Commissioner of Income Tax vs Kailash Chand Methi

Jainendra Kumar Ranka, J.—This appeal under s. 260A of the I.T. Act, 1961 (for short, "I.T. Act") has been preferred by the appellant-Revenue against the order of the Tribunal dt. 28th July, 2011 passed in ITA No. 2191/Jp/2011 by which the Tribunal has allowed the appeal filed by the respondent-assessee against the order of the CIT, Kota. The relevant assessment year is the asst. yr. 2006-07. The brief facts, as emerging on the face of record, are that the respondent-assessee submitted a return of income for the asst. yr. 2006-07 on 30th Oct., 2006 declaring an income of Rs. 2,32,969. An assessment under s. 143(3) of the I.T. Act came to be made by the AO wherein the income was computed and assessed at Rs. 6,81,500 vide order dt. 30th Sept., 2008 after analyzing various claims made by the respondent-assessee. It is apparent that an addition of about Rs. 4,50,000 was made by the AO.

Aggrieved by the said order, the assessee filed an appeal before the CIT(A), who, after analyzing the grounds raised by the respondent-assessee, partly allowed the appeal of the respondent-assessee vide order dt. 19th March, 2010. It appears that the said order became final and neither the respondent-assessee nor the appellant-Revenue preferred appeal before the Tribunal.

The CIT (Administration), Kota, having powers of revision, issued a show-cause notice under s. 263 of the I.T. Act on 29th Oct., 2009 on the premise that the order passed by the AO on 30th Sept., 2008 was erroneous insofar as it is prejudicial to the interest of the appellant-Revenue.

The respondent-assessee appeared before the CIT (Administration) and filed detailed submissions. The CIT (Administration) was satisfied and dropped the proceedings under s. 263 vide order dt. 4th May, 2010.

Subsequent to this order, after change of the CIT, the subsequent CIT (Administration) issued another show-cause notice under s. 263 of the I.T. Act r/w s. 154 of the Act dt. 17th Jan., 2011 for this very assessment year wherein he was of the view that assessment order dt. 30th Sept., 2008 was erroneous and prejudicial to the interest of the respondent-Revenue and the previous CIT has not reviewed all aspects while passing order under s. 263 of the Act and accordingly the CIT, Kota vide order dt. 1st Feb., 2011 set aside the order of the AO dt. 30th Sept., 2008 and also observed that the AO, who passed the order on 30th Sept., 2008, had no jurisdiction to complete the assessment as the income of the subsequent asst. yr. 2007-08 was over rupees five lac and as per the circular of the Addl. CIT, Range, Sawai Madhopur, the jurisdiction has to be seen on the basis of income as on 1st April. 2001 and on 1st April of every subsequent year thereafter. Therefore, the CIT was of the opinion that since the return of income for the asst. yr. 2007-08 was over rupees five lac and, as such, the jurisdiction lay with Dy. CIT/Asstt. CIT and not the AO. Thus, the CIT concluded that order under s. 143(3) itself was without authority and invalid, hence the AO, having proper jurisdiction, should reassess the returned income again.

This order of the CIT under s. 263 was assailed by the respondent-assessee before the Tribunal, who, vide order dt. 28th July, 2011 quashed the order under s. 263 and sustained the original order dt. 30th Sept., 2008. This is assailed before us by the appellant-Revenue by filing the instant appeal.

Smt. Parinitoo Jain, learned counsel for the appellant-Revenue submitted that the order of the Tribunal is unjustified since as per the circular of the Addl. CIT, the ITO had no jurisdiction to assess the return under s. 143(3) of the Act and since the assessment order was passed by the lower authority i.e. the ITO who had no jurisdiction, therefore, the CIT initiated proceedings under s. 263 validly and was justified in quashing the said assessment. She contended that the AO, assessing originally, overlooked various claims and in summary manner considered the issue and did not touch upon the vital issues which had far reaching consequences. Had the AO, assessing originally, been vigilant, then he could have looked into the issues more appropriately. She contended that had the things been looked into by the higher authority in correct perspective, possibly so many lacunae might not have been left by the AO. She contended that the Tribunal grossly erred in quashing the order of the CIT and submitted that substantial questions of law emerge out of the order of the Tribunal and need consideration by this Court.

