N.K. Karhall, J.M.:
This appeal of the assessee is directed against the order passed by CIT-I, Agra, on 31-3-2003, under section 263 of the Income Tax Act, for assessment year 1998-99.
The grounds of appeal are as under :
"That having regard to the facts and circumstances of the case, learned CIT has erred in law and on facts in assuming jurisdiction under section 263, more so when assessment order passed was neither erroneous nor prejudicial to the interest of revenue and has accordingly, erred in setting aside assessment order to the file of learned assessing officer with the direction to frame it de novo. "
"That having regard to the facts and circumstances of the case, learned CIT has erred in law and on facts in holding that assessment order passed was erroneous and prejudicial to the interest of revenue."
"That in any view of the matter and in any case, order passed under section 263 by learned CIT is bad in law and against the facts and circumstances of the case.
"That the appellant craves the leave to add, amend, modify, delete any of the grounds of appeal before or at the time of hearing and all the above grounds are without prejudice to each other."
Briefly, the facts of the issue are that the assessment under section 143(3) was completed on total income of Rs. 2,35,110 as against returned income of Rs. 2,24,789 by the Dy. CIT, Circle 2(l), Agra, by making disallowance out of conveyance and out of repair and maintenance of Rs. 6,210 and Rs. 4,000 respectively. The assessee runs coaching classes for the students appearing in medical entrance examinations. It is noted by the CIT that the assessment was completed in haste and hurry without making proper enquiries. In this case, survey under section 133A of the Act was conducted on 12-11-1999 at the business premises of the assessee. During the course of survey, it was found that the assessee was charging Rs. 34,200 as admission fee and Rs. 700 per ponth as monthly tuition fee from each student. This was verified from one student, namely Shri Yogesh Kumar Kushwaha, who had also filed a suit against the assessee that he charged Rs. 32,000 as admission fee. The survey report was with the assessing officer since 15-11-1999.
On 31-12-2001, a show-cause letter in detail was issued to the assessee to show-cause as to why assessment order completed by the assessing officer should not be cancelled under the provisions of section 263 of the Income Tax Act as the same is erroneous and prejudicial to the interest of the revenue. It was submitted by the assessee that :
(i) The assessment under section 143(3) for the assessment year 1998-99 was lawfully completed by the assessing officer on 8-1-2001, after making all the relevant enquiries.
(ii) The assessment order under consideration was neither erroneous nor prejudicial to the interests of revenue.
(iii) The proceedings under section 263 were, therefore, not in accordance with law.
However, according to the order passed under section 263 on 31-3-2003, at the time of passing the assessment order, the survey report was available with the assessing officer which was ignored. During the year under consideration the assessee has declared only monthly tuition fee at Rs. 650 per student while the assessee did not declare the admission fee charged. According to the Commissioner, the assessing officer did not make proper enquiry regarding the admission fee charged from the students during the accounting period elevant to assessment year 1998-99. Further, the assessing officer also failed to conduct proper enquiries regarding total number of students, tuition fee received from them, expenditure incurred and income earned by the assessee, while on the contrary it was established during the survey itself that the assessee was not showing admission fee used to be received in lump sum from the students. It is further mentioned in the order passed under section 263 that the assessing officer did not make proper enquiries to find out the income by way of admission fee from the students. Even if some enquiries were initiated, the same were not taken to logical conclusion. However, assessment was completed after making ad hoc additions of small amounts. Consequently, assessment order was set aside to be made de novo with the directions that the assessing officer should finalise the assessment after making necessary enquiries about the admission fee and tuition fee charged from students during the relevant accounting period, deposits in bank account, investments, expenditures incurred during the relevant accounting period and after taking into consideration the evidence gathered during the course of survey.
The learned counsel for the assessee vehemently argued that the assessing officer made enquiries before completing assessment order, which was made subjective conclusion in the order under section 263 that no "proper enquiry" was made which has not been specified in the impugned order itself. It is further argued that in para 3 of the impugned order, it is mentioned that the assessment was completed in haste and hurry while in notice issued under section 263 no such charge was made.'
During the course of hearing, the learned counsel for the assessee filed a paper book containing total pages 31, which is placed on record. Our attention was invited to notice under section 263 of the Act issued on 31-12-2001, for the assessment year 1998-99 wherein it is mentioned that :
"......................during the course of survey, the enquiries were made from students regarding admission fee and monthly fee. About 10 students, at the time of survey admitted the payment of admission fee of Rs. 34,200 and thereafter monthly fee of Rs. 700. These facts were relevant to assessment year 2000-2001. These facts were also required to be considered for making necessary enquiries at the time of finalisation of assessment for the assessment year 1998-99. Thus, the assessing officer did not make proper enquiries regarding admission fee charged and other relevant aspect .......
