Citation Codes

Equivalent Citations

citation codes

Case Number

I.T.R No. 299 of 1980 and I.T.A No. 149 of 1983

Judges

A.P Misra
M.C Agarwal, JJ.

Acts

S. 35 of the Karnataka Agricultural Act, 1957
S. 271 (4-A) of the Income-tax Act, 1961.
S. 143(3) of the Income-tax Act, 1961
S. 263 of the Income-tax Act, 1961.
S. 256(1) of Income-tax Act, 1961
S. 256(2) of the Income-tax Act)
S. 263 of Income-tax Act

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Smart Summary

Structured Summary of the Opinion (M.C. Agarwal, J.)

Factual and Procedural Background

The two connected matters concern the Income-tax assessment for assessment year 1972-73 of an assessee doing business as M/s Agarwal Scientific Glass Industries, Agra. The assessee filed a return for the year ending 31-3-1972 declaring income of Rs. 29,407 and submitted a balance sheet showing three creditors in Bombay (K.K. Trading Corporation: Rs. 1,09,463; Reliable Trading Co.: Rs. 44,949; Amritlal Brothers: Rs. 3,151). The books showed purchases from those parties. The Assessing Officer (AO) made enquiries: bank enquiries indicated cheques were bearer cheques paid to the assessee or his employees; two named firms were not at the addresses given; one firm denied dealings. The assessee submitted a petition under S.271(4-A) admitting undisclosed investments and offered Rs. 80,000 as assessable income; the Commissioner rejected that petition. The assessee subsequently made a disclosure under the Voluntary Disclosure of Income and Wealth Ordinance, 1975 and family members filed related disclosures.

The AO completed assessment on 29-3-1976 under S.143(3) assessing total income at Rs. 42,680 and did not make additions in respect of the questioned purchases. The Commissioner, invoking S.263, held that the assessment order was erroneous and prejudicial to revenue because the AO had not examined adequacy of the relatives' loans and had accepted the assessee's case without analysing relevant facts; the Commissioner set aside the assessment and directed a de novo assessment. The Income-tax Appellate Tribunal (the Tribunal) quashed the Commissioner's order. The Commissioner then invoked S.256(1) and referred a question of law to the High Court (I.T.R. No. 299 of 1980). A fresh assessment (29-5-1980) by the AO treated Rs. 1,66,878 as income; that reassessment was annulled by the Commissioner (Appeals) on the ground that the Commissioner's S.263 order had been set aside by the Tribunal. The Tribunal upheld the Commissioner (Appeals). The Commissioner made references under S.256 seeking the High Court's opinion in these matters and, where appropriate, sought further reference under S.256(2).

Legal Issues Presented

Whether on the facts and in the circumstances, the Income-tax Appellate Tribunal was correct in law in cancelling the order under S.263 of the Income-tax Act, 1961, passed by the Commissioner of Income-tax in restoring the order to the Assessing Officer for fresh assessment (reference framed at paragraph 14 of the opinion).
Whether the Tribunal was right in upholding the order of the Commissioner (Appeals), Agra, which annulled the assessment order dated 29-5-1980 by following the Tribunal's earlier order (reference framed at paragraph 36 of the opinion).

Arguments of the Parties

Commissioner / Revenue (as represented by learned standing counsel)

The assessment order was completely silent on the issues that the AO had investigated and on which he had prima facie adverse material; such omission makes the assessment order erroneous and prejudicial to revenue.
The Tribunal erred in cancelling the Commissioner's S.263 order; the Commissioner is empowered under S.263 to set aside an assessment when further enquiries are needed and when the order is erroneous and prejudicial to revenue (relying on judicial authority including Swaroop Vegetables Product Industries Ltd.).
The Tribunal should not have required the Commissioner to record a final finding himself instead of remitting the matter for fresh examination by the AO.
Where prior Tribunal orders and references are in play, the effect of an earlier Tribunal order and the pendency of references should be considered in determining jurisdiction to make a fresh assessment (relying on authorities about the effect of Tribunal orders and references under S.256).

Assessee (and counsel for the assessee)

