Case Law Details
RELEVANT PARAGRAPH
20. An Income Tax Officer while passing an order of assessment performs judicial function. An appeal lies against his order before the Appellate Authority. A Revision Application would also lie before the Commissioner of Income Tax. It is trite that the jurisdiction exercised by the Revisional Authority pertains to his Appellate jurisdiction. See Shankar Ramchandra Abhyankar vs. Krishnaji Dattatraya Bapat [AIR 1970 SC 1].
21. The Act provides for its own hierarchy of authorities. Section 116 of the Act occurring in Chapter XIII thereof provides for classes of Income-tax authorities for the purpose of the Act. Clauses (e) and (f) thereof read as under:
“(e) Assistant Directors of Income-tax or Assistant Commissioners of Income-tax.
(f) Income-tax Officers”
Section 117 of the Act provides for appointment of Income-tax authorities. Control of Income-tax authorities is specified in Section 118 in the following terms:
“118. The Board may, by notification in the Official Gazette, direct that any income-tax authority or authorities specified in the notification shall be subordinate to such other income-tax authority or authorities as may be specified in such notification. “
Section 119 lays down the manner in which the instructions may be given to the subordinate authorities by the higher authorities. Sub-Section (1) thereof provides for the power of the Board whereas sub-section (2) specifies the power of the Board to issue such directions. The said orders passed by the Board are required to be placed before each House of Parliament. It must be read before each House of Parliament by the Central Government.
Section 120 of the Act provides for the jurisdiction of Income-tax authorities. Sub-section (1) thereof reads as under:
“120. (1) Income-tax authorities shall exercise all or any of the powers and perform all or any of the functions conferred on, or, as the case may be, assigned to such authorities by or under this Act in accordance with such directions as the Board may issue for the exercise of the powers and performance of the functions by all or any of those authorities. “
Section 124 of the Act lays down the jurisdiction of Assessing Officers. Power to transfer cases is provided for under Section 127; sub-Sections (1) and (2) whereof read as under:
“127. Power to transfer cases
(1) The Director General or Chief Commissioner or Commissioner may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, transfer any case from one or more Assessing Officers subordinate to him (whether with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) also subordinate to him.
(2) Where the Assessing Officer or Assessing Officers from whom the case is to be transferred and the Assessing Officer or Assessing Officers to whom the case is to be transferred are not subordinate to the same Director General or Chief Commissioner or Commissioner, –
(a) where the Directors General or Chief Commissioners or Commissioners to whom such Assessing Officers are subordinate are in agreement, then the Director General or Chief Commissioner or Commissioner from whose jurisdiction the case is to be transferred may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, pass the order;
(b) where the Directors General or Chief Commissioners or Commissioners aforesaid are not in agreement, the order transferring the case may, similarly, be passed by the Board or any such Director General or Chief Commissioner or Commissioner as the Board may, by notification in the Official Gazette, authorise in this behalf.”
The Explanation appended to the said provision states:
“Explanation. — In section 120 and this section, the word “case”, in relation to any person whose name is specified in any order or direction issued thereunder, means all proceedings under this Act in respect of any year which may be pending on the date of such order or direction or which may have been completed on or before such date, and includes also all proceedings under this Act which may be commenced after the date of such order or direction in respect of any year.”
Sections 131 to 136 provide for the administrative powers of the Commissioner. Section 253 of the Act provides for appeals to the Appellate Tribunal. Sub-Section (1) whereof reads thus:
253. Appeals to the Appellate Tribunal.
(1) Any assessee aggrieved by any of the following orders may appeal to the Appellate Tribunal against such order-
(a) an order passed by a Deputy Commissioner (Appeals) before the 1st day of October, 1998 or, as the case may be, a Commissioner (Appeals) under section 154, section 250, section 271, section 271A or section 272A; or (b) an order passed by an Assessing Officer under clause (c) of section 158BC, 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; or (ba) an order passed by an Assessing Officer under sub-section (1) of section 115VZC; or (c) an order passed by a Commissioner under section 12AA or under clause (vi) of sub-section (5) of section 80G or under section 263 or under section 271 or under section 272A or an order passed by him under section 154 amending his order under section 263 or an order passed by a Chief Commissioner or a Director General or a Director under section 272A.”
