Applicability of provisions of sec 263 to a block assessment order passed after obtaining approval u/s. 158BG

HIGH COURT OF MADRAS

R. Srinivasan

Versus

Assistant/Deputy Commissioner of Income-tax

Tax Case (Appeal) No. 354 of 2006

SEPTEMBER 11, 2012

JUDGMENT

Mrs. Chitra Venkataraman, J.

The above Tax Case Appeal is filed at the instance of the assessee against the order of the Income Tax Appellate Tribunal for block assessment period 1987-88 to 1996-97. The above Tax Case (Appeal) was admitted on the following substantial question of law:-

“Whether in law the Commissioner Administration could validly exercise revisional powers under Section 263 after having accorded statutory approval under Section 158BG in respect of Section 158BC assessment order passed in relation to search and seizure action initiated under Section 132 of the Income Tax Act, 1961 prior to 1.1.97?”

2. It is seen from the facts given that the assessee was originally assessed under Chapter XIV-B for the block assessment period 1987-88 to 1996-97. The said assessment was made consequent on the search conducted on 13.2.1996. Aggrieved by the assessment, the assessee preferred an appeal before the Income Tax Appellate Tribunal as per the law then existing on 30.3.1997. However, the Commissioner of Income Tax (Revision) initiated proceedings under Section 263 of the Income Tax Act to revise the order of the assessment on the ground that the same was erroneous and prejudicial to the interest of the Revenue. The proceedings before the Commissioner of Income Tax related to certain additions to be made based on the documents seized. The assessee objected to the invoking of proceedings under Section 263 of the Income Tax Act, on the ground that the block assessment was already completed on 28.2.1997 after obtaining approval from the Commissioner of Income Tax under Section 158BG of the Act. In the circumstances, after the completion of the assessment on the approval of the Commissioner, there could be no authority vested with the Commissioner to invoke jurisdiction under Section 263 of the Income Tax Act. Rejecting the contention, the Commissioner of Income Tax pointed out to Section 158BH that in the absence of explicit prohibition as regards the application of the provisions of Section 263 of the Act to a case of block assessment, there could no restriction on the jurisdiction of the Commissioner to exercise his power under Section 263 of the Act even as regards the order passed under Section 158BC of the Act. After hearing the assessee, the Commissioner confirmed his proposal and held that the order passed by the Assessing Officer on the block assessment on 28.2.97 was erroneous and prejudicial to the interests of the Revenue. Hence, the Officer was directed to make detailed investigations/enquiries in respect of the various transactions referred to in the order and then pass orders on the block assessment. Aggrieved by the same, the assessee went on appeal before the Income Tax Appellate Tribunal.

3. While dealing with the merits of the assessment made originally under Section 158BC, quantum appeal, the Tribunal considered the contention of the assessee as regards jurisdiction of the Commissioner to invoke Section 263 of the Act to raise the assessment made under Section 158BC of the Act. As far as the merits of the block assessment made by the Assessing Officer is concerned, by order dated 29.8.2012, we had considered the same R. Srinivasan v. Asstt. DIT  [T.C.(A) No. 353 of 2006]. Herein, we are presently concerned about the jurisdictional question raised by the assessee on the order passed by the Commissioner under Section 263 of the Act.

4. The Tribunal rejected the assessee’s appeal, thereby confirmed the view of the Commissioner of Income Tax as regards the assumption of jurisdiction under Section 263 of the Act to revise the order under Section 158BC. It reasoned out that the revisional powers of the Commissioner under Section 263 of the Act being of wide amplitude, the Commissioner of Income Tax has every jurisdiction to revise even an order made under Section 158BC of the Act, if the assessment had failed to take into consideration, materials, thus making the assessment under Section 158BC erroneous and prejudicial to the interests of the Revenue. Thus, there could be no reason as to why the Commissioner should not revise the assessment. Referring to the decision in CIT v. Shree Manjunathesware Packing Products & Camphor Works [1998] 231 ITR 53 the Tribunal viewed that the Commissioner has every right to revise the order of the block assessment, even though approval was granted by the Commissioner to pass such an order of assessment under Section 158BC of the Act. Aggrieved by the said order, the present appeal has been filed by the assessee before us.

