TMI Blog2000 (3) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... fy the accounts and the notice dated May 5, 1998, was issued without verifying the accounts and without satisfying whether the books of account maintained were true and complete. The appellant was required to show cause against the notice on May 18, 1998, at 11 a.m. under exhibit P-1. No hearing took place on May 18, 1998, as per the notice exhibit P-1 because by the time the appellant's part-time accountant reached the camp office of the first respondent, the first respondent had finished camp work and left the camp office. Thereafter there was no further hearing in the matter and a penalty of Rs. 12,60,450 was imposed by order dated May 29, 1998, which has been marked as exhibit P-2. According to the appellant, the huge penalty was imposed without affording the appellant a reasonable opportunity for personal hearing and representation. The appellant filed statutory revision under section 45A(3) before the Deputy Commissioner, Commercial Taxes, Kasaragod, who was satisfied that there was gross violation of the principles of natural justice in passing the penalty order exhibit P-2 without affording the appellant a reasonable opportunity of hearing and representation. The Deputy Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate. We have heard the arguments of Mr. T. M. Sreedharan for the appellant, and Mr. R. K. Muraleedharan, Government Pleader for the respondents. In this case, the appellant was a partnership-firm carrying on business in hill produce during 1994-95. The business was discontinued in 1996. The place of business was inspected by the Intelligence Squad on February 23, 1995, and stocks were verified. According to the appellant, none of the partners of the firm was present at the time of inspection. After the inspection, the regular books of account of the appellant-firm were called for and verified on November 24, 1997, nearly two and a half years after the inspection by the Intelligence Officer. Thereafter notice dated May 5, 1998, under section 45A(1)(b) of the Kerala General Sales Tax Act was issued by the successor-in-office of the first respondent proposing to impose penalty under section 45A(1)(b) for the alleged failure to keep true and complete accounts for 1994-95. It is stated that before issuing the notice the incumbent in office did not verify the books of account of the appellant-firm and without verifying whether the books of account maintained were true and complete, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the Deputy Commissioner in exercise of the statutory power under section 45A(3) has set aside the order imposing penalty for cogent and valid reasons and that the above sub-section empowered the Deputy Commissioner to confirm, reduce, or waive such penalty or remand the case to the assessing authority or Appellate Assistant Commissioner, as the case may be, for reconsideration. While so, the appellant is now served with a notice dated September 6, 1999, by the Commissioner of Commercial Taxes, issued under section 45A(5) stating as follows : "On a perusal of the proceedings read above (i.e., the order exhibit P-4 passed by the Deputy Commissioner) with reference to the records and the provisions of the Act, it is found that the order of the revision authority is against law, facts and interests of the Revenue. It is also noted from the records that you were given ample opportunity of being heard in person and also to file objections to the proposal to the penalty by the Intelligence Officer, but you have not availed of it and it can only be construed that you are a defaulter. On that basis, it is proposed to set aside the order of the Deputy Commissioner, Kasaragod, dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal or of a revision in the High Court; or (c) more than four years have expired after the passing of the order referred to therein. (2A) Notwithstanding anything contained in sub-section (2), the Board of Revenue may pass an order under sub-section (1) on any point which has not been decided in an appeal or revision referred to in clause (b) of sub-section (2), before the expiry of a period of one year from the date of the order in such appeal or revision or before the expiry of a period of four years referred in clause (c) of that sub-section, whichever is later. (3) No order under this section adversely affecting a person shall be passed unless that person has had a reasonable opportunity of being heard." "45A. Imposition of penalty by officers and authorities.---(1) If the assessing authority or the Appellate Assistant Commissioner is satisfied that any person,--- (a) being a person required to register himself as dealer under this Act, did not get himself registered; or (b) has failed to keep true and complete accounts; or (c) has failed to submit any return as required by the provisions of this Act or the rules made thereunder; or (d) has submitted an untrue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king the application within the said period : Provided further that no order enhancing a penalty or cancelling the waiver of a penalty shall be passed unless the person affected thereby is given an opportunity of being heard in the matter . . ." A reading of section 45A would show that the procedural formalities contemplated under section 17(3) of the Kerala General Sales Tax Act will apply. Section 17(3) provides that before taking action under sub-section (3) of section 17 the dealer shall be given a reasonable opportunity of being heard and, where a return has been submitted to prove the correctness or completeness of such return, there must be adequate and effective opportunity for the assessee to file his objections and substantiate the case by producing evidence. In the case on hand, though the appellant's business place was inspected on February 23, 1995, the regular books of account were called for and verified only on November 24, 1997, nearly two and a half years after the inspection, by the Intelligence Officer and thereafter notice dated May 5, 1998, under section 45A(1)(b) was issued by the successor-in-office of the first respondent proposing to impose penalty u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b). The appellant-firm preferred a revision to the Deputy Commissioner under rule 39A and section 45A and thereupon exhibit P-4 order was passed setting aside the penalty. Thereupon notice under section 45A(5) of the Kerala General Sales Tax Act under exhibit P-5 was issued. It was proposed to set aside the order of the Deputy Commissioner dated January 8, 1999, and take up the matter suo motu under section 37 of the Kerala General Sales Tax Act to restore the order dated May 29, 1998 of the Intelligence Officer. Section 37 of the Kerala General Sales