TMI Blog2006 (12) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... Act that the assessing authority has allowed the deduction on account of bonus in exercise of its powers u/s 143(3). The Assessing Officer having acted within his jurisdiction in allowing the claim of bonus as deduction, it was not open to the Commissioner of Income-tax to consider the said order as erroneous merely because in his view, a certain amount of bonus, allowed as deduction, should have been disallowed, particularly when the impugned order of the Commissioner does not show how the order of assessment can be said to be an order passed without jurisdiction or an order passed beyond jurisdiction or wholly contrary to jurisdiction. In the case at hand, the order, initiating rectification proceedings u/s 154, as well as the order revising the assessment u/s 263, were passed on the basis of one and the same audit objection. While exercising revisional jurisdiction, the revisional authority must bear in mind that the principles of natural justice do not permit the decision of a quasi-judicial authority, such as a Commissioner of Income-tax, to be influenced by any other authority. Thus, the Commissioner, in the present case, could not have initiated a suo motu revisional pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petition on the merits, it would not be fair and just to dismiss the writ petition on the ground of availability of an alternative remedy. Therefore, when there was no lack of jurisdiction on the part of the assessing authority, in passing the order of assessment and the assessing authority had not exceeded its jurisdiction in passing the order of assessment, the order cannot be termed erroneous, within the meaning of section 263, to enable the Commissioner of Income-tax to invoke powers under section 263 of the Act. Hence, this writ petition succeeds. The impugned notice as well as the order passed by the Commissioner are hereby set aside and quashed. Writ petition shall stand disposed of. - I. A. Ansari J. For the Petitioners : Dr. A. K. Saraf For the Respondents : U. Bhuyan JUDGMENT I. A. ANSARI J. 1. The material facts and various stages giving rise to this writ petition are not in dispute and may, therefore, be set out, in brief, as follows : (i) Petitioner No. 1 is a company incorporated under the Companies Act, 1956, represented by one of its directors as petitioner No. 2. The petitioner-company is engaged in the business of manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the Joint Commissioner of Income-tax. The petitioner-company also pointed out, in its reply, that in view of the pendency of the proceeding under section 154 of the Act, another proceeding under section 263 of the Act was not permissible. The petitioner company further submitted that deduction, on account of bonus, was only to the extent it was paid by the petitioner-company and that the words short provisions do not denote any provision as had been interpreted by the auditors. The petitioner-company asserted that the conclusions reached by the audit party were incorrect. The petitioner-company accordingly requested for dropping of the proceeding initiated under section 263 of the Act. (iv) However, the Commissioner of Income-tax passed an order on March 28, 2000, setting aside the order of assessment dated March 11, 1998, aforesaid so far as the same allowed deduction on account of bonus, for the Commissioner was of the opinion that it was necessary to have all the facts and figures to arrive at a correct conclusion on the question as to whether the total claim of bonus was allowable or not and that in the absence of the necessary figures and details, the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court' s decision in W. P. (C) No. 1416 of 2001 (Bongaigaon Refinery and Petrochemicals Ltd. v. Union of India [2006] 287 ITR 120). 5. Contending that the impugned notice to show cause and also the impugned order are beyond the revisional powers of a Commissioner under section 263, Dr. Saraf has submitted that in the case at hand, the power of suo motu revision was exercised by the Commissioner after a rectification proceeding already stood initiated under section 154 of the Income-tax Act, this rectification proceeding having been initiated, points out Dr. Saraf, on the basis of an audit report of the Department concerned. While the rectification proceeding was in progress, interference by the Commissioner, in exercise of powers under section 263, is, according to Dr. Saraf, an encroachment into the field reserved for the authority under section 154 of the Income-tax Act. The power to reopen an assessment under section 147 and rectify an order under section 154, submits Dr. Saraf, operate in different and distinct fields and when a competent authority was in seisin of a rectification proceeding under section 154, the revisional authority could not have exercised power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven to the authorities under sections 154 and 263 operate in different fields and in the case at hand, when the conditions precedent for exercise of power under section 263 existed, such exercise of power by the Commissioner cannot be challenged on the ground that on the same facts, a rectification proceeding was initiated but dropped. Such exercise of revisional jurisdiction, contends Mr. Bhuyan, cannot be assailed on the ground that it was open to the authorities concerned to go for rectification or reassessment proceedings. 