Rc/71/1996 Of The Comm.of Income Tax. Hyd v. M/S M.venkat Reddy And Others

THE HON’BLE SRI JUSTICE B. PRAKASH RAOANDTHE HON’BLE SRI JUSTICE RAMESH RANGANATHAN REFERRED CASE No. 7 1of 1996 J U D G M E N T: (Per RR,J) The question, referred for our opinion, reads as under: “Whether, on the facts and in the circumstances of the case, the Tribunal iscorrect in law in cancelling the order of the Commissioner under section 263of the Income Tax Act, holding that the action of the assessing officer infollowing the decision of the A.P. High Court in the case of A. Sanyasi Raoand Others (178 ITR-31) which was holding the field as on the date ofassessment viz., 20-3-1992, and the operation of which came to besuspended only subsequently viz., on 31-3-1992 202 ITR-584) was neithererroneous nor prejudicial to the interests of the Revenue ?” 2. Facts, in brief, are that the assessee is a partnership firm carryingon business in the purchase and sale of arrack. For the assessmentyear 1989-90, the assessee filed their returns declaring Rs.4,21,910/-as their income. The assessing authority held that, though the incomeof the assessee was required to be computed applying thepresumptive rate specified in Section 44-AC of the Income Tax Act, inview of the Judgment of this Court in “A. Sanyasi Rao V/s.”Government of Andhra Pradesh & Ors.[[1]], wherein this court heldthat the income should be computed by applying the provisions ofSection 28 to 43-C, without resort to the provisions of Section 44-AC,the assessment was being completed following the said judgment. The order of assessment dated 20-3-1992 was, accordingly,passed. 3. While matters stood thus, the Revenue carried the order of thisCourt, in A. Sanyasi Rao[1], in appeal to the Supreme Court. TheSupreme Court, by its order dated 31-3-1992 (202 ITR-584), whilegranting interim stay of operation of the said judgment, clarified thatthe effect of its order was to permit the Revenue to completeassessment involving cases under Section 44-AC, irrespective of theobservations in the judgment of the High Court of the limitedapplicability of these Sections. 4. The Commissioner of Income Tax, in exercise of his powers underSection 263 of the Income Tax Act, initiated Revision proceedings. Inhis order dated 17.12.1993, the Commissioner observed that, as onthe date of assessment order, the provisions of Section 44-AC were onthe Statute book and, as the Supreme Court in its order dated 31-3-1992 had suspended the operation of the decision of this Court in A.Sanyasi Rao[1], the provisions of Section 44-AC would automaticallyapply with retrospective effect; and consequently the assessmentmade on 20-3-1992, for the assessment year 1989-90, was erroneousand prejudicial to the interests of revenue. As the assessing officerhad not followed the statutory provisions of Section 44-AC of the Act,the Commissioner set aside the order of assessment, for the year1989-90, and directed the assessing authority to pass orders afresh inaccordance with law. 5. Aggrieved thereby, the assessee carried the matter in appeal tothe Income Tax Appellate Tribunal, Hyderabad (ITAT) inITA.No.823/Hyd/94. The ITAT, in its order dated 06-2-1995, observedthat the assessment order passed by the assessing officer, followingthe decision of this Court in A. Sanyasi Rao[1], was good law as on the 5. Aggrieved thereby, the assessee carried the matter in appeal tothe Income Tax Appellate Tribunal, Hyderabad (ITAT) inITA.No.823/Hyd/94. The ITAT, in its order dated 06-2-1995, observedthat the assessment order passed by the assessing officer, followingthe decision of this Court in A. Sanyasi Rao[1], was good law as on the date of assessment; as the operation of the said judgment had notbeen suspended, as on the date of assessment, the assessing officerwas duty bound to follow the said judgment; the power of Revisionunder Section 263 could be exercised only if the order of theassessing authority was erroneous and was prejudicial to the interestsof revenue; the Revisional jurisdiction under Section 263 was requiredto be exercised in the light of the records as it stood then; and, as at thetime when the assessment order was passed the order of the SupremeCourt staying the operation of the judgment of the A.P. High Court in A.Sanyasi Rao[1] was not in existence, it could not be said that theassessment order dated 20-3-1992 was erroneous or prejudicial to theinterests of revenue. 6. As noted hereinabove the Supreme Court, by its order dated31.3.1992, not only granted stay of operation of the judgment of theHigh Court but also permitted the authorities to complete theassessment on the basis of Section 44-AC irrespective of theobservations in the judgment of the High Court. 