Wp/3647/2007 Of M.s. Raju v. The Deputy Commissioner Of Income Tax

* THE HON'BLE THE ACTING CHIEF JUSTICE BILAL NAZKIAND * THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN + I.T.T.A.No.74 of 2007 & W.P.No.3647 of 2007 %Dated 31.12.2007 W.P.No.3647 of 2007: Between: M.S. Raju ……….. PETITIONER $ The Deputy Commissioner of Income Tax, Central Circle-4, Hyderabadand another. ………… RESPONDENTS ! Counsel for Petitioner : Mr. A.V. Krishna Kaundanya ^ Counsel for Respondents : Mr.J.V.Prasad, S.C. for Income Tax < GIST: > HEAD NOTE: ? Cases referred[1] (1973) 87 ITR 4442 (1977) 110 ITR 6843 (1993) 203 ITR 1314 (1978) 111 ITR (SC) 15 (1984) 150 ITR 1056 (1998) 231 ITR 53)7 (1998) 230 ITR 385)8 (2001) 251 ITR 8739 (2005) 276 ITR 216 THE HON’BLE THE ACTING CHIEF JUSTICE BILAL NAZKIANDTHE HON’BLE SRI JUSTICE RAMESH RANGANATHANI.T.T.A.No.74 of 2007 & W.P.No.3647 of 2007 ORDER: (THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN) I.T.T.A.No.74 of 2007 is filed against the order of the IncomeTax Appellate Tribunal, Hyderabad in I.T.A.No.1169/Hyd/2004(assessment year 2001-02) dated 25-05-2006 under Section 260(A)of the Income Tax Act, 1961. W.P.No.3647 of 2007 is filed, by theappellant in the I.T.T.A, aggrieved by the order dated 29-12-2006passed by the Commissioner of Income-Tax, Hyderabad, underSection 264 of the Income Tax Act, 1961, for the assessment year2002-03. The appellant in I.T.T.A.No.74 of 2007, who is thepetitioner in W.P.No.3647 of 2007, shall hereinafter be referred to asthe assessee. During the previous year relevant to the assessment year2001-02, the assessee, a film producer, entered into a leaseagreement with M/s.Asian Films on 30-12-2000 for releasing aTelugu feature film by name “Devi Putrudu” for a sum of Rs.3.37crores. The entire amount was received by the assessee before 31-03-2001. However, in his profit and loss account, the assessee accounted only for Rs.3.07 crores. On being questioned by theassessing officer, the assessee contended that, while the film “DeviPutrudu” was to be released by M/s.Asian Films (Distributors), in theNizam area on Friday i.e.12-01-2001, the assessee could deliver theprints of the film only on 14-01-2001 and, as a result, the film wasreleased only on Monday i.e. 15-01-2001, that M/s.Asian Films, videletter dated 13-07-2001 addressed to the Secretary, A.P.FilmChamber of Commerce, sought damages of Rs.44,09,872/-, that theTelangana Telugu Film Distributors Association, vide letter dated 05-10-2001, had informed the assessee that no distributor would comeforward to release his forthcoming picture “Manasantha Nuvve”unless the dispute was settled and that the assessee had paid Rs.30lakhs to M/s.Asian Films through Telangana Telugu Film DistributorsAssociation as is evidenced from the deed of agreement enteredinto by the assessee with M/s. Suresh Movies Film Distribution fordistribution of rights with reference to “Manasantha Nuvve” dated 15-10-2001. The assessee contended that this amount of Rs.30 lakhswas, therefore, not assessable during the relevant previous year. The assessing officer, however, rejected this contentionholding that the entire amount of Rs.3.37 crores, on account of “DeviPutrudu”, was received by the assessee from M/s.Asian Filmsduring the previous year relevant to assessment year 2001-02, thatthe correspondence furnished by the assessee showed that theliability for compensation arose during the previous year relevant tothe assessment year 2002-03, and that no evidence had beenfurnished by the assessee to show that such compensation hadaccrued during the previous year relevant to assessment year 2001-02. The assessing officer added this amount of Rs.30 lakhs to the income returned by the assessee. The assessing officer, however, rejected this contentionholding that the entire amount of Rs.3.37 crores, on account of “DeviPutrudu”, was received by the assessee from M/s.Asian Filmsduring the previous year relevant to assessment year 2001-02, thatthe correspondence furnished by the assessee showed that theliability for compensation arose during the previous year relevant tothe assessment year 2002-03, and that no evidence had beenfurnished by the assessee to show that such compensation hadaccrued during the previous year relevant to assessment year 2001-02. The assessing officer added this amount of Rs.30 lakhs to the income returned by the assessee. Aggrieved thereby, the assessee filed an appeal before theCommissioner of Income Tax (Appeal), wherein he contended thatthe compensation paid of Rs.30 lakhs was settled by the end ofJanuary, 2001 and, as he was maintaining books of accounts onmercantile basis, the assessing officer was not correct indisallowing the same. The Commissioner, on considering thematerial evidence on record, as also the assessee’s letter to theFilm Chamber of Commerce dated 06-10-2001, held that it was quiteevident that the dispute continued even till 