C. Parikh and Co. vs Commissioner of Income Tax, Baroda

R.C. Mankad, J.—The petitioner in this petition challenges the validity of the order dated January 18, 1979, passed by the Commissioner of

Income Tax, Baroda, holding to the effect that the mistake in respect of the purchases to the tune of Rs. 20,000 could not be the subject-matter of

revision petition under s. 264 of the Income Tax Act, 1961 (hereinafter referred to as ""the Act""), and prays for a writ of certiorari or a writ in the

nature of certiorari, or any other appropriate writ, direction and/or order under art. 226 of the Constitution of India quashing and setting aside the

said order to the extent it is prejudicial to the petitioner, and directing the Commissioner to revise the order of the ITO by reducing the assessed

income by Rs. 20,000 or, in the alternative, asking him to quash the order of the ITO and remanding the matter to the ITO to pass a fresh order

after considering all the relevant facts in the case.

The petitioner is a firm and it is assessed to Income Tax for the last many years. For the assessment year 1966-67, the petitioner submitted a

return of income showing a total income of Rs. 58,353. The petitioner has shown total sales of Rs. 17,29,051 and had disclosed gross profit of Rs.

1,79,761, which worked out to 10 per cent. as against 7 per cent. shown in the immediately preceding year. The ITO passed an assessment order

under s. 143(3) of the Act holding, inter alia, that though comparatively the gross profit had increased, in the absence of complete quantity details

and check on closing stocks etc., a lump sum addition of Rs. 1,000 to the book results disclosed by the petitioner was justified. In this view of the

matter, the ITO assessed the total income of the petitioner at Rs. 60,508. If may be pointed out that along with the return, the petitioner had filed

copies of the balance-sheet and profit and loss account. In the balance-sheet there was a difference of Rs. 19,989 on the assets side. But since by

this discrepancy, the petitioner was to lose and it did not affect the revenue, the ITO did not take it into account while passing the assessment

order.

After the assessment order was passed, the petitioner examined its books of account closely to find out the reasons for the difference in the

balance-sheet. On examining the books of account it detected a mistake in totalling of purchases at two places. As a result of the mistake, the

petitioner had under-totalled the purchases to the extent of Rs. 20,000. This had resulted in the disclosure of higher profit than the profit actually

earned by the petitioner. The petitioner, therefore, made an application under s. 264 of the Act to the Commissioner, Baroda, who is the

respondent in this petition. It was pointed out by the petitioner to the Commissioner that there was a mistake in totalling the purchases and as a

result of this mistake it had under-totalling the purchase to the tune of Rs. 20,000. It was further pointed out that on account of this under-totalling

the gross profit went up to 10% as against the gross profit of 7% in the preceding year. The petitioner further pointed out that if this mistake of

under-totalling of purchases to the tune of Rs. 20,000 was taken into account, the gross profit would work out to 9.2% which was higher than the

gross profit of 7% disclosed in the preceding year. The petitioner, therefore, requested the Commissioner to give him relief to the extent of Rs.

20,000 since the income was over-assessed to that extent.

The Commissioner by his order dated January 18, 1979, held that having regard to the facts and circumstances of the case, there was no

justification of making the lump sum addition of Rs. 1,000 to the trading results disclosed by the petitioner. In other words, he accepted the book

results did closed by the petitioner and deleted the addition of Rs. 1,000 made by the ITO. However, so far as the plea of the petitioner that it was

over-assessed on account of under-totalling of purchases to the extent of Rs. 20,000 was concerned, the Commissioner was of the view that the

question of over-assessment did not arise from the assessment order passed by the ITO and, therefore, it could not be the subject-matter of

revision application under s. 264 of the Act. The Commissioner was of the view that his revisionary powers did not extend to giving relief to an

assessee on account of the assessee''s own mistake which he detects after the assessment is completed. In this view of the matter, he refused to

give any relief of the petitioner in respect of the under-totalling of the purchase to the true of Rs. 20,000. The petitioner has challenged the

Commissioner''s order to the extent he has refused go give it relief in respect of the under-totalling of purchase to the extent of Rs. 20,000.