7. Sri S.R. Ashok, Learned Senior Counsel appearing on behalf of theRevenue, would submit that Judgments of the Supreme Court aredeclaratory in nature; the relevant point of time at which proceedingsunder Section 263 of the Act can be said to have been initiated is thedate on which the Revisional authority calls for the record and, sincethe date of calling for the record is subsequent to 31-3-1992, theinterim order of the Supreme Court enabled the assessment to beproceeded with; and as the order of the assessing authority, relying onA. Sanyasi Rao[1], was erroneous and prejudicial to the interests ofRevenue, the Revisional authority had the jurisdiction to revise thesaid order. Learned Senior Counsel would further contend that the observations of the ITAT, that the law as on the date of passing theassessment order should alone be taken into consideration, wascontrary to a catena of judgments of the Supreme Court and this Court;and, as the law laid down by the Supreme Court is declaratory innature, it relates back to the date on which the provision wasintroduced in the Act and not on the date on which the Supreme Courtpassed the order. Learned Senior Counsel would also draw ourattention to Explanation ‘b’ to Section 263 of the Income Tax Act, asinserted w.e.f. 1-10-1984 and substituted w.e.f. 01-6-1988., which reads thus:- (b) “record” [shall include and shall be deemed always to have included] allrecords relating to any proceeding under this Act available at the time ofexamination by the Commissioner. 8. Learned Senior counsel would submit that, since the record wouldinclude all such records available at the time of examination by theCommissioner, it is the interim order of the Supreme Court which formsthe basis for revising the assessment; and the ITAT had erred inholding otherwise. 9. While the aforesaid submissions of the Learned Senior Counselcannot be said to be without merit, we cannot, however, lose sight ofthe fact that the order of this Court in A. Sanyasi Rao[1] was affirmed bythe Supreme Court in its judgment dated 13-2-1996 (Volume 219 ITR-330). The Supreme Court held that, in view of absence of material,this Court was justified in its view that the remedy specified by Section28 to 44-AC was disproportionate to the evil that prevailed and so, tothe extent the non-obstante clause in Section 44-AC excluded theprovisions of Section 28 to 43-C (applicable to all assessees), the 9. While the aforesaid submissions of the Learned Senior Counselcannot be said to be without merit, we cannot, however, lose sight ofthe fact that the order of this Court in A. Sanyasi Rao[1] was affirmed bythe Supreme Court in its judgment dated 13-2-1996 (Volume 219 ITR-330). The Supreme Court held that, in view of absence of material,this Court was justified in its view that the remedy specified by Section28 to 44-AC was disproportionate to the evil that prevailed and so, tothe extent the non-obstante clause in Section 44-AC excluded theprovisions of Section 28 to 43-C (applicable to all assessees), the provisions were unreasonable. The Supreme Court held that Section44-AC was a valid piece of legislation, and was an adjunct to, andexplanatory to, Section 206-C; and it did not dispense with the regularassessment, as provided for, in accordance with Sections 28 to 43-Cof the Act. 10. In the light of the Judgment of the Supreme Court dated13.02.1996, affirming in part the Judgment of this Court in A. SanyasiRao[1], we see no reason to now examine and answer the questionreferred for our opinion. Suffice to hold that this question of law,referred for our opinion, is left open for examination in an appropriatecase. R.C. No.71 of 2006 is, accordingly, disposed of. ______________________ B . PRAKASH RAO,J Date: 22-06-2010. ______________________________ RAMESH RANGANATHAN,J Isl/asp I s L IN THE HIGH COURT OF JUDICATURE ANDHRA PRADESH ATHYDERABAD TUESDAY THE TWENTYSECOND DAY OF JUNETWO THOUSAND AND TEN PRESENT THE HONOURABLE SRI JUSICE B. PRAKASH RAOAND THE HONOURABLE SRI JUSTICE RAMESH RANGANATHAN REFERRED CASE No. 7 1OF 1996 {under section 256 (1) of the Indian Income Tax Act, 1961 in RA.No.255/Hyd/95, dated 07-08-1995 Andhra Pradesh : ITAT Hyderabad Bench ‘A’} Between: The Commissioner of Income-taxAndhra Pradesh-II, Hyderabad. …. PetitionerV/s.M/s. M.Venkat Reddy & Ors.Nizamabad. ` …. RespondentsCounsel for the Applicant : Sri S.R. Ashok Senior CounselCounsel for the Respondents: Party in-person