5. Learned senior counsel appearing for the assessee placed reliance on the decision of the Karnataka High Court in CIT v. Smt. Annapoornamma Chandrashekar [2012] 204 Taxman 158 wherein under similar circumstances, the Karnataka High Court held that when the Commissioner had given his approval for passing the block assessment order under Section 158BG, it meant that the Commissioner had full knowledge of the contents of what was approved by him. In the circumstances, in exercise of his revisional jurisdiction under Section 263, the Commissioner could not revise the order made under Chapter XIV-B. The Karnataka High court pointed out that even though Section 158BH expressly provided that all other provisions of the Act would apply to the assessment made under this Chapter, yet, the opening words of Section 158BH that “save as otherwise provided under this chapter”, make it clear that other provisions of the Act are not attracted automatically. Given the fact that the Commissioner has given approval to the assessment made under Section 158BC after scrutiny of the records, in the absence of any specific provision in the Act providing for revisional jurisdiction, the jurisdiction under Section 263 of the Act could not be exercised on the orders passed under Chapter XIV-B in terms of Section 158BG.

6. Learned senior counsel for the assessee referred to the amendment brought to Section 158BG, under Income Tax (Amendment) Act, 1997 with effect from 1.1.1997, whereby on and after 1.1.1997, in the place of the Commissioner of Income Tax, the Joint Commissioner is empowered to grant approval for passing orders under Chapter XIV-B, so that, apart from an appeal remedy available to the assessee under Section 253 of the Act, the Revenue has revisional remedy under Section 263 of the Act even in respect of the block assessment order passed under Section 158BC. Given the position of law that prior to 1.1.1997, it was the Commissioner alone who could grant the approval for passing assessment under Section 158BC, the assessment made on the approval granted for the period prior to 1.1.1997 by the Commissioner, hence, could not be touched under Section 263 of the Act. The Karnataka High Court in Smt. Annapoornamma Chandrashekar’s case (supra), pointed out that even though no material was placed on record to show that the Commissioner had applied his mind, it being a jurisdiction to do a specific act as provided for under the statute, it has to be presumed that the Commissioner had gone into records and applied his mind. Consequently, the block assessment order made on the approval given by the Commissioner before 1.1.1997 could not be the subject matter of the jurisdiction under Section 263 of the Act. Learned senior counsel appearing for the assessee also pointed out to the decision in Sahara India (Firm) v. CIT [2008] 14 SCC 151 and submitted that as held by the Apex Court, even though the approval is administrative in nature, considering the consequences that flow from the exercise viz., the passing of the assessment order, the Commissioner of Income Tax (Appeals) was not justified in assuming jurisdiction under Section 263 of the Act. The provisions relating to the appeal remedy before the Commissioner of Income Tax and the Tribunal as against the orders of the block assessment also assumes significance in understanding the issue herein.

7. Learned senior counsel appearing for the assessee submitted that prior to the award in 1997 in respect of the search initiated under Section 132 or books of account, other documents or any assets requisitioned under Section 132A, after 30.6.1995 but before 1.1.1997, in respect of block assessment made under Section 158BC, the assessee had the right to file appeal directly to the Income Tax Appellate Tribunal under Section 253(1)(b). However, after the amendment under the Income Tax (Amendment) Act, 1997 with effect from 1.1.1997, with the jurisdiction for granting approval for passing block assessment order vesting with the Joint Commissioner, an appeal remedy as against the order of assessment under Section 158BC is provided for under Section 246A(1)(k) before the Commissioner of Income Tax (Appeals). Thus, considering the amendments that had taken place from 01.01.1997, it stands to reason that as against the order passed by the Officer under Section 158BC after obtaining the approval of the Commissioner under Section 158BG, in respect of search for the period 30.06.1995 to 01.01.1997, there could be no assumption of jurisdiction under Section 263 of the Act to revise the order of block assessment. In this connection he also referred to the meaning of the word “record” as defined in clause (b) to include all the records relating to any proceedings under this Act available at the time of examination by the Commissioner.

8. Supporting the order of the Tribunal, learned Standing Counsel appearing for the Revenue referred to the decision of the Karnataka High Court in Rishabchand Bhansali v. Dy. DIT [2004] 267 ITR 577, and submitted that the approval of the Commissioner of Income Tax being of an administrative nature, there could be no doubt on the jurisdiction of the Commissioner under Section 263 of the Act.

9. Heard learned senior counsel for the assessee as well as learned standing counsel for the Revenue and perused the materials available on record.

10. We agree with the contention of the assessee and we respectfully agree with the line of reasoning given by the Karnataka High Court in Smt. Annapoornamma Chandrashekar’s case (supra).

