Commissioner of Income Tax vs Amin Chand Vir Chand

Gokal Chand Mital, J.—The assessee filed a return for the assessment year 1973-74 declaring an income of Rs. 37,310. By order dated March 30, 1976, the Income Tax Officer determined the income of the assessee at Rs. 1,42,670.

When the aforesaid order came to the notice of the Commissioner of Income Tax, he issued a notice u/s 263 of the Income Tax Act, 1961 (for short "the Act"), to the assessee indicating that since the Income Tax Officer has made an addition of more than Rs. one lakh to the declared income, he had to send the draft assessment order to the assessee inviting objections, if any, to the proposed addition as required u/s 144B of the Act and since he did not comply with the aforesaid provision, the order was erroneous and prejudicial to the interests of the Revenue. The assessee appeared before the Commissioner and pleaded that the provisions of Section 263 of the Act could be invoked only where a valid assessment order had been passed and when it was shown to be erroneous and prejudicial to the interests of the Revenue, and since the order was without jurisdiction, the Commissioner could not invoke the jurisdiction u/s 263 of the Act. The Commissioner was also informed by the assessee that it had filed an appeal against the order of the Income Tax Officer. The Commissioner proceeded to decide the matter after rejecting the arguments raised on behalf of the assessee. He came to the conclusion that the Income Tax Officer did not comply with the provisions of Section 144B of the Act and thus the order was erroneous and prejudicial to the interests of the Revenue. As a result, the order of the Income Tax Officer was set aside and the matter was remanded to him to make fresh assessment in accordance with the provisions of the Act. Since the order of the Income Tax Officer was set aside, the appeal filed by the assessee against the order of the Income Tax Officer was dismissed as the order of the Income Tax Officer was no longer in existence.

Against the aforesaid order, the assessee took the matter in appeal before the Tribunal and by order dated April 30, 1979, the appeal was allowed with the following observations :

"Since he has not shown what prejudice was caused or was likely to be caused to the Revenue by the Income Tax Officer''s order if allowed to stand, we must strike down the Commissioner''s order as bad in law."

The Tribunal was of the view that in order to acquire jurisdiction u/s 263 of the Act to revise, it must be shown that the order of the Income Tax Officer was erroneous and prejudicial to the interests of the Revenue but no finding was recorded that the order was prejudicial to the interests of the Revenue.

On these facts, the following question of law has been referred for the opinion of this court:

"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal erred in holding that the Commissioner of Income Tax assumed jurisdiction u/s 263 of the Income Tax Act, without showing in his order the existence of jurisdictional facts ?"

We have gone through the order of the Commissioner passed u/s 263 of the Act and from the following observations made by him in his order, we are of the opinion that he was alive to the point that he will have jurisdiction only if the order of the Income Tax Officer is erroneous and prejudicial to the interests of the Revenue.

"The order was made without complying with the provisions of Section 144B of the Income Tax Act and, therefore, the said order was erroneous in so far as it was prejudicial to the interests of the Revenue. The facts of the case are that while computing the income in respect of the assessment year 1973-74, the Income Tax Officer made an addition of more than rupees one lakh to the income disclosed in the return, but he did not send the draft assessment order to the assessees inviting his objections, if any, to the proposed addition as required u/s 144B and passed the assessment order. Since the Income Tax Officer did not comply with the provisions of Section 144B of the Income Tax Act, 1961, the order was erroneous and as such prejudicial to the interests of the Revenue. In his reply, the assessee has stated that Section 263 could be invoked in a case where a valid order has been passed by the Income Tax Officer which is prejudicial to the interests of the Revenue. . . . Before the Appellate Authority decides upon the validity or invalidity of the order, the order is a valid order and the Commissioner of Income Tax has every right to review it u/s 263 if he thinks that it is prejudicial to the interests of the Revenue."

He was clearly of the opinion that it was prejudicial to the interests of the Revenue, and prejudice on the given facts was not only evident and apparent on the face of the record but was clearly writ large by the unenforceability of the erroneous order passed by the Income Tax Officer without following the procedure laid down u/s 144B of the Act.

We had occasion to deal with a somewhat similar case in I. T. R. No. 4 of 1980, Commissioner of Income Tax Vs. Des Raj Kul Bhushan, , and by order dated November 22, 1988, we had concluded that the prerequisites for a valid order by the Commissioner u/s 263 of the Act were present in that case and the Tribunal was in error in coming to the conclusion that the Commissioner had wrongly assumed jurisdiction.

In view of the above, we answer the referred question in favour of the Revenue, that is, in the affirmative, to the effect that the Tribunal erred in holding that the Commissioner of Income Tax assumed jurisdiction u/s 263 of the Act without showing in his order the existence of jurisdictional facts. To our mind, the Commissioner passed a valid order. Since none has appeared on behalf of the assessee, we make no order as to costs.