1. These two appeals are preferred by the revenue challenging the order passed by the Tribunal which has held that the exercise of power under Section 263 of the Income Tax Act, 1961 (hereinafter for short referred to as 'the Act'.) is one without jurisdiction as the said power cannot be exercised in respect of a block assessment order.
2. As the question of law involved in both these appeals is one and the same, they are heard and disposed of by this common order. To have a factual background we have set out the facts in ITA No. 2314/2005.
3. The premises of one M/s Trishul Enterprises and one Sri T.S. Chandrashekar was searched on 12.12.1995 under Section 132 of the Act. During search they found incriminating material in respect of the wife of Sri T.S. Chandrashekar, namely Smt. Annapurnamma. Therefore, a notice under Section 158BC read with Section 158BD of the Act was issued to her. After hearing the assessee, on 28.2.1997 a draft assessment order was passed. As required under Section 158BG the draft block assessment order was submitted to the Commissioner of Income Tax for his approval. This fact is clear from the last sentence of the block assessment order where it has been stated that the said order has been passed with the previous approval of the Commissioner of Income Tax under Section 158BG of the Act.
4. After passing of the said order, the Commissioner initiated proceedings under Section 263 of the Act on the ground the assessment order was erroneous and prejudicial to the interest of the revenue. The assessee filed a statement of objections to the show cause notice issued and contended the Commissioner has no jurisdiction to initiate proceedings under Section 263 of the Act in respect of the block assessment orders. On merits also she contested the proceedings. However, over-ruling her objections the revisional authority exercised power under Section 263 and set aside the assessment order and stated the assessing officer should give an opportunity to the assessee and to pass a re-assessment order.
5. Aggrieved by the said order, the assessee preferred an appeal to the Tribunal. The Tribunal has held that the approval of the Commissioner before passing the assessment order has to be mandatorily obtained in terms of the provisions of Section 158BG as it stood then. An order of assessment after seeking the approval of the Commissioner under Section 158BG is definitely an order passed by the Commissioner himself. Relying on the decisions on which reliance is placed by the assessee it was held the order passed under Section 263 of the Act is void ab initio for want of jurisdiction and accordingly he allowed the appeal and set aside the order passed by the Commissioner under Section 263 of the Act. Aggrieved by this order, the revenue is in appeal.
6. Sri Inder Kumar, the learned senior counsel appearing for the revenue contended that, the approval accorded by the Commissioner under Section 158BG is in the nature of an administrative approval whereas the power to be exercised under Section 263 of the Act is in the nature of quasi-judicial power. Secondly he contended that, Section 158BH expressly states that, all other provisions of the Act shall apply to assessment made under this Chapter and therefore by virtue of the said statutory provisions the Commissioner has the power to revise the order passed by the assessing authority under Section 263 of the Act. He submits if it is not construed in that manner, if the block assessment order passed is prejudicial to the interest of the revenue, there is no remedy available to the revenue to protect the interest of the revenue and therefore he submits the order passed by the Tribunal is erroneous and requires to be interfered with.
7. Per contra, Sri Shankar, the learned counsel appearing for the assessee submitted that, unless an approval is accorded by the Commissioner the block assessment order has no validity. Therefore, by according such approval the Commissioner has become a party to the said order and before according approval he is expected to apply his mind and find out whether the order is in accordance with law and then only he can accord approval. Even if it is an administrative approval he cannot by virtue of Section 263 exercise revisional jurisdiction against the correctness of the approval accorded to a block assessment order on the ground that it is prejudicial to the revenue. Therefore, he submits the order passed by the Tribunal is in accordance with law and does not call for any interference.
8. The substantial question of law that arise for our consideration in these appeals is as under : -
"Whether the Commissioner can exercise his revisional jurisdiction under Section 263 of the Act in respect of block assessment order passed by the assessing authority under Section 14B when the Commissioner has accorded his approval to such order?"
9. Section 158BG as it was inserted read as under:-
"158BG. Authority competent to make the block assessment - The order of assessment for the block period shall be passed by an Assessing Officer not, below the rank of an Assistant Commissioner :
Provided that no such order shall be passed without the previous approval of the Commissioner".
The proviso underwent an amendment with effect from 1.10.1996. It reads as under : -
"Provided that no such order shall be passed without the previous approval of the Commissioner, or Director, as the case may be".
