Bookmark
PDF
Share
CaseIQ

Nazir Singh v. Commissioner Of Income Tax .

Madhya Pradesh High Court

Apr 17, 2001

Judgment

Subsequent
References

CaseIQ

Important Paras

Please sign up to view Important Paras.

Smart Summary (Beta)

Structured Summary of the Opinion — J.G. Chitre, J.

Factual and Procedural Background

Shri Nazir Singh challenged the order of the Commissioner of Income-tax dated December 12, 1986, and the order of the Income-tax Appellate Tribunal (Indore Bench) dated September 18, 1990. The Assessing Officer (D‑Ward, Ujjain) by order dated February 27, 1986, had held that "salary" did not include dearness allowance or dearness pay unless such amounts entered into computation for superannuation/retirement benefits. On that basis the returns of Nazir Singh were accepted and his income was taken as taxable at Rs. 18,850 for the year 1983-84 (and similarly for 1984-85). The Commissioner invoked revisional jurisdiction under Section 263 of the Income-tax Act and concluded that dearness allowance/dearness pay were included in "salary", adjusted the taxable income (including a reference to the year 1982-83), and set aside the assessment. Nazir Singh appealed to the Income-tax Appellate Tribunal, which confirmed the Commissioner's order. He then petitioned the High Court for relief. The judgment under summary was delivered by J.G. Chitre, J.

Legal Issues Presented

Whether the Commissioner of Income-tax validly exercised his revisional jurisdiction under Section 263 of the Income-tax Act in respect of Nazir Singh's assessment which had been accepted under Section 143(1).
Whether dearness allowance / ad hoc dearness pay fall within the definition of "salary" for the relevant assessments and whether the Commissioner could apply an amendment (of 1989) with retrospective effect for the years in question.
Whether departmental circulars (in particular Circular No. 176 dated August 26, 1987, and related Board instructions) preclude invoking Section 263 against assessments accepted under Section 143(1), especially in cases involving small tax amounts.
What criteria should guide the Commissioner before invoking revisional jurisdiction under Section 263 (i.e., the scope and limits of Section 263 intervention)?

Arguments of the Parties

Appellant (Shri Nazir Singh)

Relied on several precedents (Rajan Ramkrishna v. CWT; CIT v. Prakashwati; CIT v. Rajakrishnan; Shyam Sunder Gupta v. CIT) to support the submission that the orders of the Commissioner and the Tribunal were improper, incorrect and illegal.
Contended that the Commissioner did not follow the departmental circular (Circular No. 176 dated August 26, 1987, and related Board instructions) which indicated that assessments accepted under Section 143(1) (in respect of comparatively small amounts) should not be subjected to revision under Section 263.
Pointed out that the tax effect in his case was nominal (referred to amounts of Rs. 1,360 / Rs. 1,300), and therefore there was no reason for the Commissioner to invoke revisional jurisdiction under Section 263.
Asserted that the Commissioner failed to record adequate reasons for reopening the case and that the reopening was not justified under Section 143(2)(b).
Prayed that the impugned orders be set aside and the tax liability quashed.

Respondent / Department (as presented in the opinion)

