Itta/299/2003 Of Sri Damodarlal Badruka v. The Income Tax Officer

THE HON’BLE SRI JUSTICE DILIP B.BHOSALEAND THE HON’BLE SRI JUSTICE A.RAMALINGESWARA RAO I.T.T.A.No.299 OF 2003 % 17.03.2015 Sri Damodarlal Badruka .. AppellantAnd$ The Income Tax Officer, Ward I (4), Hyderabad .. Respondent!Counsel for the Appellant : Sri A. Sanjay KishoreCounsel for Respondent : Sri J.V. Prasad Standing Counsel for Income Tax < Gist : > Head Note :? Citation: THE HON’BLE SRI JUSTICE DILIP B.BHOSALEAND THE HON’BLE SRI JUSTICE A.RAMALINGESWARA RAO I.T.T.A.No.299 OF 2003 ORAL JUDGMENT:(per the Hon’ble Sri Justice Dilip B.Bhosale) This Appeal under Section 260 (A) of the Income Tax Act, 1961(for short, ‘the Act’), preferred by the appellant – assessee, is directedagainst the order dated 13.06.2001 passed by the Income TaxAppellate Tribunal (for short, ‘the Tribunal’), Hyderabad Bench ‘B’ inI.T.A.No.1398/Hyd/1995 for the assessment year 1985-86. By thisorder, the Tribunal dismissed the appeal filed by the assessee againstthe order dated 10.05.1995 passed by the Deputy Commissioner ofIncome Tax (Appeals) (DCIT). The substantial question that falls for consideration in theinstant appeal reads thus: “Whether on the facts and in the circumstances of the case,the Income Tax Appellate Tribunal was justified in law inholding that prior approval of Deputy Commissioner for issueof notice under Section 143 (2) was not required?” The facts leading to this appeal, to the extent they arenecessary, are as under: The assessee-HUF sold the property situated at Parbhani for atotal consideration of Rs.1,35,500/-. He incurred an expenditure ofRs.3,380/- for selling the property and arrived at a net taxable capitalgains of Rs.26,620/-, after deducting Rs.1,05,500/- as the value of theproperty on 01.01.1964 exercising his option under Section 49 (1) (i) read with Section 55 of the Act. The assessment was accordinglycompleted under Section 143(1) of the Act accepting the returnedincome. Subsequently, an order under Section 263 of the Act waspassed by the Commissioner on 28.09.1987 having found the order ofAssessing Officer prejudicial to the Revenue. The Commissioneraccordingly set aside the order dated 22.07.1985 of assessment madeunder Section 143 (1) of the Act, and directed the Assessing Officer toconduct local enquiries into the correct value of the property as on01.01.1964 and determine the correct amount of taxable capital gains,and to recompute the income for the assessment year 1985-86 takinginto consideration the correct amount of capital gain. Thus, therevisional authority cancelled the assessment made vide order dated22.07.1985. In pursuance thereof, the Assessing Officer reopened theassessment under Section 143 (3) by issuing a notice under Section143 (2) of the Act. During the fresh assessment under Section 143 (3),the property was referred to Valuation Cell of the Department underSection 55-A and thus the correct market value was arrived at on01.01.1964 and it was accordingly adopted as cost of the land andcapital gain was thus computed on the basis thereof. On appeal, theDCIT (A) upheld the order of assessment. The Tribunal dismissed theappeal preferred by the assessee by order dated 13.06.2001. In this backdrop, the aforementioned question has been raisedby the appellant based on the provisions of Section 143 of the Act, as itstood at the relevant time. It is not in dispute that after setting aside theassessment made under Section 143 (1) of the Act, by theCommissioner in exercise of his powers under Section 263 of the Act,the Assessing Officer made fresh assessment under Section 143 (3) ofthe Act. The Assessing Officer had, accordingly, issued a notice undersub-section (2) of Section 143 of the Act to the assessee. Further, it isnot in dispute that while issuing the notice, previous approval of the In this backdrop, the aforementioned question has been raisedby the appellant based on the provisions of Section 143 of the Act, as itstood at the relevant time. It is not in dispute that after setting aside theassessment made under Section 143 (1) of the Act, by theCommissioner in exercise of his powers under Section 263 of the Act,the Assessing Officer made fresh assessment under Section 143 (3) ofthe Act. The Assessing Officer had, accordingly, issued a notice undersub-section (2) of Section 143 of the Act to the assessee. Further, it isnot in dispute that while issuing the notice, previous approval of the Inspecting Assistant Commissioner was not sought. Therefore, thequestion raised is, whether the assessment under Section 143 (3) ofthe Act, would vitiate for want of previous approval of the InspectingAssistant Commissioner. We are concerned with the provisions of Section 143 of the Act,as it stood at the relevant