Mr. Dharan v. Rajesh S. Patil, Jj

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONWRIT PETITION NO. 2435 OF 2017 Mr. Pramod R. Agrawal)residing at A-1, 123/B, Shah & Nahar)Industrial Estate, Sitaram Jadhav)Marg, Lower Parel, Mumbai 400 013)...PetitionerVs.1. Principal Commissioner of )Income Tax-5)Room No.515, 5[th] floor, Aayakar)Bhavan, Mahrshi Karve Road,)Mumbai 400 020)2. The Union of India)Through the Secretary, Ministry of )Finance, Government of India,)North Block, New Deli 110 001)3. Income Tax Officer – 5(1)(1))Room No.570, 5[th] floor, Aayakar)Bhavan, Mahrshi Karve Road,)Mumbai 400 020)...Respondents ...Respondents ---- Mr. Dharan V. Gandhi a/w Ms Aanchal Vyas and Mr. Darshan Gajra forPetitioner. Mr. Akhileshwar Sharma for Respondents. ---- CORAM : K.R. SHRIRAM & RAJESH S. PATIL, JJ DATED : 13[th] OCTOBER 2023 ORAL JUDGMENT (PER K. R. SHRIRAM J.) : 1Petitioner is aggrieved by an order dated 22[nd] March 2017 passed byrespondent no.1 rejecting an application dated 18[th] January 2016 filed by petitioner under Section 264 of the Income Tax Act, 1961 (the Act). 2Petitioner, is a resident individual and filed his return of income forA.Y.-2007-08 on 21[st] August 2007 declaring a total income of Rs.8,49,118/-. The said income comprised of long term capital gain arising from sale of flatin Mumbai. Petitioner inherited the flat alongwith three other persons onthe death of his father which took place in the year 2002. Petitioner wastherefore, a co-owner of the said flat to the extent of 25%. In the return ofincome, petitioner had offered Rs.8,83,763/- as capital gain arising from thesale of the said flat. The said figure was arrived at without considering theallowance of indexed cost of improvement in respect of renovation expensesincurred in September 1990 amounting to Rs.2,95,859/-. 3Petitioner’s return was selected for scrutiny and in the assessmentproceedings vide order dated 30[th] November 2009, addition under Section50C of the Act was made by respondent no.3 (the assessing officer) bytaking the stamp duty value as full value of consideration while computingthe capital gains arising from the sale of the said flat to the extent ofRs.6,05,765/-. No adjustment was made to the allowances claimed from thefull value of consideration to determine the capital gains. An appeal wasfiled before the Commissioner of Income Tax (Appeals) (CIT). The exparteorder that came to be passed on 21[st] September 2010 directed respondentno.3 to refer the property for valuation to the Department’s ValuationOfficer under Section 50C(2) of the Act and then decide the issue in light ofthe valuation available in accordance with the provision of Section 50C ofthe Act. 4Respondent no.3 referred the matter to Department’s ValuationOfficer who, in his report dated 23[rd] May 2011 ascertained the fair market 4Respondent no.3 referred the matter to Department’s ValuationOfficer who, in his report dated 23[rd] May 2011 ascertained the fair market value to be Rs.1,57,21,000/- as against the stamp duty value ofRs.1,69,23,060/-. Accordingly, a relief of Rs.3,00,515/- was granted topetitioner. Against the order giving effect to the order of the CIT(A),petitioner preferred another appeal before the CIT(A) disputing the value offlat as arrived at by Department’s Valuation Officer. This appeal came to bedismissed by the CIT(A) by an order dated 13[th] August 2013. It ispetitioner’s case that petitioner was not aware about the appeal having beendismissed for default and only when petitioner received a recovery noticefor demanding a sum of Rs.2,21,992/- towards tax arrears of Rs.1,53,494/-and penalty of Rs.64,498/- that petitioner consulted another CharteredAccountant, who advised petitioner that the other co-owner of the propertyhad claimed a deduction of entire renovation expenses of Rs.4,15,000/-incurred in September 1990 in respect of the flat after indexing the sameand petitioner should have also done the same while computing his share ofcapital gains. Petitioner was also informed that the claim of Rs.4,15,000/-towards cost of improvement made by other co-owner, was not accepted butthe assessing officer had allowed 1/4th share of that claim since the otherco-owner had only 1/4th share in the property. 5Petitioner was advised that in the case of another co-owner, who hadalso claimed renovation expenses of Rs.2,95,859/- from the full value ofconsideration of computing her share of capital gains, the assessing officerof the other co-owner had added a sum of Rs.93,000/- to the total incomewhich, on an application filed under Section 154 of the Act, was reduced. 