8. The order impugned in the writ proceeding, is, according to Mr. Bhuyan, within the ambit of the power of the Commissioner under section 263 and the fact that the Commissioner has not recorded his final conclusion, while passing the impugned order, cannot be challenged as an order without jurisdiction for the final conclusion, according to Mr. Bhuyan, could not have been recorded by the Commissioner inasmuch as there could have been nothing left for the assessing authority to decide, had the final conclusion been recorded by the Commissioner. 9. It is the submission of Mr. Bhuyan that the Commissioner can exercise his revisional jurisdiction on the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h was dropped on reaching the conclusion that there was no mistake apparent on the face of the record. Hence, the revisional powers under section 263, repeats Dr. Saraf, could not have been exercised in the face of such facts and particularly, when on the same set of facts, rectification proceedings already stood initiated and then dropped. Reference is made by Dr. Saraf in this regard to the observations made by this High Court in Santalal Mehendi Ratta (HUF) v. Commissioner of Taxes reported in [2002] 1 GLR 197 ; 143 STC 511 (Gauhati). 11. Challenging the validity of the order, Dr. Saraf submits that it is incorrect to submit that a Commissioner, while exercising power under section 263, need not record necessary finding as to why he considers the order erroneous and prejudicial to the interests of the Revenue. As a matter of fact, submits Dr. Saraf, it is the duty of the Commissioner to record a specific finding as to how he has concluded that the order is erroneous, for exercise of revisional jurisdiction under section 263 would not be permissible unless the impugned order is shown to be erroneous. In support of this submission, Dr. Saraf places reliance on Rajendra Singh v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing a fresh assessment. Explanation. For the removal of doubts, it is hereby declared that, for the purposes of this sub-section, (a) an order passed on or before or after the 1st day of June, 1988, by the Assessing Officer shall include (i) an order of assessment made by the Assistant Commissioner or the Income-tax Officer on the basis of the directions issued by the Deputy Commissioner under section 144A ; (ii) an order made by the Deputy Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner, of Director General or Commissioner authorised by the Board in this behalf under section 120 ; (b) ' 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 ; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermined by the Income-tax Officer ; but such opinion would not vest in the Commissioner the power to re-examine the accounts and determine the same at a higher figure. This court, in Rajendra Singh v. Superintendent of Taxes 79 STC 10, while examining the provisions of the Tripura Sales tax Act, which is pari materia, has interpreted the expression erroneous as relatable to a jurisdictional error either in making an assessment or in making any other order as distinguished from any other error that may have occurred in determining the extent and quantum of tax. 18. Section 263, correctly submits Dr. Saraf, does not visualise a case of substitution of the judgment of the Commissioner for that of the subordinate authority who passed the order which is sought to be revised. The order passed by a subordinate authority in exercise of its quasi-judicial power vested in him in accordance with law, cannot be termed erroneous merely because the Commissioner does not feel satisfied with the conclusions reached. In this regard, reference may be made to the decision of the Bombay High Court in CIT v. Gabriel India Ltd. [1993] 203 ITR 108, wherein it was held as under (page 115) : Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erent situation. No dis tinction between the power to reopen an assessment and the appellate or revisional power or the power to rectify would exist. There would be an intermingling of the powers resulting in confusion and uncertainty, a situation definitely not contemplated by any statute. 