Ramachandran Nair, J v. A. Sanyasi Rao, 219Itr 330 (Sc

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN FRIDAY, THE 30TH OCTOBER 2009 / 8TH KARTHIKA 1931 WA.No. 1223 of 2006() --------------------- AGAINST THE JUDGEMENT/ORDER IN OP.17978/2000 Dated 09/03/2006 .................... APPELLANT(S): PETITIONER ------------------------ M/S.PANCHAMAN TRADERS,KALARICKAL, KUNNAMTHANAM,MALLAPPALLY. BY ADV. SRI.P.BALAKRISHNAN (E) RESPONDENT(S): RESPONDENTS -------------------------- 1. THE COMMISSIONER OF INCOME TAX, TRIVANDRUM. 2. THE INCOMETAX OFFICER, WARD-1, THIRUVALLA. ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 30/10/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.R. C .N. RAMACHANDRAN NAIR &V.K. MOHANAN, JJ. -------------------------------------------- -------------------------------------------- Dated this the 30th day of October, 2009 JUDGMENT Ramachandran Nair, J. Writ Appeal is filed against the judgment of the learned singleJudge who upheld the suo motu orders issued by the Commissionerdirecting revision of appellant's income tax assessment for the year1992-93 to determine taxable income, consistent with the decision ofthe Supreme Court in UNION OF INDIA V. A. SANYASI RAO, 219ITR 330 (SC). 2. The appellant-assessee was engaged in arrack business duringthe previous year relevant for the assessment year 1992-93. Eventhough Profit and Loss account filed along with the income tax returnsshowed net income of Rs. 10,53,607/- the assessee returned incomefrom arrack business only at Rs. 5,25,645/-, which was incomeassessable under Section 44AC of the I.T. Act. The assessment wascompleted ignoring the higher income shown in the P & L account as income from arrack business, but by accepting the income underSection 44AC of the Act. The original assessment was completed on7.2.1995. The assessee filed appeal against the assessment before theCIT (Appeals) on some other issues pertaining to addition made of theamount shown in the capital account of other partners. The CIT(Appeals) by order dated 13.12.1995 set aside the assessment andremanded the case back to the assessing officer for the purpose ofreconsidering the additions contested by the assessee in appeal. It isthereafter that the Supreme Court pronounced the judgment inSANYASI RAO's case referred above on 13.2.1996 holding thatincome from liquor business also should be computed in accordancewith Sections 28 to 43C like any other business income and theprovisions of Sections 44AC and 206 are only machinery provisions.Therefore it was the duty of the assessing officer to have noticed thejudgment of the Supreme Court and made assessment in respect ofincome from arrack business based on P & L account filed by theassessee. However, while revising the assessment based on the ordersin appeal, the assessing officer did not consider the decision of theSupreme Court above referred, but retained the income assessed in respect of arrack business under Section 44AC in the revisedassessment completed on 6.3.1998. The Commissioner of Income taxon noticing the irregularity committed by the assessing officer, leadingto evasion of tax, initiated suo motu revision proceedings under Section263 of the Act and passed orders on 30.3.2000 directing revision ofassessment on income from arrack business based on income disclosedin P & L account and in terms of declaration of law by the SupremeCourt in SANYASI RAO's case above referred. Even though statutoryappeal was available against Section 263 order, the assesseeapproached this Court in writ proceedings contending that the order iswithout jurisdiction mainly because it is time-barred. The learnedsingle Judge upheld the order both on merit as well as on the questionof limitation raised by the appellant. This Appeal is against the saidjudgment and we have heard Sri. P. Balakrishnan, counsel appearingfor the appellant and standing counsel appearing for the respondent. 3. The first question raised is against the finding of the learnedsingle Judge that the order passed by the Commissioner under Section263 of the IT Act is within time. The case of the appellant-assessee isthat the issue decided by the Officer and which was subject matter of revision by the Commissioner under the impugned order issued underSection 263 is with regard to computation of business income fromarrack under Section 44AC in the original assessment, which shouldhave been made based on P & L account filed by the assessee, whichshowed higher income from business than the income assessable underSection 44AC. Even though appeal was filed against originalassessment completed on 7.2.1995, this was not the subject matter ofappeal and therefore it was open to the Commissioner to revise theoriginal assessment on this issue within two years from the date oforiginal order which was not done in this case. According to counselsince the issue was not subject matter of appeal, the Commissionershould have revised the assessment even during the pendency of appealbefore the first appellate authority or after the first appellate authoritydisposed of the appeal. The specific case of the assessee therefore isthat suo motu revisional order issued on 30.3.2000 is time barredbecause limitation with regard to suo motu revision power underSection 263 has to be considered with reference to original assessmentcompleted on 7.2.1995. On the other hand, standing counsel appearingfor the respondent contended that suo motu revision power under Section 263 should be considered with reference to revised order issuedbased on orders in appeal, if the issue raised by the Commissionerunder Section 263 was not raised or considered by the appellateauthority. In this particular case, the specific case of the department isthat the Commissioner (Appeals) had in fact set aside the originalassessment in appeal and so much so, there was no order available tothe Commissioner for revision under Section 263 until the Officerrevised the assessment. According to standing counsel, revisedassessment was issued by the assessing officer on 6.3.1998 withoutconsidering the law declared by the Supreme Court in SANYASIRAO's case and therefore the order prejudicial to the interest ofrevenue is revised order issued on 6.3.1998 by the assessing officerignoring the judgment of the Supreme Court above referred and somuch so limitation available for revision of order under sub-section (2)of Section 263 is upto two years from the end of the financial year inwhich revised order is passed.. 