Bombay High Court
Andhra Valley Power Supply Co. Ltd. vs Deputy Commissioner Of Income-Tax. on 18 May, 1995
Equivalent citations: [1995]55ITD24(MUM)
ORDER
Per M. K. Chaturvedi, Judicial Member - These appeals rotate round the identical issues and pertain to the assessment years 1972-73 to 1977-78. For the sake of convenience, these are consolidated and disposed of by a common order. Briefly the facts :
2. All the appellants are engaged in the business of generation, transmission and distribution of electrical energy. For the years under consideration, assessments were completed under section 143(3) of the Income-tax Act, 1961. The claim of the appellants in regard to the depreciation was allowed. Thereafter it was found by the Assessing Officer that the expenditure incurred on ash disposal were allowed as revenue expenditure. He, therefore, by resorting to the provisions of section 147, reopened the assessments and disallowed the expenditure incurred on ash disposal. This expenditure was treated as a capital expenditure. The claim in regard to the depreciation and investment allowance was not disturbed. The CIT found that the order passed by the Assessing officer was erroneous and prejudicial to the interests of the revenue, inasmuch as, depreciation and investment allowance were allowed on the fixed assets which were not fully owned by the appellants. He, therefore, assumed jurisdiction under section 263 of the Act.
3. The appellants made the following objections before the CIT :
(i) the reassessment order passed under section 147(a) was not erroneous;
(ii) even assuming that the order was erroneous it was not prejudicial to the interest of the revenue;
(iii) even assuming that the order was both erroneous and prejudicial to the interest of the revenue, it could not be revised under section 263 if it was in accordance with the provision of the I.T. Act;
(iv) since the original assessment order was passed prior to 1-10-1984, the provision of section 263 as stood prior to such date would be applicable by which revision of assessment order was prohibited;
(v) the extended time limit as per the amendment will not be applicable in view of Circular No. 402 of the CBDT, 151 ITR 46 (St.).
4. It was stated before the CIT that the factum of fractional ownership of the assets was on the record of the department for the past 35 years. Proceedings under section 147(a) were initiated for the purpose of disallowing ash disposal expenses. The decision in the case of Seth Banarsi Das Gupta v. CIT [1987] 166 ITR 783 (SC) was rendered on 29-4-1987. It was available at the time of 147(a) proceedings.
5. The CIT made reference to the decision of the Apex Court rendered in the case of V. Jagamohan Rao v. CIT/CEPT [1970] 75 ITR 373. The following para was quoted in the order (at page 380) :
"It is, therefore, manifest that once assessment is reopened by issuing a notice under sub-section (2) of section 22, the previous under-assessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings re started under section 34(1)(b), the Income-tax Officer had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year."
6. The CIT further relied on the decisions of the Bombay High Court rendered in the cases of CIT v. Indian Rare Earth Ltd. [1990] 181 ITR 22, and CIT v. American Presidents Lines Ltd. [1992] 194 ITR 571. In the light of these decisions, it was held that once valid proceedings under section 147 are started, the Assessing Officer has a duty to complete the assessment de novo. What is true of an assessment must also be true of a reassessment. In this view of the matter, the wrong allowance of depreciation and investment allowance made in the assessment order under section 143(3) read with section 147(a) can be a subject-matter of revision under section 263 on the points which are erroneous and prejudicial to the interest of the revenue.
7. Apropos the contention that the original assessment orders were passed prior to 1-10-1984, i.e., the date of amendment of the provisions of section 263, the CIT held that the provisions of section 263 were applied on the assessment order dated 27-2-1991. The order dated 27-2-1991 is the subject-matter of revision. Therefore, this order is to be governed by the amended law. The CIT declined to accept the contention raised on behalf of the assessee. Directions were rendered to the Assessing Officer, to revise the assessments and to disallow depreciation and investment allowance for the years under consideration.
8. S/Shri Dinesh Vyas and P. C. Tripathi, learned Counsel for the assessee appeared before us. Relevant documents and papers were filed. It was vehemently contended that the conditions precedent for assuming jurisdiction under section 263 of the Act did not exist, as the order of the Assessing Officer was neither erroneous nor prejudicial to the interest of the revenue.
