TaxTMI 
TaxTMI 
2009 (5) TMI 14
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.... of a policy for tax holiday for certain period specified in the Union Budget. They had also set up a third unit for manufacturing computer software. They started filing income tax returns from the Assessment Year 1996-97 showing huge profits. In the return for the Assessment Year 2000-01 they disclosed their total sales to the tune of Rs.1,51,69,515/- out of which a sum of Rs.74,69,314/- was shown as net profit. Thus, the profits bore a proportion of 49% to the gross sales. For the earlier assessment year, i.e. 1999-2000, the proportion of the net profit to the total sales was as high as 66% because out of the total sales of Rs. 2,97,12,106/- net profits were declared to be to the tune of Rs.1,96,77,631/-. For the subsequent three assessment years i.e. 2001-2002, 2002-2003 and 2003-2004, the proportionate net profits to the gross sales were 81%, 95% and 95% respectively. It is furthermore stated that the total investment on plant and machinery for unit No. 1 was shown to be just Rs.1,25,000/- and a very small amount of money was shown to have been spent on plant and machinery for the second unit. 4. On or about 7.2.2000, the Assessing Officer (`AO') conducted a survey at the....
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.... hereby accepted." In the said order of assessment, AO recorded a note, which reads as under: "After receiving a call from Shimla on 3.12.2002, I visited the office of Worthy CIT, Shimla on 4.12.2002 along with all the assessment records and relevant documents of M/s Green World Corporation. The case was thoroughly discussed with (sic) records and relevant worthy CIT, Shimla in the presence of learned Addl. CIT, Solan Range, Solan. All the documents and queries raised and further reply submitted by the assessee was properly glanced through by the worthy CIT and after going through the questionnaire issued to the assessee on 18.10.2002 and reply submitted by the assessee in response to that on 7.11.2002, 13.11.2002 and 25.11.2002, worthy CIT has directed that since the reply submitted by the assessee is satisfactory and upto the mark, no more information is required to be called for and to assess the case as such. He, therefore, directed in presence of the learned Addl. CIT, Solan Range, Solan to incorporate that discussion in the body of the order sheet. Needful has been done as directed. A copy of the draft assessment order was sent to the Addl. CIT, Solan Range, Solan under....
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....97, 1997-98, 1998-99 and 1999-2000; and succeeding assessment years i.e. A.Y. 2001-02, 2002-03 and 2003- 04 also. It is thus obvious that either the whole or substantially the whole of income shown by the assessee in the aforementioned different assessment years could not be said to be income derived from the business of industrial undertaking and was therefore not entitled to deduction u/s 80IA/IB. Thus substantial taxable income for these assessment years have escaped assessment because of non fulfillment of the pre- requisite conditions for deduction u/s 80IA/80IB. The Assessing Officer is hereby directed to examine the case records for all the preceding assessment years including those for assessment year 1996-97 and initiate necessary proceedings u/s 148 within a week. The Assessing Officer is further directed to examine the succeeding assessment years also i.e. A.Y. 2001-02, 2002-03 and 2003-04 and initiate appropriate action u/s 148/143(2) as may be applicable, in a week's time." Pursuant thereto or in furtherance thereof, notices under Section 148 of the Act were issued to the Assessee for the Assessment Years 1996-97 to 1999-2000, 2001-2002 and 2002-2003. 7. Assessee....
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....essee for the subsequent years by his impugned order which was beyond the jurisdiction conferred on him u/s 263 since the same was confined only to the year for which the assessment order was sought to be revised. We, therefore, direct that the said directions pertaining to the years other than the year under consideration as contained in the impugned order be omitted. 45. As a result of our decision on ground Nos. 1 to 5 cancelling the impugned order passed by the learned CIT u/s 263, the other grounds raised by the assessee in this appeal have been rendered only of academic nature. We, therefore, do not deem it necessary or expedient to consider and decide the same on merits." On or about 5.7.2005, notice under Section 148 of the Act was also issued for the Assessment year 2000-2001. 9. Assessee questioned the legality of the notice under Section 148 of the Act by filing a Writ Petition before the Himachal Pradesh High Court on or about 5.8.2005, which was marked as Civil Writ Petition No. 800 of 2005. 10. Indisputably, the Central Board of Direct Taxes (for short, "CBDT"), on the application for transfer of the case filed by the assessee on 4.5.2004, passed an order ....
