Commissioner of Income Tax vs Smt. R.G. Umaranee

N.V. Balasubramanian, J.

In pursuance of the directions of this court in T.C.P.Nos.49 and 50 of 1995, the Income Tax Appellate Tribunal has stated the case and referred

the following question of law in relation to the assessment year 1988-89 of the assessee :

Whether on the facts and in the circumstances of the case, the Tribunal is right in law in cancelling the order u/s 263 dated 9-3-1993 made by the

Commissioner of Income Tax for the assessment year 1988-89 ?

However, the only question of law referred by the Appellate Tribunal is not correct, as seen from the order of this court in T.C.P. Nos. 49 and

50 of 1995, wherein this court has directed the Appellate Tribunal to refer another question of law. The question that was also directed to be

referred and reframed by this court reads as under :

Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in cancelling the order of the Commissioner of Income

Tax passed u/s 263 of the Income Tax Act, 1961 ?

However, the Income Tax Appellate Tribunal has referred only one question of law that is set out earlier but has not referred the question that

was also directed to be referred and re-framed by this court in T.C.P. No. 40 of 1995. Since the order suffers from a patent mistake, which is

apparent from the order of the Income Tax Appellate Tribunal, we are of the view that the following question of law should also be taken to have

been referred by the Income Tax Appellate Tribunal for our consideration along with the question, which we take as question No. 1 :

Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in cancelling the order of the Commissioner of

Income Tax passed u/s 263 of the Income Tax Act, 1961 ?

The following question of law mentioned already is taken as question No. 2 :

Whether on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in cancelling the order u/s 263 dated 9-3-1993

made by the Commissioner of Income Tax for the assessment year 1988-89 ?

in effect there are two questions which are the subject-matter of consideration in both the Tax Cases. The assessment year involved is 1988-89

and two references have been made as there were two separate orders of the Income Tax Appellate Tribunal on appeal from two orders of

Commissioner of Income Tax passed in revision u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as Act). The original assessment of

the assessee, the respondent herein was made u/s 143(1)(a) of the Act, and while completing the assessment, the Income Tax Officer held that the

income from the building owned by the assessee should be treated as income from the business and also granted depreciation at the rate of 33-1/3

per cent on the cost of the building owned by the assessee. The Commissioner of Income Tax initiated proceedings to revise the order of

assessment u/s 263 of the Act and in order dated 9-10-1990, he held that the grant of depreciation at the rate of 33-1/3 per cent was not correct

and the income from the building, viz., Srinivas Building should not be considered under the head Business but under the head Income from house

property. In this view of the matter, he set aside the order of the Income Tax Officer passed u/s 143(1)(a) of the Act with the direction to the

Income Tax Officer to complete the assessment afresh after verification and enquiry, as may be considered necessary, and determine whether the

assessee was entitled to any depreciation at all in the building.

The Income Tax Officer pursuant to the order of the Commissioner of Income Tax, passed a fresh assessment order and in the fresh assessment

order the Income Tax Officer again treated the income from the building as business and also allowed depreciation. The subsequent order of the

Income Tax Officer was the subject-matter of another revisional order by the Commissioner of Income Tax u/s 263 of the Income Tax Act and by

order dated 9-3-1993 the Commissioner of Income Tax not only held that the Income Tax Officer was not correct in holding the income from the

buildings should be assessed under the head Business, he also went into the question, viz., regarding the cost of construction of the building and not

treating the cost of construction as undisclosed income of the assessee. The Commissioner of Income Tax, therefore, set aside the order of the

Income Tax Officer holding that income derived from Srinivas building should be assessed only under the head Income from house property not

under the head Business income, and he directed that the matter regarding the valuation of the building should be referred to the Departmental

Valuation Officer for the purpose of determining the cost of construction and he also directed the assessing officer to make necessary enquiries for

finding out the source of investment in the said building. The subsequent order of the Commissioner of Income Tax was passed on 9-3-1993. The

assessee has challenged both the orders of the Commissioner of Income Tax before the Income Tax Appellate Tribunal. The Income Tax

Appellate Tribunal allowed both the appeals, and hence two references are before us.

