Case Law Details
Prestige Marketing Vs PCIT (Kerala High Court)
Maintainability of writ against the revision power under section 263 of the Income Tax Act, while appeal before CIT A is pending
Facts :- The petitioner has preferred a statutory appeal before the CIT(Appeals) on 15.1.2020. It is during the pendency of the appeal that the first respondent issued show cause notice dated 21.2.2022, to the petitioner on the finding that, out of the total addition of Rs. 3,35,33,509/- in Ext P1 A.O, only an amount of Rs. 68,25,000/- was taxed at the special rate under Sec. 69 read with Sec. 115BBE of the Act and balance amount of Rs. 2,67,08,509/- was assessed to tax at normal rates, treating it as ‘income from other sources’. The first respondent has found the assessment not in order because the petitioner had not produced any proof to get the benefit of normal rate of tax.Even though the petitioner submitted reply to show cause notice, the first respondent, by the impugned order, set aside A.O and directed the Assessing Officer to pass a speaking order in accordance with law, after affording the petitioner an opportunity of being heard.It is this action of the first respondent that is assailed in the writ petition
Assessee contention _Explanation I (c) of sub-sec.(1) of Sec. 263 of the Act has two limbs. The first limb deals with while the matter is sub-judice before the First Appellate Authority and the second one deals with when the matter has been decided in the appeal. Hence, in those matters decided in the appeal, the doctrine of merger applies. The subject matter in dispute in the appeal and the revision is one and the same, and is hence statutorily barred. In the instant case, the assessing authority, after conducting a detailed inquiry, has held that the income is from other sources. It is this turnover which is made the subject-matter of revision, on the premise that it is to be assessed at higher rate of tax under Section 115 BBE as unexplained credit
Revenue Contention _clause (c) of Explanation I of Sec. 263 (1) of the Act ousts the revisional power of the first respondent, while an appeal is pending, is untenable. In the case on hand, as the appeal is pending consideration, the above provision cannot be pressed into service. The said provision is based on the principle of doctrine of merger. Where an issue in the assessment order is neither agitated before the CIT(Appeals) nor has been considered by him, that portion of the assessment order will not merge with the order of CIT(Appeals). The first respondent has rightly and judicially exercised his powers, under Sec. 263 of the Act, to correct an error committed by the Assessing Officer in applying the correct rate of tax applicable to the additions by way of income made in the assessment. The petitioner has challenged only the additions made to the total income in the A.O. Therefore, the jurisdiction exercised by the first respondent is in consonance with the provisions of Sec. 263 of the Act.
HELD THAT:- We are unable to accept the contention of the petitioner that the first respondent does not have the power to pass order because the appeal is pending consideration before the CIT(Appeals). Going by the law referred to above, the first respondent has the revisional power to interfere with assessment order as provided under Sec. 263 of the Act, till the disposal of the appeal. Furthermore, I do not find any prejudice being caused to the petitioner because, if at all the petitioner is aggrieved by the order that is to be passed by the AO in compliance with the direction in order, the petitioner can very well challenge the said order also in an appeal, notwithstanding the pendency of the appeal filed against order.
Resultantly, we dismiss the writ petition, reserving the right of the petitioner to challenge the order, if so advised, proposed to be passed by Assessing Officer pursuant to order, in accordance with law, notwithstanding the challenge against order.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
The writ petition is filed to quash Ext P5 order passed by the Principal Commissioner of Income Tax – the first respondent.
2. The brief relevant facts for the determination of the writ petition are:
(i) The petitioner is a partnership firm doing business in PVC pipes. It is an assessee under the Income Tax Act, 1961 (for brevity, ‘Act’).
(ii) The petitioner had filed its return of income for the assessment year 2017- 2018 declaring a total income of Rs. 65,12,480/-.
(iii) The return was taken up for scrutiny and the assessment was completed on 16.12.2019, by Ext P1 order, under Sec. 143(3) of the Act.
(iv) Aggrieved by Ext P1 Assessment Order (A.O), the petitioner has preferred a statutory appeal before the Commissioner of Income Tax (Appeals) (for brevity, ‘CIT(Appeals)’) and the matter is sub-judice. Ext P2 is the acknowledgment slip.
(v) While so, the petitioner was served with Ext P3 notice by the first respondent stating that he was proposing to reopen Ext P1 A.O under Sec. 263 of the Act. The petitioner had submitted Ext P4 reply to Ext P3 notice, inter alia, contending that the subject-matter in the proposed revision is sub-judice in the appeal before the CIT(Appeals). Therefore, the first respondent may not invoke his jurisdiction under Sec. 263 of the Act, especially in view of the express prohibition under Explanation I (c) of sub-sec. (1) of Sec. 263 of the Act.
