2009 (5) TMI 14 - SC - Income Tax

s.263 is supervisory and triggers only for erroneous orders causing revenue prejudice; s.148 notices and directed assessing officer orders invalid

CIT, SHIMLA Versus M/s GREENWORLD CORPORATION and M/s THE GREEN WORLD CORPORATION Versus ITO, PARWANOO & ANR.

SC held that power under s.263 is supervisory and can be invoked only if an order is erroneous and causes prejudice to revenue. Notices issued at the ... Jurisdiction of the Commissioner of Income-tax to issue notice in terms of Section 263 - Income Form setting up units in exemption area u/s 80IA - established after declaration and enforcement of a policy for tax holiday for certain period specified in the Union Budget - surveyu/s 133A - discrepancies as per cash book - legality of the notice u/s 148 - binding effect of the said circular No. 16/98 - Huge profit of about 49% to 66% of sales - AO conducted survey u/s 133A and after verification accepted the return submitted by the assessee - as per the order of the AO it appears that he has passed the order on the direction of CIT - in the meantime CIT and transferred - new CIT has passed an order u/s 263. HELD THAT:- The scope of provisions of Section 263 of the Act is no longer res integra. The power to exercise of suo motu of revision in terms of Section 263(1) is in the nature of supervisory jurisdiction and same can be exercised 33 only if the circumstances specified therein, viz., (1) the order is erroneous; (2) by virtue of the order being erroneous prejudice has been caused to the interest of the revenue, exist. Indisputably, CIT (Shimla) had no jurisdiction to issue directions. Notices issued pursuant thereto would be bad in law. We may, however, place on record that the Revenue in the `List of Dates' while questioning the observations made by the High Court that the notices under Section 148 of the Act for Assessment Years 1996-97 and 1997-98 are not saved from the rigors of the law of limitation, under the exclusionary provisions of Sections 150(1) and 153(3)(ii) of the Act. No doubt in terms of the circular letter issued by CBDT, the Commissioner or for that matter any other higher authority may have supervisory jurisdiction but it is difficult to conceive that even the merit of the decision shall be discussed and the same shall be rendered at the instance of the higher authority who, as noticed hereinbefore, is a supervisory authority. It is one thing to say that while making the orders of assessment the Assessing Officer shall be bound by the statutory circulars issued by CBDT but it is another thing to say that the assessing authority exercising quasi judicial function keeping in view the scheme contained in the Act, would lose its independence to pass an independent order of assessment. This case poses before us some peculiar questions. Whereas the order under Section 263 of the Act and consequently the notices under Section 148 of the Act have been held to be not maintainable, we are constrained to think that the Assessing Officer had passed an order at the instance of the higher authority which is illegal. For the aforementioned purpose, we may not go into the question of bona fide or otherwise of the authorities under the Income Tax Act. They might have proceeded bona fide but the order of assessment passed by the Assessing Officer on the dictates of the higher authorities being wholly without jurisdiction, it was a nullity. We, therefore, are of the opinion that with a view to do complete justice between the parties, the assessment proceedings should be gone through again by the appropriate assessing authority. It is now well settled that this Court in exercise of its extra-ordinary jurisdiction under Article 136 of the Constitution of India may, in the event an appropriate case is made out, either refuse to exercise its discretionary jurisdiction or quash both the orders if it is found that setting aside of one illegal order would give rise to another illegality. These appeals are disposed of with the aforementioned directions. Issues Involved:1. Jurisdiction2. Bias on the part of the CIT (Shimla)3. Merits of the assessment order4. Validity of the notices under Section 148 of the Income Tax Act5. Directions issued by the CIT under Section 263 of the Income Tax Act6. Maintainability of the appeal by CIT (Shimla)Detailed Analysis:1. Jurisdiction:The principal question was whether the CIT (Shimla) had the jurisdiction to maintain the appeal before the High Court after the Central Board of Direct Taxes (CBDT) transferred the case to CIT (Delhi). The Supreme Court noted that the transfer of jurisdiction from CIT (Shimla) to CIT (Delhi) was effective from 5th September 2005, post the initiation of the appeal by CIT (Shimla). The Court observed that the CIT (Shimla) had passed the order before the transfer and thus had the locus standi to file the appeal. The Court also emphasized that no prejudice was shown by the assessee due to this jurisdictional issue.2. Bias on the part of the CIT (Shimla):The assessee alleged bias on the part of CIT (Shimla). The Tribunal had set aside the order of the CIT (Shimla) on the jurisdictional issue and did not delve into the merits. The Supreme Court noted that the CIT (Shimla) had issued directions for reopening the proceedings for other assessment years, which the Tribunal found to be beyond the jurisdiction conferred under Section 263 of the Act.3. Merits of the assessment order:The Tribunal observed that the Assessing Officer had made proper and adequate inquiries and allowed the deduction under Section 80-IA after applying her mind. The Tribunal held that the CIT (Shimla) had based his order on surmises and conjectures without substantial material, thus setting aside the CIT's order under Section 263. The Supreme Court upheld the Tribunal's finding that the assessment order was not erroneous or prejudicial to the revenue's interests.4. Validity of the notices under Section 148:The High Court had held that the notices under Section 148 for the assessment years 1996-97 and 1997-98 were not saved from the limitation under Sections 150(1) and 153(3)(ii) of the Act. The Supreme Court observed that the CIT (Shimla) had no jurisdiction to issue directions for reopening the assessments for other years, and thus the notices issued pursuant to those directions were invalid.5. Directions issued by the CIT under Section 263:The CIT (Shimla) had issued directions under Section 263, estimating the assessee's income and treating the excess as undisclosed income. The Supreme Court noted that the CIT's order was based on the premise that the Assessing Officer had not examined the case properly. The Court reiterated that the power under Section 263 can be exercised only if the order is erroneous and prejudicial to the revenue's interests. The Tribunal had found that the Assessing Officer had made adequate inquiries and thus the CIT's order under Section 263 was not sustainable.6. Maintainability of the appeal by CIT (Shimla):The Supreme Court held that the CIT (Shimla) had the locus standi to maintain the appeal as he had passed the order before the transfer of jurisdiction. The Court also noted that the appeal was maintainable even though CIT (Delhi) was later impleaded.Conclusion:The Supreme Court upheld the Tribunal's decision setting aside the CIT (Shimla)'s order under Section 263 and invalidated the notices under Section 148 issued pursuant to the CIT's directions. The Court directed that the assessment be reopened by the Commissioner of Income-tax, Delhi -VII, ensuring that the assessment proceedings are conducted afresh by the appropriate authority.