Commissioner Of Income-Tax v. Daga Entrade P. Ltd.

Hrishikesh ROY, J.:— These appeals by the Revenue under section 260A of the Income-tax Act, 1961 (hereinafter referred to as the “IT Act”) have been filed to challenge the common order dated. October 20, 2004, passed by the Income-tax Appellate Tribunal Guwahati Bench (hereinafter referred to as “the Tribunal”). The Tribunal passed the impugned order in a batch of 16 appeals, filed by the assessees, against the suo motu revisional order passed under section 263 of the Income-tax Act by the Commissioner of Income-tax (CIT), Guwahati-II, whereby the order of the Commissioner of Income-tax has been quashed and the appeals were disposed of in favour of the assessees.

2. The main question for determination in these cases relate to the scope and ambit of the power of the Commissioner to exercise suo motu power of revision under section 263(1) of the Income-tax Act, 1961. As all the appeals have been heard analogously and the parties are represented by the same counsel, they are being disposed of by this common order.

3. The facts in the case pertaining to M/s. Daga Entrade (P) Ltd. in I.T.A No. 117(Guwahati) of 2004 had been noted by the learned Tribunal and since the relevant facts are not different for the other assessees, the necessary facts for adjudicating the present appeal reflected in this order, pertain to I.T.A No. 1/2005 (CIT v. Daga Entrade (P) Ltd.).

4. The assessee, M/s. Daga Entrade (P) Ltd. filed return of income on November 30, 2000, showing total income of Rs. 11,400. The case was selected for scrutiny and process under section 142(1) and 142(2) were issued.

5. Following information gathered by the Department that M/s. S.S Sipani and Co. is providing accommodation entries, search operations were made at Bangalore and in the office of Mr. D.K Sipani C.A at Guwahati. Following search, blank share certificates of 28 companies were found. This indicated that several finance companies have been floated to use them for providing accommodation entries. Accordingly, in the appraisal report prepared thereafter (copy made available for perusal), it was recommended to the Assessing Officers in respect of assessees who have availed of the accommodation entries from such financial companies, to carry out detailed investigation and verification.

6. After assessment for the year 2000-01 was made, the Commissioner of Income-tax initiated suo motu revisional proceeding under section 263 of the Income-tax Act against the respondent companies. The proceeding was initiated on the ground that the Assessing Officer (A.O) while finalizing assessment, did not make any enquiry with regard to the appraisal report of the DDIT (Investigation) in the Sipani group of companies and because of such omission, the assessment order has been rendered erroneous and prejudicial to the interest of the Revenue.

7. Accordingly the order of assessment was set aside by the order dated July 1, 2004, of the Commissioner of Income-tax and the Assessing Officer was directed to pass fresh order as per law, after apprising the respondent-assessee with the findings of the investigation and affording them an opportunity, to controvert the said findings.

8. The exercise of suo motu revisional power by the Commissioner of Income-tax under section 263 of the Income-tax Act was challenged by the aggrieved assessees in the Tribunal, by filing separate appeals.

9. While considering the appeals, the learned Tribunal found that the only ground for exercise of revisional powers, was non-consideration of the appraisal report of the DDIT (Investigation), by the Assessing Officer, while finalizing assessment. The Tribunal further found that the contents of the appraisal report have not been discussed by the Commissioner of Income-tax. Therefore, the Judicial Member of the Tribunal declared that, he is not in a position to gather the basis on which, the Commissioner of Income-tax assumed jurisdiction to pass orders under section 263 of the Income-tax Act. The Tribunal concluded that the Commissioner of Income-tax's order suffers from material defect and accordingly quashed the Commissioner of Income-tax's order.

10. Mr. U. Bhuyan, learned standing counsel of the Income-tax Department submits that there is no infirmity in exercise of suo motu revisional power by the Commissioner of Income-tax inasmuch as, it has been found by the Commissioner of Income-tax that the appraisal report, following the search made by the DDIT (Investigation), have not been considered by the Assessing Officer at the time of making assessments. It is also pointed out that the said appraisal report prepared after search and seizure operation in the Sipani group of company's office at Bangalore and the office of their chartered accountant Mr. D.K Sipani at Guwahati, were very much available with the Assessing Officer. Yet the Assessing Officer did not make any enquiry with regard to the findings and recommendations in the said appraisal report, while finalizing the assessments. Accordingly, it is contended that because of this omission, the assessment orders have become erroneous and have also caused prejudice to the interest of the Revenue and, therefore, exercise of suo motu revisional power by the Commissioner of Income-tax under section 263(1) of the Income-tax Act, and directing fresh assessments, was justified in law.

