COMMISSIONER OF INCOME-TAX VS M. N. SUWMAN, 2000 PTD-MADRAS-HIGH-COURT-INDIA 3562 (1998)

Income-tax ---

----Revision---Powers of CIT---Power to examine record of any proceeding under Act---"Record", meaning of ---ITO calling for report from Valuation Officer regarding cost of construction---Report furnished after passing of assessment order ---CIT can look into valuation report for deciding whether assessment was prejudicial to interests of Revenue---Amendment of Explanation to S.263 declaratory of pre-existing law---Indian Income Tax Act, 1961, S.263.

The Income-tax Officer completed the assessment for the assessment year 1970-71. The assessee filed appeal and the Tribunal set aside the order with a direction to make further enquiry regarding the cost of construction. After the order of remand, the Income-tax officer called for a report from an approved valuer but before the report could be submitted, he passed a fresh assessment order in order to avoid the matter becoming time-barred. The Commissioner of Income-tax held that the value estimated by the approved valuer represented the correct figure and revised the order of the Income-tax Officer under section 263 of the Income Tax Act, 1961. Against the order of the Commissioner of Income-tax the assessee went in appeal before the Tribunal. The Tribunal held that though the Commissioner of Income-tax had technical jurisdiction under section 263 of the Act, yet the earlier order of assessment had not been sought to be revised by the Commissioner of Income-tax and that the revision of the later order was not really called for, as that later order had been passed pursuant to a direction given by the Tribunal in an appeal which had been preferred by the assessee. The Tribunal also took the view that the valuation which was furnished after the order of assessment was made, could not be taken note of by the Commissioner of' Income-tax for the purpose of exercising jurisdiction under section 263. On a reference:

Held, that the Income-tax Officer had passed the assessment order after having called for a valuation report, but without waiting for the report to be submitted to him. That report which was subsequently submitted related to the proceedings and formed part of the record which was before the Commissioner of Income-tax when he examined the same. It was certainly permissible for the Commissioner of Income-tax to look into that valuation report for the purpose of deciding as to whether the assessment made was prejudicial to the interest of the Revenue. The fact that the assessment year in question was 1971-72 which was long prior to the date of the amendment of section 263 by the Finance Act, 1988, did not in any manner affect the ambit of the Commissioner of Income-tax's power under section 263 as it has been laid down by the Supreme Court in CIT v. Shree Manjunathesware Packing Products and Camphor Works (1998) 231 ITR 53 that even the view that prevailed with regard to section 263 as it stood prior to 1988 was too narrow an interpretation of the word "record" and was unjustified. The Explanation added to section 263(1) in the year 1988 was, therefore, to be regarded as declaratory.

Tribunal directed to proceed to consider the merits of the appeal filed before it by the assessee.

CIT v. Shree Manjunathesware Packing Products and Camphor Works (1998) 251 ITR 53 (SC) fol

C.V. Rajan for the Commissioner.

Nemo for the Assessee

JUDGMENT

R. JAYASIMHA BABU, J.---For the assessment year 1970-71, the following questions of law have been referred to us for our decision at the instance of the Revenue:

"(1) Whether, on the facts and. in the circumstances of the case, the Appellate Tribunal was justified in setting aside the order passed by the Commissioner of Income-tax under section 263 of the Income Tax Act, 1961?

(2) Whether the Appellate Tribunal was right in holding and had valid materials to hold that the order of the Income-tax Officer was not erroneous and prejudicial to the interests of the Revenue?"

The Commissioner of Income-tax had for that assessment year initiated proceedings under section 263 of the Income Tax Act, 1961, as he felt that the order of assessment made by the Income-tax Officer on February 28, 1977, was prejudicial to the Revenue inasmuch as the value of the construction put up by the assessee had been understated and the low valuation offered by the assessee in the view of the Commissioner, had not been sufficiently revised having regard to the size of the construction and the rentals received from that construction. The assessee had reported that the construction put up was at a cost of Rs.60,000 and had also furnished a valuation report from a valuer who valued the construction at Rs.92,000 but subsequently he gave another report valuing the construction at the figure of Rs.59,000 which was less than the cost reported by the assessee in his return. The assessee owned half a share in the building which consisted of three floors and which yielded substantial rents annually.

