O/ITR/38/2000 JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE NO. 38 of 2000 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI Sd/ and HONOURABLE MR.JUSTICE K.J.THAKER Sd/ 1 Whether Reporters of Local Papers may be allowed to see No judgment ? 2 To be referred to Reporter or not? No 3 Whether their Lordships wish to see fair copy of No judgment? 4 Whether this case involves substantial question of law as to No interpretation of Constitution of India, 1950 or any order made thereunder? 5 Whether it is to be circulated to civil judge? No C.I.T. Applicant(s) Versus SHRI HARISH POPATLAL PRAJAPATI Respondent(s) Appearance: MR NITIN K MEHTA, ADVOCATE for Applicant(s) No. 1 SERVED BY RPAD (N) for Respondent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Date : 09/12/2014 Page 1 of 8 O/ITR/38/2000 JUDGMENT ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. By way of this reference, following questions of law are referred by tribunal. 1. Whether Appellate Tribunal is right in law and on facts in deleting additions made observing that Assessing Officer could not make addition for non compliance by Custom authorities? 2. Whether Appellate Tribunal ought not to have appreciated that assessee also did not comply with notices leading to impugned additions? 3. Whether Appellate Tribunal has correctly appreciated facts on record while deleting additions made. 2. facts of case in brief are that in this case original assessment was completed on 25.3.1985 which was set aside by learned CIT (Appeals) vide order dated 29.2.1988 with direction to pass fresh order after giving adequate opportunity to assessee and to examine from custom department as to whether any statement of assessee was recorded or that assessee had any dealing as carrier of smugglers. department did not accept order of CIT (Appeals) and went in appeal before Income Tax Appellate Tribunal. tribunal vide order dated 13.3.1992 dismissed same. Thereafter, fresh assessment was made by Assessing Officer on 27.3.1990 which was again set aside by CIT (Appeals) on 9.12.1991 whereby Assessing Officer was directed to give opportunity to assessee to rebut evidence which is being used against assessee. CIT (Appeals) further directed Assessing Officer to obtain Page 2 of 8 O/ITR/38/2000 JUDGMENT total wealth statement of assessee and use that as basis for computing taxable income. Subsequently, Assessing Officer passed order determining total income at Rs.1,29,70,000/ on 30.3.1993. In order, Assessing Officer mentioned that there was no response from custom department to information called for by correspondence and personal meeting by head clerk. Hence, assessment was completed on basis of facts available on record. assessed income stood same as assessed originally vide order dated 25.3.1985 and more or less findings and references were also same. 3. assessee again filed appeal before CIT (Appeals) who confirmed addition of Rs.1,51,000/ in respect of investment in residential house at Patel Society as well as partly confirmed income from property. investment in purchase of two cars of Rs.32,000/ was also confirmed. However, CIT (Appeals) deleted following additions in toto: Sr. Amount of Reasons for additions No. addition 1 Rs.1,17,80,556/ Unaccounted purchase of silver. 2 Rs.1,62,000/ Estimated income as carrier of Shri A.C.Jain. 3 Rs.2,00,000/ Estimated income as carrier of Kadar Bhatti. 4 Rs.5,95,840/ Business income from silver dealings 4. tribunal allowed appeal of assessee for reasons given in para 3 of its order. It held that additions are made on basis of custom investigation and search. custom officials did not comply with request of Assessing Officer and Assessing Officer cannot, therefore, make addition in respect of assessee's Page 3 of 8 O/ITR/38/2000 JUDGMENT assessment for non compliance by custom authorities. It is further held that Assessing Officer did not carry out direction of CIT (Appeals) contained in order dated 29.2.1988 and 9.12.1991. 5. We have gone through record. While deciding issue, Commissioner of Income Tax (Appeals) has held that, However, I will suggest that since it may not be possible to get evidence regarding appellant's involvement in smuggling activities, Assessing Officer will have to obtain total wealth statement of appellant and that may be used as basis for computing total income of appellant for previous year. Needless to say, if Assessing Officer hold that certain properties belong to appellant, though stand in name of other persons, necessary evidence in respect thereof will have to be brought on record and adequate opportunity should be given to appellant to rebut that evidence. 6. In support of such finding, CIT (Appeals) relied on following observations of Andhra Pradesh High Court in case of Berulal Tiwari v. CIT (173 ITR 280). assessee has questioned validity of service by affixture and claimed that assessment was barred by limitation. Income tax Officer should blame himself for problems that arose in this case subsequent to his passing draft assessment order. We should express our disapproval of way in which Income tax Officer drag on assessment proceedings till almost last minute and rush through entire process of assessment when limitation was about to set in without giving absolute opportunities to assessees. Commissioner of Income tax, exercising administrative jurisdiction over these officers, should Page 4 of 8 O/ITR/38/2000 JUDGMENT keep close watch on proceedings and should discourage any attempt on part of tax Officers in dragging on assessment proceedings till last minute causing difficulties both to assessee and to Department. 