D.b. Income Tax Appeal v. Shri Kailash Chand Methi

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR *** D.B. Income Tax Appeal No.24/2012Commissioner of Income Tax, KotaVs.Shri Kailash Chand Methi DATE OF ORDER : 02/01/2014 PRESENTHON'BLE MR.JUSTICE AJAY RASTOGIHON'BLE MR.JUSTICE J.K. RANKA Smt. Parinitoo Jain, for the appellant. BY THE COURT (Per Hon'ble Ranka, J.) 1.This appeal u/s 260-A of the Income Tax Act, 1961 (forshort, “IT Act”) has been preferred by the appellant-revenueagainst the order of the Income Tax Appellate Tribunal (forshort, “ITAT”) dt.28/07/2011 passed in ITA No.2191/JP-2011by which the ITAT has allowed the appeal filed by therespondent-assessee against the order of the Commissionerof Income Tax, Kota (for short, the “CIT)”. The relevantassessment year is the assessment year 2006-07. 2.The brief facts, as emerging on the fact of record, arethat the respondent-assessee submitted a return of incomefor the assessment year 2006-07 on 30/10/2006 declaring anincome of Rs.2,32,969/-. An assessment u/s 143(3) of the ITAct came to be made by the Assessing Officer (for short,'AO') wherein the income was computed and assessed at Rs.6,81,500/- vide order dt.30/09/2008 after analyzingvarious claims made by the respondent-assessee. It isapparent that an addition of about Rs.4,50,000/- was madeby the AO. 3.Aggrieved by the said order, the assessee filed anappeal before the CIT(A), who, after analyzing the groundsraised by the respondent-assessee, partly allowed the appealof the respondent-assessee vide order dt.19/03/2010. Itappears that the said order became final and neither therespondent-assessee nor the appellant-revenue preferredappeal before the ITAT. 4.The CIT (Administration), Kota, having powers ofrevision, issued a show cause notice u/s 263 of the IT Act on29/10/2009 on the premise that the order passed by the AOon 30/09/2008 was erroneous in so far as it is prejudicial tothe interest of the appellant-revenue. 5. The respondent-assessee appeared before the CIT (Administration) and filed detailed submissions. The CIT(Administration) was satisfied and dropped the proceedingsu/s 263 vide order dt. 04/05/2010. 6.Subsequent to this order, after change of the CIT, thesubsequent CIT(Administration) issued another show causenotice u/s 263 of the IT Act read with Sec. 154 of the Actdt.17/01/2011 for this very assessment year wherein he was of the view that assessment order dt.30/09/2008 waserroneous and prejudicial to the interest of the respondent-revenue and the previous CIT has not reviewed all aspectswhile passing order u/s 263 of the Act and accordingly theCIT, Kota vide order dt.01/02/2011 set aside the order of theAO dt.30/09/2008 and also observed that the AO, whopassed the order on 30/09/2008, had no jurisdiction tocomplete the assessment as the income of the subsequentassessment year 2007-08 was over Rupees Five Lac and asper the circular of the Additional Commissioner of IncomeTax, Range, Sawai Madhopur, the jurisdiction has to be seenon the basis of income as on 01/04/2001 and on 1[st] April ofevery subsequent year thereafter. Therefore, theCommissioner was of the opinion that since the return ofincome for the assessment year 2007-08 was over RupeesFive Lac and, as such, the jurisdiction lied with DCIT/ACITand not the AO. Thus, the CIT concluded that order u/s 143(3) itself was without authority and invalid, hence the AO,having proper jurisdiction, should re-assess the returnedincome again. 7.This order of the Commissioner u/s 263 was assailed bythe respondent-assessee before the ITAT, who, vide orderdt.28/07/2011 quashed the order u/s 263 and sustained theoriginal order dt.30/09/2008. This is assailed before us by the appellant-revenue by filing the instant appeal. 7.This order of the Commissioner u/s 263 was assailed bythe respondent-assessee before the ITAT, who, vide orderdt.28/07/2011 quashed the order u/s 263 and sustained theoriginal order dt.30/09/2008. This is assailed before us by the appellant-revenue by filing the instant appeal. 