Wp(C)/14030/2022 Of Prestige Marketing Division v. Principal Commissioner Of Income Tax

WP(C) No. 14030 of 2022 IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE C.S.DIAS FRIDAY, THE 8 DAY OF SEPTEMBER 2023 / 17TH BHADRA, 1945 WP(C) NO. 14030 OF 2022 PETITIONER/S: M/S PRESTIGE MARKETING DIVISIONIX/28A ID AREA, A.M.ROAD, ERUMATHALA, ALUVA-683 112, KERALA, REPRESENTED BY ITS MANAGING PARTNER, MR.C.A.SUBAIRBY ADVS.ANIL D. NAIRTELMA RAJUBIJU.P.KEDATHARA VINEETA KRISHNAN IX/28A ID AREA, A.M.ROAD, ERUMATHALA, ALUVA-683 112, RESPONDENT/S: 1PRINCIPAL COMMISSIONER OF INCOME TAXCENTRAL REVENUE BUILDING, IS PRESS ROAD, COCHIN-692 0182THE ASSISTANT COMMISSIONER OF INCOME TAX,CIRCLE-1, ALUVA-683 101 BY ADV CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT THIS WRIT PETITION (CIVIL) HAVING FINALLY HEARD ON3.8.2023. THE COURT ON 8.9.2023 DELIVERED THE FOLLOWING: WP(C) No. 14030 of 2022 C.S DIAS,J. --------------------------- WP(C) No. 14030 of 2022 ----------------------------- Dated this the 8[th] day of September, 2023 JUDGMENT The writ petition is filed to quash Ext P5 order passed by the Principal Commissioner of Income Tax - the first respondent. 2. The brief relevant facts for the determination of the writ petition are: (i) The petitioner is a partnership firm doing business in PVC pipes. It is an assessee under the Income Tax Act, 1961 (for brevity, ‘Act’). (ii) The petitioner had filed its return of income for the assessment year 2017-2018 declaring a total income of Rs.65,12,480/-. WP(C) No. 14030 of 2022 (iii) The return was taken up for scrutiny and the assessment was completed on 16.12.2019, by Ext P1 order, under Sec.143(3) of the Act. (iv) Aggrieved by Ext P1 Assessment Order (A.O), the petitioner has preferred a statutory appeal before the Commissioner of Income Tax (Appeals) (for brevity, ‘CIT(Appeals)’) and the matter is sub-judice. Ext P2 isthe acknowledgment slip. (v) While so, the petitioner was served with Ext P3 notice by the first respondent stating that he wasproposing to reopen Ext P1 A.O under Sec.263 of the Act. The petitioner had submitted Ext P4 reply to Ext P3notice, inter alia, contending that the subject-matter in the proposed revision is sub-judice in the appeal before the CIT(Appeals). Therefore, the first respondent may WP(C) No. 14030 of 2022 not invoke his jurisdiction under Sec.263 of the Act, especially in view of the express prohibition under Explanation I (c) of sub-sec.(1) of Sec.263 of the Act. (vi) Even though the petitioner was heard, the first respondent has passed Ext P5 order. (vii) Ext P5 order is patently illegal, arbitrary and unauthorised in law. Hence the writ petition. 3. The learned Standing Counsel appearing for the respondents has filed a statement refuting the allegations in the writ petition and, inter alia, contending that the assertion in the writ petition that clause (c) of Explanation I of Sec.263 (1) of the Act ousts therevisional power of the first respondent, while an appealis pending, is untenable. In the case on hand, as theappeal is pending consideration, the above provision WP(C) No. 14030 of 2022 cannot be pressed into service. The said provision is based on the principle of doctrine of merger. Where anissue in the assessment order is neither agitated beforethe CIT(Appeals) nor has been considered by him, thatportion of the assessment order will not merge with theorder of CIT(Appeals). The first respondent has rightlyand judicially exercised his powers, under Sec.263 ofthe Act, to correct an error committed by the AssessingOfficer in applying the correct rate of tax applicable tothe additions by way of income made in the assessment.The petitioner has challenged only the additions made tothe total income in the A.O. Therefore, the jurisdictionexercised by the first respondent is in consonance withthe provisions of Sec.263 of the Act. The writ petitionis devoid of any merits and is liable to be dismissed. WP(C) No. 14030 of 2022 based on the principle of doctrine of merger. Where anissue in the assessment order is neither agitated beforethe CIT(Appeals) nor has been considered by him, thatportion of the assessment order will not merge with theorder of CIT(Appeals). The first respondent has rightlyand judicially exercised his powers, under Sec.263 ofthe Act, to correct an error committed by the AssessingOfficer in applying the correct rate of tax applicable tothe additions by way of income made in the assessment.The petitioner has challenged only the additions made tothe total income in the A.O. Therefore, the jurisdictionexercised by the first respondent is in consonance withthe provisions of Sec.263 of the Act. The writ petitionis devoid of any merits and is liable to be dismissed. WP(C) No. 14030 of 2022 4.The petitioner has filed a reply affidavit denying the assertions in the statement. It is asserted that Explanation I (c) of sub-sec.