6Petitioner was, therefore, advised to file an application under Section154 of the Act to respondent no.3 which petitioner made on 4[th] November2015. In the said application, petitioner explained the entire history of thecase and also referred to the orders passed in favour of the other co-ownersand requested respondent no.3 to rectify the previous orders passed by himby allowing the deduction of indexed cost of improvement of Rs.2,95,859/-,being renovation expenses incurred in the year 1990. Petitioner had claimedin the application that the allowance of the said cost was not claimed in theoriginal return of income and the same should be allowed as it wasrectifiable defect under Section 154 of the Act.. 7This application of petitioner was rejected by respondent no.3 by anorder dated 8[th] December 2015. The rejection was on the ground that suchclaim was made first time in the application under Section 154 of the Actand it was never brought to the notice of respondent no.3 earlier or CIT(A).Aggrieved by the said order of respondent no.3 passed under Section 154 ofthe Act petitioner filed the application under Section 264 of the Act beforerespondent no.1. Petitioner elaborately explained its case and the samecame to be rejected by an order dated 22[nd] March 2017, which is impugnedin this petition. 8Mr. Gandhi submitted that the impugned order requires to be quashedand set aside and the matter be remanded to respondent no.1 becauserespondent no.1 has not really appreciated the scope of Section 264 of theAct. Mr. Gandhi submitted that Section 264 of the Act confers wide 8Mr. Gandhi submitted that the impugned order requires to be quashedand set aside and the matter be remanded to respondent no.1 becauserespondent no.1 has not really appreciated the scope of Section 264 of theAct. Mr. Gandhi submitted that Section 264 of the Act confers wide jurisdiction on the commissioner and proceedings under Section 264 areintended to meet the situation faced by an aggrieved assessee who is unableto approach the appellate authority for relief and has no other alternateremedy available under the Act. Mr. Gandhi submitted that even thoughthere might be an embargo on the assessing officer, there is no suchembargo on the power of the appellate authority or as in the case ofrevisional authority. Mr. Gandhi submitted that the power under Section264 of the Act is intended to prevent miscarriage of justice and courts haveconsistently taken a view that conferment of the powers under Section 264of the Act is to enable the Commissioner to provide relief to assessee, wherethe law permits the same. This power would even cover the situation, whereassessee because of error has not put forth a legitimate claim at the time offiling the return and the error is subsequently discovered and is raised forthe first time in an application filed under Section 264 of the Act. In the caseat hand, error was discovered and raised before respondent no.3 in theapplication filed under Section 154 of the Act. Mr. Gandhi relied upon thefollowing judgments; Hindustan Diamond Company Pvt Ltd. Vs. CIT[1], SmitaRohit Gupta Vs. CIT,2Asmita A. Damale Vs. CIT3, Selvamuthukumar Vs CIT45 6& Anr., Shah Brothers Vs. CIT,and Vijay Gupta Vs. CIT. 9Mr. Suresh Kumar submitted that the assessing officer-respondent 1. (2003) 175 Taxation 91 (Bombay) 2. Judgment dated 28[th] August 2023 in Writ Petition No.6964 of 2022 3. Order dated 9[th] May 2014 in Writ Petition No.676 of 2014 4. (2017) 394 ITR 247 (Mad) 5. (2003( 259 ITR 741 (Bombay) 6. (2016) 386 ITR 643 (Delhi) no.3 was justified in rejecting the application under Section 154 of the Actbecause assessee could not take recourse to his ignorance. Assessee shouldhave been aware that other co-owners have also made such claim forimprovement cost and in any event should have been aware that suchimprovement cost have been incurred and claimed it in the return ofincome. Assessee could have claimed this even in two appeals he had filedbefore the CIT(A). Mr. Suresh Kumar further submitted that the assessingofficer could have rectified a mistake which was apparent from the record orrectify any order passed under the provisions of the Act. But the powerunder Section 154 is not extended to a situation when it is not apparentfrom the record because the claim was never made before the assessingofficer while the scrutiny was going on and the assessment order underSection 143(3) of the Act was passed. Therefore, the assessing officer wascorrect in rejecting the application filed by assessee under Section 154 ofthe Act. Moreover, since assessee had already filed an appeal against theassessment order, assessee could not have filed an application under Section264 of the Act. Further, the application under Section 264 of the Act wasfiled more than one year after the order under Section 143(3) of the Actwas passed and, therefore, there was no infirmity in the order impugned inthis petition. 