Patna High Court
Commissioner Of Income Tax vs Shantilal Agarwala on 1 February, 1983
Equivalent citations: 1983(31)BLJR352
Author: Nagendra Prasad Singh
Bench: Nagendra Prasad Singh
JUDGMENT Nagendra Prasad Singh, J.
1. These four Taxation cases arise out of four assessment orders passed against the same assesses in respect of four assessment years, 1966-67, 1967-68, 1968-69 and 1969-70. In all the four cases similar question has been referred by the Income-Tax Appellate Tribunal (hereinafter to be referred to as 'the Tribunal') under Section 256(1) of the Income-tax Act, 1961 (hereinafter to be referred to as 'the Act') for opinion of this Court, and, as such, they are being disposed of by a common order. In Taxation case Nos. 28 and 29 of 1974 the question referred to this Court for opinion is as follows:
Whether on the facts and in the circumstances of the case the Tribunal was correct in canceling the orders under Section 263 of the Income-tax Act for the assessment years 1966-67 and 1967-68.
Same question has been referred to in other two Taxation cases for the two other assessment years.
2. I shall first take up Taxation Case No. 28 of 1974 For the assessment year 1966-67, return was filed on behalf of the assesses on 7-10-1966 before the Income-tax Officer, 'B' Ward, Dhanbad. Later on, this file was transferred to the Income-Tax Officer 'D' Ward who passed the assessment order aforesaid on 27-5-1969. On 7-5-1971, the Additional Commissioner of Income-Tax issued notice to the assesses informing him that he intended to pass an order under Section 263(1) of the Act as, according to him, the assessment order passed in respect of the aforesaid year was prejudicial to the interest of the revenue. The Additional Commissioner heard the assesses and passed an order on 21-5-1971 canceling the aforesaid order of assessment dated 27-5-1969 made by the Income-Tax Officer, 'D' Ward and directed a fresh assessment to be made for that assessment year by the Income-Tax Officer Ward 'B' who had the jurisdiction over the assesses at the relevant time. This order was passed, because the Income-Tax Officer of Ward 'D' had no jurisdiction over the assesses at the relevant time and the assessment order could have been passed only by the Income-Tax Officer, ward 'B'. Against that order, the assesses filed an appeal before the Tribunal. According to the Tribunal, the power under Section 263(1) of the Act could have been exercised only if the Additional Commissioner had come to the conclusion that the assessment order in question was prejudicial to the interest of revenue. The Tribunal pointed out that the Additional Commissioner had not at all shown in what respect under-assessment had been made and how the assessment made was prejudicial to the interest of the revenue. According to the Tribunal, no materials had been mentioned in the order of the Additional Commissioner on the basis of which the aforesaid conclusion could have been arrived at. On the aforesaid view, the Tribunal cancelled the order of the Additional Commissioner. On an application being filed on behalf of the Department reference has been made to this Court; as already stated above.
3. Learned Standing Counsel for the Department, Mr. B.P. Rajgarhia, submitted that when the Tribunal has found that on the relevant date the Income-Tax Officer, Ward 'D' had no jurisdiction over the assesses in question, then there was no occasion for the Tribunal to cancel the order passed by the Additional Commissioner under Section 263(1) canceling the order of assessment of the Income-Tax Officer.
4. In view of Section 124(1) the Income-Tax Officers have to perform their functions in respect of such areas or of such persons or classes of persons or of such incomes or classes of income or of such cases or classes of cases as the Commissioner may direct. Sub-section (3) of Section 124 says that within the limits of the area assigned to him the Income-Tax Officer shall have jurisdiction in respect of any person carrying on a business or profession; if the place at which such person carries on his business or profession is situate within the area. Sub-section (4) thereof is a provision under which if there is any dispute on the question as to whether an Income-Tax Officer has jurisdiction to assess any person, it can be decided by the Commissioner. Sub-section (5) of Section 124, which is relevant, is as follows:
(5) No person shall be entitled to call in question the jurisdiction of an Income-Tax Officer--
(a) after the expiry of one month from the date on which he has made a return under Sub-section (1) of Section 139 or after the completion of the assessment, whichever is earlier;
(b) where he has made no such return, after the expiry of the time allowed by the notice under Sub-section (2) of Section 139 or under Section 148 for the making of the return.