To invoke S.263, the Commissioner must demonstrate that the assessment order is both erroneous and prejudicial to the interests of the Revenue; mere branding of the order as erroneous is insufficient.
There may be loss to the Revenue but that is not necessarily "prejudice" within the meaning of S.263; where income has escaped assessment, S.147 is the appropriate provision rather than S.263.
Where two reasonable views exist, the Commissioner may not interfere under S.263 merely because he disagrees with the AO's view (reliance placed on Venkatakrishna Rice Company v. Commissioner and other authorities).
The alleged creditors (wife and relatives) had made voluntary disclosures which were accepted; those disclosures (and instructions of the Central Board of Direct Taxes) meant the AO's acceptance could not be treated as erroneous. Reliance was placed on Mukund Family Trust and Rajan Ram Krishna.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court in this Opinion
Swaroop Vegetable Products Industries Ltd. v. Commissioner of Income-tax, (1991) 187 ITR 412	Affirms that under S.263 the Commissioner may set aside an assessment and remit for fresh assessment if satisfied further enquiries are needed and the AO's order is prejudicial to revenue.	Cited by Revenue to support the Commissioner's power; the court relied on the principle to uphold the Commissioner's decision to remit the assessment for fresh inquiry.
Commissioner of Income-tax v. Rama Devi Saraogi, (1970) 78 ITR 728 (Calcutta HC)	Holds the Commissioner has power to cancel an assessment and direct a fresh assessment, giving the assessee full opportunity to present its case.	Relied upon to support the Commissioner's action in setting aside the AO's assessment and directing reassessment.
Additional Commissioner of Income-tax v. Mukur Corporation, (1978) 111 ITR 312 (Gujarat HC)	Similar principle: Commissioner can cancel assessment and direct fresh assessment to protect revenue interests.	Cited to bolster the view that the Commissioner legitimately remitted the matter for fresh consideration by the AO.
Venkatakrishna Rice Company v. Commissioner of Income-tax, (1987) 163 ITR 129 (Madras)	Explains the meaning of "prejudicial to the interests of the Revenue" — not to be narrowly equated with rupees and paise; S.263 is supervisory and for interference in special cases where orders are subversive of revenue administration.	Cited by the assessee to argue limits on S.263; the court reproduced and considered the passage to evaluate whether the Commissioner's interference was justified and to emphasise that S.263 is not meant for routine recoveries.
M. Kenche Gowda v. State of Karnataka, (1988) 174 ITR 380	Holds revisional power under a revisional provision cannot be used to deal with escape of income of a different assessee where a specific provision exists for that.	Relied on by the assessee by analogy to argue limits on revisional-like powers; the court considered the analogy but applied facts to conclude S.147 could not properly have been invoked in the circumstances after AO had already conducted enquiries.
Commissioner of Income-tax v. Mukund Family Trust, Agra, 1986 UPTC 2038	Deals with acceptance of disclosures and administrative instructions that such disclosures would not be questioned.	Cited by the assessee to argue that the AO's acceptance of disclosed loans could not be treated as erroneous; the court observed the issue but declined to express a final opinion on the legal effect of those disclosures, leaving it to the authorities to consider.
Rajan Ram Krishna v. Commissioner of Wealth-tax, (1981) 127 ITR 1 (Gujarat)	Authority relied upon as supportive of acceptance of certain disclosures and related consequences.	Relied on by the assessee; the court noted the reliance but did not decide on the ultimate legal effect of the disclosures, leaving those matters to the adjudicating authorities.
S.N. Mukherjee v. Union of India, (1990) 4 SCC 594 : AIR 1990 SC 1984	Administrative/quasi-judicial authorities should record reasons; reasons promote fairness, exclude arbitrariness and assist appellate or supervisory authorities.	The court applied this principle strongly to conclude the AO's omission to record any findings on the investigated issue rendered the assessment order deficient and supported the Commissioner's remittal under S.263.
Siemens Engineering & Manufacturing Co. Ltd. v. Union of India, (1976) 2 SCC 981 : AIR 1976 SC 1785	Reiterates that administrative/quasi-judicial decisions need to indicate reasons; an assessment officer acts in quasi-judicial capacity.	Cited to underpin the requirement that the AO should have given a reasoned finding on the substantial issue; used to support the Commissioner's course of action.
Union of India v. Kamlakshi Finance Corporation Ltd., 1992 Supp (1) SCC 443 : AIR 1992 SC 711	Emphasises judicial discipline and the need to give effect to orders of higher appellate authorities.	Cited by the assessee to argue obedience to higher tribunals; the court noted the principles but distinguished the factual matrix, observing the present facts differed and the principle did not decide the present disputes.
Commissioner of Income-tax v. Dhampur Sugar Mills Ltd., (1988) 17 ITR 449	Where a Commissioner's S.263 order has been set aside by the Tribunal and that order is final, the AO has no jurisdiction to pass a fresh assessment contrary to the Tribunal's decision.	Referred to in considering the legal consequences of earlier Tribunal orders and the pendency of references; the court used the principle to analyse the triangular position created by earlier orders and pending references.
Govindram Seksaria Charity Trust v. Income-tax Officer, (1987) 168 ITR 387	Reinforces that when a Tribunal's order is not challenged by reference, the Revenue is bound by that order until set aside.	Relied upon while discussing the binding effect of a Tribunal order and the need to address the consequences in the present connected proceedings.
Commissioner of Income-tax Delhi v. Bansi Dhar & Sons, (1986) 157 ITR 665	Clarifies effect of a reference under S.256 — the appeal is kept pending before the Tribunal and the High Court's role is advisory; the Tribunal must dispose of the appeal in accordance with the opinion given.	The court relied on this to explain that where a question of law is referred under S.256, the appeal remains pending before the Tribunal and the Tribunal must later act in accordance with the High Court's opinion; this supported its directions about further reference and the procedure to be followed.