Shri R. L. Gupta, counsel for the Department, submitted that an amendment made in 1989 had included dearness allowance and ad hoc dearness pay within "salary" retrospectively from 1962, and therefore Nazir Singh was liable to assessment and tax on those amounts.
The Department submitted that the Commissioner was right to reopen the case under Section 263 because the Assessing Officer's order was erroneous and prejudicial to the interests of the Revenue.
The opinion also records submissions attributed to "Shri R. L. Jain" (as the text presents), including that the Commissioner's invocation of Section 263 was consistent with the 1989 amendment and that the matter could be treated as falling under Section 143(2)(b), so that the Commissioner need not follow the circular in question.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Rajan Ramkrishna v. CWT [1981] 127 ITR 1 (Gujarat High Court)	The Commissioner could not disregard a departmental circular and exercise revisional jurisdiction on a different valuation principle (in Wealth-tax context); circulars/instructions constrain revisional action.	Used to support the proposition that departmental instructions/circulars bind tax authorities and limit taxpayer-unfavourable revisional action; relied upon when evaluating the Commissioner's obligation to follow the Board's circular.
CIT v. Prakashwati [1994] 210 ITR 567 (Allahabad High Court)	Board circulars (Nos. 4 and 176) provide that assessments completed under Section 143(1) (summary assessments) should not ordinarily be subjected to action under Section 263; such circulars reflect the Board's view and are binding on income‑tax authorities under Section 119.	The court cited this decision to support the view that the Commissioner should not have invoked Section 263 in respect of a summary assessment involving nominal revenue—i.e., the circular should have precluded revisional action in Nazir Singh's case.
CIT v. Rajakrishnan (B.A.) [1997] 226 ITR 323 (Kerala High Court)	An order of revision under Section 263 presupposes statutory satisfaction that the completed assessment is erroneous and prejudicial to the interests of the Revenue; not every error warrants resort to Section 263, and marginal loss to Revenue does not justify revision.	Relied on to emphasize that both erroneousness and prejudice to Revenue must coexist and that marginal revenue loss is not a valid ground for invoking Section 263.
Shyam Sunder Gupta v. CIT [1998] 232 ITR 135 (Division Bench of this court)	The satisfaction of the Assessing Officer (for reopening) cannot be unfettered; it must rest on proper reasons; reopening must respect finality.	Cited for the principle that reopening powers must be exercised with reasoned satisfaction and not arbitrarily; the court noted its limited scope in that earlier decision and sought to elaborate further in the present judgment.
Puranmall Narayan Prasad Kedia (HUF) v. Asst. CIT [1994] Tax LR 224 (ITAT Calcutta)	Quoted for the Board's circular (No. 176) expressing that returns showing income or loss up to a monetary limit would be accepted under Section 143(1) and that proceedings under Section 263 in such cases would be without jurisdiction; also discussion that circulars reflect Board's view and are binding on Commissioners under Section 119.	The court relied on the passage quoted from this decision (including the verbatim circular language) to hold that the Commissioner was bound by the circular when he acted in 1986 and therefore should not have invoked Section 263 in a small‑amount summary assessment.
Prabhudas Tulsidas and Co. v. ITO [1997] 59 ITJ (Ahd.) 149	Referenced in the opinion as another authority where the circular (No. 176) was discussed (used for elaborating the point about adherence to the circular).	Cited as supporting material concerning the operation and content of the circular; used to underline that the circular was relevant and applicable to the facts here.
Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (Supreme Court)	Emphasized the need for finality in tax proceedings: assessments cannot be reopened after prescribed time unless omission/failure of the assessee to disclose material facts justifies it; tax authorities must be diligent, but stale issues should not be reactivated merely on lapse of time.	Quoted to stress the principle of repose and to support the court's view that trivial cases or "flies" should not be reopened; used to caution against reopening where there is no concealment or evasion of substantial tax.

Court's Reasoning and Analysis

The court conducted a step-by-step legal analysis grounded in the text of the opinion:

Found that in 1986, when the Commissioner invoked Section 263, the relevant Board circular (Circular No. 176 dated August 26, 1987, and allied instructions) was in existence and precluded invoking revisional jurisdiction against assessments accepted under Section 143(1) in routine/summary cases involving small amounts. The circular reflects the Board's view and, under Section 119 and the office‑hierarchy of income‑tax authorities, is binding on Commissioners.
Observed that the Assessing Officer's order (February 27, 1986) had accepted Nazir Singh's return and reasoned that the matter was one of "salary taxation" falling under Section 143(1) as it was dealt with originally; accordingly, the Commissioner should have followed the circular rather than invoke Section 263.
Rejected the Department's contention (including a submission that the 1989 amendment making dearness allowance part of "salary" was retrospective to 1962) as a justification for the Commissioner to reopen the 1986 assessment. The court emphasized that the Commissioner in 1986 was bound by the circular and could not rely on an amendment that did not exist at that time to justify revisional action.
Held that the Commissioner’s act of reopening the case was tainted by lack of jurisdiction because: (a) the assessment had been a summary acceptance under Section 143(1); (b) the tax effect was nominal (referenced amounts of approximately Rs. 1,300–1,360); and (c) the Board's circular indicated that such cases should not routinely be reopened under Section 263.
Explained and formulated guiding criteria for invoking Section 263 (explicitly stated as demonstrative, not exhaustive): (1) the order of the Assessing Officer must be grossly erroneous; (2) the error must at the same time be prejudicial to the interests of the Revenue (both conditions must coexist); and (3) consideration of the time gap between the act of invoking jurisdiction and passing the revisional order. The court emphasized that Section 263 must be used in appropriate and fit cases—typically those involving concealment or evasion of significant amounts.
Noted the principle of finality (drawing on Parashuram Pottery Works Co. Ltd.) that reopening assessments beyond statutory norms should be exercised cautiously and not against simple or honest mistakes by taxpayers; concluded that Nazir Singh's case involved no concealment or evasion and was a "fly" matter not warranting revision.
Concluded that the Commissioner's order (and the Tribunal's confirmation) were unsustainable because the Commissioner had no proper jurisdiction to reopen the assessment in the circumstances described.

