TMI Blog1997 (12) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... time of examination by the Commissioner, but it means the record as it stands at the time the order in question was passed by the Income-tax Officer?" The respondent-firm, during the previous year relevant to the assessment year 1977-78, had constructed a cinema theatre and in the return filed by it, had shown the cost of construction at Rs. 20,28,498 (Rs. 23,78,242 less Rs. 3,49,644 being electric portion). The Income-tax Officer on February 2, 1980, wrote to the Departmental Valuation Officer to ascertain and report the correct cost of construction of the theatre. The Valuation Officer expressed his inability to give his valuation report by March 31, 1980, by which date the assessment was to be completed. The Income-tax Officer, therefore, without waiting for his report, passed an order of assessment accepting the valuation mentioned by the assessee in its return. The Valuation Officer submitted his report on December 16, 1980. He determined the cost of construction at Rs. 34,58,600 as against Rs. 20,28,498 stated by the assessee. Therefore, the Commissioner of Income-tax issued a notice under section 263(1) of the Income-tax Act, 1961, to the assessee on the ground that inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He further submitted that even though the valuation report submitted by the Departmental Valuation Officer was not available to the Income-tax Officer when he had passed the assessment order, as it was called for by him before the passing of the assessment order, it became a part of the record and, therefore, it was open to the Commissioner to consider the same while exercising his revisional power under that section. Strongly opposing these submissions, Ms. Indu Malhotra, learned counsel appearing for the assessee, submitted that as the Commissioner had passed the order on March 3, 1982, the amendments made in section 263(1), in 1988 and 1989, though with retrospective effect cannot have the effect of validating the order of the Commissioner which was illegal when passed. She submitted that when the order was passed by the Commissioner the correct position of law was that only that record which was available to the Income-tax Officer could be considered by the Commissioner for the purposes of exercising his power under section 263(1). She submitted that the Legislature by adding the Explanation and widening the definition of the term "record" has now enabled the Commissioner to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctive sought to be achieved by such provisions, since the purpose is to revise the order on the basis of the record as is available to the Commissioner at the time of examination. To eliminate litigation and to clarify the legislative intent in respect of the provisions in the three Direct Tax Acts, it is proposed to clarify the legal position in this regard in the Explanation to the relevant sections. The proposed amendments are intended to make it clear that 'record' would include all records relating to any proceedings under the concerned direct tax laws available at the time of examination by the Commissioner." The relevant part of the Explanation after its substitution read as follows : "Explanation.---For the removal of doubts, it is hereby declared that, for the purposes of this sub-section, . . . (b) 'record' includes all records relating to any proceeding under this Act available at the time of examination by the Commissioner; . . ." Thus, by this amendment, the definition of the term "record" for the purpose of section 263, was provided by the Legislature. But a doubt regarding the meaning of the term "record" still persisted and, therefore, a further amendment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this provision, we will now refer to the decisions, which were relied upon by learned counsel in support of the rival contentions with respect to the correct interpretation of the word "record". The Calcutta High Court in Ganga Properties v. ITO [1979] 118 ITR 447, after observing that the provision of section 263(1) of the Act has to be understood on its own language and in the context of the revisional jurisdiction of the Commissioner conferred by it and also the scheme of the Act, held as under : "Whereas section 263(1) of the Act uses the words 'is erroneous' and not the words 'has become subsequently erroneous'. Under this section, the Commissioner may call for and examine 'the record' of the 'proceeding' in order to consider in his revisional jurisdiction as to whether the order in question by the Income-tax Officer 'is erroneous'. Therefore, he is to call for the 'record' of the 'proceeding' which was before the Income-tax Officer and examine it in order to consider whether on the basis of the materials which were before the Income-tax Officer and formed part of that record the order passed by the Income-tax Officer is 'erroneous' and prejudicial to the interests of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Narain Pratap Narain [1989] 177 ITR 34. In that case, in the wealth-tax proceedings for the assessment years 1978-79 and 1979-80, the Assessing Officer had determined the fair market value of an immovable property at Rs. 7,35,086 as on the two valuation dates relevant for the years in dispute. After the completion of those assessments, the Commissioner of Wealth-tax, on coming to know that the property was sold by the assessee on August 18, 1983, for a consideration of Rs. 36 lakhs, initiated proceedings under section 25(2) of the Wealth-tax Act, and subsequently passed an order holding the impugned assessment orders erroneous and prejudicial to the interests of the Revenue. On appeal by the assessee, the Income-tax Appellate Tribunal held that "the expression 'record' in section 25(2) of the Wealth-tax Act, cannot mean the record as it stands at the time when the action under that section is taken but it means the record as it stands when the assessment order was passed by the Assessing Officer". In support of this view, the Tribunal had relied upon the decision of the Calcutta High Court in Ganga Properties' case [1979] 118 ITR 447. Against the order of the Tribunal, the Commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act could have relied upon the valuation report which had come into the possession of the Income-tax Officer subsequent to the completion of the assessment. The Calcutta High Court held that (page 406) "the record contemplated in section 263(1) does not mean only the order of assessment but it comprises all proceedings on which the assessment is based. The Commissioner is entitled, for the purpose of exercising his revisional jurisdiction, to look into the whole evidence. The expression 'record' as used in section 263 of the Act is comprehensive enough to include the whole record of evidence on which the original assessment order was based. The valuation proceeding is a part of the assessment proceeding. But once the valuation report was received by the Income-tax Officer, although subsequent to the completion of the assessment, it forms part of the records of the assessment year in question." It further held that "where any proceeding is initiated in the course of the assessment proceeding having a relevant and material bearing on the assessment to be made and the result of such proceeding was not available with the Income-tax Officer before the completion of the assessment, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two decisions of this court, though the point which is raised before us was not specifically raised in those two cases. In Tax Reference Case No. 11 of 1983 (CIT v. Shri Arbuda Mills Ltd. [1998] 231 ITR 50), this court after considering the effect of the amendment made in section 263(1) of the Act by the Finance Act, 1989, whereby clause (c) of the Explanation was also amended with retrospective effect from June 1, 1988, held that (page 52) : "The consequence of the said amendment made with retrospective effect is that the powers under section 263 of the Commissioner shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in an appeal. Accordingly, even in respect of the aforesaid three items, the powers of the Commissioner under section 263 shall extend and shall be deemed always to have extended to them because those items had not been considered and decided in the appeal filed by the assessee". In that case the assessment was completed on March 31, 1978, and the Income-tax Officer while computing loss and income of the assessee had accepted the claim of the assessee in respect of those three items. Obviously, in the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 June 1, 1988. We, therefore, hold that it was open to the Commissioner to take into consideration all the records available at the time of examination by him and thus to consider the valuation report submitted by the Department valuation cell subsequent to the passing of the assessment order and, so the order passed by him was legal. The High Court was wrong in taking a contrary vi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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