RENUSAGAR POWER CO. LTD. VS COMMISSIONER OF INCOME-TAX
2000 P T D 2925
[234 I T R 782]
[Allahabad High Court (India)]
Before Om Prakash and R. K. Gulati, JJ
RENUSAGAR POWER CO. LTD.
versus
COMMISSIONER OF INCOME-TAX
I.T.R. No.44 of 1980, decided on 12/08/1997.
Income-tax---
Commissioner---Revision---Jurisdiction---Notice---Affording opportunity of hearing to assessee---Is matter of procedure which follows assumption of jurisdiction---Not in itself a condition precedent for assumption of jurisdiction---Having, assumed jurisdiction, no enforceable order can be passed by Commissioner without hearing assessee---Indian Income Tax Act, 1961,S.263.
From a reading of section 263 of the Income Tax Act, 1961, it is manifest, that the Commissioner may make inquiry to find out whether an order passed by the assessing authority is erroneous and prejudicial to the interests of the Revenue without giving any notice to the assessee. Having assumed jurisdiction under section 263 for which no condition precedent is prescribed, the Commissioner before making an order under section 263 should give an opportunity of being heard to the assessee. It means no enforceable order could be passed by the Commissioner without hearing the assessee. But opportunity of hearing is not a condition precedent to assume the jurisdiction under section 263.
Where the Commissioner of Income-tax passed an order under section 263 without giving an opportunity of being heard to the, assessee:
Held, that the Tribunal was right in setting aside the order of the Commissioner of Income-tax and remitting the case to the Commissioner of Income-tax to make an order de novo after giving an opportunity of being heard to the assessee.
CIT v. Electro House (1971) 82 ITR, 824 (SC) fol.
JUDGMENT
At the instance of the assessee, the Income-tax Appellate Tribunal referred the following -questions for the opinion of this Court for the assessment year 1970-71 under section 256(1) of the Income Tax Act, 1961 (briefly, 'the Act"):
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the Commissioner had rightly assumed jurisdiction under section 263 of the Income Tax Act, 1961, and that the affording of proper opportunity of being heard was a matter of procedure which followed the assumption o1 jurisdiction, and was not in itself a condition precedent for the assumption of jurisdiction?
(2)Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that even though the order under section 263 was passed in violation of principles of natural justice and the mandatory provision it would not be correct in law to quash it as an order void ab initio and that the correct view of law would be to restore the case back to the 'Commissioner with the direction that he would remove the defect which supervened the original proceedings and would redetermine the issue in accordance with law after giving adequate opportunity of being heard to the assessee?
(3)Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that whenever the Tribunal passed an order setting aside the Commissioner's order passed under section 263(1) with the direction to pass it de novo, the provision of subsection (3) of section 263 automatically came into operation and lift the bar of limitation provided by subsection (2) of section .263?"
An assessment for the assessment year 1970-71 was completed on the assessee on March 16, 1974, by the assessing authority. The Commissioner of Income-tax, Lucknow, upon examining the assessment order made by he Income-tax Officer, noticed the following errors:
"(i) That development rebate at higher rate than due had been allowed.
(ii) That development rebate, though not due had been allowed.
(iii) That depreciation at higher rate than due had been allowed.
(iv) That extra shift. allowance had been allowed without making proper enquiries about the eligibility thereof.
(v) That computation of capital under rule 19A of the Income-tax Rules, 1962, for the purpose of granting relief under section 80J had been wrongly calculated, and thereby relief than due had been allowed to the assessee, and
(vi) That certain other errors had also been committed by the Income-tax Officer.
He, therefore, was of the view that the assessment order made by the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue. The Commissioner of Income-tax, therefore, called upon the assessee to appear on March 10, 1976, before him and explain the above mentioned discrepancies. The assessee on receipt of the notice requested Commissioner of Income-tax for further time up to April 10, 1976, to comply with the notice. The Commissioner of income-tax did not accept the assessee's request, as the period of limitation as set out under subsection (2) of section 263 was to expire on March 16, 1976. The Commissioner of Income-tax made an order under section 263.
Before the Appellate Tribunal the assessee contended, on appeal that the order passed under section 263 was a nullity, inasmuch as that was made by the Commissioner of Income-tax without giving an opportunity of being heard to the former. The Appellate Tribunal was of the view that it was not necessary for the Commissioner of Income-tax to give an opportunity of being heard to assume jurisdiction but opportunity of hearing was merely a part of the procedure to be followed after the jurisdiction under section 263 had been assumed. The Appellate Tribunal was of the view that no opportunity of hearing was given to the assessee before the impugned order was passed under section 263 by the Commissioner of Income-tax. The Appellate Tribunal, therefore, held that such omission caused a procedural irregularity, which was rectifiable. The Appellate Tribunal, therefore, set aside the order of the Commissioner of Income-tax, passed under section 263 and remitted the case back to the Commissioner of Income-tax to make an order de novo after giving an opportunity of being heard.
On these facts, the question for consideration is whether for assuming jurisdiction under section 263 it was necessary, for the Commissioner of Income-tax to give an opportunity of being heard to the assessee and whether the impugned order passed by the Commissioner of Income-tax without giving an opportunity of being heard to the assessee, was a nullity.
From a reading of section 263 of the Act; it is manifest that the Commissioner may make inquiry to find out whether an order passed by the assessing authority is erroneous and prejudicial to the interest of the Revenue without giving any notice to the assessee. Having assumed jurisdiction under section 263 for which no condition precedent is prescribed, the Commissioner before making an order under section 263 should give an opportunity of being heard to the assessee. It means no enforceable order could be made by the Commissioner without hearing the assessee. But opportunity of hearing is not a condition precedent to assume the jurisdiction under section 263.
The view taken by the Appellate Tribunal is fortified by the decision of the Supreme Court in the case of CIT v. Electro House (1971) 82 ITR 824. In this case the Supreme Court considered section 33B of the Indian Income-tax Act, 1922, which is analogous to section 263 of the Act of 1961. The Supreme Court held that unlike section 34 (analogous to section 147 of the Act of 1961), section 33B of the Indian Income-tax Act, 1922, does not require any notice to be issued by the Commissioner before he assumes jurisdiction to proceed to revise an order passed by the Income-tax Officer. The jurisdiction of the Commissioner to proceed under section 33B is not dependent on the fulfillment of any condition precedent. He is not required to give any notice before 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 make such inquiry as he deems necessary. These requirements have nothing to do with the jurisdiction of the Commissioner. They pertain to the region of natural justice. The Supreme Court observed with clarity that breach of the principles of natural justice may affect the legality of the order made, but that does affect the jurisdiction of the Commissioner.
Following the aforesaid authority, we answer all the abovementioned questions in the affirmative, that is, in favour of the Revenue and against the assessee.
M.B.A./4036/FC Questions answered.