Holding and Implications

Holding:

The court ALLOWED the application of Shri Nazir Singh. The judgments and orders passed by the Commissioner of Income-tax (dated December 12, 1986) and the Income-tax Appellate Tribunal (dated September 18, 1990) were QUASHED. The court directed that the case of the petitioner not be reopened as directed by the Commissioner and allowed the Assessing Officer's original order to remain at rest. The court also ordered that any tax paid in excess by the petitioner be refunded. The court set aside the Assessing Officer's orders pertaining to the years 1983-84 and 1984-85 in view of the ratio of the judgment. No orders as to costs were made.

Implications:

Direct effect on the parties: Nazir Singh's challenge succeeded; the revisional action taken by the Commissioner and upheld by the Tribunal was quashed, and Nazir Singh is entitled to a refund of any excess tax paid. The original assessment accepted under Section 143(1) is to remain undisturbed in this matter.
Guidance for future cases: The court articulated constraints and guiding criteria on the exercise of revisional powers under Section 263—requiring gross erroneousness plus prejudice to Revenue, consideration of materiality (substantial evasion/concealment rather than nominal amounts), and attention to the time gap and recording of reasons. The court emphasized that Section 263 should be invoked in appropriate/fit cases and not in every error; the Board's circulars precluding revision of summary assessments (in small cases) must be respected by Commissioners when applicable.
Finality principle reaffirmed: The court underlined the need for repose in tax matters and the limited circumstances in which older assessments may be reopened, consistent with the Supreme Court's observations cited in the opinion.

Show all summary ...

JUDGMENT J.G. Chitre, J.

1. Shri Nazir Singh is assailing the correctness, propriety and legality of the judgment and order passed by the Commissioner of Income-tax dated December 12, 1986, and the judgment and order passed by the Income-tax Appellate Tribunal, Indore Bench, dated September 18, 1990. His grievance happens to be that the Assessing Officer, D-Ward, Ujjain, by his judgment and order dated February 27, 1986, held that in Nazir Singh's case "salary" does not include dearness allowance or dear-ness pay unless it enters into the computation of superannuation for retirement benefits of the concerned, etc. Keeping in view, his returns were accepted and the income of Nazir Singh was taken as taxable to the tune of Rs. 18,850 and tax was levied on him in that fashion in respect of the year 1983-84. That was carried further in the same logic to the year 1984-85. The Commissioner of Income-tax invoked the jurisdiction in view of the provisions of Section 263 of the Income-tax Act (hereinafter referred to as "the Act" for convenience) and found that the dearness allowance or the dearness pay happened to be included in "salary". He further found the taxable income pertaining to the year 1982-83 to that tune. Nazir Singh appealed to the Income-tax Appellate Tribunal by challenging the said judgment and order, but the Income-tax Appellate Tribunal, Bench Indore confirmed the order passed by the Commissioner of Income-tax and, therefore, he came knocking at the door of the High Court for getting justice.

2. Shri Nazir Singh placed reliance on some judgments for the purpose of justifying his submissions for demonstrating that the orders passed by the Commissioner of Income-tax and the Income-tax Appellate Tribunal were improper, incorrect and illegal. He placed reliance on :

(1) The Division Bench judgment of the Gujarat High Court in the matter of Rajan Ramkrishna v. CWT [1981] 127 ITR 1 ;

(2) CIT v. Prakashwati [1994] 210 ITR 567 (All) ;

(3) The judgment of the Kerala High Court in the matter of CIT v. Rajakrishnan (B. A.) [1997] 226 ITR 323 ; and (4) The judgment of this court in the matter of Shyam Sunder Gupta v. CIT [1998] 232 ITR 135.

