TMI Blog2007 (12) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant to the assessment year 2001-02, the assessee, a film producer, entered into a lease agreement with M/s.Asian Films on 30-12-2000 for releasing a Telugu feature film by name "Devi Putrudu" for a sum of Rs.3.37 crores. The entire amount was received by the assessee before 31-03-2001. However, in his profit and loss account, the assessee accounted only for Rs.3.07 crores. On being questioned by the assessing officer, the assessee contended that, while the film "Devi Putrudu" was to be released by M/s.Asian Films (Distributors), in the Nizam area on Friday i.e.12-01-2001, the assessee could deliver the prints of the film only on 14-01-2001 and, as a result, the film was released only on Monday i.e. 15-01-2001, that M/s.Asian Films, vide letter dated 13-07-2001 addressed to the Secretary, A.P.Film Chamber of Commerce, sought damages of Rs.44,09,872/-, that the Telangana Telugu Film Distributors Association, vide letter dated 05-10-2001, had informed the assessee that no distributor would come forward to release his forthcoming picture "Manasantha Nuvve" unless the dispute was settled and that the assessee had paid Rs.30 lakhs to M/s.Asian Films through Telangana Telugu Film ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit was completed only on 25-10-2001, he was justified in claiming deduction of Rs.30 lakhs. The assessee contended that, even though there was no compensation clause in the agreement dated 13-07-2001, he had made such payment on account of business expediency and, therefore, the same should be allowed. He alternatively pleaded that if the amount was found not to be allowable during the current assessment year i.e. 2001-02, a direction may be given to allow it in the next assessment year i.e. 2002-03. It was, however, contended on behalf of revenue that the Accounting Standard-4 did not help the case of the assessee, that the auditors report did not contain any note mentioning the specific facts claimed by the assessee, that the evidence furnished by him were subsequent to the date of the balance sheet i.e. 31-03-2001 and that the auditors had not followed Accounting Standard-4. It was further contended that, as the liability did not accrue during the relevant previous year, the same could not be allowed as a deduction. The Tribunal held that whatever evidence had been furnished by the assessee, with reference to the disputed amount, was subsequent to the date of the balance sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter the balance sheet date that provide additional information materially affecting the determination of the amounts relating to conditions existing at the balance sheet date. 8. As has been contended before the Tribunal, on behalf of the revenue, even the audit report does not contain any note mentioning the specific facts as claimed by the assessee. There is nothing on record before us to indicate that the auditors had followed accounting standard No.4. In such circumstances it is wholly unnecessary for us to examine whether accounting standard No.4 would have required the assessing authority to take note of events which took place after the end of the assessment year in question. 9. The Tribunal, after extracting the assessee's petition to the Film Chambers of Commerce dated 6.10.2001, held that the assessee had disputed the liability of M/s Asian Films and the Telangana Telugu Film Distributors Association. The Tribunal held that it was clear that the assessee did not recognize the liability during the previous year relating to the assessment year 2001-02 and the dispute, if at all, arose after the closure of the accounting period ending 31.3.2001. The Tribunal obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the petition under Section 264 had no bearing on the assessment made for the assessment year 2002-03. Aggrieved thereby, the present writ petition is filed. 13. Sri A.V. Krishna Kaundinya, Learned Counsel for the assessee, would contend that the Commissioner had refused to exercise jurisdiction merely on a technical ground which had resulted in denial of a genuine deduction available to the assessee, that it was the positive stand of the assessing officer in his order, for the assessment year 2001-02, that the liability for compensation had arisen during the previous year relevant to the assessment year 2002-03 and that the revenue cannot now be permitted to totally deny the relief. 14. In his return of income filed on 31.10.2002, the assessee did not claim deduction for the amount said to have been paid by him of Rs.30 lakhs and as such the assessing officer had no occasion to examine this claim in the order of assessment dated 23.2.2005. It was for the first time in revision before the Commissioner of Income Tax that the assessee had raised this claim for deduction. 15. The question which arises for consideration is whether the Commissioner, under Section 264 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation by the assessee for revision, call for the record of any proceeding under this Act in which any such order has been passed and may make such inquiry or cause such inquiry to be made and, subject to the provisions of this Act, may pass such order thereon, not being an order prejudicial to the assessee, as he thinks fit. 17. It is also necessary to note that the Explanation to Section 263(1) was substituted by the Finance Act, 1988 with effect from 1.6.1988. 