The learned counsel for the assessee argued that during the course of survey the material gathered by the survey party pertains to assessment year 2000-2001 as also admitted by the Commissioner in the above show-cause notice, then why assessment order for earlier year was reopened and that too only for assessment year 1998-99 and not for assessment year 1999-2000 and why different treatment was given to these two assessment years when facts and circumstances of both the years are identical? The Commissioner ought to reopen all the earlier assessments. It is further argued that the assessing officer made relevant enquiries before completing the assessment order but the CIT held that no "proper enquiries" were made. However, the Commissioner could not explain in his order that what is proper and improper enquiry. Revision of different year cannot be made on the basis of material gathered for assessment year 2000-2001. No iota of evidence was gathered for the impugned assessment year during the course of survey. For assessment year 1999-2000, the returned income has been accepted and was not set aside under section 263 of the Income Tax Act, 1961. Therefore, only for assessment year 1998-99, the Commissioner has wrongly and illegally assumed jurisdiction under section 263 of the Act.
The learned counsel also invited our attention to p. 2 of the paper book, which is a photocopy of notice dated 5-10-1999, wherein the assessee was required to produce all books of account, registers, receipt books, enrolment forms and register, bills, vouchers, bank pass book, justify expenses, etc. etc. Thereafter, he invited our attention to pp. 3 to 7, which is assessee's reply dated 1-11-1999 to prove that the assessing officer made all types of enquiries, which were duly explained and after his complete satisfaction, the assessment was completed. Therefore, it is wrong to mention by the CIT that no proper enquiry was made. It is further submitted that assessment proceedings were initiated on 5-10-1999 and assessment was completed on 8-1-2001 which itself suggests that complete enquiries were made by the assessing officer and after satisfying himself the assessment was completed.
The learned counsel for the assessee further drew our attention to pp. 8 to 19 of the paper book. These are the photocopies of various replies, given by the assessee to the assessing officer during the.assessment proceedings and photocopy of order sheet of assessment proceedings. Pages 8 to 10 is reply dated 26-11-1999, Then to the assessing officer by the authorised representative of the assessee. Our attention was drawn that the survey was conducted on 12-11-1999 and just after completion of survey, assessment proceedings were started, which is evident from the above letter dated 26-11-1999. In the said letter, the assessee explained to the assessing officer that the assessee does not maintain any data of the students except their names. However, names and addresses of eleven students were given, which were based on memory. Page 11 is another reply to the assessing officer, wherein it is mentioned that during the assessment proceedings, the assessing officer has taken the copies of students' fee register, which covers the names of the students, who studied in the year under consideration. The books of account, vouchers and receipt books were once again produced for verification and satisfaction of the assessing officer. Page 12 is another reply, wherein, it is explained that only two students were given special guidance, which is duly reflected in the register of fee received along with their names, father's name etc. Page 13 is also a reply dated 14-2-2000, wherein the assessing officer was explained about the special coaching given in the year under consideration and subsequent assessment year, It was further explained that in the assessment year 1998-99, special guidance was given only to two students from whom Rs. 25,000 was charged. It is further submitted that during the course of survey, the assessee had agreed to disclose the income to the tune of Rs. 18,00,000 for the assessment year 2000-2001 and accordingly, the assessee has furnished its return of income for the assessment year 2000-2001 on 31-12-2000, wherein the income in excess of Rs. 18,00,000 was declared. Month-wise receipts for the assessment year 1998-99 were also given. Page 18 is photocopy of order sheet dated 20-12-1999 and 14-1-2000, wherein the assessee was required to furnish the names and addresses of the students, who studied during the year under consideration and receipt of fees relating to those students, to furnish computerised copy of accounts and to produce all account books. Further, the details of the students to whom special guidance along with their addresses and special fee charged was required to be furnished. Page 19 of the paper book is photocopy of order sheet dated 15-2-2000, wherein it was explained that in the year under consideration, two students were enrolled to special. coaching, eight students for 1998-99 and 11 students were enrolled for special coaching in the year 1999-2000.
From the above, the learned counsel for the assessee tried to explain that the assessing officer has thoroughly examined the entire issue before completing the assessment order. Inspite of above details, required by the assessing officer and furnished by the assessee, the Commissioner has wrongly mentioned that no proper enquiry was conducted before completing the assessment order.
On the other hand, the learned Departmental Representative furnished a paper book containing total 46 pages. These are the photocopies of various admission forms found during the course of survey and other papers. From the above photocopies, the learned Departmental Representative argued that no enquiry was carried out in the light of above documents found during the course of survey.