Court's Reasoning and Analysis

The court proceeded by reviewing the factual matrix and the sequence of assessments, remittals and appeals. The analysis followed these key steps:

Examination of the assessment order: The court observed the assessment order was silent on the specific issues that the AO had investigated and on which he had collected material that was prima facie adverse to the assessee. The AO's failure to discuss the relevant facts or record any finding gave the appearance that the AO had "virtually" accepted the assessee's case without stating reasons.
Standard for invoking S.263: The court accepted the settled proposition that the Commissioner can exercise revisionary jurisdiction under S.263 only if the AO's order is both erroneous and prejudicial to the interests of the revenue and that the Commissioner must be prima facie satisfied of that state of affairs; it is not necessary that the Commissioner reach a final conclusion on precise disallowances before remitting for further inquiry.
Application of the "reasons" principle: Drawing on S.N. Mukherjee and Siemens, the court emphasised that when an administrative/quasi-judicial authority (here, the AO) in an original order omits to record reasons on a substantial contested issue, that omission undermines fairness and impedes supervisory review. Because the AO had functioned as investigator and adjudicator and had obtained adverse material but failed to record findings or reasons, the court accepted the Commissioner's view that the assessment order was erroneous and prejudicial.
Rejection of the Tribunal's approach: The Tribunal had held that the Commissioner should himself record a finding rather than remit the matter. The court rejected that approach, holding it was open and appropriate for the Commissioner to remit the matter to the AO to afford both sides a proper opportunity and to enable the AO to record findings supported by reasons.
Scope of alternative remedies: The court addressed the argument that escaped income should be pursued under S.147 rather than S.263, concluding that given the AO had already inquired into the transactions, received evidence and given the assessee opportunity to respond, S.147 proceedings were not appropriate at that stage and would not have been justified after assessment had been made without appropriate findings.
Disclosures by relatives: The court declined to express any definitive legal conclusion on the effect of voluntary disclosures made by the alleged creditors (relatives), leaving it to the adjudicating authorities to consider those disclosures in determining genuineness.
Conclusion on first reference: Applying these principles, the court held the Commissioner had demonstrated that the AO's assessment order was erroneous and prejudicial to revenue and that remittal under S.263 was therefore justified; accordingly, the Tribunal erred in cancelling the Commissioner's order.
Second reference and procedural consequences: On the connected question concerning the validity of the subsequent assessments and the effect of the Tribunal's later orders, the court analysed authorities on the consequence of a reference under S.256 and the binding effect of Tribunal orders pending reference. The court concluded a further question of law arose and directed the Tribunal to state a case and refer that question to the court for opinion.

Holding and Implications

Core Holding: The court held that the Commissioner was right in finding that the impugned assessment order was erroneous and prejudicial to the interests of the revenue and in setting aside that assessment and directing the Assessing Officer to make a fresh assessment; the Tribunal was not right in cancelling the Commissioner's order under S.263. The court answered the first referred question in the negative and in favour of the Revenue. (Paragraph 32)

Implications and Direct Effects:

Direct effect on the parties: The Commissioner's order under S.263 stands as correctly made, and the AO is entitled to proceed with a fresh assessment on the remitted issues so that findings with reasons can be recorded after allowing the assessee an opportunity to be heard.
On the subsequent, connected proceedings: The court identified a further question of law arising from the Tribunal's later upholding of the Commissioner (Appeals) order annulling the consequential assessment, and directed the Tribunal to state a case and refer that question to the Court (see paragraph 36). Thus the Tribunal is to refer the specified question of law for the Court's opinion and thereafter act in accordance with that opinion.
No new broad precedent declared beyond application of established principles: The decision applies established principles about (a) the limited but real supervisory jurisdiction of the Commissioner under S.263, (b) the requirement that an original quasi-judicial order indicate reasons on substantial issues, and (c) the procedural effects of references under S.256. The court did not purport to lay down novel law beyond these applications to the facts.
Costs: The court ordered no costs in the decision addressing the first reference; it similarly ordered "No order as to costs" in the second part of the disposition described in the opinion.

Note: This summary is constructed exclusively from the content of the provided opinion. Where the opinion itself refrained from deciding a matter (for example, the legal effect of voluntary disclosures by the alleged creditors), this summary likewise records that the court left those matters for the assessing authorities to decide.

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Commissioner Of Income-Tax v. V.P. Agarwal

M.C Agarwal, J.:— Both these relate to the Income-tax Assessment of an assessee for the same year i.e assessment years 1972-73. They were heard together and are disposed of by this common order.