time. Section 143, to the extent it is relevantfor our purpose, reads thus: “S. 143. Assessment._ (1)(a) Where a return has been madeunder section 139, the Assessing Officer may, withoutrequiring the presence of the assessee or the production byhim of any evidence in support of the return, make anassessment of the total income or loss of the assessee aftermaking such adjustments to the income or loss declared inthe return as are required to be made under clause (b), withreference to the return and the accounts and documents, ifany, accompanying it, and for the purposes of theadjustments referred to in sub-clause (iv) of clause (b), alsowith reference to the record of the assessments, if any, ofpast years, and determine the sum payable by the assesseeor refundable to him on the basis of such assessment. (b)…. (i)…. (ii)…. (iii)…. (iv)…. (2) Where a return has been made under section 139, and-(a) an assessment having been made undersub-section (1), the assessee makes within onemonth from the date of service of the notice ofdemand issued in consequence of suchassessment, an application to the Assessing Officerobjecting to the assessment, or (b) whether or not an assessment has beenmade under sub-section (1), the Assessing Officerconsiders it necessary or expedient to verify thecorrectness and completeness of the return by requiring the presence of the assessee or theproduction of evidence in this behalf, the Assessing Officer shall serve on the assessee a noticerequiring him, on the date to be therein specified, either toattend at the Assessing Officer’s office or to produce, or tocause to be there produced, any evidence on which theassessee may rely in support of the return: Provided that, in a case where an assessment hasbeen made under sub-section (1), the notice under this sub-section except where such notice is in pursuance of anapplication by the assessee under clause (a) shall not beissued by the Assessing Officer unless the previous approvalof the Deputy Commissioner has been obtained to the issueof such notice: Provided further … (3)On the day specified in the notice issued under sub-section (2), or as soon afterwards as may be, afterhearing such evidence as the assessee may produceand such other evidence as the Assessing Officermay require on specified points, and after taking intoaccount all relevant material which he has gathered.”section (2), or as soon afterwards as may be, afterhearing such evidence as the assessee may produceand such other evidence as the Assessing Officermay require on specified points, and after taking intoaccount all relevant material which he has gathered.” Provided further … (3)On the day specified in the notice issued under sub-section (2), or as soon afterwards as may be, afterhearing such evidence as the assessee may produceand such other evidence as the Assessing Officermay require on specified points, and after taking intoaccount all relevant material which he has gathered.”section (2), or as soon afterwards as may be, afterhearing such evidence as the assessee may produceand such other evidence as the Assessing Officermay require on specified points, and after taking intoaccount all relevant material which he has gathered.” Sub-section (2) of Section 143 of the Act provides for issue ofnotice by the Assessing Officer, requiring the assessee, on the date tobe therein specified, either to attend at the Assessing Officer’s office orto produce or to cause to be there produced any evidence on whichthe assessee may rely in support of the return. The first proviso to sub-section (2) provides that, in a case where an assessment has beenmade under sub-section (1), the notice under this sub-section, exceptwhere such notice is in pursuance of an application of the assesseeunder clause (a), shall not be issued by the Assessing Officer unlessthe previous approval of the Deputy Commissioner has been obtainedto the issue of such notice. Thus, this provision would show thatwhere the Assessing Officer has made the assessment under sub-section (1) of Section 143, he has power to make assessment under Section 143 (3) and for that, the issue of notice under sub-section (2) isa pre-condition. Opening words of the first proviso to sub-section (2)are “in a case where the assessment has been made under sub-section (1)”. A bare reading of this expression would show that where theAssessing Officer has made assessment under sub-section (1) and hechooses to make reassessment under sub-section (3), he has nopowers to issue notice, unless the previous approval of the InspectingAssistant Commissioner is obtained. The words “Inspecting AssistantCommissioner” in the first proviso were substituted by “DeputyCommissioner” by Act 4 of 1988, Section 2, w.e.f. 01.04.1988. Thequestion