9. Our attention was invited on the time lag between the orders passed under section 143(3) and under section 263. It was submitted that policy of law is that there must be a point of finality in all legal proceedings. Reliance was placed on the decision of the Apex Court rendered in the case of Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1.
10. The learned Counsel further invited our attention on the provisions of section 263(2) as it stood before 1-10-1984. Relevant portion of the said section is reproduced here as under :
"REVISION OF ORDER PREJUDICIAL TO THE REVENUE."
263. (1) .............................................
(2) No order shall be made under sub-section (1) -
(a) to revise an order of reassessment made under section 147, or
(b) after the expiry of two years from the date of the order sought to be revised."
11. The circular No. 402 dated November 1, 1984 issued by the CBDT was referred to. It was stated that in the circular, directions were rendered to the revenue authorities that order under section 263 be passed as far as possible within two years of the date of the order sought to be revised in cases where orders sought to be revised passed before 1-10-1984. According to the learned counsel, the amendment made by the Taxation Laws (Amendment) Act, 1984 was not retrospective in nature. It is clearly laid down in the Statute that the said law shall be operative with effect from 1-10-1984. This position is clarified in the Circular also. Subsequent legislation do not affect the vested rights unless the legislation made retrospective expressly or by necessary implications. Reliance was placed on the decision of the Supreme Court in CED v. M. A. Merchant [1989] 177 ITR 490.
12. It was further stated that the assessment for one assessment year cannot, in the absence of contrary provision be affected by the law in force in another year. A right claim by the assessee under the law, in force in a particular assessment year is ordinarily available only in relation to a proceeding pertaining to that year. For this proposition, the learned Counsel relied on the decision of the Supreme Court in Reliance Jute & Industries Ltd. v. CIT [1979] 120 ITR 921. Reference was also made to the decision rendered in CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589.
13. It was contended that for disallowing depreciation and investment allowance on the ground that the assessee was a fractional owner of assets, notice under section 147(b) was required to be issued as the fact that the assessee is a fractional owner of assets is on the record of the department since past several years. Therefore, it cannot be said that income chargeable to tax had escaped assessment due to the assessees failure to disclose fully and truly all material facts. Reassessment under section 147(a) was not possible. Disallowance of depreciation and investment allowance on the basis of the ratio laid down in Seth Banarsidas case was possible only by issuing a notice under section 147(b) and not by issuance of notice under section 147(a). Section 147(b) permits reassessment if the Assessing Officer had in consequence of information in his possession reasons to believe that income chargeable to tax had escaped assessment.
14. Once the Assessing Officer opted to reopen an assessment under section 147(a), he had no option but to disallow ash disposal expenses atone. He could not have disallowed depreciation and investment allowance even if he wanted to do so as he was making assessment under section 147(a).
15. Adverting our attention on the order of the CIT passed under section 263, it was stated that in this order the learned CIT relied on the decision rendered in the cases of V. Jagmohan Rao (supra) and American President Lines Ltd. (supra). On the basis of these decisions, the CIT concluded that once valid proceedings under section 147 are started, the Assessing Officer has a duty to complete the assessment de novo. It was submitted that while passing order under section 263, the CIT misconceived, misinterpreted and misunderstood the ratio decidendi, laid down in the case of Jagmohan Rao and others. Thus, the CIT arrived at an erroneous conclusion.
The Apex Court in the case of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297 explained the true meaning of observation as referred in V. Jagmohan Raos case (given at para 5).
It was submitted that the CIT has done what the Apex Court has forbidden and has mis-interpreted the principles laid down in V. Jagamohan Raos case (supra) is not correct to say that the Assessing Officer had jurisdiction to re-assess the matter falling under section 147(b) even though the notice was under section 147(a).
