REVISION ON GROUND DIFFERENT FROM THAT STATED IN SHOW CAUSE NOTICE IS NOT PERMISSIBLE.

[Mr. M. GOVINDARAJAN]

                        In ‘Commissioner of Income Tax V. Jagdish Electric Supply and Industrial Co.’ – (1983) 140 ITR 190 (P&H) the High Court explained the jurisdiction of the Commissioner of Income Tax under Sec. 263 of the Income Tax Act.   The High Court held that the jurisdiction of the Commissioner of Income Tax under Sec. 263(1) of the Act is of special nature or, in other words, the Commissioner has exclusive jurisdiction under the Act to revise the order of the Income Tax Officer if he considers that any order passed by him was erroneous in so far as it was prejudicial to the interest of the Revenue.

                        Before exercising his revisionary power the Commissioner of Income Tax is required to give an opportunity of being heard to the assessee.  If after hearing the assessee in pursuance of notice issued by him under Sec. 263(1) of the Act, he is not satisfied he may pass necessary orders.  The said order will contain the grounds for holding the order of the Income tax officer to be erroneous as contemplated under Sec. 263(1) of the Act. 

                        In ‘Commissioner of Income Tax V. G.K. Kabra’ – 1994 (4) TMI 39 (HC) the show cause notice referred to two issues to which the assessee had given satisfactory replies.   No action was taken under Section 263 in respect of these two issues.  However, in the impugned order, the Commissioner of Income Tax mentioned the hire charges as the ground for revising the assessment.   This point had not been mentioned as a ground in the show cause notice.  The High Court held that inasmuch as the Commissioner had not chosen to show these two points as the errors in making the final order and the final order under Section 263 refers only to the inference of hire charges being exigible to tax which was not mentioned at all in the show cause notice, obviously the assessee had no opportunity to meet that point.  

                        In ‘Synergy Enterpreneur Solution P Limited V. Deputy Commissioner of Income Tax’ – (2011 (3) TMI 52 (Tri)) the assessee is engaged in the share trading activity.  On finalisation of assessment the Commission sought to subject the asessment to revision.  In his order the Commissioner of Income Tax stated that the proceeded to initiate the revision proceedings on the ground that the details of purchase and sale of share transactions in futures were not verified as to whether the profit or loss from the future trading amounts to speculation gains or loss.    The Commissioner, in the show cause notice issued to the assessee, indicated that as per the provisions of Sec. 73 of the Act, any loss computed in respect of a speculation business carried on by the assessee, shall not be set off against profits and gains, if any, of speculation business.   Therefore the assessee is not allowed to adjust speculation loss on future trading against other business profits.  It was also indicated that the total income of the assessee is required to be computed by ignoring the speculation loss.   The assessee filed his written submissions in which he stated that in the share trading business of the assessee, there is a net profit, even after setting off loss on transactions which were on account of hedging transactions and thus not hit by the provisions of Explanations to Section 73.  The Commissioner did not reject the said submissions.  He exercised his revision powers on the ground that all these issues were not examined by the Assessing Officer in the course of the assessment.   He set aside the assessment order.   He also directed the Assessing Officer to obtain complete details and conduct necessary enquiries and examine the same for the assessment year under consideration.   He also indicated that reasonable opportunity of being heard should be given to the assessee. 

                        The assessee challenged the impugned order of Commissioner of Income Tax before High Court.  The High Court held that the impugned revision order is not sustainable in law.  A reading of the impugned order shows that the conclusion drawn are different from the reasons for revision proceedings set out in the show cause notice.  The impugned order indicates that the assessment order was erroneous inasmuch as it was prejudicial to the interest of the Revenue as the details of purchase and sale of share transactions in futures were not verified as to whether the profit or loss from the futures trading amounts to speculation gain or loss.  The show cause notice shows that set off is not permissible.   Thus the show cause notice clearly refers to declining, what the Commissioner perceives as, a set off of speculation loss against business profits.   That is a categorical disentitlement of set off.  The High Court observed that in the final conclusions in the impugned revision order, the Commissioner once again deviates from the stand so taken.   Thus there has been shifts in the stand of the Commissioner on whether it was a fit case for revision on the ground that the assessee was not eligible for set off losses on speculative transactions or whether it was a case for revision on the ground that the Assessing Officer did not make necessary verifications about the transactions.   The reason given in the show cause notice is former, while the reason for which revision powers are finally exercised in the impugned order are latter.  The High Court quashed the order of Commissioner of Income Tax.

                        Thus it is clear from the above discfussions that if a ground of revision is not mentioned in the show cause notice issued under Section 263, the ground cannot be made the basis of the order passed under that section for the simple reason that the assessee would have had no opportunity to meet the point.