(1) of Sec.263 of the Acthas two limbs. The first limb deals with while the matteris sub-judice before the First Appellate Authority and thesecond one deals with when the matter has been decidedin the appeal. Hence, in those matters decided in theappeal, the doctrine of merger applies. The subjectmatter in dispute in the appeal and the revision is oneand the same, and is hence statutorily barred. In theinstant case, the assessing authority, after conducting adetailed inquiry, has held that the income is from othersources. It is this turnover which is made the subject-matter of revision, on the premise that it is to beassessed at higher rate of tax under Section 115 BBE as WP(C) No. 14030 of 2022 unexplained credit. Therefore, the revisional authority ought not to have exercised its jurisdiction under Sec.263 of the Act. Hence, the writ petition may be allowed. 5.Heard; Sri.Anil D.Nair, the learned Counsel appearing for the petitioner and Sri.Christopher Abraham, the learned Standing Counsel appearing forthe respondents. 6.Sri.Anil D.Nair reiterated the contentions in the writ petition and in the reply affidavit. He argued thatthe action of the first respondent in initiating a suo-moturevision and passing Ext P5 order, during the pendencyof the appeal, is illegal and has caused substantialprejudice to the petitioner. In fact, Ext P5 order hasrendered the appeal otiose and leaving the petitioner highand dry. He placed reliance on the decisions of the WP(C) No. 14030 of 2022 Madras High Court in Commissioner of Income Tax vs Vam Resorts and Hotels Pvt. Ltd [(2018) 409 ITR567] and the Allahabad High Court in CIT v. VamResorts and Hotels P. Ltd [(2019) 418 ITR 723] tofortify his contentions. 7.Sri.Christopher Abraham strenuously defendedExt P5 order and argued that the first respondent hasunbridled powers to revise an order passed by theassessing authority, during the pendency of an appealunder Sec.263 of the Act, when it is noticed that theAssessing Officer has committed a patent illegality. Heargued that as the assessing authority had applied thewrong rate of tax, it is well within the domain andpowers of the first respondent to exercise his revisionalpowers. He submitted that the petitioner has an WP(C) No. 14030 of 2022 alternative and efficacious statutory remedy. Hence, no prejudice will be caused to the petitioner. He placed emphasis on the decisions of the Honourable SupremeCourt inCommissioner of Income Tax vs. Commissioner of Income Tax vs. Shri.Arbuda Mills Ltd. [(1998) 231 ITR 50 (SC)], Commissioner of Income Tax vs. Jayakumar B. Patil[(1999) 236 ITR 469 (SC)] and EIMCO K.C.P Ltd vs.Commissioner of Income Tax [(2000) 242 ITR 659(SC)] and the decision of this Court in KelpunjEnterprises vs. Commissioner of Income Tax , Kerala[ (1977) 108 ITR 294 (Ker)] to buttress his contentions. He prayed that the writ petition may be dismissed. 8.The point is whether there is any illegality inExt P5 order. WP(C) No. 14030 of 2022 9.Aggrieved by Ext P1 A.O, the petitioner has alternative and efficacious statutory remedy. Hence, no prejudice will be caused to the petitioner. He placed emphasis on the decisions of the Honourable SupremeCourt inCommissioner of Income Tax vs. Commissioner of Income Tax vs. Shri.Arbuda Mills Ltd. [(1998) 231 ITR 50 (SC)], Commissioner of Income Tax vs. Jayakumar B. Patil[(1999) 236 ITR 469 (SC)] and EIMCO K.C.P Ltd vs.Commissioner of Income Tax [(2000) 242 ITR 659(SC)] and the decision of this Court in KelpunjEnterprises vs. Commissioner of Income Tax , Kerala[ (1977) 108 ITR 294 (Ker)] to buttress his contentions. He prayed that the writ petition may be dismissed. 8.The point is whether there is any illegality inExt P5 order. WP(C) No. 14030 of 2022 9.Aggrieved by Ext P1 A.O, the petitioner has preferred a statutory appeal before the CIT(Appeals) on15.1.2020. 