Subsequently, with effect from 1.1.1997 the said provision underwent, substantial amendment. Again, by Finance Act 2/1998 which came into effect from 1.10.1998 the word 'Deputy Commissioner. Deputy Director' was inserted. The provision reads as under: -
"158BG. Authority competent to make the block assessment - The order of assessment for the block period shall be passed by an Assessing Officer not below the rank of an Assistant Commissioner or Deputy Commissioner or an Assistant Director or Deputy Director, as the case may be:
Provided that no such order shall be passed without the previous approval of -
(a) The Commissioner or the Director, as the case may be, in respect of search initiated under Section 132 or books of account, other documents or any assets requisitioned under Section 132A, after the 30th day of June, 1995, but before the 1st day of January, 1997:
(b) The Joint Commissioner or the Joint Director, as the case may be, in respect of search initiated under Section 132 or books of account other documents or any assets requisitioned under Section 132A, on or after the 1st day of January, 1997."
Section 158BH reads as under : -
"158BH. Application of other provisions of this Act.—Save as otherwise provided in this Chapter, all other provisions of this Act shall apply to assessment made under this Chapter."
Section 263 which deals with revisional power of the Commissioner reads as under : -
"263. Revision of orders prejudicial to revenue.—(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 insofar 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."
10. In the light of the aforesaid statutory provisions, we have to examine whether by virtue of the power of revision conferred on him, whether the Commissioner can revise an order passed under Section 158BC read with Section 158BG.
Section 158BC deals with procedure for block assessment. It provides, where any search has been conducted under Section 132 or books of account, other documents or assets are requisitioned under Section 132A, in the case of any person, then, the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in Section 158BB and the provisions of Section 142, sub-sections (2) and (3) of Section 143, Section 144 and Section 145 shall, so far as may be, apply. On determination of the undisclosed income of the block period in accordance with this Chapter, shall pass an order of assessment and determine the tax payable by him on the basis of such assessment. Proviso to Section 158BG categorically declares that no such order shall be passed without the previous approval of the Commissioner in respect of searches conducted after 30th day of June, 1995 but before the first day of January 1997 and for the period subsequent to 1st of January 1997 without the previous approval of the Joint Commissioner or the Joint Director. Such an approval is not required under the Act in respect of the assessment orders passed under the Act. This is a special provision. Unless the previous approval is obtained under Section 158BG the block assessment order to be passed by the assessing authority has no value in the eye of law. It is only on according such approval, the order becomes valid and unenforceable.
11. It was contended that it is an administrative order. Even the order of assessment is an administrative order and therefore the previous approval to make such an order valid cannot be other than an administrative approval. But, the question is, once an approval is accorded by the Commissioner can he sit in judgment over such an order and find fault with such order on the ground that it is erroneous and is prejudicial to the interest of the revenue. The question arises if to make the said order, previous approval of the Commissioner is a condition precedent, was the Commissioner not expected to look into the draft block assessment order placed before him for approval to find out whether the said order is lawful and whether the said order is prejudicial to the interest of the revenue. If it was prejudicial to the interest of the revenue or if it is not lawful he was not obliged to accord approval. What he proposes to do under Section 263 of the Act, he should have done at the stage of approval. Because in a block assessment proceedings, the tax to be levied under Section 113 of the Act is 60% and it is in respect of an undisclosed income which will have serious consequences on the assessee the legislature thought it fit to introduce Section 158BG providing for previous approval to ensure that the said provision is not abused by the lower authorities. In fact the word 'approval' is not defined under the Act. The dictionary meaning of the word 'approval' means 'to agree'. In P. Ramanatha Aiyar's The Law Lexicon' the word 'approval' and 'permission' is clearly brought about as under: -
"'Approval' and 'permission' Ordinarily the difference between the approval and permission is, that in the first the act holds goods until disapproved, while in the other case it does not become effective until permission is obtained. But permission subsequently obtained may all the same validate the previous Act.
Approval of a person means that, and only that, which he has, with full knowledge, approved.
Approve. To accept as good or sufficient for the purpose intended. To pronounce good. To accept as good or sufficient for the purpose intended; to confirm authoritatively.
Approved. When one of the parties to a bargain writes 'approved' at the end of the draft of the agreement and adds his signature, he thereby makes the draft a binding contract, and does not merely express approval of its form after the manner of conveyances."
12. Black's Law Dictionary, 6th Edition, defines 'approval' to mean, an act of confirming, ratifying, assenting, sanctioning or consenting some act or thing done by another. In the context of an administration act, the word 'approval' in our opinion does mean anything more than confirming, ratifying, assenting, sanctioning or consenting.