8.Smt. Parinitoo Jain, ld. counsel for the appellant-revenue submitted that the order of the ITAT is unjustifiedsince as per the circular of the Additional Commissioner, theIncome Tax Officer had no jurisdiction to assess the returnu/s 143(3) of the Act and since the assessment order waspassed by the lower authority i.e. the Income Tax Officer whohad no jurisdiction, therefore, the Commissioner initiatedproceedings u/s 263 validly and was justified in quashing thesaid assessment. She contended that the AO, assessingoriginally, overlooked various claims and in summary mannerconsidered the issue and did not touch upon the vital issueswhich had far reaching consequences. Had the AO,assessing originally, been vigilant, then he could have lookedinto the issues more appropriately. She contended that hadthe things been looked into by the higher authority in correctperspective, possibly so many lacunae, might not have beenleft by the AO. She contended that the ITAT grossly erred inquashing the order of the CIT and submitted that substantialquestions of law emerge out of the order of the ITAT andneed consideration by this Court. 9.We have heard ld. counsel for the petitioner andconsidered the arguments advanced by her and on perusal ofthe impugned order, we are not satisfied with the contentions raised by the counsel for the revenue, particularly, in view ofthe fact that a return was submitted by the respondent-assessee before the concerned authority who had jurisdictionover the case on the date of filing of the return and it was notthe duty of the respondent-assessee to find out about aninternal circular that jurisdiction lied over the case with theDCIT/ACIT. The respondent-assessee appeared number oftimes before the AO who issued show cause notice u/s 143(2) and even after number of hearings, the Income TaxOfficer, Ward NO.2, Sawai Madhopur made additions to thetune of about Rs.4,50,000/- and the matter even travelledbefore the CIT(A) who allowed the appeal in part.10.It is also an admitted fact that one CIT(Administration)had issued notice u/s 263 dt.29/10/2009 and he also beingsatisfied dropped the proceedings u/s 263 of the IT Act and itwould be fruitful to quote Para 6 for the present purposewhich is reproduced ad-infra:- “Considering the submission and facts of thecase, it is noticed that issue involved havebeen examined by the AO on the basis ofsubmission/details made by the assessee.The major issue regarding obtainingconfirmations of advance given to farmers,the assessee has submitted that same arebrought forward from previous years. Theassessee has also received interest of Rs.4,18,328/- on various advances given.TheAOhasmadesubstantialaddition/disallowancesaggregatingtoRs.4,45,526/- while framing the order undersection 143(3) out of which some of theissues are subject matter of issuance ofnotice under the present proceedings. Itwould be incorrect to deviate from the viewtaken by the AO and frame a different viewnow. Considering overall facts andcircumstances of assessee's case, theproceedings initiated under section 263 of theI.T. Act 1961 are dropped.” Rs.4,18,328/- on various advances given.TheAOhasmadesubstantialaddition/disallowancesaggregatingtoRs.4,45,526/- while framing the order undersection 143(3) out of which some of theissues are subject matter of issuance ofnotice under the present proceedings. Itwould be incorrect to deviate from the viewtaken by the AO and frame a different viewnow. Considering overall facts andcircumstances of assessee's case, theproceedings initiated under section 263 of theI.T. Act 1961 are dropped.” 11.Even the said Commissioner while dropping theproceedings on 04/05/2010, did not observe as to whetherjurisdictional error was there and therefore, in our view, theCommissioner, in the present order u/s 263 was not justifiedin re-initiating proceedings u/s 263 mainly on this premiseabout jurisdiction. There was no fault of the respondent-assessee. The respondent-assessee appeared before theAO who issued valid notice and AO had the authority to issuenotice u/s 143(2) as aforesaid and complied with therequirements raised by him. The respondent-assessee maynot be aware of such requirements and for this therespondent-assessee cannot be subjected to fresh innings atthe hands of another AO. 12.It would be fruitful to quote Section 263(1) of the IT Act, 1961 which provides as under:- Section 263 - Revision of orders prejudicial torevenue (1) The Commissioner may call for and examinethe record of any proceeding under this Act, andif he considers that any order passed therein bythe Assessing Officer is erroneous in so far as itis