10We would agree with Mr. Gandhi that there was no delay in filing theapplication under Section 264 of the Act because the application under Section 264 of the Act was against the order passed under Section 154 ofthe Act and not Section 143(3) of the Act. The order under Section 154 ofthe Act was passed on 8[th] December 2015 and the application under Section264 of the Act was filed on 18[th] January 2016, within one year. Moreover, since assessee had already filed an appeal against theassessment order, assessee could not have filed an application under Section264 of the Act. Further, the application under Section 264 of the Act wasfiled more than one year after the order under Section 143(3) of the Actwas passed and, therefore, there was no infirmity in the order impugned inthis petition. 10We would agree with Mr. Gandhi that there was no delay in filing theapplication under Section 264 of the Act because the application under Section 264 of the Act was against the order passed under Section 154 ofthe Act and not Section 143(3) of the Act. The order under Section 154 ofthe Act was passed on 8[th] December 2015 and the application under Section264 of the Act was filed on 18[th] January 2016, within one year. 11The other submission of Mr. Suresh Kumar also cannot be accepted inview of the wide powers conferred on respondent no.1 under Section 264 ofthe Act. As held by this court in Smita Gupta (Supra), Section 264 conferswide jurisdiction on the Commissioner. The proceedings under Section 264of the Act are intended to meet a situation faced by an aggrieved assessee,who is unable to approach the Appellate Authorities for relief and has noother alternate remedy available under the Act. The Commissioner is boundto apply his mind to the question whether petitioner was taxable on thatincome and his powers are not limited to correct the error committed by thesubordinate authorities but could even be exercised where errors arecommitted by assessee. It would even cover situation where assesseebecause of an error has not put forth legitimate claim at the time of filingthe return and the error is subsequently discovered and is raised for the firsttime in an application under Section 264 of the Act. Paragraphs 7 and 8 ofSmita Gupta (Supra) read as under: “7. The provisions of Section 264 and the power available to theCommissioner to exercise under Section 264 of the Act came up forconsideration before the Division Bench of this Court in HindustanDiamond Company Pvt. Ltd. v. CIT 2 . The Division Bench was pleasedto observe that exercise of power under Section 264 was not subjectto the power of the Assessing Officer to make adjustment underSection 143(1) of the Act. The Court held that power of theCommissioner under Section 264 is rather wide and even the errorsCommissioner to exercise under Section 264 of the Act came up forconsideration before the Division Bench of this Court in HindustanDiamond Company Pvt. Ltd. v. CIT 2 . The Division Bench was pleasedto observe that exercise of power under Section 264 was not subjectto the power of the Assessing Officer to make adjustment underSection 143(1) of the Act. The Court held that power of theCommissioner under Section 264 is rather wide and even the errors committed could be rectified. Paragraph 6 of the Hindustan DiamondCompany Pvt. Ltd. (Supra) reads as under: committed could be rectified. Paragraph 6 of the Hindustan DiamondCompany Pvt. Ltd. (Supra) reads as under: “6. Having heard the Counsel on both sides, we are of theopinion that the Commissioner was not justified inrejecting the revision application of assessee. As rightlycontended by Mr. Inamdar, Section 264 confers widejurisdiction on the Commissioner. Proceedings underSection 264 are intended to meet the situation faced by anaggrieved assessee who is unable to approach theappellate authority for relief and has no other alternateremedy available under the Act. In the light of thedecision of the Apex Court in the case of Bharat EarthMovers (supra), the provision for Leave Encashment beinga current liability assessee is entitled for deduction of thatamount. The Assessing Officer had accepted the return,ignoring the request of assessee for deduction of theabove amount. Therefore, the relief which was notgranted by the Assessing Officer could be granted by theCommissioner under Section 264. Before allowing suchdeduction if any further enquiry was required to be done,the Commissioner could have either himself enquired ordirected the Assessing Officer to do the needful. However,the Commissioner has declined to exercise power underSection 264 because of amendment to Section 143(1) byFinance