TaxTMI 
TaxTMI 
2005 (6) TMI 211
X X X X Extracts X X X X
X X X X Extracts X X X X
....e provision of article 23 of the said DTAA. Subsequently, a second notice was issued on 31-1-2001 proposing to revise the orders passed under section 143(3) whereby learned CIT was of the opinion that credit for tax paid in Canada as well as in Thailand were granted erroneously without applying the provision of relevant DTAA with Canada as well as Thailand. By order under section 143(3) dated 27-2-1997 for assessment year 1994-95, the Assessing Officer has granted the credit for tax paid in Canada amounting to Rs. 12,63,746. Since the credit was granted as claimed, the issue was not carried further in appeal before learned CIT(A), though appeal was preferred to CIT(A) on other grounds. The Assessing Officer gave effect to CIT(A)'s order by order dated 31-3-1999. In the said order also, the Assessing Officer gave the credit in respect of tax paid in Canada as claimed by the assessee. Learned CIT in revision proceedings, held that the order to be revised is order dated 31-3-1999 whereby credit under DTAA with Canada was given without applying the relevant provision of the DTAA. The assessee objected to the notice holding that the same is barred by limitation as the order under se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ingh [2000] 246 ITR 262, learned CIT held that if the assessment order contains some apparent error of reasoning or of law or fact or where the order is stereotyped, which simply accepts what the assessee has stated and fails to make enquiries, which are called for in the circumstances, it amounts to an erroneous order, which can be revised under section 263. In conclusion, he directed the Assessing Officer to compute the DTA relief in accordance with Article 23(2) of DTAA with Thailand and Article 23(3) of DTAA with Canada. The assessee is in further appeal before us. 5. Learned counsel for assessee Shri Padam Khincha submitted that a notice under section 263 was originally issued. The appellant company replied to this notice. In the original notice under section 263 there was an attempt to point out the mistake committed by the Assessing Officer. After receiving the reply of the appellant, a revised notice was issued stating that there are certain mistakes in the original notice. What mistakes were there in the original notice were not stated. 6. Issue of a 2nd notice when the 1st notice is already pending is bad in law. Proceedings taken consequent to such an invalid notic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at manner the claim of credit of taxes paid in Canada and Thailand made by the appellant-company and allowed by the Assessing Officer was wrong. Not having demonstrated the error, the order of the CIT is bad in law as held in CIT v. Kanda Rice Mills [1989] 178 ITR 446 (Punj. & Har.) 13. The CIT has also failed to notice that the Article on relief from double taxation in the Treaty between India and Thailand is not identically worded with that in the Treaty between India and Canada. The CIT has limited his discussion to the provisions of the Article in the treaty between India and Canada, probably presuming that the same analogy should hold good for the Treaty between India and Thailand also. The CIT thus proceeded with the action in a routine and mechanical manner, without application of mind. 14. For an action under section 263, the order sought to be revised must be both erroneous as well as prejudicial to the interest of the revenue. Both these tests must be satisfied. Merely being erroneous without being prejudicial or vice versa would not suffice. The CIT not having clarified how the order was erroneous, one of the limbs of section 263 is not satisfied. The order under s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted time of 4 years, if it is to confer a benefit to the assessee. This indicates that the time-limit under section 154 is not sacrosanct. The time-limit for an action under section 263 on the other hand, is binding. 17. Apart from above arguments pertaining to all the years under appeal, Shri Khincha, for assessment year 1994-95, specifically submitted that the order of revision is time-barred as it was taken more than two years after the original assessment order was passed. The issue of relief from double taxation was not a part of the appeal before the CIT (Appeals) for the said year. The time for limitation is to be therefore reckoned from the date of original assessment order. The above is supported by Circular No. 528 dated 16-12-1998. The ratio of the decision of the Karnataka High Court in Kalasa Tea Produce Co. Ltd. v. Commissioner of Commercial Taxes [2004] 267 ITR 29 (FB) is not applicable for the following reasons:- (a) The decision was in the context of the Agricultural Income-tax Act where under the Commissioner has powers to revise even the orders of the Appellate Authorities. Such powers are not available under section 263. Explanation (c) to section 26....