10. It is during the pendency of the appeal that the first respondent issued Ext P3 show cause notice dated 21.2.2022, to the petitioner on the finding that, out of the total addition of Rs.3,35,33,509/- in Ext P1 A.O, only an amount of Rs.68,25,000/- was taxed at the special rate under Sec.69 read with Sec.115BBE of the Act and balance amount of Rs.2,67,08,509/- was assessed to tax at normal rates, treating it as ‘income from other sources’. The first respondent has found the assessment not in order because the petitioner had not produced any proof to get the benefit of normal rate of tax. WP(C) No. 14030 of 2022 11. Even though the petitioner submitted Ext P4 reply to Ext P3 show cause notice, the first respondent, by the impugned Ext P5 order, set aside Ext P1 A.O and directed the Assessing Officer to pass a speaking order inaccordance with law, after affording the petitioner anopportunity of being heard. 12. It is this action of the first respondent that is assailed in the writ petition. 13. Sec.263 of the Income Tax Act reads thus: 263 (1) .The Principal Chief Commissioner or Chief Commissioner orPrincipal Commissioner or Commissioner may call for and examine therecord of any proceeding under this Act, and if he considers that any orderpassed therein by the Assessing Officer is erroneous in so far as it isprejudicial to the interests of the revenue, he, may, after giving the assesseean opportunity of being heard and after making or causing to be made suchinquiry as he deems necessary, pass such order thereon as thecircumstances of the case justify, including an order enhancing or modifyingthe assessment, or cancelling the assessment and directing a freshassessment. Explanation I - For the removal of doubts, it is hereby declared that, for thepurposes of this sub- section,- (a) an order passed on or before or after the 1st day of June, 1988 bythe Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner orDeputy Commissioner or the Income- tax Officer on the basis of the directionsissued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powersor in the performance of the functions of an Assessing Officer conferred on, orassigned to, him under the orders or directions issued by the Board or by thePrincipal Chief Commissioner or Chief Commissioner or Principal DirectorGeneral or Director General or Principal Commissioner or Commissionerauthorised by the Board in this behalf under section 120; (b)" record" shall include and shall be deemed always to haveincluded all records relating to any proceeding under this Act available at thetime of examination by the Principal [Chief Commissioner or ChiefCommissioner or Principal ] Commissioner or Commissioner; (ii) an order made by the Joint Commissioner in exercise of the powersor in the performance of the functions of an Assessing Officer conferred on, orassigned to, him under the orders or directions issued by the Board or by thePrincipal Chief Commissioner or Chief Commissioner or Principal DirectorGeneral or Director General or Principal Commissioner or Commissionerauthorised by the Board in this behalf under section 120; (b)" record" shall include and shall be deemed always to haveincluded all records relating to any proceeding under this Act available at thetime of examination by the Principal [Chief Commissioner or ChiefCommissioner or Principal ] Commissioner or 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 orbefore or after the 1st day of June, 1988 , the powers of the ** PrincipalCommissioner or Commissioner under this sub-section shall extend and shallbe deemed always to have extended to such matters as had not beenconsidered and decided in such appeal. (a) the order is passed without making inquiries or verification whichshould have been made; WP(C) No. 14030 of 2022 (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order,direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decisionwhich is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.". (2). No order shall be made under sub- section (1) after the expiry of twoyears from the end of the financial year in which the order sought to berevised was passed. (3). Notwithstanding anything contained in sub- section (2), an order inrevision under this section may be passed at any time in the case of an orderwhich has been passed in consequence of, or to give effect to, any finding ordirection contained in an order of the Appellate Tribunal (National TaxTribunal), the High Court or the Supreme Court. Explanation.