7. Thereafter, when matter went in appeal before Income Tax Appellate Tribunal, tribunal observed as under: We have considered rival submissions, facts and materials on record. It is evident that learned CIT (A) in impugned order totally deviated from order of his predecessor setting aside assessment on first occasion. His predecessor's direction was that custom authorities should be connected in this matter to come to conclusion whether assessee was engaged in smuggling activities and property at Patel Society was actually belonging to him. This direction also includes cars and telephone connection. It is evident from record that custom authorities did not comply with request of Assessing Officer in this matter and AO had followed original order to come to conclusion that assessee is owner of impugned property at Patel Society as well as telephone connection and cars. AO himself in impugned order pointed out that original assessment for A.Y. 1982 83 had been adopted by him for making fresh assessment. Needless to say that original order was disapproved by ld.CIT (A) to saddle assessee with impugned addition. That order of ld. CIT (A) had been confirmed by ITAT. Therefore, following original order is not only illegal but beyond his jurisdiction. Further, it may be noted that CIT (A) again set aside order of AO directing him to go through Page 5 of 8 O/ITR/38/2000 JUDGMENT evidence regarding assessee's involvement in smuggling activities and AO may obtain total wealth statement of assessee and use same as basis for computing total income for purpose. He himself pointed out that AO did not make any enquiry which was required to be made. On that basis, it is difficult to accept that any addition made by AO could be sustained by him. Further, involvement of assessee with smuggler had not been brought into record except some statements given to custom authorities which ld. CIT (A) on first occasion did not approve as evidence to contrary evidence. In short, AO did not carry out direction of ld. CIT (A) made in his order dated 25th March, 1985 (confirmed by Tribunal) or 29th December, 1991 which is against principle of law as stated by Supreme Court in case of Bhopal Sugar Inds. Ltd. v. ITO (40 ITR 618). In these circumstances, we do not find any force in holding assessee liable to be assessed on materials on record in respect of house property at Patel Society and income therefrom as well as expenditure on telephone connection and purchase of cars. To repeat, all these additions were made on basis of custom investigation and search. custom officials did not comply with request of AO and AO cannot, therefore, make addition in respect of assessee's assessment for non compliance by custom authorities. 8. We have gone through record. We have also considered observations of Supreme Court in case of Bhopal Sugar Industries Ltd. v. Income Tax Officer, Bhopal (AIR 1961 SC 182), wherein Supreme Court observed as under: Page 6 of 8 O/ITR/38/2000 JUDGMENT 8. We think that learned Judicial Commissioner was clearly in error in holding that no manifest injustice resulted from order of respondent conveyed in his letter dated March 24, 1955. By that order respondent virtually refused to carry out directions which superior tribunal had given to him in exercise of its appellate powers in respect of order of assessment made by him. Such refusal is in effect denial of justice, and is furthermore destructive of one of basic principles in administration of justice based as it is in this country on hierarchy of Courts. If sub ordinate tribunal refuses to carry out directions given to it by superior tribunal in exercise of its appellate powers, result will be chaos in administration of justice and we have indeed found it very difficult to appreciate process of reasoning by which learned Judicial Commissioner while roundly condemning respondent for refusing to carry out directions of superior tribunal, yet held that no manifest injustice resulted from such refusal. 9. It must be remembered that order of Tribunal dated April 22, 1954, was not under challenge before Judicial Commissioner. That order had became final and binding on parties, and respondent could not question it in any way. As matter of fact Commissioner of Income tax had made application for reference, which application was subsequently withdrawn. Judicial Commissioner was not sitting in appeal over Tribunal and we do not think that in circumstances of this case it was open to him to say that order of Tribunal was wrong and, therefore, there was no injustice in disregarding that order. As we have said earlier such view is destructive of one of basic principles of administration of justice. Page 7 of 8 O/ITR/38/2000 JUDGMENT 9. In view of above observations, it can be said that tribunal is right in law and on facts in deleting additions made observing that Assessing Officer could not make addition for non compliance by Custom authorities. In view of above discussion, we are in complete agreement with reasoning adopted by tribunal. Accordingly, all three questions are answered against department and in favour of assessee. Accordingly, this reference is dismissed. Sd/ (K.S.JHAVERI, J.) Sd/ (K.J.THAKER, J) *malek Page 8 of 8 C.I.T v. Harish Popatlal Prajapati