is, where the assessment made under sub-section (1) ofSection 143 of the Act is set aside by the revisional authority underSection 263 of the Act, whether the previous approval contemplated bysub-section (2) of Section 143 of the Act is necessary. In our opinionthis question must be answered in the negative, since the originalorder under Section 143(1), having been quashed and set aside, itceases to operate. At this stage, we would also like to have a glance at Section263(1) of the Act. The relevant portion of Section 263(1) reads thus: “The Commissioner may call for and examine therecord of any proceedings under this Act, and if he considersthat any order passed therein by the Assessing Officer iserroneous insofar as it is prejudicial to the interests of therevenue, he may, after giving the assessee an opportunity ofbeing heard and after making or causing to be made suchinquiry as he deems necessary, pass such order thereon asthe circumstances of the case justify, including an orderenhancing or modifying the assessment, or canceling theassessment and directing a fresh assessment”. The revisional power, as per the provisions of this Section, is At this stage, we would also like to have a glance at Section263(1) of the Act. The relevant portion of Section 263(1) reads thus: “The Commissioner may call for and examine therecord of any proceedings under this Act, and if he considersthat any order passed therein by the Assessing Officer iserroneous insofar as it is prejudicial to the interests of therevenue, he may, after giving the assessee an opportunity ofbeing heard and after making or causing to be made suchinquiry as he deems necessary, pass such order thereon asthe circumstances of the case justify, including an orderenhancing or modifying the assessment, or canceling theassessment and directing a fresh assessment”. The revisional power, as per the provisions of this Section, is supervisory in nature and not like that of an appellate authority. Forexercising this power, the only condition is that the order of theAssessing Officer should be erroneous insofar as it is prejudicial to theinterests of the revenue. The provisions contained in this Sectionwould also show that the Commissioner can call for and examine theorder of any proceeding under the Act, and if he considers that anyorder passed therein by the Assessing Officer is erroneous insofar as itis prejudicial to the interests of the revenue, he may, pass such orderthereon as the circumstances of the case justify, including an order“enhancing or modifying the assessment”, or “canceling theassessment and directing a fresh assessment”. Thus, he has options,viz., to pass “such order as the circumstances of the case justify” or “anorder enhancing the assessment” or “modifying the assessment orcanceling the assessment” and in the event of canceling theassessment, he has power to issue a direction for fresh assessment. In the present case, the Commissioner cancelled the assessment anddirected fresh assessment. It is well settled that once an assessment is re-opened by virtueof the order passed by CIT under Section 263 of the Act, the initialorder of assessment ceases to be operative. The effect of re-opening of assessment is to vacate or set aside the initial order forassessment and to substitute in its place the order made of re-assessment. Thus, in the present case, in our opinion, after theprevious assessment, which was set aside by the CIT in exercise ofhis power under Section 263 of the Act, the whole proceedings startedafresh. Moreover, in the present case, the assessment under Section143 (1) of the Act was set aside by the Commissioner, the higherauthority, in exercise of his powers under Section 263 of the Act, and therefore, it ceased to operate or in other words the Assessing Officerhad to pass order under Section 143 (3) as if there was no assessment under Section 143 (1). In view thereof, it was open to the Assessing Officer to make assessment under sub-section (3) of Section 143 without seeking prior approval ascontemplated by sub-section (2) thereof. In other words, this is not acase where the Assessing Officer chose to make reassessment underSection 143 (3) of the Act of his own. This being so, in our opinion, itwas not necessary to seek previous approval of the InspectingAssistant Commissioner before issuing notice under sub-section (2) ofSection 143. The question framed, therefore, is answered in favour ofthe Revenue and against the assessee. In the result, the Appeal is dismissed with no order as to costs. Consequently, miscellaneous petitions, if any, also standdisposed of. _____________________ DILIP B.BHOSALE, J ____________________________ A.RAMALINGESWARA RAO, J 17.03.2015 Note:- L.R. Copy to be marked: YKH