4. Learned counsel for the appellant-assessee has relied on thedecision of the Supreme Court in CIT V. ALAGENDRAN FINANCELTD., 293 I.T.R. 1 (SC), and contended that under explanation C to 4. Learned counsel for the appellant-assessee has relied on thedecision of the Supreme Court in CIT V. ALAGENDRAN FINANCELTD., 293 I.T.R. 1 (SC), and contended that under explanation C to Section 263(1) there is no merger of the assessment pertaining toincome from arrack business in the appellate order and so much so, theCommissioner was free to revise the original assessment under section263 on this issue even during the pendency of the first appeal beforethe first appellate authority. We are unable to accept this contention formore than one reason. In the first place, assessment on computation ofincome from arrack business originally made on 7.2.1992 became anorder prejudicial to the interest of revenue by virtue of declaration oflaw by the Supreme Court vide judgment in SANYASI RAO's casedated 13.2.1996. Therefore Commissioner could not have beenexpected to pass orders under Section 263 until the Supreme Courtpronounced the judgment. Further, if the assessing officer had takennote of the judgment of the Supreme Court he himself could havecorrected the mistake in the revised assessment either by invoking thepower under Section 154 or by resort to Section 147. Secondly theCommissioner in exercise of his jurisdiction under Section 263 canrevise the assessment found to be prejudicial to the interest of therevenue within two years from the end of the financial year inwhich such order is passed. In this case, the order sought to be revised was set aside in appeal; by the first appellate authority for redoing theassessment with specific reference to the issues raised in the appeal. Infact it is pertinent to note that under Section 251 (1)(a) Commissioner(Appeals) has authority even to enhance assessment which was thesubject matter of appeal before him. The powers of Commissioner(Appeals) under Section 251(1)(a) are similar to the power of regularCommissioner who exercises supervisory jurisdiction over theassessing officers under Section 263 to correct orders prejudicial to theinterest of the revenue. Therefore once the appeal is filed by theassessee on any ground, it was open to the Commissioner (Appeals) toconsider whether the impugned assessment order is otherwiseprejudicial to the interest of the revenue and to order revision ofassessment to make up for the omissions made or to rectify themistakes or to bring to tax the income that has escaped assessmentwhich in other words means that orders prejudicial to the interest of therevenue should be ordered to be corrected by the first appellateauthority as well. Therefore there is nothing wrong in theCommissioner, exercising supervisory powers over the assessingofficers, to wait for the orders in appeal and then to revise the assessment on matters which are not considered in appeal by the firstappellate authority. If the result of appeal is setting aside theassessment though for limited purposes, still in our view no ordersurvives to be revised by the Commissioner under Section 263 on anypoint originally decided. In fact, as already found by us, even aftersetting aside the assessment, the assessing officer has ample powersunder Section 154 as well as under Section 147 to correct his ownmistakes in the original assessment so that revised order issued by himconsistent with the orders in appeal will be an order not prejudicial tothe interest of the revenue. It is only when the first appellate authorityomits to correct orders prejudicial to the interest of the revenue andonly if the assessing officer also fails to correct his mistakes in theoriginal assessment while issuing revised orders giving effect to theorder in appeal, the Commissioner needs to exercise his supervisoryjurisdiction under Section 263 of the Act and so much so theCommissioner has jurisdiction to revise the revised assessment onmatters concluded by the assessing officer in the original assessmentwhich are again incorporated in the revised order. We have in thiscase already found that limitation does not apply because in first appeal, the first appellate authority set aside the assessment within theperiod of limitation available to the Commissioner for issuing ordersunder Section 263 and once assessment is set aside, revised order is anew proceeding against which also powers under Section 263 areavailable to the Commissioner. Admittedly impugned order of theCommissioner under Section 263 issued on 30.3.2000 is within twoyears from the end of the financial year in which the revised assessmentis issued, that is on 6.3.1998. Therefore we confirm the order of thelearned single Judge holding that the proceedings impugned in theWPC is within time. However, we make it clear that if the CIT(Appeals) had not set aside the original assessment in appeal, limitationfor revision under Section 263 has to be worked out from the date oforiginal assessment and in that event revisional order by theCommissioner would be time barred. In other words, limitation forrevision under Section 263 on any matter concluded in the originalassessment with reference to revised order issued after appeal arisesonly when the CIT (Appeals) sets aside the assessment in appeal withinthe period for revision available to the Commissioner for revisionunder Section 263 against original assessment. 5. So far as the challenge against merit of the impugned order isconcerned, we find that the assessing officer passed the revisedassessment after declaration of law by the Supreme Court in SANYASIRAO's case, but by ignoring it which led to escapement of assessmentof substantial amount of income because income returned by theassessee in the arrack business in the P & L Account was almost doublethe income returned under Section 44AC and originally assessed by theassessing officer. In fact, if the assessing officer had noted the decisionof the Supreme Court which was already published much beforerevision of assessment, he himself would have corrected the omissionin the original assessment in the course of revision of assessment basedon orders in appeal. Therefore there is no substance in the challengeagainst the merit of the impugned order as well. Consequently we dismiss the writ appeal. (C.N.RAMACHANDRAN NAIR)Judge.Judge. (V.K. MOHANAN) Judge.