2. The assessee-respondent is doing business under the name of M/s Agarwal Scientific Glass Industries, Agra, dealing in manufacture and sale of scientific laboratory equipment. He filed return of Income-tax for the assessment years 1972-73, the accounting for which had ended on 31-3-1972. An income of Rs. 29,407/- was returned. The balance sheet filed in support of the return of Income-tax showed three creditors as follows:

1. M/s K.K Trading Corporation, Bombay

Rs. 1,09,463/-

2. M/s Reliable Trading Co., Bombay

Rs. 44,949/-

3. M/s Amritlal Brothers, Bombay

Rs. 3,151/-

3. In the books of accounts the assessee has shown purchases of Rs. 85,773/- Rs. 44,949/- and Rs. 36,151/- from the aforesaid parties respectively. The assessee had also filed copies of accounts of these parties as appearing in the books of accounts for different years showing purchases alleged to have been made during the accounting periods of assessment years 1970-71 and 1971-72. The assessing officer initiated enquiries into the transactions with the above named parties, Enquiries made from the State Bank of India revealed that cheques issued by the assessee purporting to be for payments in respect of purchases made from the said parties were bearer cheques and the payments thereof were received either by the assessee himself or by his employees. Enquiries revealed that firms styled as M/s Reliable Trading Co. and M/s. K.K Trading Corporation were not in existence at the addresses given by the assessee, while the third party M/s Amritlal Brothers denied any dealings with the assessee. Thereafter the assessee moved a petition under S. 271 (4-A) of the Income-tax Act, 1961. In that petition, he admitted that he had made an investment of about Rs. 90,000/- outside the books of accounts and that money was utilised in making purchases from Bombay. He offered a sum of Rs. 80,000/- to be assessed as his income. This disclosure petition was rejected by the Commissioner of Income-tax. In the mean time the Voluntary Disclosure of Income and Wealth Ordinance, 1975 was promulgated and the assessee made another disclosure petition stating that Rs. 80,412/- that was the credit balance in the accounts of M/s Reliable Trading Company and M/s K.K Trading Corporation, Bombay as on 3-12-1973 represented his own money which was utilised to make purchases from Bombay in respect of which he was unable to get any vouchers. It was also asserted that he had taken several other amounts as loans from his wife, mother and other members of the family. The wife and other members of the family also filed voluntary disclosure petitions under the aforesaid ordinance declaring the respective amounts that were claimed to have been advanced as loan to the assessee during the period relevant to assessment years 1970-71 to 1974-75. The assessment for assessment years 1972-73 in respect of the present assessee was completed by the Income-tax Officer on 29th March, 1976 under S. 143(3) of the Income-tax Act, 1961 on a total income Rs. 42680/- determining the said income the assessing officer did not make any addition to the income of the assessee in respect of the aforesaid transactions of purchases.

4. The Commissioner of Income-tax initiated action under S. 263 of the Act as in his view by not making addition in respect of the fictitious transactions in the names of three parties referred to above, the assessing officer had made an assessment order that was erroneous and prejudicial to the interests of revenue. The Commissioner, therefore, issued a show cause notice to the assessee and after examining the matter he set aside the assessment observing that there was no evidence to show that the close relatives of the assessee had actually lent any money to him and the assessing officer had erred in accepting the assessee's contention without analvsing the facts of the case in the light of the relevant provisions of law. The Commissioner observed that since the matter has not been properly examined by the income-tax officer, it would be in the interest of justice to restore the matter to him for further examination and for making an assessment de novo after allowing the assessee an opportunity of being heard.

5. The assessee then appealed to Income-tax Appellate Tribunal, which, after taking note of the observation made by the Commissioner, quashed the Commissioner's order by observing as below:

“We have heard the parties and have gone through the order of the Commissioner carefully. We find that the main objections of the Commissioner are that apart from the evidence in the shape of declaration’ by the assessee's various relations, there was no evidence that the amounts disclosed by the declarants were really made available to the assessee for investment in making purchases and that assuming the amounts were made so available to the assessee, there was no evidence that the assessee did utilise those amounts for making alleged purchases from Bombay parties. From these two circumstances the Commissioner has drawn an inference that the assessee made an attempt to hoodwink the department by making fictitious entries in the name of some bogus parties and when his dishonesty was detected an attempt was made to take refuse under the voluntary disclosure scheme. Since according to him the assessee did not comeup with clean hands under that scheme also, he made another attempt to cheat the department by not making the entire disclosure in his own hands but by making it in the name of a number of his relations, he held the assessment order passed by the Income-tax Officer to be erroneous and prejudicial to the interests of the revenue.”