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....fficer had acted under the dictates and pressure of CIT (Shimla), the order of assessment was not maintainable. (4) Assesseee not being a new unit, the order of assessment was bad in law. (5) CIT could issue directions for reopening the proceedings for the other Assessment Years apart from Assessment Year 2000-2001 also, subject of course to the law of limitation. 13. Feeling aggrieved by the said judgment and order dated 2.3.2006, Assessee filed two Review Petitions being Civil Review Nos. 15 and 16 of 2006. Civil Review No.14 of 2006 was also filed by the Income Tax Officer, Shimla against the same. Another Civil Review No. 22 of 2006 also came to be filed by the Mr. D. Khare, who was the CIT at the time of passing of the Assessment Order dated 19.12.2002 as certain strictures were passed in the said order dated 2.3.2006 against him without giving an opportunity of hearing to him. A Special Leave Petition No. 1789 of 2007 was also filed by the CIT (Shimla) against the said High Court's judgment and order dated 2.3.2006. 14. On or about 7.4.2006, this Court dismissed the Special Leave Petition No. 3273 of 2006 filed by the Assessee as infructuous. On or about 14.11.200....
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....se of its being not based on any reasoning and hence an order passed without application of mind. 5. In view of the above stated position, we allow the present petition (Civil Review Petition No. 22 of 2006) and order the expunction of all those observations appearing in para 16 or 41 or elsewhere in the judgment, which give the impression that the review petitioner stands indicted for interfering with the working of the Assessing Officer, Solan or pressurizing her into accepting the return as submitted by the assessee, without making any further probe. In fact the inquiry ordered by this Court, vide para 41 of the judgment, is for the purpose of finding out whether the review petitioner had actually interfered with the working of the Assessing Officer, Solan and pressurized her into passing the order of acceptance of the return as stated in the foot note of the order of Assessing Officer. 6. Two other Review Petitions No. 15 and 16 of 2006 have been filed by the assessee. The contents and the pith and substance of both the two review petitions are the same. Instead of one, two petitions have been filed because by the judgment of this Court not only the appeal filed against t....
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....earned counsel submitted that this court gave the finding that the order of the Assessing Officer, Solan was bad but that such a question did not arise out of the appeal decided by the Income Tax Appellate Tribunal as the Tribunal had dealt with the question of jurisdiction only and hence this court exceeded its appellate jurisdiction while holding that the order was bad on account of non- application of mind. The submission is factually incorrect. The Tribunal while accepting the appeal of the assessee held that the order had been passed by the Assessing Officer under Section 263 of the Income Tax Act on the basis of the inquiry conducted by her and that the Commissioner of Income Tax could not have interfered with the said order merely because he formed a different view on scanning the record. Appellate Tribunal clearly said that the order of the Assessing Officer was based on an inquiry conducted by her. This court did not approve of this finding of the Tribunal, because the note appearing below the order of the Assessing Officer clearly shows that it is not passed on application of mind but on the interference by the Commissioner of Income Tax. 11. Since none of the submissi....
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....o be quashed. 18. Mr. I. Venkatanarayana, learned Senior Counsel appearing on behalf of the Revenue, on the other hand, would contend: i. CIT (Shimla) had the locus standi to prefer an appeal before the High Court as he had passed the order prior to the order of transfer. ii. The Assessee having played fraud on the Department as it had shown a huge amount of profit without there being sufficient number of workmen engaged and without consuming requisite units of electrical energy only with a view to enjoy the tax holidays, CIT (Shimla) had rightly interfered therewith. iii. The amount of profit shown from the Parwanoo having been holding disproportionate to the investment made, the High Court was correct in passing the impugned judgment. iv. In any event, the Assessee cannot be said to have been prejudiced in any manner whatsoever by the order of the High Court, as the appeal although was improperly filed may be held to be maintainable. 19. The principal question which arises for consideration is as to whether the order of assessment was passed at the instance of the Higher Authority. 20. An Income Tax Officer while passing an order of assessment performs ....