5. The counsel for the assesses has placed reliance on Sub-section (5) of Section 124 aforesaid in support of his contention that an order passed by an Income-Tax Officer in respect of an assesses over whom he had no jurisdiction shall not be a nullity in the sense that in eye of law it does not exist. According to the learned Counsel, if an order passed by an Income-Tax Officer in respect of an assesses, who is carrying business at a place which is beyond the area allotted to such an Income-Tax Officer, was to be nullity, then there was no occasion to make a provision like Sub-section (5) saying that no person shall be entitled to call in question the jurisdiction of an Income-Tax Officer after the period prescribed under that sub-section, because an order or a proceeding which is mullity can be challenged at any time. Learned Counsel further urged that an order wholly without jurisdiction in the sense being non est cannot become a valid order after expiry of a period fixed, within which an objection could have been entertained. However, the learned Counsel for the assesses submitted that for the purpose of the present case even if it is assumed that an order passed by an Income-Tax Officer in respect of the assesses who is not within his jurisdiction is an illegal order, still on that ground itself the Commissioner cannot set aside the order in question in exercise of the power conferred on him by Section 263 of the Act, unless the Commissioner is also satisfied that the assessment order of the Income-Tax Officer is erroneous "in so far as it is prejudicial to the interest of revenue".
6. Sub-section (1) of Section 263 of the Act, which is relevant for the present case, is as follows:
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 Income-Tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assesses 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 canceling the assessment and directing a fresh assessment.
On a plain reading this sub-section vests a supervisory power in the Commissioner to enable him to call for and examine the record of any proceeding under the Act and to pass any order which in the circumstances of the case may justify, including cancellation of the assessment order. But before that he must be satisfied that the order in question is erroneous in so far as it is prejudicial to the revenue.
7. Now the question which has to be examined is as to whether the expressing "in so far as it is prejudicial to the interests of revenue" have to be read in context with the loss of revenue to the Department. In other words, can the Commissioner exercise power under Section 263 in cases where on examination he is satisfied that the assessment order has been properly made so far as the assesses in question is concerned, but the Income-Tax Officer Who made the assessment had no jurisdiction over the assesses in question ? The primary object of the section is to vest a supervisory power in the Com- missioner to modify, or cancel any order, including an assessment order made by an Income-Tax Officer. If he is of the opinion that such an order is erroneous in so far as it is prejudicial to the interest of the revenue. This prejudice to the Interest of the revenue may be either an immediate one or in future. As such, before the power under Sub-section (1) of Section 263 is exercised, the Commissioner must be satisfied on the materials on record that the order has caused prejudice to the interests of the revenue or was likely to cause such a prejudice. It is true that Sub-section (1) of Section 263 vests power in the Commissioner in subjective terms, but it has been pointed out by the Supreme Court in series of judgments that even when an enactment vests discretion in any authority saying "if it appears", "if he is satisfied',, "if he considers necessary" that does not mean that it is a matter of only a subjective satisfaction and such authority has not to judge the circumstances in an objective matter. Reference in, this connection may be made to the well known cases of Barium Chemicals Ltd. and Anr. v. Co. Law Board and Ors. Rampur Distillery and Chemical Co. Ltd. v. Co. Law Board . The Puriabpur Co. Ltd. v. Cane Commissioner of Bihar and Ors. and M.A. Rasheed and Ors. v. The State of Kerala . The Tribunal has pointed out that the Additional Commissioner having held that the Income-Tax Officer concerned had no juries Motion over the assesses during the relevant year of assessment, has not pointed out as to how the order of assessment was prejudicial to the interests of the revenue. Learned Counsel for the assesses has drawn our attention to that part of the order of the Additional Commissioner, It appears to me the Additional Commissioner never examined the assessment order in light as to whether the assessment order was prejudicial to the interests of the revenue. In paragraph 5 of the order he has simply observed that there was question of under-assistant and or wrong computation of income in the case. He has then observed that the Income-Tax Officer "appears to have made an under-assessment if one looked to the assassin's records and profits shown by others in the same-line". But, he has not pointed out how it was a case of under assessment. I am inclined to agree with the view expressed by the Tribunal that the condition precedent to the exercise of jurisdiction under Section 263(1) is that the Commissioner must be satisfied on materials that the order in question was erroneous in so far as it was prejudicial to the interests of the revenue. While setting aside the assessment order and directing re-assessment, the Commissioner is expected to point out briefly as to how the order in question was prejudicial to the interest of the revenue. The Tribunal has pointed out that there was nothing in the order or on the record of the case on the basis of which the Commissioner could have exercised the power under that section.
