Gujarat High Court
Commissioner Of Income-Tax vs Vallabhdas Vithaldas And Anr. on 9 November, 2001
Equivalent citations: [2002]253ITR543(GUJ)
Author: M.S. Shah
Bench: M.S. Shah
JUDGMENT M.S. Shah, J.
1. In both these references under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred as "the Act"), at the instance of the Revenue, the following common question has been referred for our opinion in the case of the respondent-assessees who are husband and wife, respectively.
"Whether, in law and on facts, the Appellate Tribunal was right in coming to the conclusion that the basis of intervention by the Commissioner should be part of the records in the assessment proceedings of the assessee and the statements in the search operations regarding the son of the assessee could not be considered as forming part of assessment of the assessee and thus the action was invalid ?"
2. The facts giving rise to these references are as under :
Vallabhdas Vithaldas, the respondent in Income-tax Reference No. 65 of 1988 is an individual whose assessment was completed under Section 143(3) of the Act on February 19,1985. The respondent in Income-tax Reference No. 66 of 1988--Mrs. Savitaben is the wife of Vallabhdas Vithaldas. Her assessment was completed under Section 143(1) of the Act on February 2, 1984.
3. On August 27, 1981, search operations under Section 132 of the Act had been carried out at the residential premises of Girishkumar Vallabhdas, son of both the respondent-assessees herein. During that search operation, cash amounting to Rs. 11,882 and gold ornaments and jewellery worth Rs. 1,67,958 were found. The assets found at the time of search were claimed to be belonging to various members of the family. Two statements of Savitaben were also recorded on that date wherein she stated that some of the said assets belonged to her. On scrutiny of the record of the assessment, the Commissioner of Income-tax, Rajkot, noted that the Income-tax Officer had not taken into consideration the explanation of Girishkumar Vallabhdas and the Income-tax Officer had also not considered the statements of the persons recorded at the time of search operation. The Commissioner invoked his powers under Section 263 of the Act and after giving the assessee an opportunity of being heard came to the conclusion that the assessees' explanation had not been examined by the Income-tax Officer at all. The Commissioner, thereupon set aside the assessment orders in both cases of both the respondents and directed the Income-tax Officer to make fresh assessment in accordance with law after giving reasonable opportunity of being heard, to the respondents herein.
4. The respondents carried the matters in appeal before the Tribunal and contended that the search and seizure operations in the case of the respondent-assessees' son did not form part of the records of the respective respondent-assessees' assessments and, therefore, they could not form the basis of an action under Section 263 of the Act in so far as the respondent-assessees were concerned. The Tribunal relied on the decision of the Calcutta High Court in the case of Ganga Properties v. ITO [1979] 118 ITR 447 and held that the statements in question did not form part of the records of the respondent-assessees and, therefore, the Commissioner could not have invoked the power of revision under Section 263 of the Act on the basis of such statements. Hence, these references at the instance of the Revenue.
5. We have heard Mr. B.B. Naik, learned counsel for the Revenue. Though served, none appears for either of the respondent-assessees.
6. Mr. Naik submitted that the respondent-assessees' son, Girishkumar Vallabhdas, had made the statements at the time of search that certain assets found at the time of search belonged to his father, Vallabhdas, and some assets to his mother, Savitaben. Mr. Naik has relied on the orders of the Commissioner under Section 263 of the Act stating that the Income-tax Officer had not examined the statements of Girishkumar Vallabhdas that certain assets found at the time of search belonged to her (Savitaben) and that certain assets found at the time of search belonged to him (Vallabhdas).
7. Mr. Naik has heavily relied on the decision of the apex court in CIT v. Shree Manjunathesware Packing Products and Camphor Works [1998] 231 ITR 53 and submitted that the Supreme Court has noted the legislative intent to give wider meaning to the word "record" as per the Explanation inserted by the Finance Act, 1988, and further clarified by the Finance Act, 1989, with retrospective effect. Mr. Naik submitted that while calling for and examining the record of any proceeding under Section 263(1), it is, and it was, always open to the Commissioner not only to consider the record of the proceeding of the assessee in question, but also the records relating to that proceeding available to the Commissioner at the time of examination.
8. Having perused the order of the Commissioner of Income-tax and also the order of the Tribunal, we find that the Tribunal allowed the appeal of the assessee only on the ground that the search and seizure operations regarding the assessees' son did not form part of the record of the assessment and, therefore, they cannot form the basis of an action under Section 263 regarding the respondent-assessees. For this purpose, the Tribunal relied on the decision of the Calcutta High Court in the case of Gangs Properties v. ITO [1979] 118 ITR 447. The Tribunal observed that the word "therein" is an obvious reference to the record of the proceedings and, therefore, it is necessary that the basis of intervention by the Commissioner should be part of the records in the assessment proceedings of the assessee. The Tribunal further observed that no rule or procedure was pointed out on behalf of the Revenue to show that the asses-see's statement in the search operation regarding the respondent-assessees' son would form part of the assessment proceedings of the respondent-assessees. Lastly, the Tribunal observed that when there is another provision in the Act, i.e., Section 47 to cover the present situation, the applicability of Section 263 must be excluded by necessary implication. The Tribunal thus held the action of the Commissioner under Section 263 of the Act invalid without examining on the merits the various statements made by Girishkumar Vallabhdas (son of the respondent-assessees herein) and Savitaben at the time of search and seizure operations.