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....of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, transfer any case from one or more Assessing Officers subordinate to him (whether with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) also subordinate to him. (2) Where the Assessing Officer or Assessing Officers from whom the case is to be transferred and the Assessing Officer or Assessing Officers to whom the case is to be transferred are not subordinate to the same Director General or Chief Commissioner or Commissioner,- (a) where the Directors General or Chief Commissioners or Commissioners to whom such Assessing Officers are subordinate are in agreement, then the Director General or Chief Commissioner or Commissioner from whose jurisdiction the case is to be transferred may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, pass the order; (b) where the Directors General or Chief Commissioners or Commissioners aforesaid are not in agreement, the order transferr....
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.... jurisdiction in respect of offices of the Income Tax Assessing Officer situate at Civil Lines (No. 114). 23. Before, however, adverting to the jurisdictional issue raised by the Assessee herein, we may consider the jurisdiction of the Commissioner of Income-tax to issue notice in terms of Section 263 of the Act. It provides for a revisional power. It has its own limitations. An order can be interfered suo motu by the said authority not only when an order passed by the Assessing Officer is erroneous but also when it is prejudicial to the interests of the Revenue. Both the conditions precedent for exercising the jurisdiction under Section 263 of the Act are conjunctive and not disjunctive. 24. An order of assessment passed by an Income-tax Officer, therefore, should not be interfered with only because another view is possible. The Commissioner of Income-tax, however, has specified a number of reasons in support of its order, namely, (1) on non-fulfillment of pre-requisite conditions for deduction under Section 80-IA/80-IB - it was held that the activities of the assessee do not amount to manufacturing; (2) little consumption of electricity and thus manufacturing is without the....
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....nd all reasonable doubts that the assessee had falsely made claim of heavy deductions knowing fully well: that its activities/operations did not amount to manufacturing; that the manufacturing, if any, was not carried with the aid of power; that it does not fulfill the condition of new Plant & Machinery; that it did not satisfy the condition of employment of 20 workers throughout or through the substantial part of the year, and that the declared profits were reasonably high and exorbitant and non genuine also. " On the aforementioned finding, it was held: "16.3 Under the circumstances, I am left with no alternative but to decide the proceedings on the basis of material on record. In the assessment year under review, I estimate the assessee's income from Units at Parwanoo at 5% of the declared turnover. The income shown in excess of 5% amount is treated as undisclosed income from undisclosed sources. As the assessee does not fulfill many of the conditions for being entitled to deduction u/s 80IA/IB, no part of the total income, not even the one estimated @5% of the turnover at Parwanoo, would be entitled for deduction u/s 80IA/IB." Other directions were issued and ....
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.... years was based on assumptions and surmises depending on ultimate eventualities like the one happened in the present case when the units were finally closed down by the assessee after five years. Even the other discrepancies pointed out by the learned CIT in his impugned order in terms of maintenance of stock record and books of accounts including cash book were duly examined by the Assessing Officer as is evident from the specific queries raised by her in writing seeking clarification/explanation from the assessee and the elaborate submissions made in reply on behalf of the assessee explaining/clarifying each and every query so raised. Even the closure of unit by the assessee firm situated at Parwanoo despite substantial profit was entirely a decision taken by the assessee which might have been influenced by different considerations and in any case, this aspect was not relevant so much so to make the assessment completed by the Assessing Officer to be erroneous for non-consideration of the same." We must also place on record that the incumbent of the office of the CIT (Shimla) himself appeared before the Tribunal which is a bit unusual. 27. In fact, in the memo of appeal, t....
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....e parting with the judgment, we feel that is desirable and in the public interests that the Chief Vigilance Commissioner is approached by the Appointing Authority of the Commissioner of Income Tax, who interfered in the statutory functioning of the Assessing Officer and pressurized her to pass the order accepting the return of the assessee to inquire into the matter and if on inquiry the Chief Vigilance Commissioner finds and reports that the said Commissioner of Income Tax was guilty of misconduct, action is taken against him by his such Authority, as per law. We direct the Appointing Authority of the said Commissioner accordingly." Two sets of review applications were filed; one by Shri Dhirendra Khare, and another by the Assessee. The High Court while allowing the Khare's review application expunging all observations made in its order dated 2.3.2006 rejected the review application filed by the Assessee. JURISDICTION UNDER SECTION 263 29. 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 c....