“As noted by us earlier a number of cases have been cited by the parties. However, it is not really necessary for us to refer to each of them as there is possibly no dispute about the ratio laid down in those cases. In order to assume jurisdiction under S. 263, the Commissioner has to find that the order passed by the Income-tax Officer is erroneous and prejudicial to the interests of the Revenue. To our mind this requires the Commissioner to be prima facie satisfied and it is not necessary that he should come to the final conclusion that a particular disallowance, or an addition must necessarily be made. If that was so, there would have been no necessity for the Commissioner to set aside the assessment order and direct the Income-tax Officer to make a fresh assessment as contemplated in S. 263. This, however, does not mean that the Commissioner under S. 263 can direct a fishing enquiry which might or might not result in some addition or disallowance. Therefore according to us particularly where Allahabad High Court has jurisdiction, the Commissioner must be found to be prima facie satisfied that the order passed by the Income-tax Officer is erroneous and prejudicial to the interest of the Revenue. From the two objections taken by him to the order of the Income-tax Officer, we do not think it can be reasonably held that the Commissioner was prima facie satisfied about the error and prejudice on the order. Accordingly we cancel the order of the Commissioner and restore that of the Income-tax Officer.”

6. The Commissioner then moved an application under S. 256(1) of the Act and at his instance the Tribunal vide reference dated 6th August, 1980 has referred the following question of law for the opinion of this Court.

“Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in cancelling the order under S. 263 of the Income-tax Act, 1961 passed by the Commissioner of Income-tax in restoring the order of the Income-tax Officer?”

7. Pursuant to the Commissioner's order and in compliance therewith the Income-tax Officer made a fresh assessment vide order dated 29th May, 1980 wherein, in addition to the income originally assessed, he treated a sum of Rs. 1,66,878/- as income of the assessee in respect of various transactions which had been the subject matter of investigation. The assessee appealed to the Commissioner Income-tax (Appeals), who vide order dated 19th February, 1981 annulled fresh assessment, on the ground that the Commissioner's order under S. 263 which gave jurisdictions to the assessing officer to make fresh assessment had been set aside by the Tribunal. Against the order of the Commissioner (Appeals) the revenue came in appeal before the Income-tax Appellate Tribunal which vide order dated 7th June, 1982 upheld the view taken by the Commissioner (Appeals). The Commissioner, thereafter moved an application under S. 256(1) for referring a question of law arising out of the Tribunals’ order dated 7th June, 1982 and the Tribunal rejected the same.

8. Feeling aggrieved the Commissioner has moved the present application (I.T.A No. 149 of 1983 under S. 256(2) of the Income-tax Act) praying.that the Tribunal be directed to State a case and to refer the following question for the opinion of this Court.

“Whether the Income-tax Appellate Tribunal, New Delhi was justified in law in holding that there was no infirmity in the order of the Commissioner of Income-tax (Appeals) Agra when reference Application under S. 256(1) of Income-tax Act, 1961 in respect of order under S. 263 of Income-tax Act for assessment year 1972-73 is pending for disposal?”.

9. We will first take the reference being I.T.R No. 299 of 1980. The facts as narrated above have been stated in the order of the Commissioner to which the Tribunal has also made a brief reference in its order. The Tribunal did not controvert the same nor were those facts controverted before us. The assessment order in question does not deal with these issues at all and it is totally silent on the subject giving an impression as if nothing worth enquiry and investigation was noticed and no enquiry whatsoever were made while, in fact, the Income-tax Officer had found some transactions which required investigation and about which an investigation produced result adverse to the assessee. Yet while framing the assessment the assessing officer completely shut his eyes and did not make any reference whatsoever to the relevant facts in the assessment order, what to say of recording a specific finding in favour or against the assessee. That is why the Commi ssioner in his order says that by doing so the Income-tax Officer “virtually” accepted the assessees case.

10. Learned standing counsel contended that the assessment order in question was totally silent on the issue about which the Assessing Officer had made enquiries and had found material which was prima facie adverse to the assessee and his failure to discuss the facts in the assessment order and record a specific finding makes the assessment order erroneous and prejudicial to the interests of Revenue. Criticising the approach of the Tribunal he urged that even the Tribunal has not observed that the material on record was sufficient to establish that undisclosed investment in purchase of goods had been financed from loans, raised from various close relatives who had made voluntary disclosures under the aforesaid ordinance. He pointed out that the Tribunals’ approach, that the Commissioner should have himself recorded a finding about the genuineness of the transactions in question and should not have set aside the matter to the assessing officer was also erroneous. He placed reliance in Swaroop Vegetables Product Industries Limited v. Commissioner of Income-tax, (1991) 187 ITR 412 in which this court observed that it is beyond dispute that under S. 263 of the Income-tax Act, 1961 the Commissioner has power to set aside the assessment order and send the matter for fresh assessment if he is satisfied that further enquiries are needed and that the order of the Income-tax Officer is prejudicial to the interests of Revenue. He also placed reliance on a judgment of the Hon'ble Calcutta High Court in Commissioner of Income-tax v. Rama Devi Saraogi, (1970) 78 ITR 728 in which also the view taken was that the Commissioner has the power to cancel the assessment and direct fresh assessment to be made that will give the assessee the fullest opportunity of making its case at that stage. The same view was taken by the Hon'ble Gujarat High Court in Additional Commissioner of Income-tax v. Mukur Corporation, (1978) 111 ITR 312.