05-10-2001. TheCommissioner noted that the agreement dated 05-10-2001, enteredinto between the assessee and M/s.Suresh Movies FilmDistributors, only showed payment of Rs.30 lakhs to M/s.Telangana Telugu Film Distributors Association and not to M/s.Asian Films andthere was no recital therein that payment of Rs.30 lakhs was due tothe dispute between the assessee and M/s.Asian Films. TheCommissioner held that the addition made by the assessing officerwas justified. Aggrieved thereby, the assessee filed an appeal before theIncome Tax Appellate Tribunal. Before the Tribunal, the assesseecontended that, as per Accounting Standard-4, para-8, the assesseehad the right to take into account subsequent events till the balancesheet date i.e. the date on which the financial statements wereapproved and, as the audit was completed only on 25-10-2001, hewas justified in claiming deduction of Rs.30 lakhs. The assesseecontended that, even though there was no compensation clause inthe agreement dated 13-07-2001, he had made such payment onaccount of business expediency and, therefore, the same should be allowed. He alternatively pleaded that if the amount was found not tobe allowable during the current assessment year i.e. 2001-02, adirection may be given to allow it in the next assessment year i.e.2002-03. It was, however, contended on behalf of revenue that theAccounting Standard-4 did not help the case of the assessee, thatthe auditors report did not contain any note mentioning the specificfacts claimed by the assessee, that the evidence furnished by himwere subsequent to the date of the balance sheet i.e. 31-03-2001and that the auditors had not followed Accounting Standard-4. Itwas further contended that, as the liability did not accrue during therelevant previous year, the same could not be allowed as adeduction. The Tribunal held that whatever evidence had beenfurnished by the assessee, with reference to the disputed amount,was subsequent to the date of the balance sheet i.e., 31-03-2001,that the dispute relating to compensation amount did not crystallizebefore 31-03-2001 and, as the liability did not accrue during therelevant previous year, the same could not be allowed as adeduction. The Tribunal found no reason to interfere with theconcurrent findings of the assessing officer and the Commissioneron the disputed amount of Rs.30 lakhs. The appeal was dismissed.With regards the alternative plea, that a direction be issued for thesubsequent assessment year, the Tribunal held that, the same beingnot the subject matter of the relevant previous year, no suchdirection could be issued. Aggrieved thereby, the present appeal. Sri A.V.Krishna Kaundinya, learned counsel for the assessee,would contend that, since the total receipts of the film “Devi Putrudu”were realized and accounted for during the assessment year 2001-02, the liability arising out of the said receipt was required to be allowed in the same assessment year as per accounting principles. Reliance is placed by the learned counsel on Accounting Standard-4issued by the Institute of Chartered Accountants of India to contendthat the assessee had the right to take into account events whichhad happened till the date of approval of the financial statements. Itis contended that the Tribunal had failed to see that audit of theaccounts was completed only on 25-10-2001 and that the assesseewas justified in claiming deduction of Rs.30 lakhs which was paid toM/s.Telangana Telugu Film Distributors Association ascompensation. The Accounting Standards relied on behalf of the assesseeare those prescribed by the Institute of Chartered Accountants ofIndia. Thereunder, the definition “events occurring after the balancesheet date” are those significant events, both favourable andunfavourable, that occur between the balance sheet date and thedate on which the financial statements are approved by the Board ofDirectors in the case of a company and by the correspondingapproving authority in the case of any other entity. Under Para 8.1events, which occur between the balance sheet date and the date onwhich the financial statements are approved, may indicate the needfor adjustments to assets and liabilities as at the balance sheet dateor may require disclosure. Under Para 8.2, adjustment to assetsand liabilities are required for events occurring after the balancesheet date that provide additional information materially affecting thedetermination of the amounts relating to conditions existing at thebalance sheet date. As has been contended before the Tribunal, on behalf of therevenue, even the audit report does not contain any note mentioning the specific facts as claimed by the assessee. There is nothing onrecord before us to indicate that the auditors had followedaccounting standard No.4. In such circumstances it is whollyunnecessary for us to examine whether accounting standard No.4would have required the assessing authority to take note