3. In the matter of Rajan Ramhrishna v. CWT [1981] 127 ITR 1, the Division Bench of the Gujarat High Court held that it was not open to the Commissioner to disregard the circular and proceed to exercise his revisional jurisdiction under Section 25(2) of the Wealth-tax Act on the footing that the shares should be valued on a different principle. In the matter of CIT v. Prakashwati [1994] 210 ITR 567, the Division Bench of the Allahabad High Court held that in setting aside the order of the Commissioner of Income-tax, the Tribunal in the first instance had held that in view of the departmental instructions contained in Board's Circulars Nos. 4, dated July 8, 1996 and 176 dated August 26, 1987, which, inter alia, provided that no remedial action was necessary for summary assessments as the revenue loss, if any, was consciously suffered by the Government in utilising resources, for scrutiny and investigation of larger cases. The assessment completed under Section 143(1) of the Income-tax Act, 1961, could not be subjected to any action under Section 263 of the Act. The Tribunal had held that the circulars of the Board being benevolent in nature were binding on the tax authorities including the Commissioner of Income-tax. That apart, the Tribunal had also examined the impugned order of the Commissioner of Income-tax on the merits and found that it was not sustain-able on a consideration of the material that existed on the record. In doing so, it had recorded a finding that the enquiry contemplated by the Commissioner in his order setting aside the assessment orders, had already been made by the Income-tax Officer when he completed the wealth-tax assessment for the year 1980-81. These findings of fact recorded by the Tribunal had not been questioned by the Revenue in the question proposed in these two applications. It was thus evident that the order of the Tribunal rested on an appreciation of the facts and material available on the record. In these cases, the tax effect was also very nominal. Hence, the question whether the cancellation of the order of revision was valid could not be referred.

4. In the matter of CIT v. Rajakrishnan (B. A.) [1997] 226 ITR 323, the Division Bench of the Kerala High Court held that an order of revision under Section 263 of the Income-tax Act, 1961, necessarily presupposes statutory satisfaction that although there is some error with regard to the completed assessment, the order passed by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. It is not every error or mistake which should induce the Commissioner of Income-tax to resort to exercise of the powers under Section 263 of the Act. In that matter, the Division Bench of the Kerala High Court pointed out that in the said case the marginal loss to the Revenue and, therefore, assumption of jurisdiction under Section 263 was not valid.

5. The Division Bench of this court in the matter of Shyam Sunder Gupta v. CIT [1998] 232 ITR 135, held that the satisfaction of the Assessing Officer could not be unfettered and had to rest on proper reasons. It had to be considered whether there were no reasons and if so, whether the Assessing Officer had requisite jurisdiction to reopen the assessments under Section 143(2)(b) of the Act. In tax matters as well as in other matters, the eventual goal is to attain finality.

6. Relying on this judgment, Shri Nazir Singh submitted that when the Commissioner of Income-tax decided to invoke the jurisdiction in view of the provisions of Section 263 of the Act, he did not follow the circular issued by the Department which has been quoted in Puranmall Narayan Prasad Kedia (HUF) v. Asst. CIT [1994] Tax LR 224 (ITAT) (Cal) at pages 226-227. In that matter, the Division Bench of the Calcutta High Court deprecated the contention raised on behalf of the Department justifying the act of the Commissioner of Income-tax in invoking the jurisdiction in view of the provisions of Section 263 of the Act. In the present case, the liability of paying the tax was to the tune of Rs. 1,360 only, and, therefore, there was no reason for the Commissioner of Income-tax to invoke the jurisdiction under Section 263 of the Act. He further submitted that under Section 143(1), the Commissioner of Income-tax had no reason to reopen it. Apart from that, the submission of Shri Nazir Singh shows that the Commissioner of Income-tax has not given the reasons as to why he was reopening his case. He further submitted that he committed another error of taxing him in view of the provisions of Section 143(2)(b). He submitted that the said judgment and order be set aside and the liability of paying the tax levied against him be quashed.