9. In our opinion, the legislative amendments to Section 263 particularly by way of Explanation as inserted by the Finance Act, 1988, and the further amendment therein by the Finance Act, 1989, and the decision of the apex court in CIT v. Shree Manjunathesware Packing Products and Camphor Works [1998] 231 ITR 53 put the controversy beyond any doubt. Upset by the narrow judicial interpretation of the word "record" in Section 263(1), the Legislature stepped in to eliminate litigation and to clarify the legislative intent in respect of the provisions in the three Direct Tax Acts. In the Statement of Objects and Reasons to the Finance Act, 1988, it was stated that the proposed amendments are intended to make it clear that "record" would include all records relating to any proceedings under the concerned direct tax laws available at the time of examination by the Commissioner. Even thereafter a doubt was raised and some of the appellate authorities took the view that the Explanation inserted by the Finance Act, 1988, was applicable to the orders which are passed by the Commissioner after June 1,1988, when the Finance Act, 1988, came into force. The Legislature again stepped in through the Finance Act, 1989, so as to clarify that the provisions of the Explanation to Section 263(1) shall be deemed to have always been in existence. After considering the aforesaid legislative history, the apex court has interpreted the word "record" in Section 263(1) in the following words (headnote) :
"The revisional power conferred on the Commissioner under Section 263 is of wide amplitude. It enables the Commissioner to call for and examine the record of any proceeding under the Act. It empowers the Commissioner to make or cause to be made such enquiry as he deems necessary in order to find out if any order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. After examining the record and after making or causing to be made an enquiry if he considers the order to be erroneous, then he can pass the order thereon as the circumstances of the case justify. Obviously, as a result of the enquiry he may come into possession of new material and he would be entitled to take that new material into account. If the material, which was not available to the Income-tax Officer when he made the assessment could thus be taken into consideration by the Commissioner after holding an enquiry, there is no reason why the material which had already come on record though subsequent to the making of the assessment cannot be taken into consideration by him. Moreover, in view of the clear words used in Clause (b) of the Explanation to Section 263(1), it has to be held that while calling for and examining the record of any proceeding under Section 263(1) it is and it was open to the Commissioner not only to consider the record of that proceeding but also the record relating to that proceeding available to him at the time of examination."
10. In our view, the aforesaid observations of the apex court clearly give the widest meaning to the word "record". It is also pertinent to note that while Section 263(1) uses the word "record", the Explanation goes further and states that the record includes all records relating to any proceeding under this Act. The use of the plural "records" and "relating to any proceeding under this Act" do not permit any limitation being placed on the power of the Commissioner that the power under Section 263(1) can be exercised only on the basis of the statements which are recorded in the course of search and seizure operations in respect or the very assessee and not in respect of any other person. The apex court has in terms overruled the decision of the Calcutta High Court in Ganga Properties' case [1979] 118 ITR 447 on which the Tribunal had relied while passing the order giving rise to these references.
11. As regards the reasoning which appealed to the Tribunal, the word "therein" is not necessarily capable of the interpretation which appealed to the Tribunal. When the Commissioner examines the record of search and seizure operations in respect of any person, say the respondent-assessees' son as in the instant case, and finds that such person had attributed some undisclosed income to the assessee, it is open to the Commissioner to call for the record in the assessee's case. The exercise of power by the Commissioner under Section 263(1) is obviously in respect of the assessee's case but for the purpose of exercising that power, the examination by the Commissioner is not required to be confined to the record of that assessee's case as such record could be any record relating to any proceeding under the Income-tax Act. There is nothing in the provisions of Section 263(1) to take such a narrow view of the powers of the Commissioner. Any doubt which could arise has been removed by the Legislature by inserting through the Finance Act, 1988, an Explanation and further amending it by the Finance Act, 1989. The interpretation of the provisions of Section 263(1) read with the Explanation thereto by the apex court in light of the legislative intent leaves no room for doubt.
12. In our view, once there is a pronouncement of the highest court of the land, the same is binding on all courts, Tribunals and all authorities in view of article 141 of the Constitution and it is not open to distinguish the same by referring to certain words of those provisions which were very much before the Supreme Court merely on the ground that some other arguments could have been urged which were not considered by the Supreme Court.
13. Since the Tribunal had not examined the merits of the assessees' contentions, regarding invocation of power under Section 263(1) of the Act and the Tribunal had held the action of the Commissioner invalid only on the ground that the statements of the assessees' son did not form part of the record under Section 263(1) of the Act, for exercising powers in respect of the respondent-assessees, the matter will have to be considered by the Tribunal on the merits.
14. Accordingly, our answer to the question is in the negative, i.e., in favour of the Revenue and against the assessees. The Tribunal will hear the appeal against the order of the Commissioner under Section 263(1) of the Act on the merits but after proceeding on the basis that the statements in the search oper-
ations carried out in relation to another person could be 'considered as forming part of the record which can be examined by the Commissioner for invoking his power under Section 263(1) of the Act.
15. The references accordingly stand disposed of with no order as to costs.