11. We find that the decision rendered by the Karnataka High Court cited supra was taken on appeal by the Revenue before the Supreme Court by way of Special Leave Petition in 10156 of 2012. By order dated 5.7.2012, the Supreme Court dismissed the Special Leave Petition at the admission stage itself.

12. Before going into the contention of the learned senior counsel appearing for the assessee, Section 158BG as it stood during the material point of time needs to be noted. Section 158 BG reads thus:

“Section 158 BG. Authority competent to make the block assessment – The order of assessment for the block period shall be passed by an Assessing Officer not below the rank of an Assistant Commissioner:

Provided that no such order shall be passed without the previous approval of the Commissioner *[or Director, as the case may be] *IT (Amend.) Act, 1997, w.e.f. 1.1.1997.”

13. Section 158BG of the Act, however, was amended and substituted by the Income Tax (Amendment) Act, 1997, with effect from 1.1.1997, which reads as follows:-

Section 158BG – “The order of assessment for the block period shall be passed by an Assessing Officer not below the rank of an Assistant Commissioner or an Assistant Director as the case may be:

Provided that no such order shall be passed without the previous approval of –

(a)  the Commissioner or Director, as the case may be, in respect of search initiated under Section 132 or books of account, other documents or any assets requisitioned under Section 132A, after the 30th day of June, 1995 but before the 1st day of January, 1997;

(b)  the Joint Commissioner or the Joint Director, as the case may be, in respect of search initiated under Section 132 or books of account, other documents or any assets requisitioned under Section 132A on or after the 1st day of January 1997.”

14. Section 253 of the Act deals with appeals to the Appellate Tribunal. Sub-section (1) lists out appealable orders to the Income Tax Appellate Tribunal. Section 253(1)(b) of the Act relates to an order passed by the Assessing Officer under Clause (c) of Section 158BC in respect of search initiated under Section 132 after 30th June, 1995 but before 1st January, 1997. Thus, skipping over one appeal remedy before the Commissioner of Income Tax (Appeals) as against the order of assessment made under Chapter XIV-B, the Act gives the assessee a right of appeal direct to the Income Tax Appellate Tribunal. Apparently, this is in consonance with Section 158BG(a) as it stood originally, where the approval authority for passing the block assessment was the Commissioner of Income Tax. However, consequent on the amendment with effect from 1.1.97 in respect of orders passed on the search initiated under Section 132 or books of account requested under Section 132A after 1.1.1997, as against the Commissioner of Income Tax originally invested with the power to grant approval, it is the Joint Commissioner who has to give the approval to the block assessment order and not the Commissioner. Conscious of the difference in rank, Section 246A(1)(k) lists out the order under Section 158BC as an appealable order before the Commissioner of Income Tax (Appeals) and thereafterwards a second appeal to the Tribunal under Section 253. Learned counsel drew our attention to the divergent view held by the various courts as regards the exercise of authority under Section 263 of the Act, particularly with reference to the orders passed consequent on the approval granted by the Inspecting Assistant Commissioner under Section 144A and 144B and the insertion of the Explanation to Section 263(1) by the Taxation Laws (Amendment) Act, 1984 with effect from 1.10.1984, whereby, the Commissioner was empowered to revise the orders passed by the Assessing Authority on the approval granted by the Joint Commissioner or by the Inspecting Assistant Commissioner under Section 144A and 144B of the Act as the case may be and submitted that a comparative reading of Sections 144A and 144B and Sections 263 and 158BG, along with appellate remedies provided for under Sections 253 and 246A, thus makes the position clear that as far as revisional remedy available to the Revenue is concerned, an order to be revised by the Commissioner must be one which is made by the authority below the rank of the Commissioner and that wherever the order is passed with the approval of the Commissioner and there is a direct appeal remedy to the Tribunal, the Act does not contemplate an exercise of revisional jurisdiction under Section 263 of the Act to revise the order passed by an Officer of the same rank. We agree with the reasoning of the assessee.

