Income-tax---

----Revision---Scope of powers of CIT---Application under S.273-A and appeal pending from assessment ---CIT competent to revise assessment---Writ petition not appropriate remedy of aggrieved assessee at that stage---Indian Income Tax Act, 1961, S.263---Constitution of India, Art.226.

There is nothing in the Indian Income Tax Act, 1961, imposing limits on the powers of the Commissioner under section 263 of the Act to orders which are not appealable or from which appeals have been preferred. Therefore, the Commissioner is competent to revise an order under section 263 even when an appeal is pending therefrom. The Revenue has no right of appeal to the Appellate Assistant Commissioner against any order passed by the Assessing Officer. Therefore, section 263 has been enacted to arm the Commissioner with the power of revising any order of the Assessing Officer, where the order is erroneous and the order has resulted in prejudice to the interests of the Revenue. It is open to the Commissioner to revise an assessment order while an appeal against it is pending before the Appellate Assistant Commissioner because the Assessing Officer's order must be regarded as subsisting and valid in taw despite pendency of the appeal. The jurisdiction of the Commissioner to proceed under section 263 is not dependent on the fulfillment of any condition precedent. He is not required to give any notice before assuming the jurisdiction under that section and commencing the inquiry. All that he is required to do before reaching his decision, and not before commencing the inquiry, is to give the assessee an opportunity of being heard and make or cause to be made such inquiry as he deems necessary. These requirements having nothing to do with jurisdiction of the Commissioner as they pertain to the question of natural justice. The exercise of power given under section 263 is dependent upon fulfillment of certain conditions, they being (a) the Commissioner must call for and examine the records in the proceeding under the Act; and (b) the Commissioner must consider the order passed therein by the Assessing Officer to ascertain whether it is prejudicial to the interests of the Revenue. The Commissioner may consider an order of the Assessing Officer to be erroneous not only if it contains some apparent error of reasoning or of law or of facts on the face of it but also where there has been failure to make inquiries, which were called for in the circumstances of the case.

For the assessment year s 1976-77, 1977-78, 1978-79 and 1979-80, additional income to the extent of Rs.111.37 lakhs was offered for taxation. Revised returns for the concerned four years were filed by March 30,1988, and part of the tax was paid. On April 11. 1988, the petitioner wrote a letter to the Commissioner and undertook to file a petition under section 273-A(1) and (4) of the Act for the concerned four years and the petition was filed on June 9, 1988, and the matter was pending with the Commissioner. Revised returns were filed for the four years though the assessments for the assessment years 1976-77 to 1979-80 were pending in appeal before the Income Tax Appellate Tribunal, Cuttack Bench. The assessments were set aside as a result of a search conducted in the business premises and the residence of the petitioner. Subsequently, the assessments were completed under section 147 for all the four years. Being aggrieved by these orders, the petitioner preferred appeals before the Commissioner of Income-tax (Appeals) who rejected the contention raised by the petitioner. Both the petitioner and the Revenue preferred appeals which were pending before the Tribunal. At this juncture, notices under section 263 were issued to the petitioner. On a writ petition challenging the notices:

Held dismissing the petition, that the petitioner's assertion was that the materials referred to were duly considered and therefore; the notice was an abuse of the process of law. These aspects could be raised in the petitioner's reply to the notice. A writ application was not the proper remedy for adjudicating highly controversial and disputed questions. Additionally, an appeal is provided to the Tribunal against an order passed under section 263 of the Act. In that forum, all factual disputes can be effectively adjudicated.

Russell Properties (Pvt.) Ltd. v. A. Chowdhury, Addl. CIT (1977) 109 ITR 229 (Cal.) distinguished.

CIT v. Amritlal Bhogilal & Co. (1958) 34 ITR 130 (SC); CIT v. Electro House (1971) 82 ITR 824 (SC); Rampyari Devi Saraogi v. CIT (1968) 67 ITR 84 (SC) and Tara Devi Aggarwal (Smt.) v. CIT (1973) 88 ITR 323 (SC) ref.

B.K. Mahanti, Bibek Mahanti, G.N. Padhi, H.K. Mohanty, S.S. Baral and B.K. Sahoo for Petitioners.

A.K. Ray for Respondents.

JUDGMENT

A. PASAYAT, J.---This assortment of petitions raises an identical dispute and are, therefore, disposed of by this common order. In each case, the notice issued under section 263 of the Income Tax Act, 1961 (in short, "the Act"), annexed as Annexure-1 to the writ application is impugned. Notices relate to the assessment years 1976-77, 1977-78, 1978-79 and 1979-80.