Tax Act, which is invoked, says that 'the Board of Revenue may suo motu call for and examine any order passed or proceeding recorded under this Act by any officer or authority, subordinate to it other than an Appellate Assistant Commissioner which in its opinion is prejudicial to the Revenue and may make such enquiry or cause such enquiry to be made and subject to the provisions of this Act may pass such order thereon as it thinks fit". We have perused exhibit P-4 which, in our opinion, is not and cannot be construed to be prejudicial to the interests of the Revenue. The penalty order in exhibit P-2, in our opinion, was passed in vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the ground of illness of its accountant and also enclosed a medical certificate to that effect. The Assessing Officer considered that no further extension of time could be granted. He, after a pre-assessment show-cause notice, determined the turnover of the assessee to the best of his judgment. On appeal, the Appellate Assistant Commissioner set aside the assessment on the ground that sufficient opportunity was not given to the assessee to file the objections and remanded it back to the Assessing Officer for fresh assessment after affording another opportunity to the assessee to produce the accounts. The Board of Revenue, in exercise of its suo motu power of revision, held that the Appellate Assistant Commissioner was not justified in setting aside the assessment order and remanding the case back to the Assessing Officer. On appeal, the Madras High Court held, in the facts and circumstances of the case, that the power of remand was properly exercised by the Appellate Assistant Commissioner and if on an examination of the books, it was found that a higher turnover was liable to be taxed, then certainly the assessing authority could exercise his power and tax the turnover accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder is prejudicial to the interests of the Revenue or not is to address oneself to the question whether the legitimate revenue due to the exchequer has been realised or not or can be realised or not if the orders under consideration are allowed to stand. For arriving at this conclusion, it becomes necessary and relevant to consider whether the income in respect of which tax is to be realised has been subjected to tax or not or if it is subjected to tax, whether it has been subjected to tax at the rate at which it could yield the maximum revenue in accordance with law or not. If the income in question has been taxed and legitimate revenue due in respect of that income had been realised, though as a result of an erroneous order having been made in that respect, the Commissioner cannot exercise the powers for revising the order under section 263 merely on the basis that the order under consideration is erroneous. If the material in that regard is available on the record of the assessee concerned, the Commissioner cannot exercise his powers by ignoring that material which links the income concerned with the tax realisation made thereon. The two questions are interlinked and the author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying the assessment, or cancelling the assessment and directing a fresh assessment. Section 263 is reproduced hereunder : "263. Revision of orders prejudicial to revenue.---(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment." Certain judgments say that the scope of the power of interference under this section is not merely to set aside unfavourable orders and bring some more money to the treasury nor is it meant to get at sheer escapement of revenue. The prejudice must be prejudice to the revenue administration. It is an extraordinary revisional power to be employed not as a jurisdictional corrective or as a review of a subordinate's order in exercise of supervisory powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The above view was considered and affirmed by the recent judgment of the Supreme Court in Malabar Indus trial Co. Ltd. v. CIT [2000] 243 ITR 83, while affirming the judgment of the Division Bench of the Kerala High Court in Malabar Industrial Co. Ltd. v. CIT [1992] 198 ITR 611. Before the Division Bench (K. S. Paripoornan and K. A. Nayar, JJ.) two questions of law were referred for its decision. We are concerned in this case only with the first question. The Division Bench referred in this context to the judgment reported in Dawjee Dadabhoy and Co. v. S. P. Jain [1957] 31 ITR 872 (Cal). In that case <?xml:namespace prefix = st2 /> Sinha I. , interpreted the words "prejudicial to the interests of the Revenue" thus : "The words 'prejudicial to the interests of the Revenue' have not been defined, but it must mean that the orders of assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. It can mean nothing else." A Bench of the Gujarat High Court had also quoted the above observation with approval. Similarly, a Bench of the Allahabad High Court in Addl. CIT v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2JT SC 15. The Supreme Court, after considering section 265(1), has in paragraphs 6 and 7 of its judgment observed as follows : "A bare reading of this provision makes it clear that the pre-requisite to the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous ; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent--if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue--recourse cannot be had to section 263(1) of the Act. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous ; and (ii) it is prejudicial to the interests of the Revenue and if one of them is absent recourse cannot be had to section 263(1) of the Act. In our opinion, the order of the Deputy Commissioner, the revisional authority, under exhibit P-4, sought to be revised under exhibit P-5 is not erroneous in any manner and it is also not prejudicial to the interests of the Revenue. The revisional authority under exhibit P-4, after considering the arguments of either side and after perusing the records and considering the whole facts and circumstances of the case, set aside the penalty imposed under exhibit P-2 and has only directed the Intelligence Officer to verify the books of account and allow the revision-petitioner an opportunity to explain the seized records. It was further directed that the revision-petitioner shall also be given a reasonable opportunity of being heard before passing a final order in this case. A further direction to complete the penalty proceedings as expeditiously as possible was also made. Since the matter is remitted for fresh consideration, the said order, in our view, is not prejudicial to the interests of the Revenue. The Deputy Commissioner was compelled ..... X X X X Extracts X X X X X X X X Extracts X X X X
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