11. Learned counsel for the assessee, on the other hand, contended that in order to enable the Commissioner to acquire jurisdiction under S. 263 to interfere with the assessment order, it is to be made out that the assessment order is erroneous as well as prejudicial to the interest of Revenue. According to him it is not enough that the Commissioner brands the assessment order as erroneous. It has to be demonstrated to be so. According to him, there may be some loss to the Revenue but that would not amount to prejudice to the Revenue and if income has escaped assessment action can be taken under S. 147 of the Act. In that situation S. 263 could not be invoked by the commissioner. He further contended that where two views are possible on same issue the Commissioner would not be justified in taking action under S. 263 simply because he does not agree with the view taken by the assessing officer. Reliance was placed on Venkatakrishna Rice Company v. Commissioner of Income-tax, (1987) 163 ITR 129 (Madras). The Hon'ble Madras High Court has exhaustively dealt with the nature of the Commissioner's power under S. 263 and learned counsel for the assessee took us through the following observations appearing at pages 137 of the report:—

“In our judgment, the expression “prejudicial to the interests of the Revenue” is not to be construed in a petty fogging manner, but must be given a dignified construction. It may be noted that the use of the expression “Revenue”, in our opinion, is significant. It denotes some kind of abstraction or symbol in the same sense in which the expression “crown” is used to distinguish it from any person enthroned. The interests of the Revenue is not to be equated to rupees and paise, merely. There is a biblical saying that we do not live by bread alone. Varying this saying, it may be said that the Revenue does not live by tax alone. In this sense, therefore, the interests of the Revenue are not tied up merely with realising as much Revenue as possible, willy nilly, merely looking to the productivity aspect of taxation. The jurisdic tion of the Commissioner under S. 263 is undoubtedly a supervisory jurisdiction. It is intended for interference in special cases to counteract orders which are erroneous as well as prejudicial to the interests of the Revenue. In this context, therefore, the expression “prejudicial to the interests of the Revenue” must be regarded as involving a conceptioa of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the order passed by the Income-tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commis sioner might think to be prejudicial to the interests of Revenue administration. There might be cases where the Commissioner might wish to interfere with an order of the Income-tax Officer in order to safeguard the fair name and reputation of the Income-tax Department without any thought of going into the particular aspects of the assessment. Assessment which are mala fide, politically and communally motivated may be, however, set aside as being prejudicial to the interests of the Revenue. It is unnecessary, for us to illustrate the point any further. All that we wish to observe is that the scope of the interference under this section is not to set aside merely unfavourable orders and bring to tax some more money to the treasury. Nor is the section meant to get at sheer escapement of revenue which, as is well known, is taken care of by provisions elsewhere in the Act such, for instance, as S. 147 of the Act. The prejudice must be prejudice to the revenue administration”

(Emphasis supplied)

12. Reliance was also placed on M. Kenche Gowda v. State of Krnataka, (1988) 174 ITR 380 : (1988 Tax LR 1540) in which it was held that the Revisional power under S. 35 of the Karnataka Agricultural Act, 1957 could not be invoked in respect of the income of a different assessees that has escaped assessment and for which action can be taken under S. 36 of that Act.

13. Learned counsel for the assessee contended that in this case the alleged creditors being the wife and other relatives of the assessee had made voluntary disclosures claiming therein that the disclosed amounts had been advanced as loan to the present assessee and those disclosures have been accepted. There was sufficient proof that the assessee's contention was correct and in view of the instructions of the Central Board of direct taxes that such disclosure would not be questioned, the order of the assessing officer in accepting the assessee case cannot be said to be erroneous. For this view reliance was placed on Commr. of Income-tax v. Mukund Family Trust, Agra, 1986 UPTC 2038 and Rajan Ram Krishna v. Commissioner of Wealth tax, (1981) 127 ITR 1 : (1981 Tax LR 282) (Gujarat). Learned counsel contended that the Tribunal had enough material before it in which the assessee's contention could be sustained though for some reasons it did not refer to the same in its order.

14. We have given our anxiousa consideration to the respective arguments. It cannot be in dispute that while exercising powers under S. 263 of the Act to interfere with the assessment order in question it was necessary for the Commissioner to show that the assessment order was erroneous and prejudicial to the interests of Revenue and from a perusal of the assessment order, which has completely omitted the issue from consideration, and the various details referred to above and discussed by the Commissioner, we are of the opinion that the Commissioner had successfully demonstrated that the assessment order was erroneous and prejudicial to interests of venue. The Commissioner has indirectly referred to the Income-tax Officer's omission when he says that the assessing officer has virtually accepted the assessees contention. If the assessing officer had actually recorded any finding on the issue and then accepted the assessee's claim, the things could be different. The omission of the assessing officer to discuss the issue and record a categorical finding has deprived the Commissioner of knowing the reasons why the assessing officer did not make any addition on account of the discrepancies noticed by him. That is the reason why the Commissioner instead of recording a finding himself has, to be fair to the assessee, set aside the assessment order and restored the issue for determination by the assessing officer so that either side has a proper opportunity of establishing its case.