7. Shri R. L. Gupta, counsel appearing for the Department, submitted vehemently that by the effect of the amendment brought in the year 1989, the dearness allowance, ad hoc dearness pay had been included in the "salary" and were made liable for assessment and tax since 1962. He submitted that in view of that, Shri Nazir Singh, the petitioner was liable to be assessed for taxation and was liable to pay tax. He submitted that the Commissioner of Income-tax has taken a right decision of reopening the case because he found that the order passed by the Assessing Officer was erroneous and was prejudicial to the interests of the Revenue. He submitted that the application filed by Nazir Singh deserves to be dismissed and it be dismissed.

8. We do not agree with the contentions raised by Shri R. L. Jain for the reasons mentioned in the incoming paragraphs.

9. Shri R. L. Jain submitted that the Commissioner of Income-tax decided to invoke the jurisdiction in view of the provisions of Section 263 of the Act and that it was consistent with the amendment which was brought in force in the year 1989, making it retrospective since 1962 onwards. He further pointed out that the Commissioner of Income-tax treated it to be one falling under the purview of the provisions of Section 143(2)(b) keeping in view while calculating the definition of the word "salary". Shri Jain submitted that keeping in view that aspect of the matter it was not necessary for the Commissioner of Income-tax to follow the circular. The Circular bearing No. 176 (F. No. RA/1/86-87/DITO, dated August 26, 1987), issued by the Directorate of Inspection (Audit), New Delhi, which has been quoted in Puranmall Narayan Prasad Kedia (HUF) v. Asst. CIT [1994] Tax LR 224 (ITAT) (Cal) at pages Nos. 226-227 as well as in the matter of Prabhudas Tulsidas and Co. v. ITO [1997] 59 ITJ (Ahd.) 149, for the purpose of elaborating the point, (which does not find place in the judgment of this court (quoted supra)). The said circular needs to be quoted verbatim (page 227 of [1994] Tax LR (ITAT)) :

It is, therefore, clear that the Government is prepared to suffer the loss of revenue by making summary assessments under Section 143(1) on the ground that the time and effort involved in unearthing the loss is not commensurate with the benefit likely to be obtained and they may be better channelised in scrutiny of cases--involving larger revenue. A monetary limit of Rs. 1 lakh has, therefore, been fixed and returns showing income or loss up to that limit will be accepted under Section 143(1). In view of the circular which contains the view of the Board on the matter, the proceedings under Section 263 must be held to be without jurisdiction.

10. In the matter of Puranmall Narayan Prasad Kedia (HUF) v. Asst. CIT [1994] Tax LR 224 (ITAT) (Cal). The court pointed out the reasons for rejecting the contention of counsel appearing for the department that (page 227) :

"Mr. Lahiri contended that the circular was not binding on the Commissioner of Income-tax. We do not see how such a contention can be countenanced. The circular expressly states that the observations of the Member (R & A) on the question of taking remedial action under Section 263 against assessments made under Section 145(1) 'reflect the views of the Board on the subject'. If that is the view of the Board, surely it cannot be said that the Commissioner of Income-tax is not bound by the view. The Commissioner of Income-tax is an income-tax authority under Section 116 of the Act bound by the orders, instructions and directions issued by the Board for the proper administration of the Act, under Section 119 of the Act. That section also makes it mandatory for the income-tax authorities to observe and follow instructions. It is, therefore, beyond question that such instructions have binding effect and the taxpayer is entitled to enforce their application in his favour."