(vi) Even though the petitioner was heard, the first respondent has passed Ext P5 order.
(vii) Ext P5 order is patently illegal, arbitrary and unauthorised in law. Hence the writ petition.
3. The learned Standing Counsel appearing for the respondents has filed a statement refuting the allegations in the writ petition and, inter alia, contending that the assertion in the writ petition that clause (c) of Explanation I of Sec. 263 (1) of the Act ousts the revisional power of the first respondent, while an appeal is pending, is untenable. In the case on hand, as the appeal is pending consideration, the above provision cannot be pressed into service. The said provision is based on the principle of doctrine of Where an issue in the assessment order is neither agitated before the CIT(Appeals) nor has been considered by him, that portion of the assessment order will not merge with the order of CIT(Appeals). The first respondent has rightly and judicially exercised his powers, under Sec. 263 of the Act, to correct an error committed by the Assessing Officer in applying the correct rate of tax applicable to the additions by way of income made in the assessment. The petitioner has challenged only the additions made to the total income in the A.O. Therefore, the jurisdiction exercised by the first respondent is in consonance with the provisions of Sec. 263 of the Act. The writ petition is devoid of any merits and is liable to be dismissed.
4. The petitioner has filed a reply affidavit denying the assertions in the statement. It is asserted that Explanation I (c) of sub-sec.(1) of Sec. 263 of the Act has two limbs. The first limb deals with while the matter is sub-judice before the First Appellate Authority and the second one deals with when the matter has been decided in the Hence, in those matters decided in the appeal, the doctrine of merger applies. The subject matter in dispute in the appeal and the revision is one and the same, and is hence statutorily barred. In the instant case, the assessing authority, after conducting a detailed inquiry, has held that the income is from other sources. It is this turnover which is made the subject-matter of revision, on the premise that it is to be assessed at higher rate of tax under Section 115 BBE as unexplained credit. Therefore, the revisional authority ought not to have exercised its jurisdiction under Sec. 263 of the Act. Hence, the writ petition may be allowed.
5. Heard; Sri. Anil D. Nair, the learned Counsel appearing for the petitioner and Sri. Christopher Abraham, the learned Standing Counsel appearing for the respondents.
6. Sri. Anil D. Nair reiterated the contentions in the writ petition and in the reply affidavit. He argued that the action of the first respondent in initiating a suo-motu revision and passing Ext P5 order, during the pendency of the appeal, is illegal and has caused substantial prejudice to the petitioner. In fact, Ext P5 order has rendered the appeal otiose and leaving the petitioner high and dry. He placed reliance on the decisions of the Madras High Court in Commissioner of Income Tax vs Vam Resorts and Hotels Pvt. Ltd [(2018) 409 ITR 567] and the Allahabad High Court in CIT v. Vam Resorts and Hotels P. Ltd [(2019) 418 ITR 723] to fortify his contentions.
7. Sri. Christopher Abraham strenuously defended Ext P5 order and argued that the first respondent has unbridled powers to revise an order passed by the assessing authority, during the pendency of an appeal under Sec. 263 of the Act, when it is noticed that the Assessing Officer has committed a patent illegality. He argued that as the assessing authority had applied the wrong rate of tax, it is well within the domain and powers of the first respondent to exercise his revisional powers. He submitted that the petitioner has an alternative and efficacious statutory remedy. Hence, no prejudice will be caused to the petitioner. He placed emphasis on the decisions of the Honourable Supreme Court in Commissioner of Income Tax vs. Shri.Arbuda Mills Ltd. [(1998) 231 ITR 50 (SC)], Commissioner of Income Tax vs. Jayakumar B. Patil [(1999) 236 ITR 469 (SC)] and EIMCO K. C.P Ltd vs. Commissioner of Income Tax [(2000) 242 ITR 659 (SC)] and the decision of this Court in Kelpunj Enterprises vs. Commissioner of Income Tax , Kerala [ (1977) 108 ITR 294 (Ker)] to buttress his contentions. He prayed that the writ petition may be dismissed.