Act, 1999. Powers of the Assessing Officer tomake prima facie adjustments under Section 143(1), doneaway with by Finance Act, 1999 (with effect from 1stJune, 1999) does not in any way effect the right of theCommissioner under Section 265 of the Act to grant reliefto assessee if available to assessee as per the decision ofthe Apex Court. Exercise of powers under Section 264 isnot subject to the power of the Assessing Officer to makeadjustments under Section 143(1) of the Income-tax Act.Therefore, relief can be granted to assessee under Section264 even if the power of adjustment under Section 143(1)is taken away from the Assessing Officer.” (emphasis supplied) 8. Section 264 of the Act also came up for consideration before theHon'ble Delhi High Court in Vijay Gupta v CIT Delhi-III 3 whereparagraph 35 reads as under: “35. From the various judicial pronouncements, it is settledthat the powers conferred under Section 264 of the Act arevery wide. The Commissioner is bound to apply his mindto the question whether the petitioner was taxable on thatincome. Since Section 264 uses the expression “any order”,it would imply that the section does not limit the power tocorrect errors committed by the subordinate authoritiesbut could even be exercised where errors are committed byassessees. It would even cover situations where assesseebecause of an error has not put forth a legitimate claim atthe time of filing the return and the error is subsequently discovered and is raised for the first time in an applicationunder Section 264. ” (emphasis supplied) 12In Asmita Damle (Supra) also the court held that the Commissioner while exercising revisionary powers under Section 264 of the Act has to ensure that there is relief provided to assessee where the law permits the same. Paragraphs 3 and 4 read as under: “3 In view thereof, assessee filed the application under Section 154for rectification of the assessment order. This application was rejected.Against that order, the petitioner filed a revision under Section 264 ofthe Act to the Commissioner of Income Tax, for refund. TheCommissioner of Income Tax, by the impugned order held that therewas no mistake apparent from record. He held that the provisions ofSection 264 were not attracted. discovered and is raised for the first time in an applicationunder Section 264. ” (emphasis supplied) 12In Asmita Damle (Supra) also the court held that the Commissioner while exercising revisionary powers under Section 264 of the Act has to ensure that there is relief provided to assessee where the law permits the same. Paragraphs 3 and 4 read as under: “3 In view thereof, assessee filed the application under Section 154for rectification of the assessment order. This application was rejected.Against that order, the petitioner filed a revision under Section 264 ofthe Act to the Commissioner of Income Tax, for refund. TheCommissioner of Income Tax, by the impugned order held that therewas no mistake apparent from record. He held that the provisions ofSection 264 were not attracted. 4 There is no dispute regarding the petitioner's entitlement to thebenefit. The only question is whether the petitioner is entitled toenforce that remedy in the manner in which she has done. In a similarmatter, a Division Bench of this Court in the case of Devdas RamaMangalore v/s The Commissioner of Income Tax26 and Ors in writpetition no.2422 of 2013 dated 15 th January 2014, granted completerelief, including an order of refund. The only difference between thiscase and that case is that, in that case, the petitioner had made anapplication for condonation of delay under Section 119 (2) (b) of theIncome Tax Act, which was rejected, in view of the circular issued bythe CBDT. In the case before us, the course adopted was underSection 264 of the Act. In view of the judgment of the Division Benchof this Court in Hindustan Diamond Company Pvt Ltd v/sCommissioner of Income Tax reported in (2003) 175 Taxation91(Bom), the course adopted by the petitioner in the facts andcircumstances of the present case was valid.” 13In Selvamuthukumar (Supra) paragraphs 6 to 11 and 13 read as under: “6. The language of section 264 provides ample powers to theCommissioner of Income Tax to make or cause such inquiry to bemade as he thinks fit in dealing with an application for Revision undersection 264. This would include taking into consideration relevantmaterial that would have a bearing on the issue for consideration,which, in this case, includes the order under section 144A of the Actdated 31.12.2007. 