An appeal before the High Court would lie on a substantial question of law as provided for under Section 260A of the Act.
22. We may, at this juncture, also notice the CBDT circular issued on 3.7.2001 vesting powers on different Commissioners; Item 27 whereof confers power in the Commissioner of Income-tax, Delhi-VII, Delhi to exercise jurisdiction in respect of offices of the Income Tax Assessing Officer situate at Civil Lines (No. 114).
23. Before, however, adverting to the jurisdictional issue raised by the Assessee herein, we may consider the jurisdiction of the Commissioner of Income-tax to issue notice in terms of Section 263 of the Act. It provides for a revisional power. It has its own limitations. An order can be interfered suo motu by the said authority not only when an order passed by the Assessing Officer is erroneous but also when it is prejudicial to the interests of the Revenue. Both the conditions precedent for exercising the jurisdiction
under Section 263 of the Act are conjunctive and not disjunctive.
24. An order of assessment passed by an Income-tax Officer, therefore, should not be interfered with only because another view is possible. The Commissioner of Income-tax, however, has specified a number of reasons in support of its order, namely, (1) on non-fulfillment of pre-requisite conditions for deduction under Section 80-IA/80-IB – it was held that the activities of the assessee do not amount to manufacturing; (2) little consumption of electricity and thus manufacturing is without the aid of power; (3) non-employment of requisite workers in manufacturing process; (4) non-fulfillment of the condition of new plant and machinery; (5) extra- ordinary high profits; (6) abrupt closure of business; (7) no reason for more than ordinary profits; (8) books of accounts incomplete and unreliable; (9) the manufacturing units at Parwanoo were not genuinely run; (10) high profits have been declared.
In regard to reasons for more than ordinary profits, it was stated:
“12.1 Many of the essential expenses without which business cannot be run or either not debited at all or have been suppressed considerably. Depreciation of assets such as furniture, fixtures, car, scooter etc. has also been claimed at half the rate while have been with the assessee through out the year. The lower claim of depreciation prejudices the revenues case for the subsequent years also.”
It was concluded:
“15.6 Keeping in view the totality of the facts and circumstances of the case, the only inescapable conclusion in this case is that the assessee has/had no genuine manufacturing unit at Parwanoo. The Parwanoo base is being only used as a fagade to convert/route its otherwise undisclosed income from undisclosed sources through the units at Parwanoo to claim deduction u/s 80IA/80IB. Otherwise, there was no reason that the partners should not have stationed themselves at Parwanoo or nearby. There is no justification for abrupt closure of almost each of the three units in the 4th or 5th year when they were yielding peak profits. The Unit No. 1 and Unit 2 were closed following a surprise survey u/s 133A which revealed that there was little industrial activity in the premises at Parwanoo. It was with a view to avoid the embarrassing situation of defending the indefensible that the assessee deemed it fit to show these units as having been closed before the date of Survey in the accounting period relevant to A.Y. 2000-01.”
It was held:
16. I have carefully considered the written submission of the assessee and these are not acceptable as being incorrect. In view of the above, I am of the view that the Assessing Officer has acted not only erroneously, but also in a manner prejudicial to the interest of revenue by allowing the deduction u/s 80IB in the assessment order dated 19.12.2002 where he had brought substantial amount of evidence against it on record and proved beyond all reasonable doubts that the assessee had falsely made claim of heavy deductions knowing fully well: that its activities/operatio ns did not amount to manufacturing; that the manufacturing, if any, was not carried with the aid of power; that it does not fulfill the condition of new Plant & Machinery; that it did not satisfy the condition of employment of 20 workers throughout or through the substantial part of the year, and that the declared profits were reasonably high and exorbitant and non genuine also.”