We have heard learned counsel for the petitioner and considered the arguments advanced by her and on perusal of the impugned order, we are not satisfied with the contentions raised by the counsel for the Revenue, particularly, in view of the fact that a return was submitted by the respondent-assessee before the concerned authority who had jurisdiction over the case on the date of filing of the return and it was not the duty of the respondent-assessee to find out about an internal circular that jurisdiction lay over the case with the Dy. CIT/Asstt. CIT. The respondent-assessee appeared number of times before the AO who issued show-cause notice under s. 143(2) and even after number of hearings, the ITO, Ward No. 2, Sawai Madhopur made additions to the tune of about Rs. 4,50,000 and the matter even travelled before the CIT(A) who allowed the appeal in part.

It is also an admitted fact that one CIT (Administration) had issued notice under s. 263 dt. 29th Oct., 2009 and he also being satisfied dropped the proceedings under s. 263 of the I.T. Act and it would be fruitful to quote para. 6 for the present purpose which is reproduced ad infra:

"Considering the submission and facts of the case, it is noticed that issue involved have been examined by the AO on the basis of submission/details made by the assessee. The major issue regarding obtaining confirmations of advance given to farmers, the assessee has submitted that same are brought forward from previous years. The assessee has also received interest of Rs. 4,18,328 on various advances given. The AO has made substantial addition/disallowances aggregating to Rs. 4,45,526 while framing the order under S. 143(3) out of which some of the issues are subject-matter of issuance of notice under the present proceedings. It would be incorrect to deviate from the view taken by the AO and frame a different view now. Considering overall facts and circumstances of assessee''s case, the proceedings initiated under s. 263 of the I.T. Act 1961 are dropped."

Even the said CIT while dropping the proceedings on 4th May, 2010, did not observe as to whether jurisdictional error was there and therefore, in our view, the CIT, in the present order under s. 263 was not justified in reinitiating proceedings under s. 263 mainly on this premise about jurisdiction. There was no fault of the respondent-assessee. The respondent-assessee appeared before the AO who issued valid notice and AO had the authority to issue notice under s. 143(2) as aforesaid and complied with the requirements raised by him. The respondent-assessee may not be aware of such requirements and for this the respondent-assessee cannot be subjected to fresh innings at the hands of another AO.

It would be fruitful to quote s. 263(1) of the I.T. Act, 1961 which provides as under:

"Sec. 263--Revision of orders prejudicial to Revenue.--(1) The CIT may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the AO is erroneous insofar as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and 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 an order enhancing or modifying the assessment, or cancelling the assessment and 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 the AO shall include--

(i) an order of assessment made by the Asstt. CIT or Dy. CIT) or the ITO on the basis of the directions issued by the Jt. CIT under s. 144A;

(ii) an order made by the Jt. CIT in exercise of the powers or in the performance of the functions of an AO conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief CIT or Director General or CIT authorised by the Board in this behalf under s. 120;

(b) "record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the CIT;

(c) where any order referred to in this sub-section and passed by the AO had been the subject-matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the CIT under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal."

Admittedly, the assessment order was challenged before the CIT(A) who also allowed part relief and even upto the stage of the order of the subsequent CIT, Kota who dropped the proceedings under s. 263 on 4th May, 2010, the respondent-assessee was not made aware of the jurisdictional issue.

It may also be observed that the notice under s. 143(2) was issued on 11th Jan., 2007 by the ITO and at that particular time, the income for the subsequent assessment year i.e. the asst. yr. 2007-08 was not submitted rather the financial year had not ended by then and in our view, the ITO assumed valid jurisdiction. The return for the asst. yr. 2007-08 was submitted on 31st Aug., 2007 and in our view merely because assessment order was passed after 31st Aug., 2007, the order passed by the ITO on 30th Sept., 2008 cannot be said to be without jurisdiction rather, the assessment order, passed on 30th Sept., 2008, can be said to be with jurisdiction and validly passed.