20. In W. P. (C) No. 1416 of 2001, Bongaigaon Refinery and Petrochemicals Ltd. v. Union of India [2006] 287 ITR 120 (Gauhati), decided on September 8, 2006, this High Court held as under (page 130) : The above judicial pronouncements therefore adumbrate the essence and extent of the revisional jurisdiction of an authority akin to the Commissioner of Income-tax under the Act. Not only the exercise of the suo motu power conceptualised therein is hedged by the two conditions of error in the order sought to be revised and the consequential prejudice to the Revenue but no interference is permissible unless the same is afflicted by a jurisdictional error or a patent illegality rendering the same ex facie invalid and non-existent in law. The process to derive the satisfaction that the order is erroneous and is thus prejudicial to the interests of the Revenue, the sine qua non for invocation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Ltd. reported in [1993] 203 ITR 108 (Bom) the court has pointed out that when an assessment made by an Assessing Officer is on the lower side and the Commissioner is of the view that the income ought to have been assessed at a higher figure, such a case is not revisable, for, such a case, which would be regarded as erroneous in other statutes, would not be regarded as erroneous under the provisions of the Act inasmuch as an incorrect order can be rectified if the error is apparent on the face of the record. Moreover, if an error is an error apparent on the face of the record and can be rectified the revisional jurisdiction cannot be exercised. While passing an order of assessment, an Assessing Officer may commit an error ; but every such error is not revisable under section 263. If an Assessing Officer allows a deduction which could have been allowed under the law, such an error cannot be interfered with by revision, for there is no lack of inherent jurisdiction unless it is shown that the law, in such a case, did not permit the deduction to be allowed at all. Thus, when a deduction is not permissible under the law and such a deduction is allowed, there would be lack of jurisdict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh section 263 cannot be invoked to correct each and every type of mistake or error committed by an Assessing Officer, the fact remains that an incorrect assessment of facts or an incorrect application of law can be regarded as erroneous. In the same category would fall orders passed without applying the principles of natural justice or without application of mind. Thus, when an order of deduction is passed on incorrect assumption of facts or incorrect application of law, such an order, being erroneous, may be revised if such an order is prejudicial to the interests of the Revenue. Similarly, when a deduction is allowed without application of mind, such an order can also be revised under section 263 provided that the order is prejudicial to the interests of the Revenue. When an Assessing Officer has jurisdiction but passes in exercise of such jurisdiction, an order which suffers from non-application of mind or incorrect assumption of facts or incorrect application of law, it would amount to an erroneous order within the meaning of section 263. Thus, when a deduction is not permissible yet is allowed either because of non-application of mind or because of incorrect application of la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onferred on different authorities, operate in distinctly separate fields, one authority cannot entrench upon the field of power reserved for the other authority. 26. It is also worth noticing that in the case at hand, a rectification proceeding was initiated, under section 154 of the Income-tax Act, by the Joint Commissioner of Income-tax at the initiative of the audit party. The Joint Commissioner, after making necessary enquiry, dropped the proceedings. The assessing authority was satisfied that there was no mistake apparent from the record in allowing the claim of deduction on account of bonus. Initiation of the suo motu revisional proceedings in the same matter amounts to entrenching upon the powers of the assessing authority, which has been specifically reserved for the assessing authority. Since respondent No. 1, namely, the Commissioner of Income-tax has intruded into the powers of the assessing authority by initiating the proceedings under section 263 of the Act on an issue already examined by the Assessing Officer in exercise of powers under section 154 of the Act, the revisional authority must be held to have exceeded the limits of section 263 and, therefore, the impug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... large so as either to trench upon the powers which are expressly reserved by the Act or by the Rules to other authorities or to ignore the limitations inherent in the exercise of those powers. For instance, the power to reassess escaped turnover is primarily vested by rule 17 in the Assessing Officer and is to be exercised subject to certain limitations, and the revising authority will not be competent to make an enquiry for reassessing a taxpayer. Similarly the power to make a best judgment assessment is vested by section 9(2)(b) in the assessing authority and has to be exercised in the manner provided. It would not be open to the revising authority to assume that power. The revisional power has to be exercised for ascertaining whether the order passed is illegal or improper or the proceeding recorded is irregular and it is in aid of that power that such orders may be passed as the authority may think fit. One of the inquiries in considering the legality or propriety of the orders passed by the subordinate officer which the revising or the appellate authority may make is about the correctness of the tax levied and if after perusing the record the authority is prima facie satisfie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Such a situation has been disapproved of by the apex court in the case of State of Kerala v. K. M. Cheria Abdulla and Co. 16 STC 875. 