18. The power of revision, under Section 263 of the Income Tax Act, to call for and examine the records, would arise only if the Commissioner considers that the order of the assessing officer is erroneous and is prejudicial to the interests of revenue. On coming to such a conclusion the Commissioner is empowered to pass orders after giving the assessee an opportunity of being heard and after making or causing an enquiry to be made. Section 264, on the other hand, applies to cases other than those where the Commissioner considers that the order passed by the assessing officer is prejudicial to the interest of the revenue. In cases where the assessment order is not prejudicial to the interest of revenue, and is cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment, but comprised of proceedings on which the assessment was based. The question was answered in the affirmative in favour of the assessee and against the revenue and when the matter was carried in appeal, the Supreme Court observed:- "It, therefore, cannot be said, as contended by the learned counsel for the respondent, that the correct and settled legal position, with respect to the meaning of the word "record" till 1/06/1988, was that it meant the record which was available to the Income-tax Officer at the time of passing of the assessment order. Further, we do not think that such a narrow interpretation of the word "record" was justified, in view of the object of the provision and the nature and scope of the power conferred upon the Commissioner. The revisional power conferred on the Commissioner under Section 263 is of wide amplitude. It enables the Commissioner to call for and examine the record of any proceeding under the Act. It empowers the Commissioner to make or cause to be made such enquiry as he deems necessary in order to find out if any order passed by the assessing officer is erroneous in so far as it is prejudicial to the interests of the revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Commissioner to take into account dissolution of the assessee firm, which took place after passing of the assessment order because that circumstances was not disclosed by the record which was before the Income-tax Officer. Rejecting this contention this Court held "as regards his taking into consideration an event which had occurred subsequent to the passing of the order by the Income-tax Officer, it may be stated that in Explanation (b) in Section 263 there is an express provision wherein it is prescribed that "record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner". The death of one of the two partners resulting in the dissolution of the assessee firm on account of such death took place prior to the passing of the order by the Commissioner and it could, therefore, be taken into consideration by him for the purpose of exercising his powers under Section 263 of the Act. 'In that case also the amendment was held applicable to an order passed before 1/06/1988 . We, therefore, hold that it was open to the Commissioner to take into consideration all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 63(1), which provides that the word "record" shall include and shall be deemed always to have included all records in relation to any proceeding under the Act available at the time of examination of an order by the Commissioner to revise the same even if the order under revision was passed during the period prior to June 1, 1988, and, therefore, the Commissioner could make use of the materials gathered by him on the date when he assumed jurisdiction under section 263 of the Act. It held that there was no infirmity in the order of the Tribunal upholding the order of the Commissioner. Here we refer to an earlier judgment of the Madras High Court in South India Steel Rolling Mills v. CIT (1982) 135 ITR 322 which arose out of an order passed by the Commissioner in exercise of revisional power under section 263(1) canceling development rebate granted by the Income Tax Officer. There, both learned counsel conceded that the Commissioner had jurisdiction to take proceedings in exercise of the revisional power on the basis of the material which was not before the assessing authority. That judgment of the Madras High Court was affirmed by the Supreme Court in South India Steel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Division Bench of the Gujarat High Court observed:- "…….Upon perusal of the impugned order, we are of the opinion that the revisional authority did not exercise the jurisdiction vested in it. This court has decided in the case of C.Parikh and Co. v. CIT (1980) 122 ITR 610 and in the case of Digvijay Cement Co. Ltd. v. CIT (1994) 210 ITR 797 (Guj) that it is open to the revisional authority to look into the deductions, which might be claimed by the assessee even for the first time. In other words, even if the return as submitted by the assessee is accepted by the Assessing Officer and if thereafter the assessee comes to know about some mistake committed, where either he was eligible for more deduction or had paid more tax, he can definitely approach the revisional authority, and in such an event, it is open to the revisional authority to exercise its jurisdiction under Section 264 of the Act. In the instant case, it is very clear that, without going into the merits of the claim made by the assessee in the returns for the assessment years referred to hereinabove, the revisional authority became technical and rejected the revision application mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... signify that, even in cases where the orders of revision were passed prior to the amendment, "records" would include those available at the time of examination by the Commissioner and not merely those records which were available before the assessing authority or those referred to in the order of assessment. It is significant to note that while Parliament has chosen to insert Explanation (b) to Section 263(1), by the Finance Act, 1988 with effect from 1.6.1988, no such Explanation has been inserted to Section 264(1). The omission is significant. Since the power of revision, under Section 263(1), is required to be exercised in cases where it is prejudicial to the interests of revenue, the power of the Commissioner is not limited only to the material which was available before the assessing officer and, in order to protect the interests of revenue, the Commissioner is entitled to examine any other records which are available at the time of examination by him and to take into consideration even those events which arose subsequent to the order of assessment. Absence of a similar explanation under Section 264 (1) would necessitate the conclusion that the records, of any p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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