As pointed out above, the Commissioner has accepted the book results disclosed by the petitioner. He has held that in the facts and

circumstances of the case there was no justification to make the addition of Rs. 1,000 to the trading results disclosed by the petitioner. This would

clearly mean that he was accepting the trading results disclosed by the petitioner. So far as under-totalling of the purchases detected by the

petitioner after passing of the assessment order by the ITO is concerned, the Commissioner has not found that there is no under-totalling. It

appears from the order of the Commissioner that he was accepting the petitioner''s contention that there was an under-totalling of purchases to the

extent of Rs. 20,000 but he felt helpless and refused to give any relief to the petitioner as in his view he did not have power to revise the

assessment order under s. 264 of the Act so as to give relief to the petitioner on account of the petitioner''s own mistake detected after the

assessment was completed. Thus, there is no doubt that the Commissioner accepted the petitioner''s contention that there was under-totalling of

purchases to the extent of Rs. 20,000. The petitioner''s statement made in the petition that there was under-totalling of the purchases to the extent

of Rs. 20,000 is not disputed or controverted by any affidavit-in-reply. Since the Commissioner has accepted the book results disclosed by the

petitioner there is no question of disputing the purchases as disclosed by the books. In any case, as pointed out above, the petitioner''s statement

that there was under-totalling of purchases to the extent of Rs. 20,000 is not controverted by the Commissioner.

The only question which arises for out determinations whether the Commissioner, in exercise of powers under s. 264, could have given relief to

the petitioner in respect of the under-totalling of the purchases to the extent of Rs. 20,000. Section 264(1) which is relevant for our purpose reads

as under :

264(1) In the case of any order other than an order to which section 263 applies passed by an authority subordinate to him, the Commissioner

may, either of his own motion or on an application by the assessee for revision, call for the record of any proceedings under this Act in which any

such order has been passed 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 an order prejudicial to the assessee, as he thinks fit.

It is clear that under s. 264, the Commissioner is empowered to exercise revisional powers in favour of the assessee. In exercise of this power,

the Commissioner may, either of his own motion or on an application by the assessee, call for the record of any proceeding under the Act and pass

such order thereon not being an order prejudicial to the assessee, as the thinks fit. Sub-sections (2) and (3) of s. 264 provide for limitation of one

year for the exercise of this revisional power, whether suo motu, or at the instance of the assessee. Power is also conferred on the Commissioner

to condone delay in case he is satisfied that the assessee was prevented by sufficient cause from making the application within the prescribed

period. Sub-section (4) provides that the Commissioner has no power to revise any order under s. 264(1) : (i) while an appeal against the order is

pending before the AAC, and (ii) when the order has been subject to an appeal to the Income Tax Appellate Tribunal. Subject to the above

limitation, the revisional powers conferred on the Commissioner under s. 264 are very wide. He has the discretion to grant or refuse relief and the

power to pass such order in revision as he may think fit. The discretion which the Commissioner has to exercise is undoubtedly to be exercised

judicially and not arbitrarily according to his fancy. Therefore, subject to the limitation prescribed in s. 264, the Commissioner in exercise of his

revisional power under the said section may pass such order as he thinks fit which is not prejudicial to the assessee. There is nothing in s. 264

which places any restriction on the Commissioner''s revisional power to give relief to the assessee in a case where the assessee detracts mistakes

on account of which he was over-assessed after the assessment was completed. We do not read any such embargo in the Commissioner''s power

as read by the Commissioner in the present case. It is open to the Commissioner to entertain even a new ground not urged before the lower

authorities while exercising revisional powers. Therefore, though the petitioner had not raised the grounds regarding under-totalling of purchases

before the ITO, it was with in the power of the Commissioner of admit such a ground in revision. The Commissioner was also not right in holding

that the over-assessment did not arise from the order the assessment. Once the petitioner was able to satisfy that there was a mistake in totalling

purchases and that there was under-totalling of purchases to the tune of Rs. 20,000, it is obvious that there was over-assessment. In other words,

the assessment of the total income of the assessee is not correctly made in the assessment order and it has resulted in over-assessment. The

Commissioner would not be acting de hors the I.T. Act, if he gives relief to the assessee in a case where it is proved to his satisfaction that there is

over-assessment, whether such over-assessment is due to a mistake detected by the assessee after completion of assessment or otherwise. In our

opinion, the Commissioner has misconstrued the words ""subject to the provisions of this Act"" in s. 264(1) and read a restriction on his revisional

power which does not exist. The Commissioner was, therefore, not right in holding that it was not open to him to give relief to the petitioner on

account of the petitioner''s own mistake which it detected after the assessment was completed. Once it is found that there was a mistake in making

an assessment, the Commissioner had power to correct it under s. 264(1). In our opinion, therefore, the Commissioner was wrong in not giving

relief to the petitioner in respect of over-assessment as a result of under-totalling of the purchases to the extent of Rs. 20,000.

In the result, we allow this petition, quash and set aside set order, annex. ""C"", passed by the Commissioner, respondent herein, to the extent he

has refused to give relief to the petitioner in respect of the under-totalling of purchases to the extent of Rs. 20,000 and direct the Commissioner to

revise the order of the ITO by the reducing the assessed income by Rs. 20,000.

Rule made absolute accordingly. Respondent to pay the costs to the petitioner.