15. While making an assessment, the income-tax officer has a varied rule to play. He is the investigator, prosecutor as well as adjudicator. As an adjudicator he is an arbiter between the revenue and the tax payer and he has to be fair to both. His duty to act fairly requires that when he enquires into a substantial matter like the present one, he must record a finding on the relevant issue giving, howsoever briefly, his reasons therefor. In S.N Mukherjee v. Union Of India., (1990) 4 SCC 594 : AIR 1990 SC 1984, it has been observed by the Hon'ble Supreme Court as follows (at page 1995):—

“Reasons, when recorded by an admin-istrative authority in an order passed by it while exercising quasi judicial functions would no doubt facilitate the exercise of its jurisdiction by the appellate or supervisory authority. But the other considerations, referred to above, which have also weighed with this court in holding that an administrative authority must record reasons for its decision are of no less significance. There considerations show that the recording of reasons by an administrative authority serves a salutary purpose, namely, it excludes chances or arbitrariness and ensures a degree of fairness in the process of decision-making. The said purpose would apply equally to all decisions and its application cannot be confined to decisions which are subject to appeal, revision or judicial review. In our opinion, therefore, the requirement that reasons be recorded should govern the decisions of an administrative authority exercising quasi-judicial functions irrespective of the fact whether the decision is subject to appeal, revision or judicial review. It may, however, be added that it is not required that the reasons should be as elaborate as in the decision of a court of law. The extent and nature of the reasons would depend on particular facts and circumstances. What is necessary is that the reasons are clear and explicit so as to indicate that the authority has given due consideration to the points in controversy. The need for recording of reasons is greater in a case where the order is passed at the original stage. The appellate or revisional authority, it is affirmed such an order need not give separate reasons if the appellate or revisional authority agrees with the reasons contained in the order under challenge.”

16. Similar view was earlier taken by the Hon'ble Supreme Court in Siemens Engineering and Manufacturing Company limited v. Union of India, (1976) 2 SCC 981 : AIR 1976 SC 1785. It is settled law that while making assessment on assessee, the Income-tax Officer acts in a quasi-judicial capacity. An assessment order is amenable to appeal by the assessee and to revision by the Commissioner under Ss. 263 and 264 of the Act. Therefore, a reasoned order on a substantial issue is legally necessary. The judgment of the Hon'ble Madras High Court in which reliance was placed by the learned counsel for the assessee also points to the same direction. We have reproduced about the relevant portion of the observations made by the learned Judges. They have held that orders which are subversive of the administration of revenue must be regarded as erroneous and prejudicial to the interests of revenue. If the assessing officers are allowed to make assessments in an arbitrary manner, as has been done in the case before us, the administration of revenue is bound to suffer. If without discussing the nature of the transaction and materials on record, the assessing officer had made certain addition to the income of the assessee, the same would have been considered erroneous by any appellate authority as being violative of the principles of natural justice which require that the authority must indicate the reasons for an adverse order. We find no reason why the same view should not be taken when an order is against the interests of revenue. As a matter of fact such orders are prejudicial to the interests of both the parties, because even the assessee is deprived of the benefit of a positive finding in his favour, though he may have sufficiently established his case.

17. As is evident from the Tribunals order, the Tribunal has not discussed the material on record and has not recorded any finding that the assessee's case stood established from the material on record. The Tribunal's view that the Commissioner should have himself recorded a finding is not in accordance with the view taken by this court in the case of Swaroop Vegetable Products Industries Limited (supra).

18. The contention of the learned counsel for the assessee that where action under S. 147 to bringing to tax the escaped income is permissible under S. 147, no action under S. 263 can be taken, may be correct. But in the facts and circumstances of this case, we are of the view that no action under S. 147 could be justified after the assessment had been made. The reason is that the matter was wide open before the assessing officer. He enquired in the transactions, procured some evidence, apprised assessee of his view and the assessee also made his submissions and lead evidence before him. In respect of such a matter, no action under S. 147 can be initiated and there is no doubt about the legal position in this regard.

19. As regards the legal effect of the disclosures made by the alleged creditors, we are of the view that we should not express any opinion and it would be for the respective authorities to take them into account in arriving at their finding.

20. In view of the above discussion, we are of the opinion that the Commissioner was right in holding that the impugned assessment order was erroneous and prejudicial to the interests of revenue and setting aside the same and directing the assessing officer to make a fresh assessment; and the Tribunal was not right in Cancelling the commissioners order passed under S. 263 of the Income-tax Act, 1961. Accordingly we answer the question referred to this court in the negative and in favour of Revenue, No order as to costs.