prejudicial to the interests of the revenue, hemay, after giving the assessee an opportunity ofbeing heard and after making or causing to bemade such inquiry as he deems necessary, passsuch order thereon as the circumstances of thecase justify, including an order enhancing ormodifying the assessment, or cancelling theassessment and directing a fresh assessment. Explanation: For the removal of doubts, it ishereby declared that, for the purposes of thissub-section, – (a) an order passed on or before or after the 1stday of June, 1988, by the Assessing Officer shallinclude – (i) an order of assessment made by the 1[AssistantCommissionerorDeputyCommissoner] or the Income-tax Officer on thebasis of the directions issued by the JointCommissioner under section 144A; (ii) an order made by the Joint Commissioner inexercise of the powers or in the performance ofthe functions of an Assessing Officer conferredon, or assigned to, him under the orders ordirections issued by the Board or by the Chief Commissioner or Director General orCommissioner authorised by the Board in thisbehalf under section 120; (b) “record” shall include and shall be deemedalways to have included all records relating toany proceeding under this Act available at thetime of examination by the Commissioner;(c) where any order referred to in this sub-sectionand passed by the Assessing Officer had beenthe subject-matter of any appeal filed on orbefore or after the 1st day of June, 1988, thepowers of the Commissioner under this sub-section shall extend and shall be deemed alwaysto have extended to such matters as had notbeen considered and decided in such appeal. 13.Admittedly, the assessment order was challengedbefore the CIT(A) who also allowed part relief and even uptothe stage of the order of the subsequent Commissioner ofIncome Tax, Kota who dropped the proceedings u/s 263 on04/05/2010, the respondent-assessee was not made awareof the jurisdictional issue. 14.It may also be observed that the notice u/s 143(2) wasissued on 11/01/2007 by the Income Tax Officer and at thatparticular time, the income for the subsequent assessmentyear i.e. the assessment year 2007-08 was not submittedrather the financial year had not ended by then and in ourview, the Income Tax Officer assumed valid jurisdiction. Thereturn for the assessment year 2007-08 was submitted on 13.Admittedly, the assessment order was challengedbefore the CIT(A) who also allowed part relief and even uptothe stage of the order of the subsequent Commissioner ofIncome Tax, Kota who dropped the proceedings u/s 263 on04/05/2010, the respondent-assessee was not made awareof the jurisdictional issue. 14.It may also be observed that the notice u/s 143(2) wasissued on 11/01/2007 by the Income Tax Officer and at thatparticular time, the income for the subsequent assessmentyear i.e. the assessment year 2007-08 was not submittedrather the financial year had not ended by then and in ourview, the Income Tax Officer assumed valid jurisdiction. Thereturn for the assessment year 2007-08 was submitted on 31/08/2007 and in our view merely because assessmentorder was passed after 31/08/2007, the order passed by theITO on 30/09/2008 cannot be said to be without jurisdictionrather, the assessment order, passed on 30/09/2008, can besaid to be with jurisdiction and validly passed. 15.We are also of the view that there is no provision eitheru/s 154 or u/s 263(1) to inform the CIT to issue show causenotice u/s 263 by the lower authorities as the Commissioneronly has the jurisdiction to issue show cause notice u/s 263 ifhe himself is satisfied after examining the records of theassessment order passed by the AO which falls under hisjurisdiction and the CIT also gets power of revision if the twinconditions are satisfied that the order passed by the AO iserroneous in so far as it is prejudicial to the interest of therevenue. 