The Income Tax Appellate Tribunal cancelled both the orders passed by the Commissioner of Income Tax u/s 263 of the Act. The Tribunal set

aside the order of the Commissioner of Income Tax dated 9-3-1993 on the ground that in his notice for revision, he has not indicated his proposal

to treat the cost of construction of the building as having come out from the undisclosed source. The Tribunal also found that the assessee was not

informed by the Commissioner of Income Tax when he passed the first order to treat the cost of the building as undisclosed income of the

assessee. The notice issued by the Commissioner for the second revision did not also disclose about any such proposal to treat the cost of

construction of the building as the undisclosed income of the assessee. We are of the view that in the absence of any such notice by the

Commissioner, it is not open to the Commissioner to hold that the cost of construction of the building would represent as undisclosed income of the

assessee and hence the Commissioner was not justified in directing the Income Tax Officer to initiate an enquiry regarding the cost of construction

of the building, and after ascertaining the valuation, treat the unexplained investment as the undisclosed income of the assessee. We also find that

the assessing officer has not considered the same in his order, of assessment. In other words, a new source was discovered by the Commissioner,

which was neither discussed by the Income Tax Officer nor any notice was given to the assessee to treat the same as the undisclosed income.

Hence, the Commissioner was not correct in directing that a fresh inquiry should be conducted on the aspect of construction of the building. The

Commissioner has also not disclosed any material for arriving at such a conclusion. We, therefore, hold that the Appellate Tribunal was correct in

holding that the order of the Commissioner directing the assessing officer to treat the cost of construction as the undisclosed income of the assessee

suffers from serious infirmity and there are no reasons to differ from the view taken by the Appellate Tribunal on this aspect.

As far as the first order of the Commissioner of Income Tax is concerned, the Appellate Tribunal has cancelled the order of the Commissioner

of Income Tax only on the ground that the order of the Income Tax Officer was made u/s 143(1)(a) of the Act and since it was a summary

assessment order, the Commissioner of Income Tax has no jurisdiction to revise the order of assessment. We are unable to accept the reasoning

given by the Appellate Tribunal. Section 263 of the Act enables the Commissioner to call for and examine the record of any proceeding under this

Act, and if he considers that any order passed therein by the assessing officer is erroneous insofar as it is prejudicial to the interest of the revenue, it

is open to the Commissioner to revise the order of the Income Tax Officer. Section 263 is widely worded and it would encompass any order

passed by the assessing officer which includes a summary order of assessment and the expression any order is not qualified and restricted to the

regular assessment order. The power given to the Commissioner by the Act is the revisional power and he is empowered to revise any order

passed by the assessing officer, which includes the order passed by the Income Tax Officer in his summary proceedings u/s 143(1)(a) of the Act

as well. The scheme of the Act also discloses that any order should be widely construed and unless there are grounds to show that the intention of

the Legislature is to exclude the summary order of assessment from the purview of revision, we are unable to give a restricted meaning to the

expression any order excluding the summary assessment order. Learned counsel for the assessee has referred to some of the Boards circulars. We

have carefully gone through the circulars issued by the General Board of Directors and the circulars only deal with the cases where the Board has

directed that in the cases where there is a small or negligible tax effect and if the summary order of assessment has been passed, the Commissioner

was advised not to initiate revision proceedings. u/s 263 of the Act. We hold that the circular has no application to all situation and when the

Commissioner is satisfied that the amount of tax involved is substantial, it is open to the Commissioner to exercise the power of revision even if the

order of assessment is a summary assessment. We are of the view that the exercise of revisional power would be necessary and needed in case of

summary assessments as the assessments are made without any inquiry and the assessments are completed according to the return of income

submitted by the assessee.

The Tribunal has not decided the question whether the income from the building should be assessed as income from the house property or the

income from the business though it observed that the question should be examined from the businessman''s point of view and it would depend upon

the facts of each case whether the letting was done as businessman or the building was merely exploited as the owner of the house property. The

Appellate Tribunal has not given finding on the merits of the case, but cancelled the order of the Commissioner on the ground that the

Commissioner has no jurisdiction to revise the order passed u/s 143(1)(a) of the Act. We are of the view that the order of the Income Tax

Appellate Tribunal holding that the Commissioner has no jurisdiction to revise an order u/s 143(1)(a) of the Act is not correct and is not legally

sustainable. Accordingly, we answer the first question referred to us in the negative in favour of the revenue and the second question in favour of

the assessee.

In the result, the matter is remitted to the Income Tax Appellate Tribunal and it is open to the Income Tax Appellate Tribunal to remit the matter

to the assessing officer to consider the question whether the income from the building in question should be assessed either under the head Income

from house property or Income from business or even Income from other sources. We make it clear that it will be open to the assessing officer to

take note of the orders passed for the subsequent assessment years. With this clarification, we answer both the questions of law referred to us in

the manner indicated earlier. However, in the circumstances, there will be no order as to costs.