Recent judgment of the Supreme Court on S.263 - need a review – this also shows that court officers must be more serious in helping Courts in rendering justice.

[DEV KUMAR KOTHARI]

Recent judgment of the Supreme Court on S.263  - need a review – this also shows  that court officers must be more serious in helping Courts in rendering justice.

Provision under study S.263 of Income Tax Act, 1961

Issue involved- when order is made- on date of order as held by the Supreme Court reversing very old settled legal position.

Judgments under study:

THE COMMISSIONER OF INCOME TAX, CHENNAI VERSUS MOHAMMED MEERAN SHAHUL HAMEED [2021 (10) TMI 363 - SUPREME COURT]

THE COMMISSIONER OF INCOME TAX, CHENNAI VERSUS MR. MOHAMMED MEERAN SHAHUL HAMEED [2019 (7) TMI 1041 - MADRAS HIGH COURT]

MR. MOHAMED MEERAN SHAHULHAMEED, VERSUS ASSISTANT COMMISSIONER OF INCOME TAX, [2013 (4) TMI 933 - ITAT CHENNAI]

ITAT and Madras High Court referred to and relied on ruling in case of:

GOVERNMENT WOOD WORKS VERSUS STATE OF KERALA [1987 (1) TMI 451 - KERALA HIGH COURT]

General discussions:

Expression like  ‘made’  “ is made”  , “issued “ , “issued and served” “ served” , ‘issue and serve’ etc. are used in various legislations in context of notices and  orders to initiate proceedings , comply with procedural requirements, and complete proceedings by issue and / or service of orders , demand notice etc.

Though the expression may have different meanings in particular context, however, it is common knowledge that any notice or order to be effective must be served on or communicated to the  concerned parties.

In different provisions different expressions have been used regarding notice and order.

Purpose of any notice, or order will not be fulfilled unless it is served on the noticee including   taxpayer. If it is a notice, unless the notice is served, how taxpayer will act upon it?.

If it is an order, how tax payer will act upon it unless it is served?.

Considering practical aspects, in case of order u.s. 263 also  the  order must be served on assesse, so that he can take proper action for filing of appeal before the ITAT or challenging in proper court by way of Writ Petition (WP)  and  / or preparation for case before AO to represent in course of further proceeding for fresh assessment  u.s. 143.3 rws 263 as may be found suitable.

Even in case of concerned AO, the order u.s. 263 must be served upon him to enable to take proper action  to comply-with directions of the CIT including to proceed for issue of notice upon the assesse for assessment afresh.

Thus to be effective  any notice or order must be served  / communicated on concerned parties including  concerned officers

Long ago in case of GOVERNMENT WOOD WORKS VERSUS STATE OF KERALA [1987 (1) TMI 451 - KERALA HIGH COURT] supra the issue was decided by Kerala High Court to hold that any notice or order to be effectively made, service is essential and therefore it cannot be said that the notice or order was made before it is served.

There seems no appeal against this judgment. Though this case related to provisions of Sales Tax, this apply as a general rule relating to procedures.

Lacking  and Unfortunate aspects in proceeding and judgment of the Supreme Court:

On careful reading of the judgment of the Supreme Court we find that:

1. There is no mention about judgment of Kerala High Court, which seems to have attained finality and which held the field and has been followed in many cases before High Courts and Tribunals.  It seems that honorable Supreme Court was not equipped with updates about judgments followed  by lower courts and their present status. The honorable Supreme Court, has without any mention of the same in a way overruled it. This can have serious repercussions on cases in which that judgment was followed.
2. The Tribunal is the final fact authority. As per finding of Tribunal the order of CIT(A) was received by assesse only  through  the AO after case was fixed by AO  for making a fresh assessment as per directions of the CIT in order u.s. 263. This fact was not controverted before the Tribunal and the High Court. However, for the first time before the Supreme Court it was pointed out that the order was   dispatched on 28.03.2012 as appears from paragraph 3.2 which is reproduced below with highlights added:

          3.2 It is vehemently submitted by learned ASG that sub-section (2) of Section 263 of the Act provides that no order shall be ‘made’ under sub-section (1) of Section 263 after the expiry of two years from the end of the concerned financial year and the relevant date in the present case to pass the order under Section 263 would be 31.03.2012. It is submitted that in the present case the order in fact was passed on 26.03.2012 and in fact dispatched on 28.03.2012. It is submitted that therefore the order passed by the learned Commissioner under Section 263 was within the period of limitation prescribed under Section 263 (2) of the Act.

