Ajit K. Sengupta, J. - (1.) In this reference under Section 256(1) of the Income-tax Act, 1961, for the assessment year 1986-87, the following question has been referred to this court : " Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in annulling the order under Section 263 of the Income-tax Act, 1961, passed by the Commissioner of Income-tax ?" The facts leading to this reference are that the assessment of the assessee, a private limited company was completed by the Income-tax Officer under Section 143(3) on September 4, 1986. The Commissioner of Income-tax called for and examined the assessment records. He noticed that the assessee-company was incorporated on May 11, 1985, and that the issued and subscribed capital of Rs. 10 lakhs was divided into 1 lakh equity shares of Rs. 10 each fully paid up. On enquiry, he found that the Assessing Officer did not make a proper and detailed enquiries into the genuineness and creditworthiness of the persons who subscribed to the equity capital of the assessee-company. Relying on the case of Gee Vee Enterprises v. Addl. CIT, he opined that the assessment order framed by the Assessing Officer was erroneous in so far as it was prejudicial to the interests of the Revenue. He, accordingly, initiated proceedings under Section 263 of the Act. The assessee's representative submitted before the Commissioner that the Assessing Officer passed the assessment order after full scrutiny of the relevant documents and personal discussions with the authorised representative and that the list of shareholders with permanent account numbers had been filed. He also submitted that the Assessing Officer, from the confirmatory letters, verified at random the authenticity and the genuineness of the subscribers and so the Commissioner was not right in applying the decision in the case of Gee Vee Enterprises and the assumption or allegation made in the notice under Section 263 was based on surmise, conjecture and suspicion.
(2.) The Commissioner of Income-tax rejected the pleas of the assessee. He observed that, out of the list of subscribers to shares, the Assessing Officer asked only six persons to be produced but on the production of those six persons, no examination whatsoever was done. It also appeared from the records that the Assessing Officer did neither make any enquiry nor any investigation as to the genuineness and creditworthiness of other persons who had subscribed to shares of the assessee-company. There was nothing to indicate in the record as to why and under what circumstances the Assessing Officer selected only six persons out of the list. It was also found from the record that the Assessing Officer issued summons to 34 persons to appear and make depositions before him. But, out of these, 13 notices came back unserved with the postal remarks "not known". With respect to 17 other persons, though summonses were served, they did not appear and simply they sent letters confirming the subscription to the share capital of the assessee-company. It was also found that these letters were written on similar papers and typed in the same typewriter. No acknowledgment or reply was received from six persons. From the facts and circumstances of the case, the Commissioner of Income-tax was convinced that the present case is covered by the decision of the Delhi High Court in Gee Vee Enterprises [1975] 99 ITR 375, on the face of the further information which was available to him and, therefore, the assessment made by the Assessing Officer was erroneous in so far as it was prejudicial to the interests of the Revenue. The Commissioner of Income-tax accordingly, passed an order under Section 263 of the Act and directed the Assessing Officer to frame the assessment order de novo.
(3.) Before the Tribunal, the assessee submitted that, after verification and examination of the shareholders, the Assessing Officer made his assessment order. The Commissioner of Income-tax passed his order without applying his mind and it was based on preconceived notions. Reliance was also placed on the decisions of the Tribunal reported in Standard Cylinders (P.) Ltd. v. ITO [1988] 24 ITD 504 (Delhi) and Vingal Leasing and Finance Ltd. v. ITO [1988] 41 Taxman 62 (Delhi). The departmental representative, while supporting the order of the Commissioner, contended that the Commissioner had not drawn any inference. He kept the matter open for a fresh decision after giving proper opportunity to the assessee for placing supporting evidence.;