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....d down therein was followed in Commissioner of Income-Tax vs. Max India Ltd. [(2007) 295 ITR 282 (SC)], stating: "In our view at the relevant time two views were possible on the word "profits" in the proviso to Section 80HHC(3). It is true that vide the 2005 amendment the law has been clarified with retrospective effect by insertion of the word "loss" in the new proviso. We express no opinion on the scope of the said amendment of 2005. Suffice it to state that in this particular case when the order of the Commissioner was passed under Section 263 of the Income Tax Act, 1961, two views on the said word "profits" existed." Referring to Malabar Industrial Co. Ltd. (supra), it was observed: "Every loss of revenue as a consequence of an order of the assessing officer cannot be treated as prejudicial to the interests of the revenue. For example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue , unless the view....
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....thin which any action for assessment, reassessment or recomputation may be taken." The aforementioned provision although appears to be of a very wide amplitude, but would not mean that recourse to reopening of the proceedings in terms of Sections 147 and 148 of the Act can be initiated at any point of time whatsoever. Such a proceeding can be initiated only within the period of limitation prescribed therefor as contained in Section 149 of the Act. Section 150 (1) of the Act is an exception to the aforementioned provision. It brings within its ambit only such cases where reopening of the proceedings may be necessary to comply with an order of the higher authority. For the said purpose, the records of the proceedings must be before the appropriate authority. It must examine the records of the proceedings. If there is no proceeding before it or if the Assessment year in question is also not a matter which would fall for consideration before the higher authority, Section 150 of the Act will have no application. In Income-Tax Officer, A-Ward, Sitapur vs. Murlidhar Bhagwan Das [52 ITR 335 (SC)], it was held: "The proceedings would be in time, if the second proviso to section ....
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....iced the development of law as also the fact that the decision of the Income-Tax Officer given in a particular year does not operate as res judicata to opine: "The lifting of the ban was only to give effect to the orders that may be made by the appellate, revisional or reviewing tribunal within the scope of its jurisdiction. If the intention was to remove the period of limitation in respect of any assessment against any person, the proviso would not have been added as a proviso to sub-section (3) of section 34, which deals with completion of an assessment, but would have been added to sub- section (1) thereof." In regard to the question that what would be the meaning of the term `finding' or `direction', it was held: "A "finding", therefore, can be only that which is necessary for the disposal of an appeal in respect of an assessment of a particular year. The Appellate Assistant Commissioner may hold, on the evidence, that the income shown by the assessee is not the income for the relevant year and thereby exclude that income from the assessment of the year under appeal. The finding in that context is that that income does not belong to the relevant year. He may incidental....
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....ern the present case, because in that case proceedings for assessment were commenced in consequence of or to give effect to an express direction of the Appellate Assistant Commissioner and it was held by this court that a direction not necessary for the disposal of the appeal in respect of the assessment of the year in question before him was inoperative to remove the bar of limitation. Counsel says that, where a mere finding in recorded by the appellate or revisional authority different considerations arise and the bar of limitation prescribed by section 34 would be removed if a proceeding be commenced for assessment in consequence of or to give effect to the finding. This argument has, in our judgment, no force. xxx xxx &....
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...., it is now well settled that it must be an express direction necessary for the disposal of the case before the authority or court. It must also be a direction which the authority or court is empowered to give while deciding the case before it. The expressions "finding" and "direction" in Section 153(3)(ii) of the Act must be accordingly confined. Section 153(3)(ii) is not a provision enlarging the jurisdiction of the authority or court. It is a provision which merely raises the bar of limitation of making an assessment order under Section 143 or Section 144 or Section 147. Income Tax Officer, A-Ward, Sitapur v. Murlidhar Bhagwan Das 52 I.T.R. 335 and N. Kt. Sivalingam Chettiar v. Commissioner of Income-tax, Madras 66 I.T.R. 586 (S.C.). The question formulated by the Tribunal raises the point whether the Appellate Assistant Commissioner could convert the provisions of Section 147(1) into those of Section 153(3)(ii) of the Act. in view of Section 153(3)(ii) dealing with limitation merely, it is not easy to appreciate the relevance or validity of the point." It is, thus, evident that jurisdiction to issue directions is limited. 31. We may now consider the effect of the `Noting'....