8. In the case of Commissioner of Income Tax v. R.K. Metal Works 112 I.T.R. 445 the Tribunal had pointed out that the Commissioner had failed to indicate the material or the nature of the evidence before him on the basis of which he came to the conclusion that the order of the Income-Tax Officer was erroneous and prejudicial to the interests of the revenue. The Tribunal had also observed in that case that the Commissioner had not given any reason to justify his satisfaction that the order passed by the Income-Tax Officer was prejudicial to the interest of the revenue. Justice G. Chinnappa Reddy (as he then was) observed:
It was necessary for the Commissioner to state in what manner he considered that the order of the Income-Tax Officer was erroneous and prejudicial to the interests of the revenue and what the basis was for such a conclusion. After indicating his reasons foe such a conclusion, it would certainly have been open to him to remand the matter to the Income-Tax Officer for such other investigation or enquiry as might be necessary. But that was not the course which the Commissioner pursued. The Tribunal was, therefore, justified in setting aside the order of the Income-Tax Commissioner.
In the case of Russell Properties Pvt. Ltd. v. A. Chowdhury. Addl. Commissioner of Income-Tax, West Bengal and Ors. 109 I.T.R. 229 it was pointed out "there must be material before he passes the order to come to the conclusion that the order sought to be rectified was erroneous in so far as it was prejudicial to the interest of the revenue. To such a conclusion the Commissioner can come on relevant material facts in respect of which reasonable opportunity must be given to the person sought to be affected and such reasonable opportunity again, on the principles of natural justice, requires that the person to be affected should be given intimation of the materials".
9. On behalf of the Department, it was submitted that once it is established that the Income-Tax Officer in question had no jurisdiction to pass the assessment order on the relevant date, that itself shall make the assessment order erroneous and prejudicial to the interests of the revenue. According to Mr. Rajgarhia, in such cases for the exercise of power under Sub-section (1) of Section 263 of the Act the Commissioner need not examine as to how that assessment order is erroneous on any other ground or it is prejudicial to the interests of the revenue. In support of this contention, reliance was placed on a judgment of the Supreme Court in the case of Rampyari Devi Saraogi v. Commissioner of Income-Tax, West Bengal and Ors. 67 I.T.R. 84. In that case, assessment had been made under the old Act, i.e., the Income-Tax Act, 1922. Under exercise of the power under Section 33-B, which was a parallel provision to Section 263 of the present Act, the Commissioner had cancelled the said assessment order on the grounds that from the enquiries made it was revealed that the assesses concerned did not reside nor carried on any business at the place mentioned in the return. It was further pointed out by the Commissioner in that case the Income-Tax Officer was not justified in accepting the initial capital, the gift received and the sale of jewelleries, the income from business etc. without any enquiry or evidence whatsoever. A writ was filed against that cancellation order. That writ was dismissed by the High Court taking the view that sufficient opportunity had been given to the assesses to show cause against the proposed order of cancellation, and there were materials on which the Commissioner could have proceeded under Section 33B. The Supreme Court while affirming the order of the High Court, observed that the order of the Commissioner was a detailed order in which it had also been pointed out that the Income-Tax Officer who passed the assessment order had no jurisdiction over the assesses, because the assesses never resided or carried on any business at the place mentioned in the return. The Supreme Court further approved the reason mentioned by the Commissioner as well as the High Court for canceling the assessment order in question, that the Income-Tax Officer without making any enquiry to satisfy himself regarding the declaration given by the assesses in respect of initial capital, ornaments and presents received at the time of marriage, other gifts received from her father-in-law and without making any enquiries to satisfy himself had passed the assessment order in question. It was also pointed out that the assesses had not produced any Bank account or any proper book of account before the Income-Tax Officer; no evidence whatsoever was produced in respect of the money lending business and the interest shown to have been received by the assesses no names were given as to the parties to whom the loans were advanced, with amounts and rate of interest and as to when the interest income was received. On the basis of all the aforesaid reasons given by the Commissioner and the High Court, the Supreme Court approved the order passed under Section 33B aforesaid. According to Mr. Rajgarhia, this judgment should be read to lay down that no sooner it is found that an order of assessment has been passed by an Income-Tax Officer who had no jurisdiction over the assesses, that pay itself shall amount to an erroneous order which is prejudicial to the interests of the revenue. In my opinion, the Supreme Court never purported to lay down anything like that in the aforesaid case. The Supreme Court has clearly pointed out that not only the assessment order was without jurisdiction, but at the same time it had been passed without taking into consideration the relevant materials and in hurry which was bound to be prejudicial to the interests of the revenue.
