel for the revenue, Ms. M.M. Bhatt. 1.It was submitted that the C.I.T. was not satisfied with theanswers given by the partners as could be seen from thereproduction in the order under Section 263 of the Act, andhence, he initiated action under the said Section holdingthe order granting registration to be erroneous andprejudicial to the interests of revenue. According to her,no prejudice was caused to the assessee considering the factthat the C.I.T. had merely set aside the order with a direction to pass fresh order after carrying out necessaryinvestigation and the Tribunal had wrongly interfered insuch an order, which per se was an innocuous order. 1.It is this order which is assailed by the Ld. StandingCounsel for the revenue, Ms. M.M. Bhatt. 1.It was submitted that the C.I.T. was not satisfied with theanswers given by the partners as could be seen from thereproduction in the order under Section 263 of the Act, andhence, he initiated action under the said Section holdingthe order granting registration to be erroneous andprejudicial to the interests of revenue. According to her,no prejudice was caused to the assessee considering the factthat the C.I.T. had merely set aside the order with a direction to pass fresh order after carrying out necessaryinvestigation and the Tribunal had wrongly interfered insuch an order, which per se was an innocuous order. 1.Mr. R.K. Patel, Ld. Advocate appearing on behalf of therespondent – asseseee submitted that there was no error inthe order of Tribunal and Tribunal had recorded variousfinding of fact, which were not shown to be incorrect in anymanner. 1.The true scope of the powers of C.I.T. under Section 263 ofthe Act is defined by Apex Court in the case of MALABARINDUSTRIAL CO. LTD. V/S. COMMISSIONER OF INCOME TAX reportedin (2000) 243 ITR 83. While explaining the phrase“Prejudicial to the interests of the revenue”, it is statedthat the order made by the Assessing Authority cannot betreated as prejudicial to the interests of the revenue whenan officer has adopted one of the courses permissible inlaw, or where two views are possible and the officer hastaken one view with which, the C.I.T. does not agree. Thatin such circumstances, apart from the order not beingprejudicial to the interests of revenue, it cannot betreated as an erroneous order also, unless the view taken bythe Assessing Officer is unsustainable in law. 1.Applying the aforesaid tests to the facts found by theTribunal it is not possible to agree with the contentionraised by the revenue. There is no infirmity in the order ofthe Tribunal, which would enable this Court to interfere. Asto whether a firm is genuine or not is primarily a questionof fact. Similarly, as to what inference of facts should bedrawn from the facts available on record would also be aquestion of fact. It is not even the case of revenue, aseven the C.I.T. does not state in his order under Section263 of the Act, that on the same set of evidence, viewadopted by the Assessing Officer was not a possible view.The C.I.T. also does not state that no investigation hasbeen carried out by the Assessing Officer. In fact, when onereads the entire order of C.I.T., there is no whisper aboutthe order granting registration being erroneous in any manner, and this is a pre-requisite condition for exerciseof jurisdiction under Section 263 of the Act. Even if oneinfers that, that was said by the C.I.T., yet as found bythe Tribunal on reading of the statements and taking overallview of the matter, it was not possible to doubt thegenuineness of the firm. The finding of fact recorded by theTribunal from the material on record that the AssessingOfficer had made proper investigation before grantingregistration has not been shown to be incorrect in anymanner whatsoever. 1.As can be seen from the order under Section 185(1)(a) of theAct extracted hereinbefore, the Assessing Officer has takeninto consideration the fact that all the requisiteformalities as laid down in the Act have been fulfilled bythe firm, and it is further found that the firm was genuine.In the circumstances, at the highest, it would amount totaking one view from the material available on record, withwhich, the C.I.T. does not agree and this by itself, as heldby the Apex Court, cannot constitute a valid reason forexercise of jurisdiction under Section 263 of the Act. 1.Therefore, both on facts and in law, it is not possible tohold that the impugned order of Tribunal requires anyinterference. The Tribunal has rightly held that the C.I.T.could not have exercised powers under Section 263 of theAct. 1.As can be seen from the order under Section 185(1)(a) of theAct extracted hereinbefore, the Assessing Officer has takeninto consideration the fact that all the requisiteformalities as laid down in the Act have been fulfilled bythe firm, and it is further found that the firm was genuine.In the circumstances, at the highest, it would amount totaking one view from the material available on record, withwhich, the C.I.T. does not agree and this by itself, as heldby the Apex Court, cannot constitute a valid reason forexercise of jurisdiction under Section 263 of the Act. 1.Therefore, both on facts and in law, it is not possible tohold that the impugned order of Tribunal requires anyinterference. The Tribunal has rightly held that the C.I.T.could not have exercised powers under Section 263 of theAct. 1.In So far as the question no.2 is concerned, the sameproceeds on an incorrect presumption that the C.I.T. hasrecorded a satisfaction to the effect that the registrationwas granted by the Assessing Officer without examining thegenuineness of the firm. As already noticed hereinbefore,the Assessing Officer has categorically recorded that thefirm was genuine and the Tribunal has found that from thematerial available on record such finding was rightlyarrived at by the Assessing Officer after making properinvestigation. 1.In the result, both the questions are answered in theaffirmative i.e. in favour of the assessee and against therevenue. The Tribunal was justisfied in cancelling the ordermade by the C.I.T. under Section 263 of the Act. 1.Reference stands disposed of accordingly with no order as tocosts. (D.A.MEHTA, J.) (H.N.DEVANI, J.)