8. The point is whether there is any illegality in Ext P5 order.
9. Aggrieved by Ext P1 A.O, the petitioner has preferred a statutory appeal before the CIT(Appeals) on 15.1 .2020.
10. It is during the pendency of the appeal that the first respondent issued Ext P3 show cause notice dated 21 .2.2022, to the petitioner on the finding that, out of the total addition of Rs. 3,35,33,509/- in Ext P1 A.O, only an amount of Rs. 68,25,000/- was taxed at the special rate under Sec. 69 read with Sec. 11 5BBE of the Act and balance amount of Rs. 2,67,08,509/- was assessed to tax at normal rates, treating it as ‘income from other sources’. The first respondent has found the assessment not in order because the petitioner had not produced any proof to get the benefit of normal rate of
11. Even though the petitioner submitted Ext P4 reply to Ext P3 show cause notice, the first respondent, by the impugned Ext P5 order, set aside Ext P1 A.O and directed the Assessing Officer to pass a speaking order in accordance with law, after affording the petitioner an opportunity of being heard.
12. It is this action of the first respondent that is assailed in the writ petition.
13. Sec. 263 of the Income Tax Act reads thus:
263 (1). The Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he, may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
Explanation I – For the removal of doubts, it is hereby declared that, for the purposes of this sub- section,-
(a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include-
(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income- tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A;
(ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorised by the Board in this behalf under section 120;
(b)” record” shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal [Chief Commissioner or Chief Commissioner or Principal ] Commissioner or Commissioner;
(c) where any order referred to in this sub- section and passed by the Assessing Officer had been the subject- matter of any appeal, filed on or before or after the 1st day of June, 1988 , the powers of the ** Principal Commissioner or Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.
(a) the order is passed without making inquiries or verification which should have been made;
(b) the order is passed allowing any relief without inquiring into the claim;
(c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or
(d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.”.
(2). No order shall be made under sub- section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was
(3). Notwithstanding anything contained in sub- section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal (National Tax Tribunal), the High Court or the Supreme Court.
Explanation.- In computing the period of limitation for the purposes of subsection (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.
14. Interpreting Sec. 263 of the Act, in Kelpunj Enterprises vs. Commissioner of Income Tax (supra), this Court has held thus:
“It is significant that there is no such restriction in the exercise of power conferred by section 263 on the Commissioner to revise an order of the Income-tax Officer. The vital departure in the language employed in the two sections has to be given its due weight. The restriction in the powers of the Commissioner in terms provided by sub-section (4) of section 264 contrasts with the wider and apparently unlimited power given by section 263. We have, therefore, to respect the intent to the legislature which appears to us to be obvious that the power under section 263 is not inhibited by the pendency of any appeal before the Appellate Assistant Commissioner. If the appellate authority had disposed of the appeal before the Commissioner could pass an order under section 263 another question may arise on the ground of merger of the order of the Income-tax Officer in the appellate order. But that question does not arise before us for the interference in this case had been during the pendency of the appeal and before it was disposed of by the Appellate Assistant Commissioner. We must not, therefore, examine that question.
(emphasis given)
15. In Commissioner of Income Tax vs. Shri. Arbuda Mills Ltd (supra), the Hon ’ble Supreme Court has held as follows:
“The consequence of the said amendment made with retrospective effect is that the powers under Section 263 of the Commissioner shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in an appeal. Accordingly, even in respect of the aforesaid three items, the powers of the Commissioner under Section 263 shall extend and shall be deemed always to have extended to them because the same had not been considered and decided in the appeal filed by the assessee. This is sufficient to answer the question which has been referred.”
16. In EIMCO K.C.P Ltd vs. Commissioner of Income Tax (supra), the Hon’ble Supreme Court, after referring to the decision of this Court in Kelpunj Enterprises, has reiterated the legal proposition that the Commissioner can interfere with the order of the Income Tax Officer on a point which was directly in appeal before the Appellate Assistant Commissioner under Sec. 263 of the Act.
17. In view of the categoric declaration of law in the afore-cited decisions, I am unable to accept the contention of the petitioner that the first respondent does not have the power to pass Ext P5 order because the appeal is pending consideration before the CIT(Appeals). Going by the law referred to above, the first respondent has the revisional power to interfere with assessment order as provided under Sec. 263 of the Act, till the disposal of the appeal. Furthermore, I do not find any prejudice being caused to the petitioner because, if at all the petitioner is aggrieved by the order that is to be passed by the Assessing Officer, in compliance with the direction in Ext P5 order, the petitioner can very well challenge the said order also in an appeal, notwithstanding the pendency of the appeal filed against Ext P1 order. Resultantly, I dismiss the writ petition, reserving the right of the petitioner to challenge the order, if so advised, proposed to be passed by Assessing Officer pursuant to Ext P5 order, in accordance with law, notwithstanding the challenge against Ext P1 order
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