The order of assessment had been made earlier on January 10, 1973, for the assessment year 1970-71, that order had been challenged by the assessee, who took the matter up to the Tribunal and the Tribunal had set aside that order with a direction that the Income-tax Officer shall make further enquiry with regard to the cost of construction. After that order of remand, the Income-tax Officer had rightly called for a report from an approved valuer, but before the report was submitted on March 25, 1977, he passed fresh assessment order on February 28, 1977, apparently in order to avoid the matter becoming time barred. The valuer who submitted the report on March 25, 1977, estimated the cost of construction at Rs.1,41,750. The Commissioner being of the opinion that the value so estimated by the valuer appointed by the Income-tax Officer represented the correct figure, revised the order of the Income-tax Officer.

Against the order of the Commissioner revising the assessment made by the Income-tax Officer, the assessee went in appeal to the Tribunal. The Tribunal while holding that the Commissioner had technical jurisdiction under section 263, nevertheless it was a case of the Commissioner clutching at the jurisdiction, the Tribunal came to that conclusion, on the ground that the earlier order of the assessment had not been sought to be revised by the Commissioner and that the revision of the later order was not really called for as that later order had been passed pursuant to a direction given by the Tribunal in an appeal which had been preferred by the assessee. The Tribunal also took the view that the valuation report which was furnished after the order of assessment was made could not properly be taken note of. by the Commissioner for the purpose of exercising his jurisdiction under Learned counsel for the Revenue submitted that the view of the Tribunal is plainly erroneous and is unsustainable. Learned counsel invited our attention to the recent decision of the apex Court in the case of CIT v. Shree Manjunathesware Packing Products and Camphor Works (1998) 231 ITR 53. The Court after noticing the Explanation under section 263 added by the Amendment Act, 1988, and after noticing the history of the section as also the pronouncements of the Courts on that section as it stood prior to 1988 held as under (page 62):

"It, therefore, cannot be said, as contended by learned counsel for the respondent, that the correct and settled legal position, with respect to the meaning of the word 'record' till June 1, 1988, was that it meant the record which was available to the Income-tax Officer at the time of passing of the assessment order. Further, we do not think that such a narrow interpretation of the word 'record.' was justified, in view of the object of the provision and the nature and scope of the power conferred upon the Commissioner. The revisional power conferred on the Commissioner under section 263 is of wide amplitude. It enables the Commissioner to call for and examine the record of any proceeding under the Act. It empowers the Commissioner to make or cause to be made such enquiry as he deems necessary in order to find out if any order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. After examining the record and after making or causing to be made an enquiry if he considers the order to be erroneous then he can pass the order thereon as the circumstances of the case justify. Obviously, as a result of the enquiry he may come into possession of new material and he would be entitled to take that new material into account. If the material, which was not available to the Income-tax Officer when he made the assessment could thus, be taken into consideration by the Commissioner after holding an enquiry, there is no reason why the material which had already come on record though subsequently to the making of the assessment cannot be taken into consideration by him. Moreover, in view of the clear words used in clause (b) of the Explanation to section 263(1), it has to be held that while calling for and examining the record of any proceeding under section 263(1) it is and it was open to the Commissioner not only to consider the record of that proceeding but also the record relating to that proceeding available to him at the time of examination."

The law laid down by the apex Court in that decision applies with full force to the facts of the this case. The Income-tax Officer had passed the assessment order after having called for a valuation report, but without waiting for the report to be submitted to him. That report which was subsequently submitted related to the proceedings and formed part of the record which was before the Commissioner when he examined the same. It was certainly permissible for the Commissioner to look into that valuation report for the purpose of deciding as to whether the assessment made was prejudicial to the interests of the Revenue. The fact that the assessment year in question is 1971-72 which is long prior to the date of the amendment of the section 263 by the Finance Act. 1988, does not in any manner affect the ambit of the Commissioner's power under section 263 as it has been laid down by the apex Court that even the view that prevailed with regard to section 263 as it stood prior to 1988 was too narrow an interpretation of the word "record" and was unjustified. The Explanation added to section 263(1) in the year 1988 is, therefore, to be regarded as declaratory

In this view of the matter, the questions that have been referred to us are required to be answered in the negative, in favour of the Revenue and, against the assessee they are so answered.

The Tribunal not having gone into the merits of the case while making the order from out of which the questions referred have arisen, the Tribunal shall now proceed to consider the merits of the appeal filed before it by the assessee.

M. B. A./81/FC?????????????????????????????????????????????????????????????????????????????????? Reference answered.