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nder: "'Assessment' is one integrated process involving not only the assessment of the total income but also the determination of the tax. The Income-tax Officer has to determine by order in writing not only the total income but also the nets on which will be payable by the assessed for the assessment year in question and the demand notice has to be issued under section 156 of the Income-tax Act, 1961 in consequence of such an order .... If, therefore, the Income-tax Officer first draws up an order assessing the total income and, indicating the adjustments to be made, directs the officer to compute the tax payable on that basis and then approves of it, either immediately or some time late no fault can be found with the process, though it is only when both the computation sheets are signed or initiated by the Income-tax Officer that the process described in section 143(3) will be complete." Kalyankumar Ray v. CIT [1991] 191 ITR 634 (SC) CIT v. R. Giridhar [1984] 145 ITR 246 (Kar.) 22. The order passed by the Assessing Officer giving effect to the CIT(A) order is only a modification of the original assessment order passed by the Assessing Officer. The Assessing Of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....not giving tax credit of the taxes paid abroad according to the Article of the DTAA. The assessee contended that the applicability of DTAA provisions was not before the CIT(A). Therefore, to that extent, the original assessment order has not merged with the appellate order and hence the order under section 263 is passed beyond time. Though, this issue was not before the CIT(A), tax computation has not become final as, applicability of the DTAA provisions will have to be considered even at the stage of computing of taxes payable in consequence to the CIT(A)'s order. For assessment year 1994-95 and assessment year 1995-96 though the CIT has revised the order giving effect to the CIT(A)'s order under section 263, real nature of revision made is of rectification of prima facie in nature. Error in computation of tax is a mistake rectifiable under section 154 as credit is to be given on doubly taxed income and to the extent specified in Article 23 of the DTAA. Both are not debatable issues. There cannot be two views on quantum of doubly taxed income and quantum of tax credit under Article of section 23A. Therefore, error made on these counts is error that can be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uestion is that the time-limit provided under section 154(7) should be computed from the date of the order of reassessment and not from the earlier order of rectification." CIT v. Mysore Iron & Steel Ltd. [1986] 157 ITR 531 (Kar.) Bihar State Road Transport Corpn. v. CIT [1986] 162 ITR 114 (Pat.) Here, error in tax computation was neither appealed against nor considered by the appellate authority, therefore the issue of tax computation has not merged with the appellate order. Such part can be revised. This rate is laid down by the Full Bench of the Karnataka High Court in the case of Kalasa Tea Produce Co. Ltd. v. Commissioner of Commercial Taxes [2004] 267 ITR 29. 22.3 The facts of this case are as under: The Assessing Officer passed assessment order under section 19(3) on 31-5-1989 for assessment years 1981-82, 1982-83, 1983-84 and 1984-85. The Assessing Officer granted initial depreciation net assets for these years. However, depreciation was not subject-matter in the appeal assessee challenged the assessment order on the issue of estimation of income of coffee. The appellate authority allowed all appeals and direct assessing authority to consider overhead e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en on one or two points alone, while a number of High Courts have held that there is only a partial merger confined to points adjudicated upon. To eliminate any further litigation, the Finance Act has amended section 263 by inserting an Explanation to the effect that the Commissioner will be competent to revise an order of assessment passed by an Assessing Officer on all matters except those that have been considered and decided in appeal. This amendment also has been carried out for removal of doubts." 24. Reading of the circular makes it clear that the Legislature has stayed away from the controversy of theory of merger. It has merely overruled the part of the decision of some Courts on the issues which can be revised. In such decisions Courts had held that, the issues not decided by the appellate authority also merges with the appellate orders therefore, revisional authority cannot be revise such issues. The amendment merely clarifies that, the issues not in appeal before the appellate authority can always be revised by the Commissioner. 25. It may be mentioned that, the amendment is on reversionary power of Commissioner and not on theory of merger or on limitation. There ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of mind. The phrase 'prejudicial to the interests of revenue' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the Income-tax Officer, the revenue is losing tax lawfully payable by a person, it will certainly deal prejudicial to the interest of revenue." 