7. Mr. Swaminathan would object on the ground that the inquirycontemplated under section 264 is restricted to the record of anyproceeding under this Act and has, necessarily to refer to the specificassessee alone. He would also refer to Section 263 dealing with revision of orders prejudicial to the revenue and to the explanationthereto wherein ‘Record’ is defined as being all records relating to anyproceeding under this Act available at the time of examination by thePrincipal Commissioner or Commissioner. In the absence of suchdefinition in section 264, he would urge that ‘record’ for the purposeof section 264 would be limited to such records as were available atthe time of assessment. We are not impressed with the distinction.The necessity for the insertion of a definition of ‘record’ by theFinance Act 1988 has been explained in a Circular issued by theCentral Board of Direct Taxes No. 528 dated 16.12.1998 to thefollowing effect. revision of orders prejudicial to the revenue and to the explanationthereto wherein ‘Record’ is defined as being all records relating to anyproceeding under this Act available at the time of examination by thePrincipal Commissioner or Commissioner. In the absence of suchdefinition in section 264, he would urge that ‘record’ for the purposeof section 264 would be limited to such records as were available atthe time of assessment. We are not impressed with the distinction.The necessity for the insertion of a definition of ‘record’ by theFinance Act 1988 has been explained in a Circular issued by theCentral Board of Direct Taxes No. 528 dated 16.12.1998 to thefollowing effect. 39.1 Under the existing provisions of section 263 of theIncome-tax Act, the Commissioner of Income-tax isempowered to call for and examine the record of anyproceeding and if he considers that the order passed bythe Assessing Officer is erroneous insofar as it isprejudicial to the interest of revenue, he may pass anorder enhancing or modifying the assessment orcancelling the same with a direction to make it afresh. Theprovisions as presently worded have given rise to twoareas of controversy. The first is relating to theinterpretation of the word “record” and the second isregarding the issue relating to merger of the order of theAssessing Officer with the order of the appellate authority.Courts have held in some cases that the word ‘record’occurring in section 263 could not mean the record as itstood at the time of examination by the CIT but the recordas it stood at the time when the order was passed by theAssessing Officer. Limiting the power of the CIT only tothe situation that was existing at the time of making theassessment is to make the provision too restrictive, asmany times information comes on record from varioussources which indicate that the order of the AssessingOfficer is erroneous and prejudicial to the interests ofrevenue. The above interpretation of the term “record” bysome court besides being against the legislative intent alsodefeats the very objective sought to be achieved which isto revise the orders on the basis of records as is availableto the CIT at the time of examination. With a view toclarifying the legislative intent of the term “record”, adefinition of the term “record” has been inserted in theExplanation to sub-section (1) of section 263 by theFinance Act to include all records relating to anyproceedings under the Act available at the time ofexamination by the CIT. This has been carried out forremoval of doubts.”(emphasis supplied) 8. Useful reference can also be made to a judgment of the SupremeCourt in the case of Commissioner of Income Tax v. Sri.Manjunathesware Packing Products and Camphor Works (231 ITR53), wherein the Supreme Court, while considering the import of theword ‘record’ in section 263 of the Act states as follows:— ‘If the material, which was not available to the Income-tax Officer when he made the assessment could thus be takeninto consideration by the CIT after holding an enquiry,there is no reason why the material which had alreadycome on record though subsequently to the making of theassessment cannot be taken into consideration by him.’ 9. The view of the department as reflected in the above Circular isthus to the effect that what constitutes ‘record’ cannot be limited tothe return of income or order of assessment, but should be extendedto include information from other sources that would impact the issuein question. ‘If the material, which was not available to the Income-tax Officer when he made the assessment could thus be takeninto consideration by the CIT after holding an enquiry,there is no reason why the material which had alreadycome on record though subsequently to the making of theassessment cannot be taken into consideration by him.’ 9. The view of the department as reflected in the above Circular isthus to the effect that what constitutes ‘record’ cannot be limited tothe return of income or order of assessment, but should be extendedto include information from other sources that would impact the issuein question. 