Itta/516/2010 Of Dr. K. Raghotham Reddy v. Income Tax Officer

THE HON’BLE SRI JUSTICE V.V.S.RAOAND THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN ITTA No.516 of 2010Dated:06.09.2010 Between: Dr.K.Raghotham Reddy. …Appellant and Income Tax Officer,Ward-3, Warangal. …Respondent THE HON’BLE SRI JUSTICE V.V.S.RAOAND THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN ITTA No.516 of 2010 JUDGMENT:(per Hon’ble Sri Justice V.V.S.Rao) The appellant filed his return for the assessment year 2003-2004 returning a total income of Rs.1,01,860/-. The AssessingOfficer made certain disallowances and determined total income ofRs.2,28,170/- after due completion of the assessment under Section143(3) of the Income Tax Act, 1961 (the Act), on 28.03.2006. TheCommissioner of Income Tax initiated suo motu revision underSection 263(1) of the Act, and issued a show cause notice withregard to four issues, namely, inflated agricultural income,unexplained investment of construction of property at Warangal forthe purpose of running a Nursing Home, the peak cash deficit andlow withdrawals. In the show cause notice, the Commissionerpointed out that some of the items of expenditure in the constructionof Nursing Home which ought to have been taken into considerationwere ignored, the Assessing Officer failed to get the true valuation ofthe building from the Valuation Cell of the Department, and for theholding of Ac.1.30 guntas, an income of Rs.3 lakhs as exemptedfrom tax is unreasonable. The appellant herein submitted explanation. Statedly, he also filed the valuation report before theCommissioner of Income Tax. After due consideration, by an orderdated 28.03.2008, the revisional Commissioner came to theconclusion that the order of the Assessing Officer is erroneousinasmuch as it is prejudicial to the interest of the revenue, andaccordingly set aside the assessment order, and remanded thematter to the Assessing Officer with a direction to redo the same inthe light of the findings. The appellant then went in second appealbefore the Income Tax Appellate Tribunal. He was unsuccessfulthere too. Counsel for the appellant relies on Commissioner of Income Tax v Gabriel India Limited[[1]]and submits that unless and until anassessment order is ex facie erroneous and prejudicial to therevenue, exercise of suo motu revisional jurisdiction under Section263(1) of the Act is unsustainable. He contends that necessarymaterial was placed before the Commissioner, who failed toconsider the same while exercising revisional jurisdiction, and,lastly, he would urge that if the matter is remanded, there is alikelihood of a roving enquiry by the Assessing Officer, which wouldcause prejudice to the appellant. We have gone through the order of the Assessing Officer,revisional Commissioner and the learned Tribunal carefully. Thescope of the jurisdiction exercised under Section 263 of the Act hasbeen considered in some detail in Gabriel India Limited. Whileholding that, so as to attract the revisional jurisdiction under Section263(1) of the Act, the order of the Assessing Officer should beerroneous and, by virtue of the order being erroneous, it isprejudicial to the interest of the revenue, the Division Bench madethe following observations. We have gone through the order of the Assessing Officer,revisional Commissioner and the learned Tribunal carefully. Thescope of the jurisdiction exercised under Section 263 of the Act hasbeen considered in some detail in Gabriel India Limited. Whileholding that, so as to attract the revisional jurisdiction under Section263(1) of the Act, the order of the Assessing Officer should beerroneous and, by virtue of the order being erroneous, it isprejudicial to the interest of the revenue, the Division Bench madethe following observations. We, therefore, hold that in order to exercise power undersub-section (1) of section 263 of the Act there must bematerial before the Commissioner to consider that theorder passed by the Income-tax Officer was erroneous inso far as it is prejudicial to the interests of the Revenue. We have already held what is erroneous. It must be anorder which is not in accordance with the law or which hasbeen passed by the Income-tax Officer without making anyenquiry in undue haste. We have also held as to what isprejudicial to the interests of the Revenue if it is not inaccordance with the law in consequence whereof thelawful revenue due to the State has not been realized orcannot be realized. There must be material available onthe record called for by the Commissioner to satisfy himprima facie that the aforesaid two requisites are present. Ifnot, he has no authority to initiate proceedings for revision. Exercise of power of suo motu revision under suchcircumstances will amount to arbitrary exercise of power. It is well settled that when exercise of statutory power isdependent upon the existence of certain objective facts,the authority before exercising such power must havematerials on record to satisfy it in that regard. If the actionof the authority is challenged before the court it would beopen to the courts to examine whether the relevant objective factors were available from the records called forand examined by such authority… Reliance was also placed on Russell Properties PrivateLimited v A.Chowdhury, Additional Commissioner of Income objective factors were available from the records called forand examined by such authority… Reliance was also placed on Russell Properties PrivateLimited v A.Chowdhury, Additional Commissioner of Income Tax[[2]]. After perusing both the judgments, we are in respectfulagreement with the opinion of the Bombay and Calcultta DivisionBenches. The issue, however, before us is slightly different. Whether there was sufficient material before the Commissioner toinitiate revisional jurisdiction under Section 263(1) of the Act? Aplain reading of the provision would show that, while initiatingrevision under Section 263(1) of the Act, it is not incumbent thatthere should be a detailed and thorough enquiry by theCommissioner. If the order is found to be erroneous, in the sensethat it is not in accordance with law, or it is in ignorance of thenecessary regulations, that itself would be sufficient for theCommissioner to issue a notice under Section 263(1) of the Actproposing to exercise revisional jurisdiction pointing out the reasonsfor coming to the conclusion that the order of assessment iserroneous, and is prejudicial to the interest of revenue. Afterreceiving the show cause notice, depending on the facts andcircumstances of each case, the burden lies on the assessee toshow that all relevant factors have been considered by theAssessing Officer. In the case on hand, the Commissioner haspointed out at least four reasons for coming to the conclusion thatthe assessment order is erroneous. For instance, as pointed out bythe Commissioner, the items of expenditure towards electricalfittings were not at all taken into consideration while estimating thevalue of the building. Similarly, while allowing the allowancestowards agricultural income, the Assessing Officer without anyobjective consideration accepted the assessee’s estimate ofagricultural income. The Assessing Officer should have referred tothe Valuation Cell the assessee’s claim that the cost of constructionof the nursing home was Rs.39.00 lakhs. Therefore, we areconvinced that the assessment order is certainly erroneouswarranting exercise of jurisdiction under Section 263(1) of the Act. We are also convinced that the order of assessment passed by theCommissioner was justified in the facts of the case, and even now itis always open to the appellant to place all the material before theAssessing Officer. We make it clear that the order of remand doesnot enable the Assessing Officer to reopen the entire matter in aroving manner. The consideration must be restricted to the issuespointed out by the Commissioner. We do not find any reason toadmit the appeal. The appeal is therefore, dismissed. __________________ (V.V.S.RAO, J) ______________________________ 06.09.2010vs [1](1993) 203 ITR 108 (Bom.) [2](1977) 109 ITR 229 (Cal.) (RAMESH RANGANATHAN, J)