2011 (6) TMI 815 - AT - Income Tax

Revision Powers of Commissioner u/s 263 on Grounds other than the grounds of Revision Proceedings set out in the show cause notice - Assesse claim u/s 80IA was allowed in the course of the scrutiny assessment proceedings u/s 143(3) in 2001 learned Commissioner in 2010 required the assesse to show cause as to why the assessment order so allowing the claim not be subjected to revision u/s 263 HELD THAT - We find that the impugned revision order is indeed not sustainable in law. A plain reading of the impugned revision order clearly shows that the conclusion drawn in the revision proceedings are different from the reasons for revision proceedings set out in the show cause notice extracts from which are set out in the revision order itself. It is important to note the shifting stand of the Commissioner so far as reasons for subjecting the assessment order to revision proceedings. In the show cause notice the learned Commissioner was of the view that deduction under section 80IA was not allowable since steam is a transient product does not have any shelf life . This plea about lack of shelf life of steam did not find mention in the revision order but in the impugned revision order learned Commissioner notes that that as the cost of production of steam equals the sales value no profit can be attributed to the transaction and that thus the deduction under section 80IA resulted in the assessment being erroneous and prejudicial to the interest of the revenue . However by the time learned Commissioner reached the operative portion of the revision order he entirely abandoned these grounds about inadmissibility of claim of deduction under section 80IA on merits and set aside the assessment order on the ground that AO had not made proper enquiries in the present case the Assessing Officer failed to make proper enquiries for making such deduction. It is thus clear that there has been a shift 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 deduction under section 80IA in respect of notional sale of steam or whether it was a case for revision on the ground that the Assessing Officer did not make necessary verifications about the claim made by the assessee. 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. Even with regard to the reasons of ineligibility of deduction under section 80IA in respect of notional sale of steam the reasons are different at the notice stage and at the time of the impugned order but all that ceases to be relevant because the ground on which the assessment is finally set aside is that the Assessing Officer failed to make proper enquiries . The reasons for which impugned assessment is set aside is thus entirely different from the reasons which were set out in the show cause notice. In the case of Synergy Enterprises Solutions Pvt Ltd Vs DCIT (ITA No 2076/Mum/2010) identical issues were dealt with where following the decision in the judgement of MAXPAK INVESTMENT LIMITED. VERSUS ASSISTANT COMMISSIONER OF INCOME-TAX. 2006 (4) TMI 199 - ITAT DELHI-F was followed it was held that CIT has not mentioned the ground on which action is proposed to be taken under section 263 in the show-cause notice it is deemed that he was not satisfied that it was a fit ground for taking action under the section with the result that the final order if based on the ground which he had earlier considered not fit for taking action under the section will have to be set aside as not based on any ground which may justify his belief that the order passed by the Assessing Officer was erroneous insofar as it is prejudicial to the interests of the Revenue. It is therefore held that Once we come to the conclusion that the impugned order is null and void it is not for us to advise the Commissioner as to what should he do. He is always at liberty to do whatever action he can take in accordance with the law but we cannot give life to a null and void order by remitting it back to the learned Commissioner for giving an opportunity of passing the fresh order after giving the assessee an opportunity of hearing. In case it is possible for the Commissioner to pass a fresh order at this stage in accordance with the scheme of the Act he can very well do so but in case the time limit for passing such order has already expired we cannot extend the same by directing him to pass the order afresh after giving an opportunity of hearing to the assessee.

Summary

Issues Involved:
1. Justification of the Commissioner in exercising revision powers under section 263 of the Income Tax Act, 1961.
2. Validity of the revision order based on grounds not mentioned in the show cause notice.

Issue-wise Detailed Analysis:

1. Justification of the Commissioner in Exercising Revision Powers under Section 263 of the Income Tax Act, 1961:

The primary issue adjudicated in this appeal was whether the Commissioner was justified in exercising revision powers under section 263 of the Income Tax Act, 1961. The assessment year in question was 2005-06, and the revision order was passed on 18th March 2010. The assessee, engaged in manufacturing and dealing in various chemicals, claimed a deduction under section 80IA for its power plant at Mithapur, Gujarat. This claim, amounting to Rs. 45,55,08,392, was allowed during the scrutiny assessment proceedings under section 143(3). However, the Commissioner issued a show cause notice on 25th February 2010, questioning the allowance of a deduction for steam, which he argued was a transient product without shelf life, leading to an under-assessment of Rs. 22,10,31,452 and a short levy of tax of Rs. 8,08,80,933.

In response, the assessee argued that the deduction was rightly allowed based on the law laid down by the Income Tax Appellate Tribunal in the case of West Coast Paper Mills Ltd Vs ACIT (103 ITD 19) and that all conditions under section 80IA were satisfied in the first year of the claim. The assessee also highlighted that a similar show cause notice was issued for the assessment year 2001-02 but was dropped after considering the assessee's submissions.

Despite these arguments, the Commissioner exercised revision powers, stating that the Assessing Officer failed to make proper enquiries and accepted the deduction claim without sufficient verification. The Commissioner cited Supreme Court decisions in Rampyari Devi Sarogi Vs CIT (67 ITR 84) and Tara Devi Agarwal Vs CIT (88 ITR 323), which held that an order failing to make necessary enquiries is erroneous.

2. Validity of the Revision Order Based on Grounds Not Mentioned in the Show Cause Notice:

The Tribunal found the revision order unsustainable in law, noting a significant shift in the Commissioner's stance. Initially, the Commissioner argued that the deduction was not allowable because steam lacked shelf life. However, in the final revision order, the Commissioner abandoned this ground and instead focused on the Assessing Officer's failure to make proper enquiries. This shift meant that the assessee had no opportunity to defend against the final ground on which the revision was based.

The Tribunal cited several judicial precedents, including Maxpack Investments Ltd Vs ACIT (13 SOT 67) and CIT v. G.K. Kabra (211 ITR 336), which held that a ground not mentioned in the show cause notice cannot be used as the basis for a revision order. The Tribunal emphasized the principle of natural justice, stating that no person can be condemned unheard (audi alteram partem). Consequently, the revision order was passed in violation of natural justice principles.

The Tribunal rejected the Departmental Representative's suggestion to remit the matter to the Commissioner for a fresh order, stating that the impugned order was null and void. The Tribunal concluded that the Commissioner could take any action in accordance with the law, but it could not extend the time limit for passing such an order.

Conclusion:

The Tribunal quashed the revision order on the ground that the revision was based on a ground not set out in the show cause notice, thereby violating principles of natural justice. The appeal was allowed, and the assessee was granted relief accordingly. The Tribunal did not address the merits of other arguments raised by the assessee due to the technical ground on which the revision order was quashed.