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.... by other Income Tax Authorities in the work relating to assessment or collection of revenue or the initiation of proceedings for the imposition of penalties. In our view, the High Court was not justified in reading the circular as not complying with the provisions of Section 119. The circular falls well within the parameters of the powers exercisable by CBDT under Section 119 of the Act.' 27. Lastly, the binding effect of the said circular No. 16/98 needs to be kept in mind. As stated above, the said circular was issued by the Board by exercising statutory powers vested in it under Section 3(1A). As stated above, Section 3(1A) provides for an enabling power of the Board which was recognized as an Authority under the 1963 Act. The said power was to be exercised in special cases. As stated above, granting of administrative reliefs by the Board came within its authority. As stated above, the said circular was issued for just and fair administration of the 1963 Act. As stated above, Section 3(1A) is similar to Section 119(1) of the 1961 Act. The circulars of this nature are issued by the Board consisting of highest senior officers in the Revenue Department. These circulars are t....
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....tly given by the officer making the order of what he meant, or of what was in his mind, or what he intended to do. Public orders made by public authorities are meant to have public effect and are intended to affect the actings and conduct of those to whom they are addressed and must be construed objectively with reference to the language used in the order itself." {See also Pancham Chand & Ors. vs. State of Himachal Pradesh & Ors.[(2008) 7 SCC 117] Yet again in The Purtabpur Company Ltd. vs. Cane Commissioner of Bihar [AIR 1970 SC 1896], this Court held: "...The power exercisable by the Cane Commissioner under Clause 6(1) is a statutory power. He alone could have exercised that power. While exercising that power he cannot abdicate his responsibility in favour of anyone - not even in favour of the State Government or the Chief Minister. It was not proper for the Chief Minister to have interfered with the functions of the Cane Commissioner. In this case what has happened is that the power of the Cane Commissioner has been exercised by the Chief Minister, an authority not recognised by Clause (6) read with Clause (11) but the responsibility for making those orders was asked to b....
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....er words, the Explanation to Section 127(4) of the Act talks of proceedings, past, present and future in respect of a person whose name is specified in the order or direction passed under Section 127 of the Act and this would apply to any previous year. 13. The order passed under Section 127(2) of the Act clearly relates to the 'case' of the assessed mentioned in the Schedule, and by virtue of the Explanationn, all future proceedings that may be taken under the Act (obviously including an appeal under Section 260A thereof) would now have to be in harmony with the order passed under Section 127(2) of the Act. Consequently, the jurisdiction in respect of the 'case' and the assessed having been shifted from Lucknow to Delhi, the Revenue could file the appeal under Section 260A of the Act only in Delhi and it could not have filed an appeal in the Lucknow Bench of the Allahabad High Court." Yet again in Commissioner of Income-Tax, West Bengal & Anr. vs. Anil Kumar Roy Chowdhury & Anr. [66 ITR 367 (SC)] this Court opined: "It may be that the Income-tax Officer who completed the original assessment would also be concerned with the appeal to be filed by the Commissioner, but it do....
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....justice or perpetuate injustice, by any oppressive or punitive use. The well recognized exceptions to this principle are: i) where the Statute prescribing the procedure, also prescribes specifically the consequence of non-compliance; ii) where the procedural defect is not rectified even after it is pointed out and due opportunity is given for rectifying it; iii) where the non-compliance or violation is proved to be deliberate or mischievous; iv) where the rectification of defect would affect the case on merits or will affect the jurisdiction of the court; v) in case of Memorandum of Appeal, there is complete absence of authority and the appeal is presented without the knowledge, consent and authority of the appellant;" It was a case where the Assessing Officer before whom the case was transferred completed the proceedings. It was in the aforementioned context it was opined that new Assessing Officer assumes jurisdiction exclusively in completing the proceedings. Such is not the case here. 34. In this case, CIT (Shimla) had passed an order. His order was set aside by the Tribunal. He, therefore, in ordinary course could have preferred an appeal only by the ti....
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....ed by a court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, ...strikes at the very authority of the court to pass any decree, and such a defect cannot be cured even by consent of parties. " Though in the aforementioned decision these observations were made since the defendants before raising the objection to the territorial jurisdiction had admitted that the court had the jurisdiction, the force of this decision cannot be ignored and it has to be held that such a decree would continue to be a nullity." 19. A distinction, however, must be made between a jurisdiction with regard to subject matter of the suit and that of territorial and pecuniary jurisdiction. Whereas in the case falling within the former category the judgment would be a nullity, in the latter it would not be..." 35. 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 constrain....