16. Shri A. K. Sahay, the learned Departmental Representative appeared before us. Relevant documents and papers were filed. It was contended that conditions precedent for assuming jurisdiction under section 263 did exist in the facts and circumstances of the present case. The order of the Assessing Officer was erroneous inasmuch as, it was not in consonance with the ratio laid down by the Apex Court in the case of Seth Banarsidas Gupta (supra) it was also prejudicial to the interest of the revenue.
17. According to the learned Departmental Representative, the finality of the order can be disturbed, in order to give effect to the decision of the Honble Supreme Court. The law declared by the Apex Court is the law of the land. It is imperative on the part of the revenue to correct the order which is contrary to the decision of the Supreme Court. In view of this, there was no infringement to the policy of law.
18. It was pointed out that powers under section 263 were exercised in respect of the order which was passed under section 147. This order was made after 1-10-1984. Therefore, this is to be governed by the provisions of amended law and not by the law which was operative only till 1-10-1984.
19. The learned Departmental Representative stated that once the valid proceedings under section 147 are started, it is incumbent on the Assessing Officer to complete the assessment afresh. He placed his reliance on the following :
(i) V. Jagamohan Raos case (supra).
(ii) Indian Rare Earth Ltd.s case (supra).
(iii) American President Lines Ltd.s case (supra).
Coming to the object of section 263, it was stated that this section can only be used for the benefit of the revenue. Assessee can, under no circumstances, use this section for his own advantage.
20. It is an admitted fact that the appellants are only fractional owners of the assets. Apex Court in the case of Seth Banarsi Dass Gupta (supra) has held :
"The benefit of depreciation under section 10(2)(vi) of the Indian Income-tax Act, 1922, is admissible only where the assessee is the owner of the property; it is not admissible in respect of a fractional claim. Under the scheme of the Act, there is no scope for maintaining a separate value of a part of an asset to work out depreciation."
In view of the above, according to the learned Departmental Representative, the CIT was correct in assuming jurisdiction under section 263 and thereby disallowing the claim of depreciation and investment allowance.
21. We have heard the rival submissions in the light of the material placed before us and the precedents relied upon. It is a cardinal principle of law; that law suits be not protracted otherwise great oppression might be done under the colour and pretence of law. This idea is inculcated in a well known Latin dictum :
"INTEREST REPUPLICA UT SIT FINIS LITUM"
In the case of Parashuram Pottery Works Co. Ltd. (supra), the Apex Court has held that State issues should not be reactivated beyond a particular stage and the lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other sphere of human society.
22. In order to find out the time lag between the orders passed under section 143(3) and under section 263, the following details are relevant :
THE ANDHRA VALLEY POWER SUPPLY CO. LTD.
Assessment Date of order u/s 143/3 (Depreciation) Date of order u/s 147(Ash disposal) Date of order u/s 263 Time lag between u/s 143(3) & 263 1972-73 28-03-1973 27-02-1991 26-03-1993 20 years 1973-74 26-03-1974 27-02-1991 26-03-1993 19 years.
1974-75 29-10-1974 27-02-1991 26-03-1993 18 yrs. 5 mths.
1975-76 04-10-1977 27-02-1991 26-03-1993 15 yrs. 5 mths.
1976-77 19-01-1979 27-02-1991 26-03-1993 14 yrs. 2 mths.
1977-78 29-09-1980 27-02-1991 26-03-1993 12 yrs. 6 mths.
THE TATA HYDRO ELECTRIC POWER SUPPLY CO. LTD.
1972-73 22-03-1973 27-02-1991 26-03-1993 20 years.
1973-74 29-03-1974 27-02-1991 26-03-1993 19 years.
1974-75 20-11-1974 27-02-1991 26-03-1993 18 yrs. 4 mths.
1975-76 05-10-1977 27-02-1991 26-03-1993 15 yrs. 4 mths.
1976-77 19-01-1979 27-02-1991 26-03-1993 14 yrs. 2 mths.
1977-78 26-09-1980 27-02-1991 26-03-1993 12 yrs. 6 mths.
THE TATA POWER CO. LTD.
1972-73 20-03-1973 27-02-1991 26-03-1993 20 years.