We noted that when the assessing officer proceeded to make the assessment order, he was fully aware of those documents, which were found during the course of survey and for his satisfaction, he required the assessee to produce books of account, bills, vouchers, details of the students and other explanations, as we have seen in the foregoing paragraphs. We also noted that it is not a case of no enquiry, but a case of no proper enquiry. According to Commissioner's notice as well as order under section 263, the assessing officer has conducted enquiries, but he failed to conduct proper enquiries. The use of word "proper enquiries" is a matter of subjectivity. It is for the assessing officer to decide what enquiry and upto what extent he would like to conduct the enquiry and not the Commissioner. The Tribunal, Delhi Bench 'C' in the case of Hindustan Marketing & Advertising Co. Ltd. v. Income Tax Officer (1989) 28 ITD 231 (Del-Trib) has held as under
"In view of the Supreme Court's decision in the case of Jain Bros. v. Union of India & Ors. (1970) 77 ITR 107 (SC), for examination of record to see whether section 263 applies, one has to proceed with the presumption that the officers involved in making the assessment acted in a bona flde manner. The record is to be examined to see whether in the discharge of duties in this manner there has been an error, which has resulted in prejudice to the revenue and has thus, made the order erroneous so as to be prejudicial to the interests of revenue. The contention of the Commissioner regarding non-compliance of the provisions of Chapter XXII-B relating to deduction of tax at source could not be accepted. This was not and could not be basis for considering the assessment erroneous so as to be prejudicial to the interest of revenue because there were independent proceedings and the Income Tax Officer was at liberty to take action in accordance with law for failure to deduct or to pay the same at any time. Further, the Income Tax Officer had seized the books of account of the assessee. He had, therefore, made queries from the assessee on various items contained in the P&L a/c and balance sheet filed before him duly audited by chartered accountants. In other words, the Income Tax Officer collected evidence, discussed the points with the representatives of the assessee, got clarifications from them and thereafter, drew certain conclusions to make the impugned assessments.
Thus, in the instant case, the Income Tax Officer had made reasonable detailed enquiries and after processing the material utilised the same for completion of the assessments and, therefore, the observations of the Commissioner were in the nature of conjectures. Thus, the assessments in the present case were in accordance with law and were not erroneous as to be prejudicial to the revenue. The CIT, therefore, had no jurisdiction to make the impugned order."
The Tribunal, Calcutta Bench E in the case of Ashoke Kumar Parasramka v. Assistant Commissioner (1998) 65 ITD 1 (Cal-Trib) has held as under :
"Under the circumstances, therefore, it was impossible to accept the view taken by the Commissioner that there was no enquiry by the assessing officer or that the assessing officer had failed miserably to apply his mind to the case in all its perspectives. It had not been suggested either by the Commissioner or by the revenue that the assessing officer was not entitled to draw the inference, which he drew from the enquiry, which he had conducted. If that be so, the mere fact that the CIT did not approve of the inference did not authorise him to substitute his opinion for that of the assessing officer. In his order, the Commissioner had not referred to any material from which it could be said that the acceptance of assessee's version by the assessing officer was not warranted either in law or on facts. One would have expected the Commissioner, under such circumstances, to at least point out to some materials or evidence which would contradict the assessee's version and which had not been adverted to by the assessing officer while completing the assessment; this had not been done. Under these circumstances, the Commissioner was not justified in branding the assessment order as erroneous and prejudicial to the interests of the revenue. Therefore, the order of Commissioner under section 263 was cancelled."
The Tribunal, Calcutta Bench 'B' in the case of Progressive Services Ltd. v. Income Tax Officer (1991) 40 TTJ (Cal-Trib) 595 held that when the assessing officer has made enquiries regarding share subscription money and also called for confirmation and test checked, and the interest income had been shown by the assessee- company as per accounting system followed, regularly, the Commissioner was not justified in taking action under section 263 on both counts.
In the instant case we have seen that it is not a case of no enquiry, but a case of no proper enquiry, which is a matter of subjectivity. It is not the Commissioner to decide that upto what extent enquiry fs to be made, but in fact, it is the assessing officer to decide the matter and to draw inferences. Once the assessing officer has drawn inference after making enquiry, the Commissioner does not have any jurisdiction under section 263 to cancel the assessment order. Endless enquiry is not possible and the enquiry has to be closed at some stage. It is for the assessing officer to decide to end the enquiry. The Commissioner cannot transgress the jurisdiction under section 263 by mentioning that no proper enquiry was made. Hence, we cancel the order passed by Commissioner under section 263 of the Income Tax Act.
In the result, the appeal of the assessee is allowed.