We are also of the view that there is no provision either under s. 154 or under s. 263(1) to inform the CIT to issue show-cause notice under s. 263 by the lower authorities as the CIT only has the jurisdiction to issue show-cause notice under s. 263 if he himself is satisfied after examining the records of the assessment order passed by the AO which falls under his jurisdiction and the CIT also gets power of revision if the twin conditions are satisfied that the order passed by the AO is erroneous insofar as it is prejudicial to the interest of the Revenue.

Revisional power conferred on the CIT under s. 263 of the Act is wide, it enables the CIT to call for and examine the record of the case or pass any order under the Act and also empowers him to make or cause to be made such an inquiry as he deems fit and necessary in order to find out, if the order passed by the AO is erroneous insofar as it is prejudicial to the interest of Revenue, however, he has to have certain material to come to the conclusion. Once, he comes to the above conclusion that there is material, the CIT is empowered to pass an order as per the circumstances of the case which may warrant as he is empowered to take recourse to any of the three courses indicated in s. 263 only. Therefore, it is clear that CIT does not have un-fettered and unchequered discretion/power to revise the order. He can do so within the bounds of the law and has to satisfy the need of fairness in action and fair play with due respect to the principles of audi alteram partem as envisaged in the Constitution. The law is well settled that the CIT cannot invoke the powers to correct each and every mistake or error committed by the AO. Every loss to the Revenue cannot be treated as prejudicial to the interest of the Revenue and if the AO has adopted one of the courses permissible under the law or where two views are possible and the AO has taken one view which the CIT does not agree, it cannot be treated as an order erroneous and prejudicial to the interest of the Revenue, the AO exercises quasi judicial power vested in him and if he exercises such powers in accordance with law and arrives at a just conclusion such conclusion cannot be termed to be erroneous only because the CIT does not feel satisfied with the conclusion.

We are also of the view that the CIT in the subsequent order passed under s. 263 held that the assessment order was without jurisdiction and is not valid order and in our view, original order passed under s. 143(3) and 263 cannot be rectified either under s. 154 or under s. 263 of the Act through the revisional power conferred on the CIT under s. 263.

As discussed hereinabove, the AO had the jurisdiction when the notice under s. 143(2) was issued and once the ITO had valid jurisdiction at the time of issuance of notice, then the AO ought to have informed the assessee if there was some internal circular. The CIT later on was of the view that the ITO had no jurisdiction and in our view, it cannot be said to be proper as the assessee appeared on valid notice and after considering all the submissions or representation, the ITO passed an order. It is not a case where the ITO passed order in a cryptic or summary manner accepting the returned income and we notice that the assessment order is running into 12 pages and after elaborate discussion on most of the issues, the income was computed/assessed at Rs. 6,81,500. As pointed out here above, twin conditions have to be satisfied and the order cannot be termed to be erroneous only because the CIT does not feel satisfied with the conclusion. We have already referred to the fact that one CIT also issued notice under s. 263 for the same assessment year between the same parties and he having been satisfied dropped the proceedings and it is only thereafter that another CIT came to the conclusion about jurisdiction while the earlier CIT was also aware of this factum but did not raise this issue. Before parting, we also wish to state that if the CIT was of the view that the AO has passed an order without jurisdiction, then he ought to have initiated Departmental enquiry against such officer. No such information has come forward from the learned counsel for the appellant-Revenue or perused from the order of CIT under s. 263, thus the order of CIT under s. 263 can at best be said to be change of opinion and tantamounts to abuse of powers granted to the CIT. The practice adopted by the CIT is de hors and it amounts to unnecessary harassment to the assessee for no fault of his.

Accordingly, we do not find any infirmity or perversity in the order of the Tribunal so as to call for any interference of this Court. In our view, no substantial question of law arises out of the order passed by the Tribunal. Accordingly, the appeal, being devoid of merit, is hereby dismissed in limine. No order as to costs.