Allahabad High Court
Commissioner Of Income-Tax vs Bhagat Shyam And Co. on 21 November, 1990
Equivalent citations: [1991]188ITR608(ALL)
Author: B.P. Jeevan Reddy
Bench: B.P. Jeevan Reddy
JUDGMENT B.P. Jeevan Reddy, C.J.
1. The Income-tax Appellate Tribunal has referred the following question under Section 256(2) of the Income-tax Act, 1961 :
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal's opinion that the Additional Commissioner of Income-tax did not apply his mind before initiating proceedings under Section 263(1) of the Income-tax Act, 1961, and he abdicated his function in favour of the Income-tax Officer is legally correct ?"
2. The asessee is a partnership firm. It was constituted under a partnership deed dated March 18, 1963. There were two partners and two minors were admitted to the benefits of partnership. Registration was granted under the Income-tax Act for the assessment year 1964-65. It was being renewed every year. It appears that the two minors attained majority during the financial year ending on March 31, 1964. This fact was, however, not intimated to the authorities. No action was taken to execute a fresh partnership deed including the erstwhile minors or excluding them, as the case may be. When this fact came to the knowledge of the Income-tax Officer, he issued a notice under Section 186 and cancelled the registration for the assesment years 1965-66, 1966-67 and 1967-68. He could not cancel the registration for 1964-65 because it was barred by the limitation prescribed in Section 186. So far as 1968-69 is concerned, the Income-tax Officer approached the Additional Commissioner of Income-tax for cancellation of registration. The order of the Commissioner says, that, when the Income-tax Officer approaching him therefor, he issued a show-cause notice under Section 263. It appears that the assessee did not appear but applied for adjournment. Adjournment was refused on the ground that the reason assigned was not sufficient. The Commissioner proceeded to dispose of the revision on merits. He set aside the order granting registration for the assessment year 1968-69 and sent the matter back to the Income-tax Officer for making fresh assessment according to law.
3. The assessee filed an appeal before the Tribunal. The Tribunal found that the Commissioner has initiated the proceedings under Section 263 without applying his mind to the facts of the case and without being satisfied that the facts of the case did warrant the exercise of his power under Section 263. The Tribunal was also of the opinion that the Commissioner has practically abdicated his function to the Income-tax Officer, inasmuch as he acted upon his request and sent the matter back to him. Thereupon, the present reference was obtained.
4. Mr. Markanday Katju, learned counsel for the Revenue, assailed the correctness of the approach and the observation made by the Tribunal. He submitted that there was nothing wrong in the Income-tax Officer approaching the Commissioner with certain information. He further submitted that there was no material before the Tribunal to say that the Commissioner did not apply his mind to the information placed before him or that he did not exercise his power under Section 263 bona fide.
5. We agree with Mr. Katju to this extent that merely because the Income-tax Officer placed certain information or material before the Commissioner and the Commissioner invoked his power under Section 263, it cannot be said that the Commissioner has initiated the proceeding without applying his mind or that he has abdicated his function. After all, some one has to place the relevant material or information before the Commissioner. There is no bar to the Income-tax Officer bringing that material to the notice of the Commissioner. What cannot, however, be denied is that the Commissioner must apply his mind to the material placed before him and satisfy himself that it is a case where he ought to exercise his revisional power. Then he may issue a show cause notice and, after affording an opportunity to the affected parties, pass final orders.
6. After hearing the counsel for both the parties, we are unable to see as to why the Income-tax Officer approached the Commissioner in this case at all requesting him to invoke his powers under Section 263. The Income-tax Officer had cancelled the registration for the preceding three years under Section 186. If so, he could have also cancelled the registration for 1968-69. The record does not disclose the reason for which the Income-tax Officer was obliged to approach the Commissioner in respect of the assessment year 1968-69, having cancelled the registration for the previous three years. In the circumstances, we are constrained to say that, when the Income-tax Officer approached the Commissioner asking him to invoke his power under Section 263, the later ought to have asked the Income-tax Officer as to why he could not himself have effected the cancellation under Section 186 and why he is approaching him. No such question appears to have been put On the Income-tax Officer approaching him, the Commissioner straightaway invoked the revisional power and issued a show cause notice. On this ground, we agree with the Tribunal that the Commissioner must be said to have initiated proceedings under Section 263 without properly considering all the facts and circumstances of this case. On this ground, which is slightly different from the one given by the Tribunal, we agree with the conclusion of the Tribunal and answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue.