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Antala Sanjaykumar Ravjibhai v. Cit
Structured Summary of the Opinion
Factual and Procedural Background
This appeal by the assessee challenges the order of the Commissioner of Income Tax (CIT-II), Rajkot dated 13-02-2008 passed under section 263 of the Income-tax Act for assessment year 2003-04.
The assessee's grounds included complaint about an addition of Rs. 4,95,000 treated as gross agricultural income and alleged that agricultural income had already been shown in the return. The assessee also referred to an order of the Commissioner of Income Tax (Appeals) confirming that the income was agricultural and contended that since the original ITO order was quashed by the CIT(A), the CIT's section 263 order should be quashed.
Procedural history: The assessee's appeal before the Tribunal (ITAT) was initially dismissed as withdrawn by an order dated 16-02-2008. The assessee filed a miscellaneous application (MA No.05/Rjt/2009), and the ITAT recalled the earlier order on 06-05-2011 on the ground of misunderstanding of certain facts. The appeal was refixed for hearing.
On the facts, the assessee had declared gross agricultural income of Rs. 4,95,000 in the return, claimed agricultural expenses of Rs. 90,000 and thus reported net agricultural income of Rs. 4,05,000. Other non-agricultural incomes amounted to Rs. 1,53,012. The Assessing Officer (AO) completed the assessment under section 143(3) on 23-03-2006 and treated the agricultural income as income from undisclosed sources, finding no genuine agricultural activity. The CIT, on scrutiny, concluded the AO ought to have assessed the gross amount of Rs. 4,95,000 and directed the AO to enhance assessment accordingly under section 263.
Legal Issues Presented
- Whether the Commissioner could exercise suo motu revision under section 263 of the Income-tax Act in the facts of this case.
- Whether the AO's original assessment — treating agricultural income (net vs. gross) and treating it as undisclosed income — was "erroneous" and "prejudicial to the interests of the Revenue" so as to justify exercise of powers under section 263.
- Whether the Commissioner could substitute his view for that of the Assessing Officer where the AO had conscientiously examined the issues and recorded a conclusion.
Arguments of the Parties
Appellant's (Assessee's) Arguments
- The assessee had disclosed agricultural income in the return (gross Rs. 4,95,000 and net Rs. 4,05,000 after expenses) and there was nothing new that the AO found which would justify revisional action under section 263.
- The assessee stated that the Commissioner of Income Tax (Appeals) had confirmed the income to be agricultural and hence not income from other sources.
- The assessee contended that the CIT had advised withdrawal of a revision petition under section 264 and suggested filing an appeal before CIT(A), with an understanding that the CIT would drop proceedings under section 263.
- The assessee argued that the agricultural income and full statement had been given in the return and therefore the matter was not covered by the provision cited (the ground mentioned section number appears in the grounds but the opinion records it as contested).
Respondent's (Revenue / Commissioner) Position as Reflected in the Record
- The Commissioner examined the return and records and concluded that the AO, in the original assessment, should have taken gross agricultural income of Rs. 4,95,000 (the amount disclosed in the return) instead of net agricultural income of Rs. 4,05,000 after expenses; accordingly, the Commissioner directed the AO to enhance the assessment under section 263.
- The AO had earlier taken the view that there was no genuine agricultural activity and therefore had treated the agricultural income as income from undisclosed sources (i.e., the AO examined agricultural genuineness and treated it as undisclosed income).
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Tribunal explained and applied the statutory test under section 263. It first reproduced the text of section 263 and then distilled the requirements for the Commissioner to exercise suo motu revision:
- The Commissioner may revise an order only if, upon examination of the records, he considers the AO's order to be "erroneous" and "prejudicial to the interests of the Revenue".
- Those two conditions must co-exist: (1) the order must be erroneous, and (2) prejudice to revenue must have resulted because of that erroneous order.
- The opinion provided a definition of "erroneous" (drawn from Black's Law Dictionary as cited in the text): an order is "erroneous" if it deviates from law — an assessment contrary to law or involving a jurisdictional defect.
The Tribunal emphasized limitations on the Commissioner's power: the section is not an open-ended or arbitrary power to substitute the Commissioner's judgment for that of the AO. If the AO has conducted inquiries, examined accounts, and reached a conclusion in accordance with law (i.e., exercised quasi-judicial power conscientiously), a mere difference of opinion by the Commissioner does not make the order "erroneous".
Applying these legal principles to the facts, the Tribunal found:
- The AO had examined issues relating to agricultural income and formed a view that there were no genuine agricultural activities; on that basis, he treated agricultural income as undisclosed income and used net figure of Rs. 4,05,000.
- The AO's decision was the result of a conscientious exercise of his quasi-judicial function after consideration of facts; it was not shown to be contrary to law or otherwise jurisdictionally defective so as to be "erroneous".
- The Commissioner was attempting to substitute his own view (that gross income of Rs. 4,95,000 should be assessed) for the AO's considered view. Such substitution is impermissible in law where the AO's order is not demonstrably erroneous.
On that basis, the Tribunal concluded that the requirement of "erroneous" order under section 263 was not satisfied and consequently the exercise of revisional power by the Commissioner was improper.
Holding and Implications
HOLDING: The appeal filed by the assessee is ALLOWED and the order passed by the Commissioner under section 263 is set aside.
Implications and direct effect:
- The Tribunal held that the Commissioner could not use section 263 to substitute his view for that of the Assessing Officer where the AO's order was not shown to be erroneous; accordingly, the CIT's revisional order under section 263 was quashed.
- The decision directly affects the parties by overturning the CIT's direction to enhance assessment under section 263. The opinion does not discuss any broader legal consequences or purport to lay down a new precedent beyond application of the established test under section 263.
