SUHAS CHANDRA SEN, J. - (1.) THE following question of law has been referred to this Court by the Tribunal under s. 256(1) of the IT Act, 1961 : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the provisions of s. 263 of the IT Act could not be invoked by the CIT in respect of that part of the order of the ITO giving effect to the direction given by the IAC under s. 144B of the IT Act ?"
(2.) THE assessment year involved is the asst. yr. 1978-79, for which the relevant period of account is the financial year 1977- 78. This reference arose from an order passed by the CIT under s. 263 of the IT Act. The CIT has stated the following facts in his order passed under s. 263 of the IT Act, 1961. "The assessment for the asst. yr. 1978-79 was completed under s. 143(3) on 10th Sept., 1981. In the course of assessment it was given out by the assessee that there was profit to the tune of Rs. 16,237 on the sale of some silver. This was claimed as exempt on the ground that the profit was on the sale of silver utensils which contituted 'personal effects' of the assessee. Perusal of records, however, showed that no enquiry was made in the course of assessment on the following vital points before accepting the contention that the profit was exempt from tax : (i) There is nothing to show that silver sold constituted items of silver utensils. No details and description of the various articles were furnished. It was not even enquired as to whom the sale was made. (ii) Presuming that the articles sold constituted silver utensils, no enquiry was made before giving the finding that those alleged silver utensils were articles which were intimately, normally, commonly or ordinarily intended for household use so as to justify them to be included within the expression 'personal effects' as held by the Supreme Court in the case of H.M. Maharaja Nana Hemant Singji vs. CIT 1976 CTR (SC) 188 : (1976) 103 ITR 61 (SC). (iii) No enquiry was made to show that the assessee was a person of such high status that the alleged silver utensils in question were held by him for domestic use. (iv) Nothing was shown to the effect that the alleged silver utensils when sold had suffered loss of weight which is a normal incident if the utensils are intimately, normally, commonly or ordinarily used for household purposes. It is trite law that an order becomes erroneous within the meaning of s. 263 when circumstances would make an enquiry prudent and when such an enquiry has not been made. As in the instant case enquiry on the above point, which ought to have been made, the assessment order appeared to be erroneous and prejudicial to the interest of Revenue. A notice was, therefore, issued to the assessee to show cause why an order be not passed under s. 263 of the IT Act, 1961 as the circumstances of the case may justify including order/s enhancing or modifying the said assessment or cancelling the said assessment and directing fresh assessment according to law and facts of the case."
(3.) THE assessee gave his answer to the show cause notice issued by the Commissioner. After hearing, the Commissioner held as follows : "I have gone through the records and I find that except for showing the sale price of silver the assessee had not furnished any details whatsoever. There was absolutely nothing to show that the silver sold constituted items of silver utensils. No details and descriptions were furnished and it was not even disclosed as to whom the said sale was made. Enquiries mentioned in cls. (ii), (iii) and (iv) of para 1 above, which ought to have been made before enabling the ITO to come to a proper conclusion of facts and in law, were not made and there was no evidence that the ITO has applied his mind to those vital issues. The assessment order is absolutely devoid of any discussion on this point and, therefore, the assessment becomes erroneous within the meaning of s. 263." The Commissioner also dealt with two other points raised by the assessee at the hearing. The first point was relating to the jurisdiction to revise an assessment order passed by the ITO pursuant to the direction given by the IAC under s. 144B of the IT Act. On this point the Commissioner observed as follows : "..... neither the ITO nor the IAC applied their minds on the various aspects of the case and did not make enquiry on vital points as indicated above. The order passed in this case is an order made by the ITO and not by the IAC. Even if it is taken for assessment to be an order of the IAC, proceedings can be initiated under s. 263 in view of the 125A(4) of the IT Act, 1961.";