1997 (9) TMI 87 - HC - Income Tax

Court upholds Commissioner's power under section 263 of Income-tax Act, material post-assessment valid.

The court held in favor of the Revenue and against the assessee in a case concerning the cancellation of the Commissioner's order under section 263 of the ... Powers Of Commissioner Issues Involved:1. Whether the Income-tax Appellate Tribunal was correct in law in cancelling the order passed by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961.2. Whether the Income-tax Appellate Tribunal ought to have held that the Commissioner of Income-tax had jurisdiction to pass orders under section 263 since the facts subsequently revealed showed that the Income-tax Officer did not make proper enquiries when granting registration to the firm.3. Whether the Income-tax Appellate Tribunal was correct in law in directing that the material available at the time of passing the order under section 263 but which was not available at the time the Income-tax Officer passed the impugned order should be ignored.Detailed Analysis:Issue 1: Cancellation of Order by Commissioner of Income-tax under Section 263The Tribunal initially canceled the Commissioner's order under section 263, which had set aside the registration granted to the firm under section 185 for the assessment year 1980-81. The Tribunal's decision was based on the view that the Commissioner erred in relying on material not on record when the registration was granted. However, the court noted that the amendment to section 263 broadened the scope of 'record' to include all records available at the time of examination by the Commissioner, irrespective of whether they were available at the time of the initial assessment. This amendment clarified that the Commissioner could consider such material for exercising revisional powers. Consequently, the court answered this question in the negative, favoring the Revenue and against the assessee.Issue 2: Jurisdiction of Commissioner under Section 263The Tribunal's decision was challenged on the grounds that the Commissioner had jurisdiction under section 263 due to the Income-tax Officer's failure to make proper inquiries when granting the firm's registration. The court emphasized that the term 'record' includes all records available at the time of the Commissioner's examination, as clarified by the amendment to section 263. This interpretation was supported by judgments from the Madras High Court and the Supreme Court, which held that the Commissioner could rely on material that came to light after the initial assessment but before the exercise of revisional power. Thus, the court affirmed that the Commissioner had jurisdiction to pass orders under section 263, answering this question in the affirmative, favoring the Revenue and against the assessee.Issue 3: Consideration of Material Not Available at the Time of Initial AssessmentThe Tribunal directed that material available at the time of passing the order under section 263 but not available at the time of the initial assessment should be ignored. The court found this direction contrary to the findings that the Commissioner could consider such material. The court referenced the Supreme Court's observation that the Commissioner could take into account events or materials that emerged after the initial assessment but before the exercise of revisional power. Therefore, the court reframed the question by deleting the words 'though the material disclosed that the Income-tax Officer had passed an order without making proper enquiries' and answered it in the negative, favoring the Revenue and against the assessee.Conclusion:The court concluded that the Tribunal erred in canceling the Commissioner's order under section 263 and that the Commissioner had jurisdiction to pass orders based on material that came to light after the initial assessment. The court also held that such material should not be ignored, thus answering all questions in favor of the Revenue and against the assessee. The reference was accordingly answered.