1973-74 27-03-1974 27-02-1991 26-03-1993 19 years.
1974-75 25-11-1974 27-02-1991 26-03-1993 18 yrs. 4 mths.
1975-76 01-10-1977 27-02-1991 26-03-1993 15 yrs. 4 mths.
1976-77 11-01-1979 27-02-1991 26-03-1993 14 yrs. 2 mths.
1977-78 26-09-1980 27-02-1991 26-03-1993 12 yrs. 6 mths.
23. The powers conferred on the CIT under section 263 deals with corrective measures. If the error is crept in the order of assessment and that error is prejudicial to the interest of revenue, the CIT can assume jurisdiction under section 263. Law has also prescribed the time limit for exercising such power. It is not open for the CIT to travel beyond that time limit. If the power is exercised within the limitation period, it can produce results. After lapse of limitation, this power cannot be exercised. The limitation is put to bring finality. In order to avoid prejudice and hardship to the assessee, ordinarily this power should be exercised within a reasonable time once the assessment becomes final, lest it be a DAMOCLES SWORD hanging over the head of the assessee, for all times.
The law of limitation is a procedural law. It does not take away any right. It bars only a remedy. Where, however, a right has accrued to a party because the prescribed period of limitation has expired that accrued right cannot be taken away by any subsequent Act which enlarges time.
24. As a consequence at the amendment of section 263, the limitation for passing an order under the said section stands extended in cases where the period of limitation originally laid down in that section had not expired before 1-10-1984.
In order to avoid controversy and litigation in the matter of CBDT vide its Circular No. 402 dated 1-10-1984 rendered direction to the revenue authorities; we reproduce the text of the circular as given in 151 ITR (St.) 46, here as under :
"Circular No. 402, dated November 1, 1984 Subject : Taxation Laws (Amendment) Act, 1984 - Amendment of section 263 of the I.T. Act, 1961 - Clarification regarding As a consequence of the amendment of section 263 of the Income-tax Act, 1961, by section 47 of the Taxation Laws (Amendment) Act, 1984, the limitation for passing an order under section 263 will, in view of general principles of interpretation of statutes, stand extended in cases where the period of limitation originally laid down in that section had not expired before 1-10-1984. However, with a view to avoiding controversy and litigation in the matter, it is desirable that orders under section 263 of the Income-tax Act are passed, as far as possible, within two years of the order sought to be revised in cases where the order sought to be revised was passed before 1-10-1984.
Sd/-
Kalyan Chand, Under Secretary, Central Board of Direct Taxes."
25. In the case of M. A. Merchant (supra) it was held that power to reassess given by the Amendment Act, cannot be treated as retrospective. This cannot be invoked in respect of assessments completed before that date. Subsequent legislation cannot affect the vested rights unless the legislation made retrospective expressly or by necessary implication. In view of this, it is clear that the case of the assessee is governed by the preamended section 263, which put an interdict on the powers of CIT to revise the order of re-assessment made under section 147.
26. The Apex Court in the case of Sun Engg. Works P. Ltd. (supra) has held that the judgment in V. Jagamohan Raos case, cannot be read to imply as laying down that reassessment wiped out the original assessment and the reassessment is not only confined to escaped assessment or under-assessment but to the entire assessment for the year and starts the assessment proceedings de novo.
27. Commissioners action under section 263 must resemble that of a Surgeons knife. He cannot wide open the assessment and direct the Assessing Officer to consider everything afresh. Only errors crept in the assessment need to be corrected. If error falls within the ambit of section 147(a), it is to be corrected within the period prescribed. Section 147(b) stipulates a different limitation period. If notice is issued under section 147(a), it is not open for Assessing Officer to correct the errors which come within the ken of section 147(b), and vice versa. Once the tune limit is over, it is not open for CIT to peep into the penumbral area.
Taking into consideration, the totality of facts, and the position of law as emerged out of the aforesaid discussion, we hold that the conditions precedent for assuming the jurisdiction under section 263 did not exist. Accordingly, we quash the impugned orders.
28. In the result, all the appeals stand allowed.