13. The Apex Court in the case of Ashok Kumar Sahu v. Union of India AIR 2006 SC 2879, explaining the meaning of approval, held as under:
"The expression approval presupposes an existing order. Acceptance means communicated acceptance. A distinction exists between the expressions 'approval' and 'acceptance'. Whereas in the latter, an application of mind on the part of the competent authority is sine qua non, approval of an order only envisages statutory entitlement. Approval of an order is required as directed by the statute. It can be given a retrospective effect. Even valid contract comes into being only after the offer is accepted and communicated. Whereas services of an employee are dispensed with, the order takes effect from the date when it is communicated and not from the date of passing of the order. We are however, not oblivious of the fact that under certain circumstances, the expression, "approval'' would mean to accept as good or sufficient for the purpose of intent. "Approve" means to have or express a favourable opinion of to accept as satisfactory."
14. Therefore, it is clear approval means to agree with full knowledge of the contents of what is approved and pronounce it as good. In other words confirm authoritatively. When the power of such approval is vested in a higher authority, when such higher authority approves an order of the lower authority, which means he has gone through the order of the lower authority, he has no reason to disagree he finds no fault with that order and therefore he confirms the order by his approval. It is to be seen that the statute has not used merely the word 'approval'. The word used is 'previous approval'. Therefore, unless the approval is previously taken, the assessment order would have no value at all. Therefore, when previous approval is a condition precedent and approval means to 'agree', i.e., to concur, to give mutual assent, to come into harmony, it is possible only after application of mind by the authority according approval.
15. Under section 263 of the Act, the Commissioner has been vested with the power to revise orders, which are prejudicial to the Revenue. The Commissioner may call for and examine the record of any proceedings 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 interest of the revenue, he may pass an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment.
16. The word 'record' has been defined in clause (b) to the Explanation to mean, shall include and shall be deemed always to have included all records relating to any proceedings under this Act available at the time of examination by the Commissioner.
17. Therefore, this power conferred on the Commissioner is in the nature of supervisory power. If he finds that the order passed by the Assessing Officer is erroneous and also prejudicial to the interest of the Revenue, after examining the record or any proceedings under the Act to rectify such error and to protect the interest of the Revenue he can exercise the said power, because, the Commissioner becomes aware of such erroneous orders prejudicial to the revenue after looking into the record. But, if he has looked into the record, applied his mind and agreed with the order of the Assessing Authority, this power of revision under Section 263 is not available to him after according approval to such order. Even though Section 158BH expressly provides that all other provisions of this Act shall apply to assessment made under this Chapter, the opening words make it clear that "save as otherwise provided under this chapter". Therefore, the other provisions are not attracted automatically. If before according approval, if the Commissioner has undertaken scrutiny of the records, gone through the order and then accorded approval, in the absence of specific provision in the Act providing for exercise of revisional jurisdiction, even against such orders, the power under Section 263 cannot be exercised. Therefore, from the aforesaid provision, the intention is very clear. In fact, after realizing this difficulty, Section 158BG was amended by conferring power of according previous approval on the Joint Commissioner or the Joint Director, as the case may be in respect of searches conducted after 1st day of January 1997, so that the revisional power can be exercised even in respect of block assessment orders passed by the authorities and approved by Joint Commissioner and Joint Director, in respect of searches conducted subsequent to 1st day of January 1997. Therefore, in respect of searches conducted prior to the 1st day of January 1997 in respect of which Commissioner has accorded previous approval, the provisions of Section 263 is not attracted. The flaw in the legislation has been promptly corrected by the Parliament. But till such time, such a power was not conferred on the Commissioner.
18. Though no material is placed on record to show whether the Commissioner applied his mind prior to accord sanction, it being an official act provided under the statute, it is to be presumed that before according approval, he has looked into the records, applied his mind and he did not find any reason to disapprove the order passed by the Assessing Authority and thereafter he has accorded approval. If that is so he cannot revise the said order under Section 263 of the Act.
19. For the aforesaid reasons, we are satisfied, that the finding recorded by the Tribunal that the Commissioner had no jurisdiction to exercise his power under Section 263 of the Act in respect of searches initiated prior to 1st day of January 1997 is correct and does not suffer from any legal infirmity. The substantial question of law framed is answered accordingly in favour of the assessee and against the revenue. Accordingly, both the appeals are dismissed.