On the aforementioned finding, it was held:
“16.3 Under the circumstances, I am left with no alternative but to decide the proceedings on the basis of material on record. In the assessment year under review, I estimate the assessee’s income from Units at Parwanoo at 5% of the declared turnover. The income shown in excess of 5% amount is treated as undisclosed income from undisclosed sources. As the assessee does not fulfill many of the conditions for being entitled to deduction u/s 80IA/IB, no part of the total income, not even the one estimated @5% of the turnover at Parwanoo, would be entitled for deduction u/s 80IA/IB.”
Other directions were issued and diverse proceedings were also directed to be initiated.
25. Indisputably, the Assessee carried the matter in appeal. Before the Appellate Authority, a large number of grounds were raised. We may, however, notice that a question with regard to the propriety on the part of the Commissioner of Income-tax to interfere with the functions of the Assessing Officer was raised, stating that the said order was passed at the dictate of the higher authorities.
29. The scope of provisions of Section 263 of the Act is no longer res integra. The power to exercise of suo motu of revision in terms of Section 263(1) is in the nature of supervisory jurisdiction and same can be exercised only if the circumstances specified therein, viz., (1) the order is erroneous; (2) by virtue of the order being erroneous prejudice has been caused to the interest of the revenue, exist.
In Malabar Industrial Co. Ltd. vs. CIT [243 ITR 83 (SC)] : [(2000) 2 SCC 718), this Court held:
“7. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.
10. The phrase ‘prejudicial to the interests of the revenue’ has to be read in conjunction with an erroneous order passed by the assessing officer. Every loss of revenue as a consequence of an order of 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 two 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. It has been held by this court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the assessing officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue.” (emphasis supplied)
The principle laid down therein was followed in Commissioner of Income-Tax vs. Max India Ltd. [(2007) 295 ITR 282 (SC)], stating:
“In our view at the relevant time two views were possible on the word “profits” in the proviso to Section 80HHC(3). It is true that vide the 2005 amendment the law has been clarified with retrospective effect by insertion of the word “loss” in the new proviso. We express no opinion on the scope of the said amendment of 2005. Suffice it to state that in this particular case when the order of the Commissioner was passed under Section 263 of the Income Tax Act, 1961, two views on the said word “profits” existed.”
Referring to Malabar Industrial Co. Ltd. (supra), it was observed:
“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 two 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.”
It is beyond any doubt or dispute that only in terms of the directions issued by the Commissioner dated 12.7.2004 under Section 263 of the Act, notices under Section 148 of the Act were issued.
32. When a statute provides for different hierarchies providing for forums in relation to passing of an order as also appellate or original order; by no stretch of imagination a higher authority can interfere with the independence which is the basic feature of any statutory scheme involving adjudicatory process.
In Commissioner of Police, Bombay vs. Gordhandas Bhanji [AIR 1952 SC 16], this Court has held:
[7] This sanction occasioned representations to Government presumably by the “public” who were opposing the scheme. Anyway, the Commissioner wrote to the respondent on the 19/20th September, 1947, and direct him “not to proceed with the construction of the cinema pending Government orders.” Shortly after, on the 27/30th September, 1947, the Commissioner sent the respondent the following communication:
“I am directed by Government to inform you that the permission to erect a cinema at the above site granted to you under this office letter… dated the 16th July, 1947, is hereby cancelled.”
It was furthermore opined:
“We are clear that public orders, publicly made, in exercise of a statutory authority cannot be construed in the light of explanations subsequently given by the officer making the order of what he meant, or of what was in his mind, or what he intended to do. Public orders made by public authorities are meant to have public effect and are intended to affect the actings and conduct of those to whom they are addressed and must be construed objectively with reference to the language used in the order itself.”
See also Pancham Chand & Ors. vs. State of Himachal Pradesh & Ors.[(2008) 7 SCC 117]
Yet again in The Purtabpur Company Ltd. vs. Cane Commissioner of Bihar [AIR 1970 SC 1896], this Court held:
“…The power exercisable by the Cane Commissioner under Clause 6(1) is a statutory power. He alone could have exercised that power. While exercising that power he cannot abdicate his responsibility in favour of anyone – not even in favour of the State Government or the Chief Minister. It was not proper for the Chief Minister to have interfered with the functions of the Cane Commissioner. In this case what has happened is that the power of the Cane Commissioner has been exercised by the Chief Minister, an authority not recognised by Clause (6) read with Clause (11) but the responsibility for making those orders was asked to be taken by the Cane Commissioner.