11. Shri R. L. Jain submitted that the Commissioner of Income-tax was well within his authority when he decided to touch the case of the petitioner, Nazir Singh, and invoked the jurisdiction in view of the provisions of Section 263 of the Act. He submitted that he was justified in view of the amended Act which modified the definition of "salary" and made it applicable retrospectively, since 1962. Prima facie, this submission appears to be lucrative and inducive and digestible also but if a deeper probe is used it exposes its fallacious nature and demonstrates that it suffers from inherent infirmities. The act of the Commissioner of Income-tax touching the case of the petitioner, Nazir Singh, pertains to the year 1986. The amendment came into force in the year 1989. In the year 1986, the circular quoted above was in existence and in operation. The Commissioner of Income-tax, being an income-tax authority, was bound by the said view of the Board depicted by the said circular. Secondly, when the same matter came to the notice of the Commissioner of Income-tax, it was obviously a matter touching the provisions of Section 143(1) of the Act. When that was so, there was no reason for the Commissioner of Income-tax to think of invoking the provisions of Section 263 of the Act, because he was to follow the instructions conveyed by the said circular making it clear that the scrutiny was to be used in such cases involving the evasion of tax of huge amounts. Nazir Singh's case involved the liability of payment of tax of Rs. 1,300 only, and therefore, there was no reason apparently available for the Commissioner of Income-tax to come to a conclusion to call for the record of Nazir Singh's case and to start examining the propriety, correctness and legality of the order which has been passed by the Assessing Officer and, therefore, though the submissions advanced by Shri R. L. Jain prima facie appear to be lucrative, inducive and even digestible, its inherent fallacy and limping attitude gets exposed, right from this amendment. The act of the Commissioner of Income-tax becomes tainted with infirmity of illegality lacking of jurisdiction.

12. Shri Jain has submitted that the petitioner cannot get the advantage of the ratio of the judgment of this court in Shyam Sunder Gupta's case [1998] 232 ITR 135 because the said case falls under the purview of Section 143(2)(b). True that may appear prima facie, but the serious probe in the matter exposes the reasons assigned by the Commissioner of Income-tax in coming to the conclusion of reopening the case of Nazir Singh. It gets exposed to the point of unreasonableness.

13. When the Commissioner of Income-tax dealt with that matter, it was obviously a matter--"salary taxation" falling under the purview of Section 143(1), but by the judgment and order passed by the Commissioner of Income-tax, it assumed a nature of matter which was falling under Section 143(2)(b) of the Act. When there was no amended definition of "salary" available to the Commissioner of Income-tax and when the judgment and order of the Assessing Officer was well reasoned and was falling within four corners of the circulars (quoted supra), there was absolutely no need for invoking the jurisdiction of the provisions of Section 263 of the Act.

14. Shri R. L. Jain submitted repelling the submission of Shri Nazir Singh that now the definition of "salary" includes payment of dearness allowance, ad hoc dearness allowance and, therefore, the case of Nazir Singh needs to be permitted to be dealt with by the Assessing Officer in view of the amended definition of "salary" retrospectively, That cannot be permitted to be done because though the provisions of section 147 permit reopening of such cases, pertaining to the period in between seven and ten years, the provisions of section 147 have to be applied in fit cases only. The instructions and guidance given by the circular (quoted supra) cannot be ignored. Criteria has to be applied by taking out sample cases from the cases dealt with summarily keeping in view the grounds of Revenue, involving likelihood to the interests of the Revenue involved. Energy and time of the Department should be saved and reserved for unearthing the big cases of evasion of big amount of revenue and not to cases which are in the form of "salary flies". It is to be noted that the spirit behind the said circular which is benevolent and directed towards reserving the energy and time of the Department towards unearthing cases of concealment and evasion of big tax amount has to be taken into consideration. We quote our view supported by the view taken by the Allahabad High Court in the matter of Smt. Prakashwati's case (1994] 210 ITR 567. The Division Bench of this court in the matter of Shyam Sunder Gupta v. CIT [1998] 252 ITR 135, has dealt with this point, but to a limited extent only, and therefore, we find it necessary to elaborate the point which has been touched by this court in Shyam Sunder Gupta's case [1998] 252 ITR 135 but unfortunately not elaborated. This takes us to another aspect of the matter which is dealing with the need for invoking the jurisdiction in view of the provisions of Section 263 of the Act. The jurisdiction in view of the provisions of Section 263 of the Act would not be invoked in all sundry cases that is to be done in appropriate and fit cases only. If that is not done, the benevolent spirit of the circular which has depicted the view of the Board, after an elaborate discussion, would be frustrated. That is to be done in cases involving concealment and evasion of tax of huge amount. We get supported in our view on this point, by the view taken by the Kerala High Court in the matter of CIT v. B. A. Rajakrishnan [1997] 226 ITR 323, where in the same spirit the Division Bench of the Kerala High Court held that (headnote): "An order of revision under Section 265 of the Income-tax Act, 1961, necessarily presupposes statutory satisfaction that although there is some error with regard to the completed assessment, the order passed by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. It is not every error or mistake which should induce the Commissioner of Income-tax to resort to exercise of the powers under Section 263 of the Act."