A brief reference to the fact situation as depicted by the petitioner in support of the writ applications is necessary. The petitioner is a public limited company and is assessed to income-tax. The Directorate of Revenue Intelligence made a raid in the premises of the petitioner on and from March 24, 1988. A raid was also conducted on the residence-cum-office of its Managing Director, Dr. B.D. Panda. While the foreign exchange regulation authorities were in the premises and were conducting their search, they requested the income-tax authorities to come and conduct raid in terms of section 132 of the Act. According to the petitioner, the materials seized cannot be categorized as unexplained investment, expenditure or any bullion, jewellery or other valuable articles not recorded in the books of account. According to it, the amounts expended which were not recorded in the books of account were not in the nature of any amount borrowed or repaid on hundi so as to attract the application of the provisions of sections 68,69, 69-A, 69-B, 69-C and 69-D of the Act. At the relevant time, the petitioner was going in for a major public issue as promoter in respect of a fully owned subsidiary by name Indian Charge Chrome Limited (in short, "the ICCL") involving an estimated amount of Rs.215 crores. A public issue of 208 lakhs equity shares of Rs.10 each for an Orissa-based company was a large endeavour and involved great risk and the petitioner could ill-afford any adverse publicity in any form. The petitioner wanted to avoid unfavorable reaction and adverse publicity, which were likely to affect the subscription to-the public issue of shares, the petitioner wanted to bypass. Prompted by these considerations, the petitioner's Managing Director, alongwith the then Deputy Director of Investigation of the Department, met the then Commissioner of Income-tax and immediately agreed to pay an amount of tax basing on the figures found on the basis of documents seized which have been annexed as Annexure-2 to the writ application, in O.J.C. No.2019 of 1993. Additional income to the extent of Rs.111.37 lakhs was offered for taxation. Revised returns for the concerned four years were filed by March 30, 1988, and part of the tax was paid. On April 11, 1988, the petitioner wrote a letter to the Commissioner and undertook to file a petition under section 273-A(1) and (4) of the Act for the concerned four years and the petition was filed on June 9, 1988, and the matter is pending with the Commissioner. Revised returns were filed for the four years though the assessments for the assessment years 1976-77 to 1979-80 were pending in appeal before the Income Tax Appellate Tribunal, Cuttack Bench. The assessments were set aside, as the result of the search conducted in the business premises and the residence of the petitioner and its managing director brought new materials to the fore and the findings, if any, recorded by the Tribunal were likely to affect the assessment to be made on the basis of the revised returns filed by the assessee. Subsequently, the assessments were completed under section 147 for all the four years. Being aggrieved by these orders, the assessee preferred appeals before the Commissioner of Income-tax (Appeals), Orissa, who partially allowed the appeals, but substantially rejected the contentions raised by the petitioner. Both the petitioner and the Revenue have preferred appeals which are pending before the Tribunal. At this juncture, the impugned notices under section 263 have been issued to the petitioner. The petitioner's challenge is that the Commissioner has issued notices with a view to (a) frustrate pending appeals; (b) delay disposal bf the matter pending under section 273-A of the Act; and (c) get over the hurdle of statutory ban on reopening of assessments, which have become time-barred under section 147 of the Act. In essence, it is submitted that the object and purpose of issue of notice is oblique and improper and the notice suffers from legal mala fides.

In support of the applications, Mr. B.K. Mahanti, learned counsel, urged that the exercise of power under section 263 is dependent upon the existence of certain objective factors and it is not impermissible for the Court to examine whether such factors are relevant for exercise of the powers when a challenge is thrown to the existence of such factors, and such challenge is met by placing before the Court factors which the statutory authority considers to be relevant for the exercise of the power. Reliance is placed in support of the submission on a decision of the Calcutta High Court in Russell Properties Pvt. Ltd. v. A. Chowhdhury. Addl. CIT (1977) 109 ITR 229. Learned counsel for the Revenue, on the other hand, contended that whether the materials do exist or not can be considered by the Commissioner after the assessee submits its reply. It is contended that, if the petitioner satisfies the Commissioner about the non-desirability to proceed further, certainly the Commissioner shall not proceed with the matter. But, whether materials exist for exercise of power or not can be gauged only after the assessee-petitioner submits its reply and participates in the proceeding. The petitions are labeled to be premature. The petitioner's assertion is that, even if, constitutionally, the amendment brought in with effect from June 1, 1988, is conceded for the sake of argument, materials which have been referred to, in the impugned notices were considered in the appeal by the first appellate authority and were also considered .for adjudication. Therefore, the purported exercise of power under section 263 is illicit. Learned counsel for the Revenue submits that the materials in question were not considered and did not form part of the decision.

In order to appreciate the rival contentions, it is necessary to refer to the provisions contained in section 263 of the Act, which so far as relevant, read as follows:

"263. Revision of orders prejudicial to Revenue.---(1) The 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.---For the removal of doubts, it is hereby declared that for ' the purposes of this subsection,---

(a) an order passed by the Assessing Officer shall include:---

(i) order of assessment made by the Assistant Commissioner or the Income Tax Officer on the basis of the directions issued by the Deputy Commissioner under section 144-A;

(ii) an order made by the Deputy 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 Chief Commissioner or Director-General or Commissioner authorized by the Board in this behalf under section 120;

(b) `record' includes all records relating to any proceeding under this Act available at the time of examination by the Commissioner;

(b) Where any order referred to in this subsection and passed by the Assessing Officer had been the subject-matter of any appeal, the powers of the Commissioner under this subsection shall extend to such matters as had not been considered and decided in such appeal.

(2) No order shall be made under subsection (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed .

