JUDGEMENT
V.P. Elhence, Judicial Member -
(1.)THE assessee has filed this appeal against the order dated 6-3-1985 of the learned Commissioner of Income-tax, Agra for the assessment year 1982-83. By means of that order the learned Commissioner, acting under Section 263 of the Income-tax Act, 1961, held that the assessment order was erroneous in so far as it was prejudicial to the interests of revenue. He accordingly, set it aside and directed the Income-tax Officer to proceed with the assessment de novo from the stage of filing the return and to complete the same after proper enquiry/investigation and after giving the assessee-trust an opportunity to represent its case.
(2.)The assessee is M/s. Babu Lal Grand Sons Family Trust 4/440 Gali Pati Ram, Kachehri Ghat, Agra (U.P.) (Private family trust created for the benefit of grand sons). It derives income from the purchase and sale of salt on wholesale basis.
The assessment was completed by the I.T.O. for the A.Y. 1982-83 in question on 10-3-1983 under Section 143(3) after giving a notice under Section 143(2). The I.T.O. held that the shares of>the beneficiaries were specified and therefore, income in the hands of the trust was exempt. The income declared at Rs. 93,650 was therefore, accepted.
The learned Commissioner of Income-tax gave a notice dated 14-1-1985 to the assessee under Section 263 proposing to set aside the assessment order on the ground that it was erroneous in so far as it was prejudicial to the interests of the revenue. The notice listed the following grounds forming the basis for the action :-
(1) The assessment had been completed without proper and adequate enquiries by the I.T.O. and income had been accepted without trying to scrutinise as to how the income shown by the Trust had been earned. The returns filed had been accepted in undue haste without trying to go deeper into the case of the Trust.
(2) No enquiries were made regarding the nature of the accounts maintained by the Trust and as to how the initial contribution of Rs. 8,000 made by the Settlor had been utilised.
(3) The I.T.O. had not left any notes on the file as to why he considered the income as exempt.
(4) The I.T.O. had not bothered to find out as to what was the business or occupation in which the Trust was engaged and what are the items of sale and purchase and flpening & closing stocks.
(5) The I.T.O. did not care to find out as to why the Trust fund had been allowed to continue at Rs. 8,000 while accounts of the beneficiaries had swollen from year to year on account of business and other profits.
(6) Papers on the record did not give any indication whether income of the magnitude shown in the returns filed by the Trust had really been earned or it was merely a device for generating the bogus funds in the names of the beneficiaries.
The assessee gave a detailed reply dated 30-1-1985 to this notice. It was explained that the Trust was created by one Shri Budh Sen under a Deed of Trust dated 2-11-1978 for the benefit of all the grandsons whose shares were specified as follows :--
1. Shri Sanjiv Kumar - 20%
2. Shri Vinay Kumar - 20%
3. Shri Rajiv Kumar - 30%
(3.)SHRI Shailendra Kumar - 30%
It was pointed out that the Settlor had nominated as Trustees S/SHRI Babu Lal, Sachendra Singh and Om Narain Singh. The Settlor had handed over by means of bank draft for the purposes of the Trust, a sum of Rs. 8,000. Sinde the shares of the beneficiaries were determined and ascertained, it was claimed to be a private specific trust. It was pointed out that Clause 5 of the Trust Deed empowered the trustees to carry on any business under Trust or to join as partner in any partnership firm for the purposes of carrying out any business. The Trust was to be irrevocable and no part of the Trust fund was to be applied or used for the benefit of the Settlor. The assessee explained that it had duly maintained cash book, ledger, journal ('Nakal Bahi'), purchase vouchers, bills, stock register, vouchers for expenses incurred and bank account. The accounts of the Trust were maintained on 'Diwali' year basis. It was submitted by the assessee that the notice under Section 263 was a cyclostyled one. It was claimed that the following facts showed that the assessment had been completed after proper examination of records and after considering all the material placed during the assessment proceedings :--
(1) The first previous year of the Trust fell in the A.Y. 1980-81 and the other completed assessments related to assessment years 1981-82 and 1982-83. The assessments were completed by three different Assessing Officers. There had been no change either in the constitution of the Trust or the facts relating to the business carried on by the assessee-Trust ; (2) The Trust had submitted a copy of Profit & Loss account, trading account, balance-sheet and copies of the beneficiaries accounts for all the aforesaid years along with the returns filed ; (3) In compliance to the notice issued under Section 143(2), the assessee had produced books of account, purchase vouchers, bills, bank account and stock register maintained for these years separately which were duly examined by the I.T.O. in making the assessments ; (4) The assessee dealt in the purchase and sale of salt on wholesale basis. The quantitative details were furnished and the accuracy of profits were shown and explained. Any variation in the rate of profit was duly explained with evidence ; (5) No undue haste had been shown in making the assessments which had been completed after going through the material and evidence produced properly in a manner normally a prudent man would have done in such circumstances ; (6) The constitution of the Trust was duly declared with the Bank at the time of opening bank account for and on behalf of the Trust; (7) The Trust was registered with the Sales-tax Department and in support the copy of the Sales-tax registration No. AG 21646/UP dated 17-2-1979 and the copies of the Sales-tax assessments for accounting years 1980-81 to 1982-83 were enclosed ; & (8) The assessee Trust had been registered by Labour Inspector, Agra under U.P. Shops Act.
