Case Law Details
Once an issue was considered and decided by CIT (Appeals), remedy of Revenue cannot lie in invocation of jurisdiction u/s 263.
HIGH COURT OF BOMBAY
Ranka Jewellers Vs. Addl. CIT
ITA No. 1311 of 2009
DECIDED ON: March 26, 2010
RELEVANT PARAGRAPH
14. We must, at this stage, observe that in these proceedings we are not concerned with the merits or correctness of the determination that has been made by the CIT(A) in the order dated 22nd May 2006. The scope of the present proceedings is confined to the validity of the recourse to the powers under Section 263. During the course of the hearing, the Court has also been informed
that an appeal is pending before the ITAT in which the correctness of the order dated 22nd May 2006 passed by the CIT(A) will fall for determination. A copy of the authorisation memo dated 20th February 2007 issued by the Commissioner of Income Tax (Central) in regard to the filing of the appeal is produced during the hearing. The authorisation memo specifically deals with the correctness of the order passed by the CIT(A) while enhancing the assessee’s income on the request made by the Assessing Officer. he authorisation memo states that the Assessing Officer erred in
adopting what is described as “an arbitrary percentage of 12.5% of average turnover of Rs. 75 lakhs thereby considering estimated turnover of only first three years as seed capital and in not considering huge unaccounted turnover of Rs. 38 crores per year in
the latter three years of the block “. The case of the Revenue in the appeal before the Tribunal is to the effect that the amount estimated at Rs. 10 lakhs as initial investment is a gross underestimate to meet the turnover of Rs.38 crores and is lacking in reasonableness. The Court is informed that the ground which is sought to be urged by the Revenue is still to be admitted by the Tribunal. We have adverted to these facts because the correctness of the order that has been passed by the CIT(A) on merits is an issue which, it is open to the Revenue to urge before the Tribunal and for the Tribunal to address. The legitimacy, correctness and maintainability of the ground which is sought to be advanced will be dealt with by the Tribunal. The Revenue having taken recourse to its appellate remedy before the Tribunal, we are of the view that the exercise of the jurisdiction, in the facts of this case under Section 263 was not warranted since the exercise cannot be sustained under Section.
15. We must also advert to the circumstance that in so far as the second ground for the exercise of the jurisdiction under Section 263 is concerned, there was an audit query specifically with reference to the initial investment made in purchases in the year 1999 2000. The audit query was responded to by the Additional Commissioner of Income Tax. The ACIT in his response to the audit query was of the view that the observation in the audit was not correct. The view of the Additional Commissioner of Income Tax was confirmed by the CIT(Central), Pune. The Commissioner of Income Tax while passing his order under Section 263 has observed that the request for enhancement made by the Assessing Officer to the CIT(A) was only for the first year, namely, A.Y. 1997- 98. The Commissioner has proceeded on the basis that the initial investment computed at Rs. 10 lakhs was determined only for the first year of the block period and that the CIT(A) did not further examine the issue as to whether the initial investment of Rs.10 lakhs together with income computed for the first three years would be sufficient to achieve unaccounted sales to the extent to which they emerge during the remaining years of the block assessment. Similarly, the Tribunal has also observed that there was no assessment either by the Assessing Officer or by the CIT(A) in respect of the initial capital for the latter part of the block period. Ex facie , a reading of paragraph 16.5 of the order passed by the CIT(A) would show that his ground which weighed with the Commissioner of Income Tax and with the Tribunal is not correct. Paragraph 16.5 of the order passed by the CIT (A) would show that an estimation was made of the initial investment based on the turnover of the first three years of the block period. Having done so, the CIT(A) also computed undisclosed profits for the period 1996 97 till 1st November 1999 which he treated as being ploughed back in unaccounted trading. This would indicate that the CIT (A) had dealt not merely with the initial investment required on the basis of the turnover for the first three years of the block, but also made an estimation of the profits which were ploughed back in the unaccounted sales during the subsequent period between 1996 and 1st November 1999. Be that as it may, it would be necessary for this Court to clarify that the merits of the aforesaid determination will fall for consideration before the Tribunal in the pending appeal. We have not expressed any opinion one way or other other on the merits of the determination which has been made by the CIT(A).
16. The position in law was settled by the judgement of the Supreme Court in Malabar Industrial Co.Ltd. vs. CIT . In CIT vs. Max India Ltd., the Supreme Court while adverting to the earlier judgement in Malabar has laid down the following principle of law:
“Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where tow views are possible and the Income tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income tax Officer is unsustainable in law.”
17. The power under Section 263(1) can be exercised by the Commissioner where he considers that any order passed by the 3 (2000)243 ITR 834 (200 )295 ITR 282 Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. Explanation (c) to the provision provides that where any order referred to in Sub section (1) and passed by the Assessing Officer has been made a subject matter of any appeal, the powers of the Commissioner under the sub section shall extend to such matters as had not been “considered and decided ” in the appeal. In other words, the exercise of power under Section 263(1) is in respect of an order passed by the Assessing Officer, where the order is regarded as being erroneous and prejudicial to the interest of the Revenue. Where an order passed by the Assessing Officer is subject to an appeal that has been filed, the power of the Commissioner to invoke his revisional jurisdiction under Section 263 can only extend to such matters which have not been considered and decided in the appeal. The words which have been used in Explanation (c) to Sub section (1) of Section 263 are “considered and decided”. In other words, it is not merely a consideration that disables, but the matter has to be considered and decided in the appeal. The submission of Counsel appearing on behalf of the Revenue that the CIT(A) has not decided the issue, while dealing with the question of enhancement, cannot be accepted. The submission which has been urged on behalf of the Revenue is that the CIT(A) was requested to exercise his power of enhancement in pursuance of the request made by the Additional Commissioner of Income Tax on 20th May 2005 and that the request which was made was to carry out an estimation of the initial investment for the first year of the block period. Now, the power of the CIT(A) is structured by the provisions of Section 251. Section 251 inter alia provides that in disposing of an appeal the Commissioner of Income Tax (Appeals) shall have the power in an appeal against an order of assessment to confirm, reduce enhance or annul the assessment. Consequently, when a request for enhancement was made to the Commissioner of Income Tax (Appeals), he had the jurisdiction, in terms of Section 251, to confirm, reduce, enhance or annul the assessment. A reading of the order passed by the CIT(A), particularly paragraph 16.5 of the order, would lead to the conclusion that the Commissioner of Income Tax (Appeals) had considered and decided the issue. Once the issue was considered and decided by the Commissioner of Income Tax (Appeals), the remedy of the Revenue cannot lie in the invocation of the jurisdiction under Section 263. The Revenue has already invoked its remedy in th e form of a substantive appeal before the Tribunal which will be decided in accordance with law. The observations in this order are confined to determining whether the invocation of jurisdiction under Section 263 was valid. These observations will not affect the determination of the issues which are raised in the appeal to the Tribunal.