There is nothing in the Act imposing limits on the powers of the Commissioner under section 263 of the Act to orders which are not appealable or from which appeals have been preferred. Therefore, the Commissioner is competent to revise an order under section 263 even when an appeal is pending therefrom. The Revenue has no right of appeal to the Appellate Assistant Commissioner against any order passed by the Assessing Officer. Therefore, section 263 has been enacted to arm the Commissioner with the power of revising any order of the Assessing Officer, where the order is erroneous and the order has resulted in prejudice to the interests of the Revenue. The decision of the Supreme Court in the case of CIT v. Amritlal Bhogilal & Co. (1958) 34 ITR 130, establishes that it is open to the Commissioner to revise an assessment order while an appeal against it is pending before the Appellate Assistant Commissioner because the Assessing Officer's order must be regarded as subsisting and valid in law despite pendency of the appeal. The jurisdiction of the Commissioner to proceed under section 263 is not dependent on the fulfillment of any condition precedent. He is not required to give any notice before assuming the jurisdiction under that section and commencing the inquiry. All that he is required to do before reaching his decision and not before commencing the inquiry, is to give the assessee an opportunity of being heard and make or cause to be made such inquiry as he deems necessary. These requirements having nothing to do with the jurisdiction of the Commissioner, they pertain to the question of natural justice (See CIT v. Electro House (1971) 82 ITR 824 (SC))..

Originally, an order passed under section 147 of the Act was not revisable by the Commissioner in terms of subsection (2) of section 263. However, by the Taxation Laws (Amendment) Act, 1984, the embargo was removed with effect from October 1,1984. The time-limit for exercise of power, which was originally indicated to be two years from the date of the order was changed to two years from the end of the financial year in which the order sought to be revised was passed. With effect from June 1, 1988, the Explanation to subsection (1) of section 263 has undergone a change, which was introduced by the Finance Act, 1988. The Explanation itself was inserted by the Taxation Laws (Amendment) Act, 1984, with effect from October 1, 1984, and was amended by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1988. We are not very much concerned with that amendment. The provision, which is relevant for the purpose of the case at hand reads as follows:

"Explanation.---For the removal of doubts, it is hereby declared that, for the: purposes of this subsection,--...

(c)where any order referred to in this subsection and passed by the Assessing Officer had been the subject-matter of any appeal, the powers of the Commissioner under this subsection shall extend to such matters as had not been considered and decided in such appeal."

The exercise of power given under section 263 is dependent upon fulfillment of certain conditions; they being (a) the Commissioner must call for and examine the records in the proceeding under the Act; and (b) the Commissioner must consider the order passed therein by the Assessing Officer to ascertain whether it is prejudicial to the interests of the Revenue. We are not satisfied that this is a case where our interference is called for at this juncture. The Commissioner has referred to certain materials to come to a prima facie view that the assessment made by the Assessing Officer was done in a perfunctory manner without proper examination of the records and without making investigation as was required.

As observed by the apex Court in Rampyari Devi Saraogi v. CIT (1968) 67 ITR 84 and Smt. Tara Devi Aggarwal v. CIT (1973) 88 ITR 323, the Commissioner may consider an order of the Assessing. Officer to be erroneous not only if it contains some apparent error of reasoning or of law or of facts on the face of it but also where there has been failure to make inquiries which were called for in the circumstances of the case. The petitioner's assertion is that the materials referred to were duly considered and, therefore, the notice is an abuse of the process of law. These aspects can be highlighted by the petitioner in his show cause reply. If the Commissioner is satisfied that the materials on which the proposed action under section 263 has been initiated had been considered and adjudicated upon, he is obligated to drop the proceeding. He has to be objectively satisfied that the order, which has been the subject-matter of appeal took into consideration relevant matters and a decision was rendered in respect thereof. We do not think that the writ application is the proper remedy for adjudicating this highly controversial and disputed question, which has its axis on factual premises. In a given case, the records may clearly show the existence or otherwise of the objective factors. Therefore, the Revenue may be asked to justify its action. But the position is different when an in depth analysis of the materials is required. Though there can be no dispute with the analysis of legal principles indicated in Russell Properties case (1977) 109 ITR 229 (Cal), it is clearly distinguishable on facts. Additionally an appeal is provided to the Tribunal against an order passed under section 263 of the Act. In that forum, all factual disputes can be effectively adjudicated. Our non-interference should not be construed to be expression of any opinion about the merits of the case.

An alternative submission of Mr. Mahanti is to the effect that the offer of Rs.111.37 lakhs as additional income to be subjected to tax was made with a view to buy peace, though there was no necessity for doing so. The intention was to avoid adverse publicity and the Revenue with eyes open accepted the offer and is now trying to gain undue advantage out of that situation, in resorting to legally mala fide actions. It is submitted that the offer should be permitted to be withdrawn. Prayer is made for a direction to that effect. We express no opinion in the matter. If the petitioner is so entitled in law, it may move the appropriate authority in this regard.

The writ applications are, accordingly, dismissed with the aforesaid observations. No costs.

D.M. PATNAIK, J.---I agree.

M.BA./203/T.F.Applications dismissed.