- In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to bereheard under the proviso to section 129 and any period during which anyproceeding under this section is stayed by an order or injunction of any courtshall be excluded. 14. Interpreting Sec.263 of the Act, in Kelpunj Enterprises vs. Commissioner of Income Tax (supra), this Court has held thus: “ It is significant that there is no such restriction in the exercise ofpower conferred by section 263 on the Commissioner to revise an order ofthe Income-tax Officer. The vital departure in the language employed in thetwo sections has to be given its due weight. The restriction in the powers ofthe Commissioner in terms provided by sub-section (4) of section264 contrasts with the wider and apparently unlimited power given by section263. We have, therefore, to respect the intent to the legislature whichappears to us to be obvious that the power under section 263 is notinhibited by the pendency of any appeal before the Appellate AssistantCommissioner. If the appellate authority had disposed of the appealbefore the Commissioner could pass an order under section263 another question may arise on the ground of merger of the order ofthe Income-tax Officer in the appellate order. But that question does notarise before us for the interference in this case had been during thependency of the appeal and before it was disposed of by the AppellateAssistant Commissioner. We must not, therefore, examine that question. (emphasis given) 15. InCommissioner of Income Tax vs. Shri.Arbuda Mills Ltd (supra) , the Hon’ble SupremeCourt has held as follows: (emphasis given) 15. InCommissioner of Income Tax vs. Shri.Arbuda Mills Ltd (supra) , the Hon’ble SupremeCourt has held as follows: “The consequence of the said amendment made with retrospective effect isthat the powers under Section 263 of the Commissioner shall extend and shallbe deemed always to have extended to such matters as had not been WP(C) No. 14030 of 2022 considered and decided in an appeal. Accordingly, even in respect of theaforesaid three items, the powers of the Commissioner under Section263 shall extend and shall be deemed always to have extended to thembecause the same had not been considered and decided in the appeal filed bythe assessee. This is sufficient to answer the question which has beenreferred.” 16. In EIMCO K.C.P Ltd vs. Commissioner of Income Tax (supra), the Hon’ble Supreme Court, after referring to the decision of this Court in Kelpunj Enterprises, has reiterated the legal proposition that the Commissioner can interfere with the order of the Income Tax Officer on a point which was directly in appealbefore the Appellate Assistant Commissioner underSec.263 of the Act. 17. In view of the categoric declaration of law in the afore-cited decisions, I am unable to accept the WP(C) No. 14030 of 2022 contention of the petitioner that the first respondent does not have the power to pass Ext P5 order because the appeal is pending consideration before the CIT(Appeals). Going by the law referred to above, the first respondent has the revisional power to interfere with assessmentorder as provided under Sec.263 of the Act, till thedisposal of the appeal. Furthermore, I do not find anyprejudice being caused to the petitioner because, if at allthe petitioner is aggrieved by the order that is to bepassed by the Assessing Officer, in compliance with thedirection in Ext P5 order, the petitioner can very well challenge the said order also in an appeal,notwithstanding the pendency of the appeal filed againstExt P1 order. WP(C) No. 14030 of 2022 Resultantly, I dismiss the writ petition, reserving the right of the petitioner to challenge the order, if soadvised, proposed to be passed by Assessing Officer pursuant to Ext P5 order, in accordance with law,notwithstanding the challenge against Ext P1 order. SD/- sks/4.9.2023 C.S.DIAS, JUDGE APPENDIX OF WP(C) 14030/2022 PETITIONER EXHIBITSExhibit P1Exhibit P2Exhibit P3Exhibit P4Exhibit P5 TRUE COPY OF ASSESSMENT ORDER DATED 16.12.2019 ISSUED BY THE 2ND RESPONDENT.TRUE COPY OF THE ACKNOWLEDGEMENT OF HAVING FILED THE APPEAL ALONG WITH APPEAL.TRUE COPY OF THE NOTICE DATED 21.2.2022 ISSUED BY 1ST RESPONDENT.TRUE COPY OF THE REPLY DATED 15.03.2022 FILED BY THE PETITIONERTRUE COPY OF THE ORDER DATED 30.03.2022 ISSUED BY 1ST RESPONDENT.