29. In Bongaigaon Refinery and Petrochemicals Ltd. v. Union of India [2006] 287 ITR 120 (W. P. (C). No. 1416 of 2001), too, this High Court has clearly delineated the contours of powers of the various authorities under the Income-tax Act and has clearly held that the Act envisages compartmentalisation in the functioning of the authorities so much so that it would be impermissible to overedge the legislatively reserved frontiers of the other authority. Succinctly describing the contours of the powers of various authorities under the Act, this High Court, in Bongaigaon Refinery and Petrochemicals Ltd. [2006] 287 ITR 120, observed and held as under (page 131) : Entertainment of a view different from the one adopted by the Assessing Officer, if plausible would not clothe the Commissioner with the power to interfere therewith under the said provision of the Act. Differently put, an error within the jurisdiction of the Assessing Officer on an evaluation of the materials available would not be exposed to interference in exercise of suo motu revision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , on the basis of the audit report, the Commissioner came to his own finding that the assessing authority, while making the assessment, or the authority empowered to rectify a turnover, which had escaped assessment, has acted without jurisdiction, revisional jurisdiction could have been exercised. Emphasised the Supreme Court, in the case of Sirpur Paper Mill Ltd. v. CWT [1970] 77 ITR 6, that while exercising power, the Commissioner must have an unbiased mind and decide the dispute according to the procedure which is consistent with the principles of natural justice and cannot permit his mind to be influenced by the dictation of another authority. The relevant observations made by a three-judge Bench of the Supreme Court, in the case of Sirpur Paper Mill Ltd. [1970] 77 ITR 6, read as follows (page 7) : In exercise of the power the Commissioner must bring to bear and unbiased mind, consider impartially the objections raised by the aggrieved party, and decide the dispute according to procedure consistent with the principles of natural justice ; he cannot permit his judgment to be influenced by matters not disclosed to the assessee, nor by dictation of another authority. 32. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3, are absolutely without jurisdiction and not tenable in law. 33. A Division Bench of the Calcutta High Court, too, in the case of Jeewanlal (1929) Ltd. v. Addl. CIT reported in [1977] 108 ITR 407 (Cal), following the law laid down by the Supreme Court, in Sirpur Paper Mill Ltd. [1970] 77 ITR 6 observed (page 412) : The second ground of attack was, as I mentioned before, that this order was passed at the suggestion of the audit department of the Revenue and not by the Additional Commissioner in exercise of his quasi-judicial discretion. I have noticed the terms of section 263 of the Act which empowers the Commissioner to call for examination of the record and thereafter to make an order. In this case the Commissioner purported to exercise the power at the suggestion of the audit department. This position would be clear if one refers to the averment made in paragraph 4(d) of the affidavit-in-opposition, by one Madan Mohan Lal, filed on behalf of the respondents. From the facts it is apparent that the Additional Commissioner did not exercise his discretion and judgment. In the aforesaid view of the matter, on the basis of the principles enunciated by the Supreme Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed is that in terms of the objections raised by the audit party, the books of account be verified. 37. As regards the exercise of jurisdiction under article 226, what needs to be noted is that the writ petitioners have challenged the exercise of power under section 263 as an exercise of power without jurisdiction. When the Commissioner does not claim that to the facts of the case at hand, a rectification proceeding could not have been initiated nor does the Commissioner claim that dropping of the rectification proceeding amounted to omission to exercise jurisdiction, which rightfully stood vested in the authority concerned, the exercise of revisional jurisdiction under section 263 has to be held as an exercise of power without jurisdiction. When the power is exercised without jurisdiction, the High Court can interfere with such an order of suo motu revision in exercise of powers under article 226. Reply of a notice to show cause issued by the Commissioner under section 263 will not confer jurisdiction on the Commissioner if the Commissioner is, otherwise, not legally empowered to initiate and conduct a revisional proceeding under section 263 (See Shree Automobiles P. Ltd. v. Com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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