2008 (7) TMI 380 - HC - Income Tax

Application of surcharge u/s 113 on search power to initiate proceedings u/s 263 Held that - Supreme Court has taken the view that the proviso to section 113 is clarificatory in nature and therefore surcharge on undisclosed income would be leviable - once the Commissioner of Income-tax (Appeals) had already shut the issue of levy of surcharge by the order dated December 11 2003 it was not open to the Commissioner to invoke the provisions of section 263 and to reopen the issue over again - the issue was clearly debatable at the time when the notice and the order under section 263 were issued and passed. Consequently the only conclusion that can be arrived at is that the initiation of proceedings under section 263 were without jurisdiction order u/s 263 is not maintainable.

Summary

Issues:
1. Whether surcharge could be levied with reference to a search conducted before June 1, 2002, as per the Income-tax Act, 1961?
2. Whether the Commissioner of Income-tax had the power to initiate proceedings under section 263 of the Income-tax Act, 1961?

Analysis:
1. The case involved a search and seizure operation under section 132 of the Income-tax Act, 1961, where the Assessing Officer completed a block assessment on February 28, 2002, without levying surcharge on the undisclosed income. Subsequently, the Assessing Officer attempted to levy surcharge through section 154 proceedings, which was challenged by the assessee. The Commissioner of Income-tax then issued a notice under section 263 on March 1, 2004, directing the levy of surcharge. The Tribunal's order, subject to appeal, held that no surcharge could be levied for searches conducted before June 1, 2002, and that the Commissioner's action under section 263 was without jurisdiction.

2. The Tribunal's decision was based on the premise that the issue of surcharge was debatable at the time of the Commissioner's notice under section 263. The Tribunal relied on the Supreme Court's stance that the position of law at the time of invoking jurisdiction is crucial. It was noted that the Commissioner's attempt to reopen the surcharge issue through section 263, after it had been considered by the Commissioner of Income-tax (Appeals), was unwarranted. The Commissioner's action was deemed without jurisdiction due to the debatable nature of the surcharge issue at the relevant time.

3. The Supreme Court's clarification in CIT v. Suresh N. Gupta supported the leviability of surcharge on undisclosed income, favoring the Revenue on question No. 1. However, the Tribunal's decision on question No. 2, regarding the Commissioner's jurisdiction under section 263, was upheld. The court emphasized that the debatable nature of the issue at the time of invoking section 263 rendered the Commissioner's actions invalid. Consequently, the appeal was dismissed, highlighting the jurisdictional significance of question No. 2 despite the resolution in favor of the Revenue on question No. 1.