21. Now we come to the I.T.A No. 149 of 1983. As stated above following the Tribunal's order, the consequential assessment order was annulled by the Commissioner (Appeals) and his order was upheld by the Tribunal, The Tribunal also refused to make a reference. Learned counsel for the assessee contended that the Commissioner (Appeals) was bound to follow the Tribunal's order and the Tribunal was also bound to follow its earlier order and therefore the order passed by the Tribunal is in accordance with law and no question of law can be said to arise out of the Tribunal's order. Reliance was placed on Commissioner of Income-tax v. Dhampur Sugar Mills Ltd., (1988) 17 ITR 449 in which this course held that where the Commissioner's order under S. 263 had been set aside, the assessing officer had no jurisdiction to pass a fresh assessment order. That was a case in which the Tribunal's order quashing the Commissioner's order under S. 263 had become final as no reference under S. 256 had been sought. Reliance was also placed on a similar decision of the Madhya Pradesh High Court in Govindram Seksaria Charity Trust v. Income-tax Officer “C” Ward, circle-1 (1987) 168 ITR 387 : (1987 Tax LR 655). In this case also the Tribunal's order was not challenged by way of reference and the Hon'ble Madhya Pradesh High Court therefore held that till the order passed by the Tribunal was set aside, the Revenue was bound by the order passed by the Tribunal. Reference was also made to a recent decision of the Hon'ble Supreme Court of India in Union of India v. Kamlakshi Finance Corporation Ltd., 1992 Supp (1) SCC 443 : AIR 1992 SC 711 : (1992 AIR SCW 350) in which as Assistant Collector, Central Excise had passed an order disobeying the order passed by the appellate authority. The High Court condemned the conduct of the Assistant Collector and on appeal the Hon'ble Supreme Court upheld the High Courts view. The Hon'ble Supreme Court stressed upon the need to follow judicial discipline and to give effect to orders of higher appellate authorities. There can be no dispute with the principles of law and propriety laid down in the aforesaid rulings, but the facts of the present case are different. At already stated, when the Tribunal passed the impugned order dated 7th June, 1982, it had already referred a question of law arising out of its order which it had followed while passing the impugned order and we have recorded above an opinion on that question disapproving the view taken by the Tribunal. As a consequence the Tribunal has to pass an order under S. 260 of the Act in accordance with the opinion of this Court. That would be an order dismissing the assessees’ appeal and upholding the order of the Commissioner, as a result of which the re-assessment made by the assessing Officer cannot be said to be without jurisdiction or against the directions of the Tribunal as the. Tribunals’ order passed earlier would be deemed to have never been passed. However the fresh assessment order passed by the assessing officer has been set aside by the Commissioner (Appeals) and that order has been upheld by the Tribunal by an order from which the proposed question of law is said to arise. Therefore, a queer situation has arisen and it has to be examined how to retrieve the situation. We may mention that the Hon'ble Supreme Court in Commissioner of Income-tax Delhi v. Bansi Dhar and sons, (1986) 157 ITR 665 L (1986 Tax LR 317) has the occasion to deal with the effect of reference under S. 256 vis-a-vis the powers of the Tribunal relating to the appeal which it had disposed of. The Hon'ble Supreme Court took the view that till the question of law is answered by the High Court or the Supreme Court and the Tribunal passes an order under S. 260 in accordance with the opinion of the High Court or the Supreme Court, the appeal is kept pending before the appellate Tribunal. The following observations at pages 672 and 673 of the report are important:—

“After the High Courts and, in cases of appeals to the Supreme Court, the courts answer the question in any manner or give certain opinion, the Appellate Tribunal would dispose of the appeals in accordance with the opinions expressed or answers given by the High Courts or the Supreme Court. Therefore, under the scheme, the appeal is kept pending before the Tribunal and the appellate jurisdiction is retained by the Tribunal, but the High Court exercises an advisory or consultative jurisdiction. When a question of law arises, the Tribunal can and in certain circumstances must seek, at the instance of the assessee or in its own motion or at the instance of the Revenue, the opinion of the High Court on such question. The jurisdiction exercised by the High Courts is purely advisory, it is not that of a civil court exercising original, or any appellate or revi-sional jurisdiction. Therefore, the powers and jurisdiction of the High Courts, and in certain cases of the supreme Court, are those which are expressed and conferred upon them and also those which inhere in the exercise of that jurisdiction or are ancillary or those which subserve the exercise of that function and jurisdiction of giving advice. The appeal is kept pending before the Appellate Tribunal.”

22. In our view, therefore, a question of law does arise out of the order of the Tribunal and we direct the Tribunal to state a case and refer the following question for the opinion for this Court.

“Whether on the facts and in the circumstances of the case, the Tribunal was right in upholding the order of the Commissioner (Appeals), Agra whereby he annulled the assessment order dated 29th May, 1980 by following the Tribunal's order dated 31-12-1979.”

No order as to costs.

Order according

Commissioner Of Income-Tax v. V.P. Agarwal

Structured Summary of the Opinion (M.C. Agarwal, J.)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Commissioner / Revenue (as represented by learned standing counsel)

Assessee (and counsel for the assessee)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Commissioner Of Income-Tax v. V.P. Agarwal

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