10. Mr. Rajgarhia also placed reliance on another judgment of the Supreme Court in case of Smt. Tata Devi Aggarwal v. Commissioner of Income- Tax, West Bengal 88 I.T.R. 323. In that case also it had been found that the Income-Tax Officer had no jurisdiction to make the order as it related to an area which was not within his jurisdiction. The High Court while considering the question as to whether the Commissioner could have exercised the power under Section 33B of the old Act, held that the order was erroneous and it was prejudicial to the interests of revenue. The main emphasis given by the High Court was on the fact that the Income-Tax Officer concerned had no jurisdiction to pass the assessment order in question. The Supreme Court while affirming the view of the High Court gave other reasons as well. It will appear from page 328 of the report that the Supreme Court observed as follows:
Even where an income has not been earned and is not assessable, merely because the assesses wants it to be assessed in his or her hands in order to assist some one else who would have been assessed to a larger amount, an assessment so made can certainly be erroneous and prejudicial to the interests of the revenue. If so, and we think it is so, the Commissioner under Section 33B has ample jurisdiction to cancel the assessment under the provisions of the Act against some other assesses who according to the income-tax authorities is liable for the income thereof.
In my opinion, the Supreme Court in the said case did not hold the order of assessment erroneous and prejudicial to the interests of the revenue merely on the ground that the Income-Tax Officer had no jurisdiction to make the order. The Supreme Court also pointed out that as the assesses in that case wanted to be assessed in order to assist someone else who would have been assumed to a larger amount, such assessment was certainly erroneous and prejudicial to the interests of the revenue.
11. It is true that when a power has been vested under Section 124 in the Commissioner to direct different Income-Tax Officers to perform their functions in respect of different areas or different classes of persons, they are bound by such directions. But, merely because there has been a contravention on that account, the power under Section 263(1) cannot be exercised by the Commissioner unless he is also satisfied that the assessment order in question is prejudicial to the interest of the revenue. He has to point out, while canceling such orders, on materials on record as to how the order is prejudicial to the interests of the revenue.
12. Mr. Rajgarhia then submitted that on many occasions it may not be advisable while setting aside an assessment order to record categorical findings as to how it was prejudicial to the interests of the revenue because that itself may prejudice the assesses when the matter is again heard by the Income-Tax Officer. It is true that while setting aside an order of assessment and directing a subordinate authority to reconsider the matter afresh, the appellate or revision authority should not record conclusive findings on the questions involved, but at the same time it cannot be held that orders passed by the subordinate authorities should be set aside without indicating the reasons in exercise of the power which is circumscribed by the conditions mentioned in the very section. If in the instant case, the Commissioner had indicated some materials on the basis of which he was satisfied that not only the order was without jurisdiction, but at the same time, it was prejudicial to the interests of the revenue, there would have been no difficulty. In such a situation, I am left with no option but to answer the question in affirmative and against the Department.
13. So far as the remaining three taxation cases, Taxation Case Nos. 29, 60 and 61 of 1974 are concerned, the orders of the Additional Com missioner and the Tribunal are identical, the only difference being that they relate to the subsequent assessment years as mentioned above and the dates of the different orders are different. As such, identical questions framed in those cases are also answered in affirmative and against the Department.
14. There shall be no order as to costs.
Ashwini Kumar Sinha, J.
15. I agree.