of eventswhich took place after the end of the assessment year in question. The Tribunal, after extracting the assessee’s petition to theFilm Chambers of Commerce dated 6.10.2001, held that theassessee had disputed the liability of M/s Asian Films and theTelangana Telugu Film Distributors Association. The Tribunal heldthat it was clear that the assessee did not recognize the liabilityduring the previous year relating to the assessment year 2001-02and the dispute, if at all, arose after the closure of the accountingperiod ending 31.3.2001. The Tribunal observed that the assesseehad claimed to have made payment to M/s Asian Films through M/sSuresh Movie Film Distributors only on 15.10.2001, the date relevantto the assessment year 2002-03. In as much as, even according to the assessee, payment ofRs.30 lakhs was made only on 15.10.2001, much after theassessment year 2001-02 and since no material has been placed toshow that the audit report, for the previous year relating to theassessment year 2001-02, has made any reference to suchsubsequent event of payment of damages, the order of the Tribunalis valid and does not necessitate interference. I.T.T.A.No.74 of 2007is dismissed. As noted above, W.P.No.3647 of 2007 was filed to have theorder dated 29-12-2006 passed by the Commissioner of Income-Tax, Hyderabad, under Section 264 of the Income Tax Act, 1961 forthe assessment year 2002-03, set aside. In as much as, even according to the assessee, payment ofRs.30 lakhs was made only on 15.10.2001, much after theassessment year 2001-02 and since no material has been placed toshow that the audit report, for the previous year relating to theassessment year 2001-02, has made any reference to suchsubsequent event of payment of damages, the order of the Tribunalis valid and does not necessitate interference. I.T.T.A.No.74 of 2007is dismissed. As noted above, W.P.No.3647 of 2007 was filed to have theorder dated 29-12-2006 passed by the Commissioner of Income-Tax, Hyderabad, under Section 264 of the Income Tax Act, 1961 forthe assessment year 2002-03, set aside. For the assessment year 2002-03, the assessee had filed areturn of income on 31-10-2002 declaring a total income ofRs.22,09,270/-. He did not claim deduction of Rs.30 lakhs in thesaid return as, according to him, he had been agitating for theassessment year 2001-02. After giving notices under Sections143(2) and 142(1), the assessing officer completed the assessment,by his order dated 23-02-2005, determining a total income ofRs.25,11,208/-. The assessee preferred a revision under Section264 of the Income Tax Act, 1961 before the Commissioner ofIncome Tax and requested him to direct the assessing officer toallow deduction of Rs.30 lakhs paid by the assessee, as damages,to M/s.Asian Films. The assessee contended before theCommissioner that he had originally claimed this amount in theassessment year 2001-02 and, since the dispute arose by January, 2001, the liabilityhad crystallized by the time the accounts for the assessment year2001-02 were audited and that the assessing officer had taken theview that it was not allowable deduction since payment was madeduring the previous year relevant to the assessment year 2002-03.The Commissioner, in his order dated 29-12-2006, rejected theassessee’s application for revision holding that the assessmentorder for the year 2002-03 made no reference to any claim ofdeduction of Rs.30 lakhs having been made by the petitioner in hisprofit and loss account, that no such issue arose in the assessmentyear 2002-03 and that the subject matter of the petition underSection 264 had no bearing on the assessment made for theassessment year 2002-03. Aggrieved thereby, the present writpetition is filed. Sri A.V.Krishna Kaundinya, Learned Counsel for theassessee, would contend that the Commissioner had refused toexercise jurisdiction merely on a technical ground which hadresulted in denial of a genuine deduction available to the assessee,that it was the positive stand of the assessing officer in his order, forthe assessment year 2001-02, that the liability for compensation hadarisen during the previous year relevant to the assessment year2002-03 and that the revenue cannot now be permitted to totallydeny the relief. In his return of income filed on 31.10.2002, the assessee didnot claim deduction for the amount said to have been paid by him ofRs.30 lakhs and as such the assessing officer had no occasion toexamine this claim in the order of assessment dated 23.2.2005. Itwas for the first time in revision before the Commissioner of IncomeTax that the assessee had raised this claim for deduction. The question which arises for consideration is whether theCommissioner, under Section 264 of the Income Tax Act, is entitledto examine a question raised for the first time before it and whichdoes not form part of the record before the assessing officer or eventhe order of assessment? Section 263 of