15. Elaborating the point further, we hereby find it necessary to point out that the taxing authority thinking of invoking the powers under the provisions of Section 263 of the Act should get satisfied about certain points which can be elaborated for the purposes of giving a guiding line :

(1) The order passed by the Assessing Officer is grossly erroneous and at the same time prejudicial to the interests of the Revenue.

(2) Both the two things should be in existence together and not isolatedly and the case should be indicating the concealment or the evasion of payment of tax of huge amount.

(3) The time-gap between the act of invoking the jurisdiction and passing of the order has to be taken into consideration.

16. There has to be reasons recorded justifying the exercise of power in view of the provisions of Section 263 of the Act. These are the demonstrative points and not exhaustive criteria. Each and every case has to be treated independently on its facts and circumstances.

17. This discussion now takes us to another important point which has been contended by Shri Nazir Singh as well as Shri R. L. Jain, whether this court should quash the judgment and order passed by the Commissioner of Income-tax and the Tribunal or whether this court should direct the Assessing Officer to consider the liability of paying the tax in view of the amended definition of "salary" brought into force by the amendment Act. Section 147 indicates that the case pertaining to the period ranging between seven and ten years can be reopened. But there is a limit to it. It is not to be applied in the cases which appear to be "flies" before huge evasion of tax and concealment of taxable income by using clever/deceptive tricks. In this context, the observations of the Supreme Court in the matter of Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1, has to be kept in view. In that judgment, after discussing the other points which were involved, the Supreme Court pointed out its view in the following paragraph (page 10 ) :

"It has been said that the taxes are the price that we pay for civilization. If so, it is essential that those who are entrusted with the task of calculating and realising that price should familiarise themselves with the relevant provisions and become well-versed with the law on the subject. Any remissness on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue. At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. So far as the income-tax assessment orders are concerned, they cannot be reopened on the score of income escaping assessment under Section 147 of the Act of 1961 after the expiry of four years from the end of the assessment year unless there be omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. As already mentioned, this cannot be said in the present case."

18. These observations are to be applied in true spirit by the parties which are well conversant with the law and remain in existence for their work of assessment of tax and fixing the liability of paying the tax. This scale is not to be applied to simple "flies" and innocent taxpayers who may come under the purview of either being penalised or being pulled up for the errors of filing the returns mentioning the self-assessment in respect of the liability of paying the tax. There should be an honest error of calculating the liability of payment of tax. There may be an error of calculation or clerical error in quoting the income in the returns. Such cases need not be opened unless there are compelling grounds to do so. Leave aside the existing need to reopen such case. In the present case, Shri Nazir Singh quoted his income earned as income from dearness allowance and ad hoc dearness allowance. However, he claimed the deduction and exemption from the liability of paying the tax. There was no case of concealment of the income or evasion of tax. In Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC), the case was not permitted to be reopened after the lapse of time of four years. In the present case, the case of the petitioner, Nazir Singh, was being opened after a lapse of two years. That does not make any difference. The amended provision defining the "salary" came into force in the year 1989 and that was not available for reopening the case which was already closed by the Assessing Officer by passing a well reasoned order long back. The attitude of by gone be gone should be adopted in "fly appearance" case.

19. Thus, the application is hereby allowed. The judgments and orders passed by the Commissioner of Income-tax and the Income-tax Appellate Tribunal stand quashed. The case of the petitioner, Nazir Singh be not opened as directed by the Commissioner of Income-tax. It is permitted to be at rest as it has been done by the judgment and order passed by the Assessing Officer which was set aside by the Commissioner of Income-tax. Let everything be at rest. No orders as to costs.

20. We cannot forget to point out the strenuous efforts made by the petitioner, Nazir Singh, in assailing the order passed by the Commissioner of Income-tax and the Income-tax Appellate Tribunal on the point of principle though he has paid the taxes. The tax paid in excess be refunded to him. We put a note of appreciation for the zeal shown by him and efforts taken by him. The orders passed by the Assessing Officer pertaining to the years 1983-34 and 1984-85 are also set aside keeping in view the ratio of the judgment.