15. In the decision in Smt. Annapoornamma Chandrashekar’s case (supra), the Karnataka High Court considered the phrase “previous approval” under Section 158BG but as relatable to an administrative approval and hence, no opportunity need be granted to the assessee before grant of approval. Nevertheless the question posed before the High Court was whether the Commissioner can exercise his revisional jurisdiction under Section 263 of the Act in respect of block assessment order passed by the Assessing Authority under Section 14B when the Commissioner has accorded his approval to such order? In the context, the Karnataka High Court pointed out to the meaning of ‘approval’ as contained in Section 158BG. We respectfully agree with the line of reasoning which reads as under:-

“…The question arises if to make the said order, previous approval of the Commissioner is a condition precedent, was the Commissioner not expected to look into the draft block assessment order placed before him for approval to find out whether the said order is lawful and whether the said order is prejudicial to the interest of the revenue. If it was prejudicial to the interest of the revenue or if it is not lawful he was not obliged to accord approval. What he proposes to do under Section 263 of the Act, he should have done at the stage of approval. Because in a block assessment proceedings, the tax to be levied under Section 113 of the Act is 60% and it is in respect of an undisclosed income which will have serious consequences on the assessee, the Legislature thought it fit to introduce Section 158BG providing for previous approval to ensure that the said provision is not abused by the lower authorities. …

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… When the power of such approval is vested in a higher authority, when such higher authority approves an order of the lower authority, which means he has gone through the order of the lower authority, he has no reason to disagree he finds no fault with that order and therefore he confirms the order by his approval. It is to be seen that the statute has not used merely the word ‘approval’. The word used is ‘previous approval’. Therefore, unless the approval is previously taken, the assessment order would have no value at all. Therefore, when previous approval is a condition precedent and approval means to ‘agree’ i.e. to concur, to give mutual assent, to come into harmony, it is possible only after application of mind by the authority according approval”.

The Karnataka High Court observed that where a statute requires the authorities to take an administrative decision after being satisfied or after forming an opinion as to the existence of a state of circumstances, the action is based on the subjective satisfaction. Thus, as far as the Commissioner is concerned, the approval to be granted for passing an order under Section 158BC thus show that the approval itself rests on the subjective satisfaction approving the order of assessment under Section 158BC based on the materials and it is not a technical approval giving a nod or signal for passing the order of assessment.

16. Similar line of reasoning was held by the Andhra Pradesh High Court in Sree Rama Medical & Surgical Agencies v. CIT [2000] 243 ITR 425. Learned senior counsel for the assessee referred to the decision in Sahara India (Firm)’s case (supra), wherein the Apex Court considered the question of affording an opportunity of pre-decisional hearing before referring the matter to special audit under Section 142(2A) of the Act. The Revenue reasoned that an order of special audit under Section 142(2A) of the Act was only a step towards assessment. Being in the nature of an enquiry before making the assessment order and purely an administrative act, at that stage, a pre-decisional hearing was not required. However, before passing the order of assessment under Section 142(3), the requirement of affording a hearing was fully made. Thus, there was no need at all for giving an opportunity at the time of making an order under Section 142(2A) of the Act. Rejecting the said contention, the Supreme Court pointed out that with the growth of administrative law, the distinction between a judicial act and an administrative act had withered away. When a purely administrative order entailed civil consequences, it is the civil consequence which obliterates the distinction between quasi-judicial and administrative function. More over, with the growth of the administrative law, the old distinction between a judicial act and an administrative act has withered away, therefore, it hardly needs reiteration that even a purely administrative order which entails civil consequences, must be consistent with the rules of natural justice. Also see Mrs. Maneka Gandhi v. UOI [1978] 1 SCC 248 and S.L. Kapoor v. Jagmohan [1980] 4 SCC 379. As already noted above, the expression “civil consequences” encompasses infraction of not merely property or personal rights but of civil liberties, material deprivations and non-pecuniary damages. Anything which affects a citizen in his civil life comes under its wide umbrella. It must be consistent with the rules of natural justice. The Supreme Court pointed out that even in the absence of an express provision for affording an opportunity of a pre-decisional hearing to the assessee, the requirement of the observance of the principles of natural justice was to be read into the provision. In so holding, the Apex Court referred to the decision in State of Orissa v. Dr. Binapani Dei AIR 1967 SC 1269, and reiterated its view in Rajesh Kumar v. Dy. CIT [2006] 287 ITR 91, that even an administrative decision involving civil consequences has to meet with the rules of natural justice. Although the said decision was as regards the granting of an opportunity before making an order under Section 142(2A), yet, the decision is relevant in considering the contention of the Revenue that the approval being an administrative one, assumption of jurisdiction under Section 263 of the Act cannot, in any manner, be held as bad in law.

17. As already pointed out, passing of an order under Section 158BC rests on the previous approval of the Commissioner. On a reading of Section 158BG, particularly the proviso, reveal the mandatory nature of such an approval, that the proviso reads as “provided that no such order shall be passed without the previous approval of the Commissioner …”. In the background of the above-said provisions, in keeping the law declared by the Apex Court in Sahara India (Firm)’s case (supra) that with civil consequences flowing out of such an approval, we have no hesitation in accepting the plea of the assessee that in the face of such an approval granted to the order passed under Section 158BC, there can be no assumption of jurisdiction by an authority of the same rank under Section 263 of the Act.

