Court rules in favor of petitioner, invalidates Commissioner's jurisdiction; emphasizes proper tax authority conduct

The court ruled in favor of the petitioner, holding that the Commissioner had no jurisdiction to further rectify the order once it was rectified under section 154. The court also found the Commissioner's action based on the audit department's suggestion to be improper. The notice issued by the Commissioner under section 263 was quashed, and any further action based on it was restrained. The judgment underscores the significance of tax authorities exercising their power properly and adhering to the principles of natural justice in tax proceedings.

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Issues involved:
Challenge to notice u/s 263 of Income-tax Act, 1961 for assessment year 1965-66.

Summary:
The petitioner challenged a notice dated 23rd March, 1972, issued u/s 263 of the Income-tax Act, 1961, by the Additional Commissioner of Income-tax, West Bengal II, Calcutta, for the assessment year 1965-66. The petitioner's company was initially assessed as not substantially interested to the public, but later rectified to be substantially interested. The Appellate Assistant Commissioner disposed of the appeal without deciding on the rectification. The Additional Commissioner issued a notice under section 263 to rectify the order, which the petitioner opposed on two grounds.

Firstly, it was argued that the rectified order merged with the Appellate Assistant Commissioner's order, making the rectification by the Commissioner improper. Secondly, it was contended that the Commissioner acted mechanically based on the audit department's suggestion, rather than exercising proper discretion as required by section 263 of the Act.

The court held that once the order was rectified under section 154, it became the operative order, and the Commissioner had no jurisdiction to rectify it further. Additionally, the Commissioner's action based on the audit department's suggestion was deemed improper. Citing relevant case law, the court quashed the notice issued by the Commissioner and restrained any further action based on it. The rule was made absolute with no order as to costs, and the operation of the order was stayed for six weeks from the date.

This judgment emphasizes the importance of proper exercise of power by tax authorities and upholding the principles of natural justice in tax proceedings.

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