14. The executive officers entrusted with statutory discretions may in some cases be obliged to take into account considerations of public policy and in some context the policy of a Minister or the Government as a whole when it is a relevant factor in weighing the policy but this will not absolve them from their duty to exercise their personal judgment in individual cases unless explicit statutory provision has been made for them to be given binding instructions by a superior.”
[See also Tarlochan Dev Sharma vs. State of Punjab & Ors. [(2001) 6 SCC 260]
33. The other question which requires determination is as to whether the CIT (Shimla) could maintain an appeal before the High Court.
An appeal is ordinarily maintainable at the instance of the Assessing Officer. Not only an order of assessment was passed but also CIT (Shimla) had already passed an order. Notices under Section 148 of the Act had already been issued much prior thereto.
Before us, reliance has been placed upon some decisions by Mr. Salve to contend that CIT (Shimla) has no jurisdiction. Even in a situation of this nature such a view appears to have been taken in Commissioner of Income Tax vs. Sahara India Financial Corporation Ltd. [212 CTR 178 (Delhi)] wherein a question whether the appeal preferred by the Revenue in the Delhi High Court was questioned by the assessee on the ground of lack of territorial jurisdiction, it was held:
“11. Learned Counsel for the assessed contended that since the assessment orders had already been passed in respect of the assessed and a decision had also been taken by the Tribunal, there was no question of transferring the jurisdiction in respect of the assessed from one place to another. We are of the view that this argument is completely misplaced. The Explanation to Section 127(4) of the Act tells us what the word ‘case’ means in relation to any person whose name is specified in any order or direction issued under Section 127 of the Act. The Explanation says that ‘case’ means all proceedings under the Act in respect of any year:
(i) which may be pending on the date of the order or direction;
(ii) which may have been completed on or before the date of the order or direction;
(iii) including all proceedings which may be commenced after the date of the order or direction in respect of any year.
12. In other words, the Explanation to Section 127(4) of the Act talks of proceedings, past, present and future in respect of a person whose name is specified in the order or direction passed under Section 127 of the Act and this would apply to any previous year.
13. The order passed under Section 127(2) of the Act clearly relates to the ‘case’ of the assessed mentioned in the Schedule, and by virtue of the Explanationn, all future proceedings that may be taken under the Act (obviously including an appeal under Section 260A thereof) would now have to be in harmony with the order passed under Section 127(2) of the Act. Consequently, the jurisdiction in respect of the ‘case’ and the assessed having been shifted from Lucknow to Delhi, the Revenue could file the appeal under Section 260A of the Act only in Delhi and it could not have filed an appeal in the Lucknow Bench of the Allahabad High Court.”
Yet again in Commissioner of Income-Tax, West Bengal & Anr. vs. Anil Kumar Roy Chowdhury & Anr. [66 ITR 367 (SC)] this Court opined:
“It may be that the Income-tax Officer who completed the original assessment would also be concerned with the appeal to be filed by the Commissioner, but it does not mean that he is exclusively so concerned. If the case had been transferred by the Commissioner or the Board of Revenue from the Income-tax Officer who completed the assessment to another Income-tax Officer, then obviously the former officer will have no concern with the appeal. But if there has been no such transfer then we are unable to appreciate why he alone is concerned with the appeal. The Income-tax Officers can have concurrent jurisdiction over some matters. On illustration of this is provided by section 64(4).”
The High Court dissented from the decision of the Punjab High Court in R. B. L. Benarsi Das v. Commissioner of Income-tax. The Punjab High Court in that case held that there was nothing in section 33(2) to prohibit the Commissioner from directing any Income-tax Officer, other than the one who in fact passed the assessment order, to appeal. We consider that it is not correct to say that any Income-tax Officer who has concern with the appeal.
