Commissioner of Income Tax vs M.M. Virwani

Dr. B.P. Saraf, J.—By this reference u/s 256(1) of the Income Tax Act, 1961, made at the instance of the assessee, the Income Tax Appellate Tribunal has referred to this court the following question of law for opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that an order, passed by the Income Tax Officer after obtaining the approval of the Inspecting Assistant Commissioner u/s 144B, becomes the order of the latter and, subsequently, ceases to be reviewable by the Commissioner u/s 263 of the Act ?"

The assessee is an individual. The assessment year involved in this reference is 1973-74. The assessment of the assessee for this assessment year was completed by the Income Tax Officer on September 8, 1976, u/s 143(3) read with section 144B of the Income Tax Act, 1961 ("the Act"). However, the Commissioner of Income Tax, on perusal of the record of the assessment proceedings of the assessee for the above assessment year, noticed that in computing the income of the assessee, the Income Tax Officer had wrongly allowed deduction of a sum of Rs. 65,000. He, therefore, initiated proceedings u/s 263 of the Income Tax Act, 1961, and after hearing the parties held that the order of the Income Tax Act, 1961, and after hearing the parties held that the order of the Income Tax Officer, in so far as it related to the deduction of the said sum of Rs. 65,000, was erroneous and prejudicial to the interests of the Revenue. He, therefore, set aside the assessment and directed the Income Tax Officer to redo the same in accordance with law.

The assessee appealed to the Tribunal. Before the Tribunal, it was contended by the assessee, inter alia, that the order of assessment made by the Income Tax Officer after getting prior approval of the Inspecting Assistant Commissioner of Income Tax u/s 144B of the Act was in fact, the order of the Inspecting Assistant Commissioner and not of the Income Tax Officer and hence it was not subject to the revisional jurisdiction of the Commissioner u/s 263 of the Act. This contention of the assessee was accepted by the Tribunal. It was held by the Tribunal that the order of assessment passed by the Income Tax Officer on the basis of directions issued by the Inspecting Assistant Commissioner of Income Tax u/s 144B(5) of the Act is, in fact, an order of the Inspecting Assistant Commissioner and such an order cannot be revised u/s 263 of the Act, because it empowers the Commissioner to revise the orders of the Income Tax Officers only. In view of the above conclusion, the order of the Commissioner passed u/s 263 was cancelled by the Tribunal. Hence this reference at the instance of the Revenue.

We have heard learned counsel for the parties. Section 263 of the Act empowers the Commissioner to call for and examine the records of any proceeding under the Act and if he considers that any order passed therein by the Income Tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard, pass such orders 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. The revisional power of the Commissioner is thus restricted only to orders passed by the Income Tax Officer. The question that arises for consideration is whether an order of assessment made by the Income Tax Officer u/s 143(3) of the Act read with section 144B is an order of the Income Tax Officer or by virtue of the order being passed in terms of the directions, if any, issued by the Inspecting Assistant Commissioner, it ceases to be an order passed by the Income Tax Officer.

u/s 143 of the Act, the power of assessment is vested in the Income Tax Officer. Section 144B requires the Income Tax Officer in certain cases where any variation in the income or loss returned by the assessee exceeds the specified amount, to first forward a draft of the proposed order of assessment to the assessee and if any objections are received thereon, to forward the same along with the objections to the Inspecting Assistant Commissioner who may issue such directions as he may deem fit for the guidance of the Income Tax Officer to enable him to complete the assessment. The directions so issued are of course binding on the Income Tax Officer under sub-section (5) of section 144B of the Act. This, however, does not make any difference. The fact remains that the assessment is an assessment made by the Income Tax Officer u/s 143(3) of the Act. An order passed by the Income Tax Officer u/s 143(3) of the Act, therefore, continues to be an order under that section though passed after following the mandatory procedure laid down in section 144B. As observed by Mohta J. in Nagpur Zilla Krushi Audyogik Sahakari Sangh Ltd. Vs. Second Income Tax Officer, . (income tax Reference No. 300 of 1981 decided by the Nagpur Bench on September 9, 1992) :

"Only because the procedure u/s 144B was followed, the order does not cease to be one u/s 143(3)."

Section 144B, though inserted as an independent section, in truth and substance, is in the nature of a proviso to section 143(3) of the Act and should be read as such Commissioner of Income Tax Vs. V.D. Saraf (Huf), - Income Tax Reference No. 315 of 1979 decided by the Nagpur Bench on September 29, 1992.

Having regard to the foregoing discussion, we are of the clear opinion that an order passed by the Income Tax officer u/s 143(3) of the Act read with section 144B of the Act is an order made by the Income Tax Officer which is subject to the revisional jurisdiction of the Commissioner u/s 263 of the Act. In that view of the matter, the finding of the Tribunal that the order of assessment should be treated as an order passed by the Inspecting Assistant Commissioner of Income Tax and not by the Income Tax Officer, therefore, cannot be sustained.

Accordingly, the question referred to us is answered in the negative. i.e., in favour of the Revenue and against the assessee.

Under the facts and circumstances of the case, we make no order as to costs.