10. Mr. Swaminathan would refer to the judgment of the DivisionBench of the Andhra Pradesh High Court in M.S Raju v. DeputyCommissioner of Income Tax (298 ITR 373) which has expressed aview to the effect that the import of the word ‘record’ as set out in theCircular (supra) would be restricted to the power under section 263only and not section 264. The distinction noted by the Division Benchin that case was that the power of revision under section 263 of theAct was intended to be exercised in cases where the interests ofrevenue were prejudiced and it was for this reason that the inquiry ofthe Commissioner of Income Tax was not limited only to materialavailable before the assessing officer, but also material obtainedsubsequently. The power under section 264 of the Act is, in fact aswide a power, and one that is intended to prevent miscarriage ofjustice. Courts have consistently taken a view that the conferment ofpowers under section 264 of the Act is to enable the Commissioner toprovide relief to an assessee, where the law permits the same.Reference may be made to the decisions of the Gujarat High Court inC. Parikh and Co. v. Commissioner of Income Tax (122 ITR 610);Ramdev Exports v. Commissioner of Income Tax (251 ITR 873);Kerala High Court in Parekh Brothers v. Commissioner of Income Taxand Calcutta High Court in Smt. Phool Lata Somani v. Commissionerof Income Tax (276 ITR 216). In this view of the matter, we see noreason to take a different view on the interpretation of the word‘record’ occurring in section 264 of the Act from that expressed by theCentral Board of Direct Taxes in the Circular extracted above. Theorder under section 144A dated 31.12.2007 is thus part of the recordand ought to have been take into consideration in deciding thepetition under section 264 of the Act.1 11. In fact the objection raised by the Department is hyper technicaland runs counter to the stand taken by it in the assessment of thisappellant in the three earlier assessment orders. Thus even applyingthe principles of consistency the treatment accorded to an issuearising in a continuing transaction should be consistent for the entireperiod in question. 12************** 13. Mr. Swaminathan would submit that the appellant ought to havefiled a revised return under section 139(5) since there was sufficienttime available and not having done so, he cannot seek remedy undersection 264 of the Act. He would urge that both reliefs cannot runconcurrently and one can be availed of only when the other isexhausted as otherwise an assessee who misses the time limit for filing a revised return would take recourse to the provisions of section264 and seek a revision.” 14 14At this stage, Mr. Suresh Kumar submitted that assessee shouldproduce documents to prove his share of the indexed renovation expenses ofRs.2,95,859/-. In our view, it is not required because in the assessmentorder dated 30[th] December 2010 passed under Section 143(3) of the Act inthe case of Ravi R Agarwal, the other co-owner of the flat, the assessingofficer has accepted the amount of Rs.2,95,859/- as the cost of renovationof indexation. Therefore, this figure has to be accepted as correct andsuitable allowance should be made while arriving at the long term capitalgain. filing a revised return would take recourse to the provisions of section264 and seek a revision.” 14 14At this stage, Mr. Suresh Kumar submitted that assessee shouldproduce documents to prove his share of the indexed renovation expenses ofRs.2,95,859/-. In our view, it is not required because in the assessmentorder dated 30[th] December 2010 passed under Section 143(3) of the Act inthe case of Ravi R Agarwal, the other co-owner of the flat, the assessingofficer has accepted the amount of Rs.2,95,859/- as the cost of renovationof indexation. Therefore, this figure has to be accepted as correct andsuitable allowance should be made while arriving at the long term capitalgain. 15In the circumstances, we hereby quash and set aside the impugnedorder dated 22[nd] March 2017 and remand the matter to respondent no.1 fordenovo consideration. Before passing any order, personal hearing shall begiven, notice whereof shall be given atleast five working days in advance.The order to be passed shall be a reasoned order dealing with allsubmissions of assessee. The application under Section 264 of the Act shallbe disposed within 8 weeks from today. Mr. Gandhi assures the court that solong as five working days notice is given, petitioner shall not seek anyadjournment on any ground. 16Petition disposed. (RAJESH S. PATIL, J.) (K.R. SHRIRAM, J.)