the Income Tax relates to revision of ordersprejudicial to revenue and Section 264 to revision of other orders. Section 263(1) and 264 (1) read thus: 263 Revision of orders prejudicial to revenue: The question which arises for consideration is whether theCommissioner, under Section 264 of the Income Tax Act, is entitledto examine a question raised for the first time before it and whichdoes not form part of the record before the assessing officer or eventhe order of assessment? Section 263 of the Income Tax relates to revision of ordersprejudicial to revenue and Section 264 to revision of other orders. Section 263(1) and 264 (1) read thus: 263 Revision of orders prejudicial to revenue: (1) The Commissioner may call for and examine the record of anyproceeding under this Act, and if he considers that any order passed therein bythe Assessing Officer is erroneous in so far as it is prejudicial to the interests ofthe revenue, he may, after giving the assessee an opportunity of being heardand after making or causing to be made such inquiry as he deems necessary,pass such order thereon as the circumstances of the case justify, including anorder enhancing or modifying the assessment, or cancelling the assessmentand directing a fresh assessment. Explanation: For the removal of doubts, it is hereby declared that, for the purposes of this sub-section, (a) an order passed on or before or after the 1st day of June, 1988 by theAssessing Officer shall include (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income- tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the [Joint] Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or section 120; exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or section 120; (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; (c) where any order referred to in this sub-section and passed by theAssessing Officer had been the subject matter of any appeal filed on or beforeor after the 1st day of June, 1988, the powers of the Commissioner under thissub-section shall extend and shall be deemed always to have extended] tosuch matters as had not been considered and decided in such appeal.264 Revision of other orders (1) In the case of any order other than an order to which section 263 appliespassed by an authority subordinate to him, the Commissioner may, either ofhis own motion or on an application by the assessee for revision, call for therecord of any proceeding under this Act in which any such order has beenpassed and may make such inquiry or cause such inquiry to be made and,subject to the provisions of this Act, may pass such order thereon, not being anorder prejudicial to the assessee, as he thinks fit. It is also necessary to note that the Explanation to Section263(1) was substituted by the Finance Act, 1988 with effect from1.6.1988. The power of revision, under Section 263 of the Income TaxAct, to call for and examine the records, would arise only if theCommissioner considers that the order of the assessing officer iserroneous and is prejudicial to the interests of revenue. On comingto such a conclusion the Commissioner is empowered to passorders after giving the assessee an opportunity of being heard andafter making or causing an enquiry to be made. Section 264, on theother hand, applies to cases other than those where the Commissioner considers that the order passed by the assessingofficer is prejudicial to the interest of the revenue. In cases wherethe assessment order is not prejudicial to the interest of revenue,and is considered by the assessee to be prejudicial to his interest,the remedy of revision is only under Section 264 of the Act. Commissioner considers that the order passed by the assessingofficer is prejudicial to the interest of the revenue. In cases wherethe assessment order is not prejudicial to the interest of revenue,and is considered by the assessee to be prejudicial to his interest,the remedy of revision is only under Section 264 of the Act. Unlike Section 263(1) which contains an Explanation, andunder Clause (b) thereof the word “record” has been defined toinclude all records relating to any proceedings under the Actavailable at the time of examination by the Commissioner, Section264 does not contain any such explanation. The manner in whichthe word “record” in Section 264 should be considered shall beconsidered hereinafter. Suffice to note that the judgments of theMadras High Court in Farm Tea Estates Syndicate v. AgriculturalIncome Tax Officer, Coonoor[[1]],M.Chetyappan v. Commissionerof Agricultural Income Tax, Madras[[2]]and Viswanathan SilkCentre v. Commissioner of Income Tax[[3]], the Supreme Court inAdditional Commissioner of Income Tax, Gujarat v.Gurjargravures P. Ltd[[4]], the Kerala High Court in ParekhBrothers v. Commissioner of Income Tax[[5]], all arose prior tosubstitution of the Explanation to Section 263(1) by the Finance Act,1988 with effect from 1.6.1988. Sri