Unquote:

We find factual facts found in order of Tribunal as follows:

From order of Tribunal:

             6. A perusal of the aforesaid letter shows that the Assessing Officer has forwarded the order of the CIT to the assessee on 29.11.2012 on the request of the assessee. In the letter it has not been mentioned that the copy of the order has earlier been supplied to the assessee or the date on which such order was communicated to the assessee. The DR has also failed to controvert the submission of the AR. Nothing has come on record to show that impugned order was dispatched to the assessee on 28.3.2012. As a matter of practice the orders are sent to the assessees through Registered Post AD. Neither the dispatch register nor acknowledgement of the receipt of the order by the assessee has been placed on record. Therefore, inference has to be drawn against the Revenue that the impugned order was never communicated to the assessee. The provisions of section 263(2) clearly states that order under section 263(1) has to be passed within a period of two years from the end of financial year in which the order sought to be revised is passed. The relevant extract of the provisions of section 263(2) are reproduced herein below:-

“263 (1) xxxxxxxxx

(2) No order shall be made under sub-section

(1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.”

In the instant case, the assessment order was passed on 30.12.2010. thus, the last date for passing order under section 263 was 31.3.2012 . The impugned order was allegedly passed on 26.03.2012 and despatched on 28.03.2012. However, the said order was never received by the assessee. No documentary evidence has been placed on record by the department to show that the notice (sic. Order)  was ever despatched or received by the assessee. The assessee received the impugned order for the first time on 29.11.2012. The order was communicated to the assessee clearly beyond the period of limitation as prescribed under the Act.

7. The legislature in its wisdom has provided limitation for passing order under section 263 in order to check misuse of power. The Hon’ble Kerala High Court in the case of Government Wood Workshop Vs. State of Kerala reported as (1987) 1 KLT 804 has held:-

“ The order of any authority cannot be said to be passed unless it is in some way pronounced or published or the party affected has the means of knowing it. It is not enough if the order is made, signed and kept in the file, because such order may be liable to change at the hands of the authority who may modify it, or even destroy it, before it is made known, based on subsequent information, thinking or change of opinion. To make the order complete and effective, it should be issued, so as to be beyond the control of the authority concerned, for any possible change or modification therein. This should be done within the prescribed period though the actual service of the order may be beyond that period.”

• 8. Relying on the aforesaid judgement of the Hon’ble Kerala High Court, the Tribunal in the case of Neyveli Lignite Corporation (supra) has held as under:-

“ We have also carefully gone through the judgement of the Kerala High Court in the case of Kuppumalai Estate (supra). The Kerala High Court, after referring to their earlier decision in the case of Government Wood Workshop(supra) and in the case of Malayil Mills Vs. State of Kerala (TRC Nos.15 & 16 of 1981) held that to make the order complete and effective, it should be issued so as to be beyond the control of the authority concerned. Therefore, it is very clear that mere signing of the order is not sufficient to make it an effective order. Sub-section (2) of section 263 clearly says that no order shall be made after expiry of two years from the end of the financial year in which the order sought to be revised was passed. This is in the nature of prohibition. Therefore, the Commissioner is prohibited from passing any order after two years. Since the order was issued and dispatched only on 19.5.2004, at best, we may say that the order was made on 19.5.2004. Therefore, as already observed, it may not be necessary for this Tribunal to go into the question whether the order was passed on 20.2.2004 or 20.4.2004 irrespective of the date of order, since the order was issued and dispatched only on 19.5.2004, it has to be construed that the order was made on 19.5.2004. Therefore, without going into controversy of the date on which the order was actually passed, we hold that the order passed under section 263 is barred by limitation.”

9. In the instant case, the impugned order alleged to have been passed on 26.3.2012 i.e. within the prescribed period of limitation, was never communicated to the assessee. The factum of non-communication of the order has not been rebutted by the Revenue. On the other hand, the AR for the assessee has placed on record letter dated 29.11.2012 to say that the order was for the first time communicated to the assessee after more than seven months of the passing of the order. In view of the judgement of the Hon’ble Kerala High Court and in the facts and circumstances of the case, we are of considered opinion that the order of CIT was beyond the period of limitation. Therefore, we set aside the impugned order and allow the appeal of the assessee.

10. In the result, the appeal of the assessee is allowed.

Unquote:

On reading of the judgment of the Supreme Court, with due respect, author feels that counsels of assesse could not bring out findings of Tribunal and settled  legal position by way of judgment of Kerala High Court, on this aspect.

Unless there is duty and obligation to serve an order on concerned parties including tax payers, there will be cases of  failure of principal of natural justice also and there will be uncertainty about any adverse order which can disturb concerned party for long , uncertain and indefinite time.

It is true that tax laws need to be read as per words used, however there have been cases when Courts have considered provisions to serve purpose and for that omissions or drafting errors in law have been considered as curable and Courts applied rule of   casus omissus and read provisions in a modified way to serve purpose and also to follow principal of natural justice.

Therefore, the judgment of the Supreme Court deserve to be reviewed otherwise there will be huge initiation of further proceedings in cases which have settled.