11. Learned counsel for the Revenue also contends that the Commissioner of Income-tax has held the assessment order to be erroneous, since a very relevant investigating (appraisal) report has not been considered by the Assessing Officer nor the assessees were confronted with the facts found in the said report. Because of such omission, the assessment orders cannot be said to have been passed after due consideration of all the relevant matters. Accordingly, it is submitted the said assessment orders have been rightly found to be erroneous and also prejudicial to the interest of the Revenue.

12. The following decisions of the Supreme Court and of different High Courts have been relied on by the learned counsel appearing for the Revenue to explain the contour of the suo motu revisional power of the Commissioner under section 263(1) of the Income-tax Act, 1961, or the corresponding section 33B of the earlier Income-tax Act, 1922:

(1) Rampyari Devi Saraogi v. CIT, [1968] 67 ITR 84 (SC);

(2) CIT v. Panna Devi Saraogi, [1970] 78 ITR 728 (Cal);

(3) Smt. Tara Devi Aggarwal v. CIT, [1973] 88 ITR 323 (SC);

(4) Addl. CIT v. Mukur Corporation, [1978] 111 ITR 312 (Guj);

(5) Addl. CIT v. Saraya Distillery, [1978] 115 ITR 34 (All);

(6) Malabar Industrial Co. Ltd. v. CIT, [2000] 243 ITR 83 (SC); and

(7) Commissioner Of Income Tax, Bombay v. Amritlal Bhogilal & Co. and Co., [1958] 34 ITR 130 (SC).

13. Appearing for the assessees, Mr. V.K Bhatra, learned counsel submits that clear statutory limits on exercise of suo motu revisional powers under the Income-tax Act, 1961, have been imposed and merely because the assessment order is erroneous, unless prejudice to the interest of the Revenue is established, exercise of suo motu revisional power would not be justified in law.

14. The learned counsel also contends that error of the Assessing Officer has to be in the nature of jurisdictional error and in the instant case since there was no jurisdictional error committed by the Assessing Officer, exercise of suo motu revisional power by the Commissioner of Income-tax was not justified.

15. Mr. Bhatra relies on the decisions of this court in Shyam Sunder Agarwal v. State of Assam, [2003] 131 STC 70; [2003] 1 GLR 448, and also the decision in Bongaigaon Refinery and Petrochemicals Ltd. v. Union of India, [2006] 287 ITR 120 (Gauhati) in support of his submissions.

16. He further submits that in the instant cases, exercise of the appellate power under section’ 260A, which can be exercised only on substantial questions of law, would not be justified as it could not be demonstrated as to how the Tribunal's order raises a substantial question of law.

17. To indicate the powers of the High Court to entertain appeals under section 260A, the learned counsel has relied upon the following decisions:

(1) CIT v. Mangilal Didwania, [2006] 286 ITR 126 (Raj);

(2) Sangrur Vanaspati Mills Ltd. v. Commissioner Of Income-Tax, [2006] 283 ITR 267 (P&H); and

(3) CIT v. S.V Electricals P. Ltd., [2005] 274 ITR 334 (MP).

18. On examination of the order passed by the Commissioner under section 263 of the Income-tax Act, it is seen that the assessment orders passed by the Assessing Officer were held to be erroneous on the ground that the relevant information revealed through the appraisal report of the DDIT (Investigation) was not enquired into and appropriate verification required to be made, were also not made by the Assessing Officer. This appraisal report was taken to be a relevant document, required to be considered by the Assessing Officer and yet it was found that the Assessing Officer disregarded the report and never confronted the assessee with the facts revealed in the appraisal report and assessments have been completed, without giving cognizance to the enquiry made by the Investigation wing of the Income-tax Department and the assessees were also kept in the dark, about the report of the Investigation. This was considered to be adequate justification by the Commissioner of Income-tax for treating the assessments as erroneous and since it had resulted in prejudice to the interest of the Revenue, the Commissioner of Income-tax exercised his suo motu revisional power, under section 263(1) of the Income-tax Act.

19. Notwithstanding the aforesaid findings and justification of the revisional authority, the Tribunal while considering the appeals filed by the assessees, took the view that the basis on which the Commissioner of Income-tax assumed jurisdiction to pass orders under section 263 of the Act, was not decipherable. The learned Tribunal also took the view that the Commissioner of Income-tax while exercising revisional power on the ground of non-consideration of the appraisal report of the Investigation team, should have referred to the contents of the report to substantiate that the assessment orders were erroneous. This was found to be sufficient justification by the learned Tribunal to quash the orders passed by the Commissioner of Income-tax.