The High Court rightly relied on Commissioner of Income-tax v. S. Sarkar & Co. in dissenting from the view expressed by the Punjab High Court in R. B. L. Benarsi Das v. Commissioner of Income-tax, but in our view the High Court erred in holding that the facts of the present case are governed by the earlier decision of the Calcutta High Court. In this case, on the facts found by the Appellate Tribunal, one Income-tax Officer had passed the assessment order while another Income-tax Officer has jurisdiction over the assessee. In our view, the latter Income-tax Officer having jurisdiction over the assessee could be directed by the Commissioner to file the appeal.”
In the aforementioned case, therefore, this Court proceeded on the basis that the concurrent jurisdiction of two authorities is permissible.
In Uday Shankar Triyar vs. Ram Kalewar Prasad Singh & Anr. [(2006) 1 SCC 75], this Court referring to the provisions of the Code of Civil Procedure held as under:
“17. Non-compliance with any procedural requirement relating to a pleading, memorandum of appeal or application or petition for relief should not entail automatic dismissal or rejection, unless the relevant statute or rule so mandates. Procedural defects and irregularities which are curable should not be allowed to defeat substantive rights or to cause injustice. Procedure, a hand-maid to justice, should never be made a tool to deny justice or perpetuate injustice, by any oppressive or punitive use. The well recognized exceptions to this principle are:
(i) where the Statute prescribing the procedure, also prescribes specifically the consequence of non-compliance;
(ii) where the procedural defect is not rectified even after it is pointed out and due opportunity is given for rectifying it;
(iii) where the non-compliance or violation is proved to be deliberate or mischievous;
(iv) where the rectification of defect would affect the case on merits or will affect the jurisdiction of the court;
(v) in case of Memorandum of Appeal, there is complete absence of authority and the appeal is presented without the knowledge, consent and authority of the appellant;”
It was a case where the Assessing Officer before whom the case was transferred completed the proceedings. It was in the aforementioned context
it was opined that new Assessing Officer assumes jurisdiction exclusively in
completing the proceedings. Such is not the case here.
35. This case poses before us some peculiar questions. Whereas the order under Section 263 of the Act and consequently the notices under Section 148 of the Act have been held to be not maintainable, we are constrained to think that the Assessing Officer had passed an order at the instance of the higher authority which is illegal. For the aforementioned purpose, we may not go into the question of bona fide or otherwise of the authorities under the Income Tax Act. They might have proceeded bona fide but the order of assessment passed by the Assessing Officer on the dictates of the higher authorities being wholly without jurisdiction, it was a nullity. We, therefore, are of the opinion that with a view to do complete justice between the parties, the assessment proceedings should be gone through again by the appropriate assessing authority.
36. It is true that despite order passed by the High Court, CIT (Delhi) has not been impleaded. Presumably, because of the said defect in the order passed by the High Court of Himachal Pradesh at Shimla, Revenue could not implead CIT (Delhi) as a party in the appeal. CIT (Delhi), however, has been impleaded as a party in the Special Leave Petition (SLP) filed by the Assessee. CIT (Delhi) has although in an irregular manner filed a rejoinder. Counter affidavit was filed by the Assessee in the appeal preferred by the Revenue and the same is on record. The said authority, therefore, is otherwise before us.
37. It is now well settled that this Court in exercise of its extra-ordinary jurisdiction under Article 136 of the Constitution of India may, in the event an appropriate case is made out, either refuse to exercise its discretionary jurisdiction or quash both the orders if it is found that setting aside of one illegal order would give rise to another illegality. In Transmission Corpn. of A.P. Ltd. vs. Lanco Kondapalli Power (P) Ltd. [(2006) 1 SCC 540], this Court held:
“53. It is now well-settled that this Court would not interfere with an order of the High Court only because it will be lawful to do so. Article 136 of the Constitution vests this Court with a discretionary jurisdiction. In a given case, it may or may not exercise its power.”
We, therefore, in exercise of our jurisdiction under Article 142 of the Constitution of India direct that the assessment be reopened by the Commissioner of Income-tax, Delhi -VII.