A.V.Krishna Kaundinya, learned counsel for the assessee,would also place reliance on the judgment of the Supreme Court inCommissioner ofIncome Tax v. Shree ManjunatheswarePacking Products and Camphor Works[[6]], the Division Bench ofthis Court in Commissioner of Income Tax v. K.C.Rangaiah[[7]],the Division Bench of the Gujarat High Court in Ramdev Exports v.Commissioner[[8]], and the Calcutta High Court in Smt.Phool Lata Somani v. Commissioner of Income Tax[[9]]. In Shree Manjunathesware Packing Products[6]the question which was referred to the Karnataka High Court was: “Whether, on the facts and in the circumstances of the case, the AppellateTribunal is right in law in holding that the word “record” used in section 263(1) ofthe Act would not mean the record as it stands at the time of examination bythe Commissioner, but it means the record as it stands at the time the order inquestion was passed by the Income tax Officer” The Karnataka High Court held that the “record” contemplatedby Section 263(1) did not mean only the order of assessment, butcomprised of proceedings on which the assessment was based. The question was answered in the affirmative in favour of theassessee and against the revenue and when the matter was carriedin appeal, the Supreme Court observed:- which was referred to the Karnataka High Court was: “Whether, on the facts and in the circumstances of the case, the AppellateTribunal is right in law in holding that the word “record” used in section 263(1) ofthe Act would not mean the record as it stands at the time of examination bythe Commissioner, but it means the record as it stands at the time the order inquestion was passed by the Income tax Officer” The Karnataka High Court held that the “record” contemplatedby Section 263(1) did not mean only the order of assessment, butcomprised of proceedings on which the assessment was based. The question was answered in the affirmative in favour of theassessee and against the revenue and when the matter was carriedin appeal, the Supreme Court observed:- “………..It, therefore, cannot be said, as contended by the learned counsel forthe respondent, that the correct and settled legal position, with respect to themeaning of the word "record" till 1/06/1988, was that it meant the record whichwas available to the Income-tax Officer at the time of passing of theassessment order. Further, we do not think that such a narrowinterpretation of the word "record" was justified, in view of the object ofthe provision and the nature and scope of the power conferred upon theCommissioner. The revisional power conferred on the Commissionerunder Section 263 is of wide amplitude. It enables the Commissioner tocall for and examine the record of any proceeding under the Act. Itempowers the Commissioner to make or cause to be made such enquiryas he deems necessary in order to find out if any order passed by theassessing officer is erroneous in so far as it is prejudicial to the interestsof the revenue. After examining the record and after making or causing tobe made an enquiry if he considers the order to be erroneous then he canpass the order thereon as the circumstances of the case justify.Obviously, as a result of the enquiry he may come in possession of newmaterial and he would be entitled to take that new material into account. Ifthe material, which was not available to the Income-tax Officer when hemade the assessment could thus be taken into consideration by theCommissioner after holding an enquiry, there is no reason why thematerial which had already come on record though subsequently to themaking of the assessment cannot be taken into consideration by him.Moreover, in view of the clear words used in Clause (b) of the explanation to Section 263 (1), it has to be held that while calling for and examiningthe record of any proceeding under Section 263 (1) it is and it was opento the Commissioner not only to consider the record of that proceedingbut also the record relating to that proceeding available to him at the timeof examination……….. to Section 263 (1), it has to be held that while calling for and examiningthe record of any proceeding under Section 263 (1) it is and it was opento the Commissioner not only to consider the record of that proceedingbut also the record relating to that proceeding available to him at the timeof examination……….. ……..South India Steel Rolling Mills, Madras v. Commr. of Income-tax,Madras, (1997) 9 SCC 728 the Commissioner in exercise of his power underSection 263 had withdrawn the development rebate granted for the years 1962-63, 1963-64, 1967-68 and 1968-69 on the ground that since the partnershipstood dissolved on 3-3-1968 on the death of one of the two partners, before theexpiry of eight years the assessee firm was not entitled to the benefit of thedevelopment rebate under Section 33 (1) (a) of the Act. The said order passedby the Commissioner was challenged before the Tribunal