20. Before examining the submissions made by the learned counsel, it would be appropriate for us to refer to some of the cited decisions to understand the scope of suo motu revisional power of the Commissioner of Income-tax, by referring to the statutory provisions and also interpretations, given by the courts, to the said statutory provisions.

21. section 263(1) of the Income-tax Act, 1961, is accordingly extracted hereinbelow:

“263.(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the (Assessing) Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order therein as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.”

22. From a reading of the statutory provisions, it is apparent that the Commissioner may call for and examine the records of any proceeding under the Income-tax Act and no reasons are required to be given by the Commissioner, for calling for and examination of records of any proceeding. It is also provided that the Commissioner on scrutiny of any proceeding, may consider the order passed by the Income-tax Officer to be erroneous and prejudicial to the interest of the Revenue. Once the Commissioner concludes that an erroneous order has been passed which has caused prejudice to the interests of the Revenue, he may exercise suo motu power of revision.

23. Only at this stage of consideration, an appropriate opportunity to the assessee is required to be given and the assessee is required to be heard. Thereafter, the Commissioner can pass appropriate orders, including an order, modifying the assessment or cancelling the assessment and directing fresh assessment.

24. The Supreme Court in Rampyari Devi Saraogi, [1968] 67 ITR 84, while examining the scope of revisional power under section 33B of the Income-tax Act, 1922, which is identical as section 263(1) of the current Income-tax Act, held that it is not necessary for the Commissioner to embellish the short reasoning recorded, for deciding to exercise suo motu revisional power since no prejudice would be caused to the assessee, who will have full opportunity to establish before the Assessing Officer, that the assessments, ordered to be by the Commissioner of Income-tax was correctly made.

25. In a later case, the Supreme Court in Malabar Industrial Co. Ltd., [2000] 243 ITR 83 held that pre-requisite for exercise of suo motu revisional jurisdiction by the Commissioner under section 263 of the Income-tax Act is that, the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interest of the Revenue and if the twin conditions, namely, (1) the order of the Assessing Officer sought to be revised is erroneous, and (2) it is prejudicial to the interests of the Revenue, the exercise of suo motu revisional power under section 263(1) of the Act would be justified.

26. The Supreme Court in the case of Smt. Tara Devi Aggarzval, [1973] 88 ITR 323 held that even where an income has not been earned and is not assessable, merely because the assessee wants it to be assessed in his or her hands in order to assist someone else, who would have been assessed for a larger amount, an assessment so made can certainly be erroneous and prejudicial to the interest of the Revenue and in such a situation, the Commissioner has ample justification to exercise his revisional power to cancel the assessment and initiate proceedings for assessment against some other assessee who, according to the income-tax authorities, is liable for the income thereof.

27. The Gujarat High Court in Mukur Corporation, [1978] 111 ITR 312 (Guj) has held that when the Income-tax Officer at the stage of making assessment fails to make inquiry into relevant details, such assessment has to be considered as erroneous. If fresh assessment is thereafter ordered by the revisional authority, the only proper course for the revisional authority would be to desist from expressing any final opinion on controversial points.

28. On the submission made on behalf of the assessee that more detailed reasoning should have been indicated by the Commissioner of Income-tax, we find that it is nobody's case that, the finding of the appraisal report of the Investigation team, following the search and seizure made, were not relevant for making the assessments.

29. It is also seen that the Assessing Officer was very much aware about the appraisal report indicting the assessee. Yet the materials revealed through the appraisal report were not considered by the Assessing Officer, while finalizing the assessments, nor were the assessees confronted and given opportunity to rebut the findings of the appraisal report. The Assessing Officer merely stated that some loose sheets seized during the survey were not relevant for the period of assessment under consideration, without referring to the actual appraisal report or indicating any reason as to why the appraisal report ought not to be considered.,

30. Referring to the above circumstances, the Commissioner held that the assessments have been finalized without reference to relevant materials and therefore, the said assessment orders, in our considered view, have been rightly held to have been erroneously passed by the revisional authority and the reasons indicated by the Commissioner are found by us to be sufficient, without undue elaboration.