18. It is no doubt true that the availability of an appeal remedy cannot pronounce on the scope of Section 263 of the Act vis-a-vis Section 158 BG of the Act. Yet, a reading of Section 263 shows that it is more in the nature of a corrective mechanism in cases where the Revenue may not have a chance to correct the error in the order of assessment, which is prejudicial to the interest of the Revenue, which does not fall for consideration under Section 147 proceedings. In this connection, the decision of the Apex Court in Shankar v. Krishna AIR 1970 SC 1 relied on by the learned senior counsel for the assessee, needs to be seen. Even though the said decision was with reference to the dismissal of the revision petition under Section 115 of the Code of Civil Procedure by the High Court and may not have a direct bearing on the issue, yet, one may note the observation of the Apex Court on the scope of revisional jurisdiction under Section 115 of CPC that the jurisdiction exercised is a part of the general appellate jurisdiction of the High Court as a superior court.

19. Keeping this theme in the background, when one looks at the scheme of the revisional powers of the Commissioner given under Sections 263 and 264 of the Act, we find, Section 263 is a jurisdiction exclusively reserved for the Commissioner to “call for and examine the record of any proceedings under this Act and if he considers that any order passed therein by the Assessing Authority is erroneous insofar as it is prejudicial to the interests of the Revenue” and revise the orders thereon. Section 264 is a specific revisional power given to the Commissioner to revise the order other than the order to which Section 263 applies either on his own motion or on an application by the assessee.

20. Given the fact that the revisional jurisdiction of the Commissioner under Section 263 or 264 of the Act enables the Commissioner to call for and examine the record of any proceedings under the Act and ‘record’ is defined under Section 263 Explanation (b) to “include and shall be deemed to always to have included all records relating to any proceedings under this Act” available at the time of examination by the Commissioner and the approval under Section 158BG also being part of the record in the passing of the order under Section 158BC, we agree with the assessee’s contention that the self-same rank Officer cannot once again review an order passed under Section 158BC made with the approval of the Commissioner of Income Tax. Further, apparently, faced with the situation of the nature as one prevailing herein, Section 158BG, after amendment in 1997 substitutes the approval by the Commissioner to an approval by the Joint Commissioner in respect of search done after 1.1.97, and that an appeal remedy to the Commissioner of Income Tax (Appeal) thereon is provided under the Act as against the original appeal remedy before the Income Tax Appellate Tribunal, we hold that going by the scheme of Act. Thus, once approval is given by the Commissioner in respect of proceedings made before 1.1.1997, the “approval” being an expression indicating application of mind on the part of the higher authority viz., the Commissioner, to the materials seized leading to the block assessment and the approving authority not being lower in rank than that of the revisional Appellate Authority himself and hence an appeal remedy thereupon before the Tribunal alone is provided thereon, we do not find any justifiable ground to accept the plea of the Revenue that the approval on the order passed under Section 158BC would be a mere administrative nod and hence, the assessment is amenable to be proceeded under Section 263 of the Act. As pointed out by the Karnataka High Court in Smt. Annapoornamma Chandrashekar’s case (supra), the act of approval is not for a mere passing of an order under Section 158BC, but an approval which takes note of the subject matter of assessment and there is application of mind before granting the approval. The Apex Court in Ashok Kumar Sahu v. UOI AIR 2006 SC 2879 held that the expression ‘approve’ means to have or express a favourable opinion of to accept as satisfactory as to the content of the assessment made under Section 158BC. The Karnataka High Court pointed out the difference between the approval and permission by referring P. Ramanatha Aiyar’s Law Lexicon and held that when approval is given it means the approving authority has full knowledge about the contents of what is approved and confirmed authoritatively the order of the lower authority.

21. In the light of the phraseology used in section 158BG, we respectively agree with the view expressed by the Karnataka High Court in Smt. Annapoornamma Chandrashekar’s case (supra). In the circumstances, we have no hesitation in setting aside the order of the Tribunal holding that on the approval given by the Commissioner, the order to be passed under Section 158BC of the Act and the Commissioner cannot exercise jurisdiction under Section 263 of the Act to revise the order of assessment passed under Chapter XIV-B.

22. In the result, the above Tax Case (Appeal) is allowed. No costs.