16.Revisional powers conferred on the Commissioner u/s263 of the Act is wide, it enables the CIT to call for andexamine the record of the case or pass any order under theAct and also empowers him to make or cause to be madesuch an inquiry as he deems fit and necessary in order to findout, if the order passed by the AO is erroneous in so far as itis prejudicial to the interest of revenue, however, he has tohave certain material to come to the conclusion. Once, hecomes to the above conclusion that there is material, the CIT is empowered to pass an order as per the circumstances ofthe case which may warrant as he is empowered to takerecourse to any of the three courses indicated in Section 263only. Therefore, it is clear that CIT does not have un-fetteredand un-chequered discretion/power to revise the order. Hecan do so within the bounds of the law and has to satisfy theneed of fairness in action and fair play with due respect to theprinciples of Audi Alteram Partem as envisaged in theConstitution. The law is well settled that the CIT cannotinvoke the powers to correct each and every mistake or errorcommitted by the AO. Every loss to the Revenue, cannot betreated as prejudicial to the interest of the Revenue and if theAO has adopted one of the course permissible under the lawor where two views are possible and the AO has taken oneview which the CIT does not agree, it cannot be treated as anorder erroneous and prejudicial to the interest of theRevenue, the AO exercises quasi judicial power vested in himand if he exercises such powers in accordance with law andarrives at a just conclusion such conclusion cannot be termedto be erroneous only because the CIT does not feel satisfiedwith the conclusion. 17.We are also of the view that the Commissioner in thesubsequent order passed u/s 263 held that the assessmentorder was without jurisdiction and is not valid order and in our view, original order passed u/s 143(3) & 263 cannot berectified either u/s 154 or u/s 263 of the Act through therevisional power conferred on the Commissioner u/s 263. 17.We are also of the view that the Commissioner in thesubsequent order passed u/s 263 held that the assessmentorder was without jurisdiction and is not valid order and in our view, original order passed u/s 143(3) & 263 cannot berectified either u/s 154 or u/s 263 of the Act through therevisional power conferred on the Commissioner u/s 263. 18.As discussed herein above, the AO had the jurisdictionwhen the notice u/s 143(2) was issued and once the IncomeTax Officer had valid jurisdiction at the time of issuance ofnotice, then the AO ought to have informed the assesse ifthere was some internal circular. The Commissioner later onwas of the view that the Income Tax Officer had nojurisdiction and in our view, it cannot be said to be proper asthe assessee appeared on valid notice and after consideringall the submissions or representation, the Income Tax Officerpassed an order. It is not a case where the Income TaxOfficer passed order in a cryptic or summary manneraccepting the returned income and we notice that theassessment order is running into 12 pages and afterelaborate discussion on most of the issues, the income wascomputed/assessed at Rs.6,81,500/-. As pointed out hereabove, twin conditions have to be satisfied and the ordercannot be termed to be erroneous only because the CIT doesnot feel satisfied with the conclusion. We have alreadyreferred to the fact that one CIT also issued notice u/s 263 forthe same assessment year between the same parties and hehaving been satisfied dropped the proceedings and it is only thereafter that another CIT came to the conclusion aboutjurisdiction while the earlier CIT was also aware of this factumbut did not raise this issue. Before parting, we also wish tostate that if the CIT was of the view that the AO has passedan order without jurisdiction, then he ought to have initiateddepartmental enquiry against such officer. No suchinformation has come forward from the ld. counsel for theappellant-revenue or perused from the order of CIT u/s 263,thus the order of CIT u/s 263 can at best be said to bechange of opinion and tantamounts to abuse of powersgranted to the CIT. The practice adopted by the CIT is de-hors and it amounts to unnecessary harassment to theassessee for no fault of his. 19.Accordingly, we do not find any infirmity or perversity inthe order of the ITAT so as to call for any interference of thisCourt. In our view, no substantial question of law arises outof the order passed by the ITAT. 20.Accordingly, the appeal, being devoid of merit, is herebydismissed in limine. No order as to costs. [J.K. RANKA],J. ,J. Raghu/p.12/ Certificate:All corrections made in the judgment/order have beenincorporated in the judgment/order being e-mailed./Raghu, Sr.PA.