31. We are also of the view that non-referring in detail to the contents of the appraisal report by the Commissioner of Income-tax has not resulted in any error, justifying interference by the learned Tribunal for allowing appeals filed by the assessee, since elaborate discussion of the controversy by the Commissioner of Income-tax, while exercising revisional power for remanding the matter for fresh assessment, could amount to directing the Assessing Officer to make assessments in a particular manner and such direction may amount to transgressing into the jurisdictional arena of the Assessing Officer.

32. The Calcutta High Court in Dawjee Dadabhoy and Co. v. S.P Jain, [1957] 31 ITR 872 (Cal) at page 881 has explained the meaning of the expression “prejudicial to the interest of the Revenue” the following terms:

“The words ‘prejudicial to the interests of the Revenue’ have not been defined, but it must mean that the orders of assessment challenged are such as not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realized or cannot be realized. It can mean nothing else.”

33. Having regard to the above interpretation which is quoted with approval in several later cases; our view is that the assessment orders are erroneous for ignoring relevant materials. They are also prejudicial to the interest of the Revenue as is revealed by the appraisal report and accordingly we hold that the exercise of powers under section 263(1) of the Income-tax Act, by the Commissioner of Income-tax cannot be said to be wrongly exercised.

34. It is also submitted that suo motu revisional power by the Commissioner of Income-tax can only be exercised for assessment orders passed in error of jurisdiction. But on a reading of section 263(1), we do not find that the power of the Commissioner is hedged by any such additional conditions. Therefore, we are unable to agree with the view taken by this court in Bon-gaigaon Refinery and Petrochemicals Ltd., [2006] 287 ITR 120 (Gauhati) and in Shyam Sundar Agarwal, [2003] 131 STC 70; [2003] 1 GLR 448. The later case, we may note was a case where revisional power under section 36(1) of the Assam General Sales Tax Act, 1993, considered by the court.

35. Our view that additional conditions cannot be read in is consistent with the Supreme Court's decision in Commissioner Of Income Tax, Bombay v. Amritlal Bhogilal & Co. and Co., [1958] 34 ITR 130 where the apex court held that (page 141):

“Whether or not the revisional power can be exercised in a given case must be determined solely by reference to the terms of section 33B itself. Courts would not be justified in imposing additional limitations on the exercise of the said power on hypothetical consideration of policy or the extraordinary nature of the power.”

36. When it is seen that relevant materials have been ignored at the time of making assessment, which has resulted in erroneous assessment, the exercise of suo motu revisional power was justified and we are of the considered opinion that, it was wrong on the part of the Tribunal to say that the basis for assumption of jurisdiction to pass orders under section 263 of the Income-tax Act, was not decipherable, in the revisional order of the Commissioner of Income-tax.

37. The Assessing Officer did not consider the appraisal report at all, although the said report was available with him at the time of making assessment. The appraisal report, which has been placed before us, in our view, is very much relevant for the purpose of making assessment and as such the interference by the Commissioner of Income-tax is found by us to be justified.

38. We find in the present cases that relevant materials were ignored by the Assessing Officer while making the assessment. For non-consideration of relevant materials while making assessment, the assessment orders have rightly been quashed by the Commissioner of Income-tax. Therefore, the finding of the Tribunal that reasons are not decipherable is a perverse finding.

39. As the finding of the learned Tribunal that no reasons are recorded by the Commissioner of Income-tax is found by us to be a perverse finding, and such perverse finding cannot be allowed to cause prejudice to the Revenue, we are of the opinion that these appeals under section 260A of the Income-tax Act deserve to be allowed.

40. Because of the above findings, we hold that these appeals of the Revenue are maintainable and cannot be rejected on the basis of the ratio of the three cases, i.e, Mangilal Didwania, [2006] 286 ITR 126 (Raj), Sangrur Vanaspati Mills Ltd., [2006] 283 ITR 267 (P&H) and S.V Electricals P. Ltd., [2005] 274 ITR 334 (MP) relied upon by Mr. Bhatra, as substantial questions of law, going into the very root of the revisional powers under section 263(3), have been raised in the present batch of appeals, filed under section 260A of the Income-tax Act, 1961. In view of the above, we allow these appeals and set aside the common impugned order dated October 20, 2004, passed by the learned Income-tax Appellate Tribunal, Guwahati Bench. Accordingly, we sustain the order passed by the Commissioner of Income-tax under section 263(1) of the Income-tax Act and direct the Assessing Officer to make fresh assessments, in terms of the directions issued by the revisional authority.

41. The appeals of the Revenue stand allowed accordingly.