The assessee explained that the proposed action under Section 263 was totally unwarranted and without jurisdiction. However, the learned Commissioner of Income-tax observed that the Trust deed did not specify the ages of the beneficiaries and suffered from uncertainty. He also noticed that the Trust had been created for a period of 10 years and the ages of the beneficiaries at the time of the assessment for the A.Y. 1980-81 were 14, 11, 10 and 8 years respectively and therefore, in view of Section 14 of the Transfer, of Property Act, 1908 and Section 114 of Succession Act, 1925, the tying-up of property beyond the minority of the persons to whom the Trust created belonged, was against the Rules relating to perpetuity and therefore, the Trust could be said to be forbidden by law. Apart from the above, the learned Commissioner made the following additional observations :
(1) The details regarding the total purchases & sales had neither been asked for by the I.T.O. nor filed by the assessee ; (2) The details filed in respect of loss transactions were not checked by the I.T.O. ; (3) The I.T.O. had not bothered to find out as to how and with what capital the business had been carried on and who had been the persons who managed the business on behalf of the Trust ; (4) No scrutiny had been made about the bank transactions ; (5) Whether the Trust carried on any business at all was not clear from the papers filed and the I.T.O. did not make any enquiries in these matters ; (6) The details regarding the purchasers and sellers were not on record and even complete addresses of the parties whose names appeared on the assets side of the balance-sheet, had not been given ; (7) The I.T.O. had not cared to examine whether the incomes shown to have been earned by the assessee-Trust, really belonged to it or to some other persons and the assessee-Trust was merely being used as a cover to escape the incidence of taxation ; (8) The I.T.O. had not tried to obtain the details of business activities and fund flow account for verification ; (9) The I.T.O. did not find out as to where the Trustees were having their bank accounts and what was the trade name under which the Trust was carrying on business ; (10) He noticed the following order-sheet entries :--
JUDGEMENT_2317_TLIT0_19890.htm
From the above entries the learned Commissioner inferred that the books of account of the assessee-Trust were not produced nor called for by the I.T.O. which could be scrutinized to check-up the correctness of the claims regarding the Trust income and its activities ; (11) no tick-marks whatsoever had been made on any of the papers filed by the assessee along with the returns ; (12) The assessment had been completed in one hearing only and had been made in a hurried manner without even requiring the presence of the settlor or the trustee ; (13) The I.T.O. had not cared to find out whether the three trustees could carry on business on behalf of the beneficiaries ; (14) He had not applied his mind as to what would have happened if the business resulted in a total loss or in creating certain liabilities ; (15) The I.T.O. had not looked into the fact whether a Trust as such could be assessed in the status of an AOP ; (16) The I.T.O. did not examine whether the Trust had been validly and legally constituted : & (17) The I.T.O. had not examined whether the Trust could be said to have offended the rule against accumulation.
So far as the objections and points raised by the assessee are concerned, the learned Commissioner held that the notice under Section 263 could not be objected to merely on the ground that it was a cyclostyled one since it gave detailed reasons as to why the proceedings under Section 263 had been considered necessary. He took the view that it was incorrect to say that books of account etc. were produced in response to notice under Section 143(2). In this connection, he observed that no notice under Section 142(1) calling for books of account was issued by the I.T.O. He also observed that information or papers regarding sales tax registration, assessment order under the Sales-tax Act and Registration of the Trust by the Labour Inspector, Agra under the U.P. Shops Act were not filed before the I.T.O. when the assessment was made. The learned Commissioner also appended to his order an annexure relating to the applicability of Section 263 from the legal point of view. In that annexure he again observed that (i) No enquiry had been made by the ITO to establish that the income as shown by the assessee-trust had in fact been earned; (ii) Some statements of account along with the return had been filed and on the basis of these, without any external enquiries or without calling anybody, the trustees, the settlor or the beneficiaries etc., the I.T.O. had accepted the returns and treated the Trust as having earned the income shown in the return; (iii) The assessment made was in the nature of an assessment under Section 143(1) against which also action under Section 263 could be taken. Therefore, holding the assessment order to be erroneous in so far as it was prejudicial to the interests of the revenue, he set it aside with the directions that the I.T.O. should proceed with the assessment de novo from the stage of filing the return and complete the same after proper enquiry/ investigation and after giving to the assessee Trust an opportunity to represent its case before him.
4. The Bench which originally heard this appeal had made a proposal to the President for the constitution of a larger Bench since several Benches of the Tribunal at Delhi had taken different views in similar matters. That is how the present Special Bench was constituted to hear this appeal under Section 255(4).