but the assessee'sappeal had failed. At its instance the following question was referred to theMadras High Court :-"whether on the facts and circumstances of the case therevision of assessment under Section 263 by the Commissioner forwithdrawing the development rebate granted for Assessment Years 1962-63,1963-64, 1967-68 and 1968-69 is proper and justified. "the High Court alsodecided against the assessee. In the appeal filed by the assessee the order ofCommissioner was challenged inter alia on the ground that the power underSection 263 could have been invoked on the basis of the record as it stoodwhen the order was passed by the Income-tax Officer and that it was not opento the Commissioner to take into account dissolution of the assessee firm,which took place after passing of the assessment order because thatcircumstances was not disclosed by the record which was before the Income-tax Officer. Rejecting this contention this Court held "as regards histaking into consideration an event which had occurred subsequent to thepassing of the order by the Income-tax Officer, it may be stated that inExplanation (b) in Section 263 there is an express provision wherein it isprescribed that "record shall include and shall be deemed always to haveincluded all records relating to any proceeding under this Act available atthe time of examination by the Commissioner". The death of one of thetwo partners resulting in the dissolution of the assessee firm on accountof such death took place prior to the passing of the order by theCommissioner and it could, therefore, be taken into consideration by himfor the purpose of exercising his powers under Section 263 of the Act. "In that case also the amendment was held applicable to an order passedbefore 1/06/1988. We, therefore, hold that it was open to the Commissioner to takeinto consideration all the records available at the time of examination byhim and thus to consider the Valuation Report submitted by theDepartmental Valuation Cell subsequent to the passing of theassessment order and, so the order passed by him was legal. The HighCourt was wrong in taking a contrary view. We, therefore, allow this appeal, setaside the judgment and order passed by the High Court and answer thequestion referred to the High Court in the negative i. e. in favour of the Revenue and against the assessee. In view of the facts and circumstances of the case,there shall be no order as to costs. Appeal allowed. ….(emphasis supplied) We, therefore, hold that it was open to the Commissioner to takeinto consideration all the records available at the time of examination byhim and thus to consider the Valuation Report submitted by theDepartmental Valuation Cell subsequent to the passing of theassessment order and, so the order passed by him was legal. The HighCourt was wrong in taking a contrary view. We, therefore, allow this appeal, setaside the judgment and order passed by the High Court and answer thequestion referred to the High Court in the negative i. e. in favour of the Revenue and against the assessee. In view of the facts and circumstances of the case,there shall be no order as to costs. Appeal allowed. ….(emphasis supplied) In K.C.Rangaiah[7], for the assessment year 1980-81 theassessee firm was granted registration under Section 185 of theIncome Tax Act. In exercise of his revisional power under Section263, the Commissioner set aside the order of registration on12.8.1983. The assessee firm carried the matter in appeal beforethe Income Tax Appellate Tribunal and the Tribunal took the viewthat the Commissioner was in error in canceling the Registration. The question which arose before the Division Bench of this Courtwas whether Section 263 empowered, by amendment of FinanceAct 1988 with effect from 1.6.1988, to take into consideration thematerial which was not available on record at the time of grantingregistration and it is in this context that the Division Benchobserved:- “…….In K.a.Ramaswamy Chettiar v. CIT (1996) 220 ITR 657 (Mad) theassessee had purchased some properties. Without making any enquiriesabout the value of the properties, the order of assessment was made for theassessment years 1974-75 and 1975-76. It appears that search in thepremises of the sellers was conducted and certain documents were recoveredfrom their possession. On the basis of the record the Commissioner ofIncome Tax exercised jurisdiction under Section 263 of the Act and set asidethe assessment. On appeal, the order of the Commissioner was upheld bythe Income Tax Appellate Tribunal. On a reference to the High Court ofMadras, one of the questions that was referred related to exercise ofpower by the Commissioner under Section 263(1), based on materialwhich came to light after the order of assessment. The Division Bench ofthe Madras High Court has held that clause (b) of the Explanation wasinserted in section 263(1), which provides that the word “record” shallinclude