No wider or new legal principle beyond the articulated application of section 263 was established in this opinion; the Tribunal applied settled legal tests to the facts and allowed the assessee's appeal.
1. This appeal by the assessee is directed against the order of the CIT-II, Rajkot dated 13-02-2008 passed u/s 263 of the I.T. Act for the assessment year 2003-04.
2. The following effective grounds are raised in the appeal:
"(1) The learned Commissioner of Income tax has erred in law and in facts by adding Rs. 495000.00 being gross agricultural income as concealed income, as I have already shown the Income in my Return of Income and there is nothing new the Income Tax Officer has found out. I had filed revision petition u/s 264, after three hearing, the learned Commissioner of Income-tax advised me to withdraw the petition and go for appeal before the appellate Commissioner with the understanding that he will drop the proceeding u/s 263.
(2) The Commissioner of Income Tax (Appeals) has also confirmed that the Income is an agricultural income and hence not liable to be treated as income from other sources (Copy of the order attached).
(3) The order of the Commissioner of Income Tax u/s 263 was based on the order of Income Tax Officer - ward 3(1) Rajkot, and it was only regarding addition of expenses claimed. Now since the original order of the ITO itself is quashed by Commissioner of Income Tax (Appeals), order passed by the Commissioner of Income Tax u/s 263 should be quashed.
(4) The agricultural income is shown in my return of income and also full statement of income ha been given with my return of income. Therefore, it is not covered u/s 86 of the Income Tax Act."
3. This appeal of the assessee was decided by ITAT vide order dated 16-02-2008 wherein the ITAT has dismissed the assessee's appeal as withdrawn. The assessee thereafter moved miscellaneous application in MA No.05/Rjt/2009 which has been decided by the ITAT on 06th May, 2011 and the order dated 16-02-2008 has been recalled on the ground that there was a misunderstanding of certain facts. The appeal was thus refixed for hearing again.
4. The brief facts of the case are that the assessee had declared agricultural income of Rs. 4,05,000 in its return of income apart from other incomes such as income from salary, commission, share of profit, etc. aggregating to Rs. 1,53,012. The assessing officer completed the assessment u/s 143(3) on 23-03-2006. In the original assessment the assessing officer held that no genuine agricultural activity was carried out by the assessee during the year. Therefore, the agricultural income disclosed by the assessee was taken as income from undisclosed sources. The Commissioner of Income-tax, on scrutiny of return found that in the original assessment assessing officer ought to have assessed agricultural income as undisclosed income at Rs. 4,95,000 instead of Rs. 4,05,000. The Commissioner was of the view that the assessee has disclosed gross agricultural income of Rs. 4,95,000 and after claiming expenses of Rs. 90,000 the net agricultural income was Rs. 4,05,000. The Commissioner therefore, directed the assessing officer to enhance the assessment by taking gross agricultural income declared in the return of income, i.e. Rs. 4,95,000 instead of net agricultural income taken in the original assessment. While directing the assessing officer, the Commissioner held that in the original assessment the assessing officer has examined only the issue whether there was any agricultural activity or not. The assessing officer failed to consider the correct amount of addition of agricultural income as to whether net agricultural income was to be added or the gross agricultural income was to be added.
5. We have heard the ld.representatives of the parties, record perused. The issue under consideration is pertaining to section 263 of IT Act. The said section reads as under:-
"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 thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,-
(a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include—
(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A;
(ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorised by the Board in this behalf under section 120;
(b) "record" shall include and shall be deemed always to have included] all records relating to any proceeding under this Act available at the time of examination by the Commissioner;
(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.
[(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.]
(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court.
Explanation.- In computing the period of limitation for the purposes of subsection (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded."
5.1 From a reading of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is " erroneous in so far as it is prejudicial to the interests of the Revenue". It is not an arbitrary or unchartered power. It can be exercised only on fulfillment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The power of suo motu revision under sub-section (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this subsection, viz.
(1) the order is erroneous ;
(2) by virtue of the order being erroneous prejudice has been caused to the interests of the Revenue.
It has, therefore, to be considered first as to when an order can be said to be erroneous. We find that the expressions "erroneous", "erroneous assessment" and "erroneous judgment" have been defined in Black's Law Dictionary. According to the definition, "erroneous" means "involving error; deviating from the law". "erroneous assessment" refers to an assessment that deviates from the law and is, therefore, invalid, and is defect that is jurisdictional in its nature, similarly, "erroneous judgment" means "one rendered according to course and practice of court, but contrary to law, upon mistaken view of law, or upon erroneous application of legal principles. An order cannot be termed as erroneous unless it is not in accordance with law. If an Income tax Officer acting in accordance with law makes an assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the AO should made thorough enquiry and order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some changes. The Commissioner, on perusal of the records, may be of the different opinion than the opinion of the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and express different opinion. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, viz., that the order is erroneous, is absent.
6. In the light of above discussion, if we consider the facts of the case under consideration we find that in the original assessment the assessing officer has examined the issues relating to agricultural income and found that there was no genuine agricultural activities carried out by the assessee. In the original assessment the assessing officer has treated agricultural income of Rs. 4,05,000 as undisclosed income instead of gross amount of Rs. 4,95,000. In the original assessment the assessing officer has taken a particular view conscientiously after considering the facts of the case. Now the Commissioner wants to substitute his view with that of the assessing officer which is totally a different view which is not permissible in law. Since the order of assessing officer is not erroneous, we have no hesitation in setting aside the order u/s 263 passed by the Commissioner and allow the appeal filed by the assessee.
7. In the result the appeal filed by the assessee is allowed.
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