and shall be deemed always to have included all records inrelation to any proceeding under the Act available at the time ofexamination of an order by the Commissioner to revise the same even ifthe order under revision was passed during the period prior to June 1,1988, and, therefore, the Commissioner could make use of the materialsgathered by him on the date when he assumed jurisdiction under section263 of the Act. It held that there was no infirmity in the order of the Tribunalupholding the order of the Commissioner. Here we refer to an earlier judgment of the Madras High Court in South India Steel Rolling Mills v. CIT (1982) 135ITR 322 which arose out of an order passed by the Commissioner in exerciseof revisional power under section 263(1) canceling development rebate grantedby the Income Tax Officer. There, both learned counsel conceded that theCommissioner had jurisdiction to take proceedings in exercise of the revisionalpower on the basis of the material which was not before the assessingauthority. That judgment of the Madras High Court was affirmed by theSupreme Court in South India Steel Rolling Mills v. CIT (1997) 224 ITR 654. Before the Supreme Court one of the contentions urged was that theCommissioner should not have invoked his jurisdiction under section 263 of theAct as the matter could have been dealt with by the Income Tax Officer inexercise of his power of rectifications under Section 155 of the Act. Thatcontention was negatived holding that the revisional power conferred on theCommissioner under section 263 is of wide amplitude and that power cannotbe limited with reference to section 155. It was observed as follows (page662). “As regards his taking into consideration an event which had occurred subsequent to thepassing of the order by the Income Tax Officer, it may be stated that Explanation (b) insection 263 there is an express provision wherein it is prescribed that ‘record shallinclude and shall be deemed always to have included all records relating to anyproceeding under this Act available at the time of examination by the Commissioner”. The death of one of the two partners resulting in the dissolution of the assessee-firm onaccount of such death took place prior to the passing of the order by the Commissionerand it could, therefore, be taken into consideration by him for the purpose of exercisinghis powers under section 263 of the Act” From the above observation of the Supreme Court it has to be nowtaken settled law that material which came to light, after the order of theIncome Tax Officer but before the revisional power was exercised, couldbe taken into consideration for exercise of revisional power underSection 263(1). …….(emphasis supplied)” Both the aforesaid judgments related to revision proceedingunder Section 263 of the Income Tax Act. Now the judgments under Section 264 of the Income Tax Act. In Ramdev Exports[8],it was contended on behalf of theassessee, that the assessee had not claimed certain deductionsunder Section 80 HHC at the time when the returns were filed and asthe facts with regards the eligibility of the assessee for the deductionhad come to the notice of assessee at a subsequent stage, therespondent ought to have entertained the revision application andshould not have rejected the revision application on the ground thatthe assessing officer had accepted the income of the assessee as returned. It is in this context that the Division Bench of the GujaratHigh Court observed:- “…….Upon perusal of the impugned order, we are of the opinion that therevisional authority did not exercise the jurisdiction vested in it. This court hasdecided in the case of C.Parikh and Co. v. CIT (1980) 122 ITR 610 and in thecase of Digvijay Cement Co. Ltd. v. CIT (1994) 210 ITR 797 (Guj) that it isopen to the revisional authority to look into the deductions, which might beclaimed by the assessee even for the first time. In other words, even if thereturn as submitted by the assessee is accepted by the Assessing Officerand if thereafter the assessee comes to know about some mistakecommitted, where either he was eligible for more deduction or had paidmore tax, he can definitely approach the revisional authority, and in suchan event, it is open to the revisional authority to exercise its jurisdictionunder Section 264 of the Act. In the instant case, it is very clear that, without going into the merits ofthe claim made by the assessee in the returns for the assessment yearsreferred to hereinabove, the revisional authority became technical and rejectedthe revision application merely on the ground that the deductions, which hadbeen claimed before the revisional authority, were not claimed before theAssessing Officer. …….”(emphasis supplied) In Smt.Phool Lata[9], the order declining to entertain theapplication for revision was passed by the Commissioner, underSection 264, on the ground that, despite being given an opportunity,the assessee had failed to produce the evidence regarding theinvestment made by him before the assessing officer and, therefore,the discretion under Section 264 need not be exercised inentertaining this application for revision for making an enquiry. Aggrieved thereby, the jurisdiction of the Calcutta High Court wasinvoked by the assessee. A Single Judge of the Calcutta HighCourt, while examining the power of revision under Section 264 ofthe Income Tax Act, observed: “…..According to me the Commissioner in this case on receipt of theapplication instead of relying solely on the reports or the records of thecase, should have made enquiry considering the documents placedbefore him by the petitioner. At least this should have been reflected inthe impugned order that he had taken note on the date of makingapplication of the revision, of the tax exempting investment. There mightbe varieties of reasons for not producing evidence at the time of the assessment, this does not mean that the assessee is precluded fromproducing evidence of contemporaneous nature at a later stage by filingan application for revision. The power under section 264 of theCommissioner in my opinion is to do the justice, to prevent miscarriageof justice being rendered. It appears from the records that the petitionerproduced unimpeachable documents showing investment which is otherwiseliable to be taken note of for granting exemption and if it were allowed by theCommissioner then the petitioner would not have suffered for over-assessment. The expression ‘order prejudicial” means the prejudicialeffect of an order passed by the revising officer on the merits…….”(emphasis supplied) As noted above, under Explanation (b) to Section 263(1), theword “record” shall include and shall always be deemed to haveincluded all the records, relating to any proceedings under the Act,which are available at the time of examination by theCommissioner. The words “shall be deemed always” would signifythat, even in cases where the orders of revision were passed prior tothe amendment, “records” would include those available at the timeof examination by the Commissioner and not merely those recordswhich were available before the assessing authority or thosereferred to in the order of assessment. It is significant to note thatwhile Parliament has chosen to insert Explanation (b) to Section263(1), by the Finance Act, 1988 with effect from 1.6.1988, no suchExplanation has been inserted to Section 264(1). The omission issignificant. Since the power of revision, under Section 263(1), isrequired to be exercised in cases where it is prejudicial to theinterests of revenue, the power of the Commissioner is not limitedonly to the material which was available before the assessing officerand, in order to protect the interests of revenue, the Commissioneris entitled to examine any other records which are available at thetime of examination by him and to take into consideration even thoseevents which arose subsequent to the order of assessment. Absence of a similar explanation under Section 264 (1) would necessitate the conclusion that the records, of any proceedingsunder the Act which the Commissioner is empowered to call for, arethe records of the proceedings before the assessing officer i.e., thematerial on record before the assessing officer and those reflectedin the assessment order including the assessment order itself. TheCommissioner, while exercising his powers of revision underSection 264, is not entitled to take into account any material whichnot placed before the assessing authority or events which took placesubsequent to the order of assessment. We must express ourinability to agree with the opinion of the Division Bench of theGujarat High Court, in Ramdev Exports[8], since the consciousomission by Parliament to insert a provision in Section 264(1),similar to Explanation (b) of Section 263(1), was not noticed. Theopinion of the Learned Single Judge of the Calcutta High Court inSmt.Phool Lata[9], does not commend to us. Since the “record”under Section 264(1) is only the record of proceedings before theassessing authority and, as the assessee did not claim any suchdeduction in the return filed by him before the assessing authority,he is not entitled to raise this question for the first time in revisionproceedings under Section 264(1) of the Act. The order of the Commissioner dated 29.12.2006 does notnecessitate interference in proceedings under Article 226 of theConstitution of India. The writ petition fails and is, accordingly,dismissed. However, in the circumstances, with costs.Date : .12.2007 __________________ BILAL NAZKI, ACJ __________________________ RAMESH RANGANATHAN,J Note:L.R. Copy be markedB/oASP/MRKR/USD [1](1973) 87 ITR 444[2](1977) 110 ITR 684[3](1993) 203 ITR 131[4](1978) 111 ITR (SC) 1[5](1984) 150 ITR 105[6](1998) 231 ITR 53)[7](1998) 230 ITR 385)[8](2001) 251 ITR 873[9](2005) 276 ITR 216