28.2 Learned DR further submitted that the CIT has rightly asked the Assessing Officer to apply provisions of the DTAA and pass the assessment order. "There is nothing in section 263 of the Act to show that the Commissioner of Income-tax should in all cases record his final conclusion on the points in controversy before him. It would all depend upon the facts of each case to decide whether the Commissioner had exercised the powers properly or not." CIT v. Seshasayee Paper & Boards Ltd. [2000] 242 ITR 490 (Mad.) 28.3 Shri Korde further submitted that the case laws relied on by the learned Representative and the arguments on why they are not ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....We have carefully considered the relevant facts, arguments advanced and host of the decisions cited. For assessment year 1994-95, firstly we need to determine whether the order under section 263 dated 20-2-2001 is barred by limitation. From the facts narrated above, it is seen that the assessee was given full credit for Canadian tax, in the order under section 143(3) dated 27-2-1997. In the said order, no discussion is made as regards how the credit is eligible or to be allowed. Since the credit was allowed as claimed, the matter was not carried before Commissioner (Appeals). The Commissioner (Appeals) while deciding certain other disputes, gave partial relief. The effect of said order was given on 31-3-1999. In this order also, the credit for Canadian tax was fully given. Meanwhile, the Assessing Officer by notice under section 154 dated 6-4-2000 sought to reduce the credit for Canadian tax paid. The assessee explained by letters dated 17-4-2000 and 21-4-2000 that the credits are appropriately given. The reasoning for claim was also justified in the said reply. The Assessing Officer never passed a rectification order. Subsequently, the order giving effect to Appellate Com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r 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, cancelling the assessment and directing a fresh assessment. (2) No power shall be exercisable under sub-section (1) after the expiry of four years from the date of order to be revised." 29.2 From the aforesaid revision of the Act, it is clear that an order under section 263 can be passed by Commissioner revising the order by an Assessing Officer being the Assistant Commissioner or Dy. Commissioner or ITO or Joint Commissioner. As per clause (c) of the Explanation to section 263(1), the Commissioner can revise an order by an Assessing Officer, which has been subject-matter of appeal, if the matters had not been considered and decided in such appeal, such matters can also be revised by Commissioner under section 263(1). As per section 263(2), the order cannot be made after expiry of 2 years from the end of the financial year in which the orders sought to be revised is passed. Under Karnataka Agricultural Income-tax Act, the power of Dy. Commissioner (Appeals) are the same as power of Commission....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he can revise such order provided the same is within limitation period. It is settled policy of law that there must be point of finality in all legal proceedings, that settled issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi judicial controversies as it must in other spheres of human activity. These principles are required to be observed by all concerned in administration of statutory enactments. It is not the case that there is any mistake in giving effect to appellate order by Commissioner (Appeals). Thus, under section 263(2), an order sought to be revised cannot be so revised after expiry of two years from the end of the financial year in which such order was passed. We accordingly hold that since the CIT has sought to revise an assessment order dated 27-2-1997, the same is outside the limitation period prescribed under section 263(2). It is not correct to say that "rectification" is equal to "revision" under the Act. The power of rectification is available under section 154 whereas the power of revision is available under section 263 of the Act. If rectification and revision were....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Giving the basis of TDS claim 14. 6-12-2000 Notice for revision under Section 263 Assessment orders are erroneous insofar as credit from Canadian TDS 15. 1-1-2001 Infosys reply (a) Justifying the method of credit claimed (b) Proceedings are barred by limitation 16. 1-2-2001 Revised notice under Section 263 Matter relating to the rectification of TDS credit of Thailand for assessment year 1996-97 inserted 17. 15-2-2001 Infosys reply (a) Proceedings are barred by limitation (b) Credit for tax paid in Canada and Thailand have been claimed correctly 18. 15-2-2001 order under Section 263 Directing assessing officer to verify claim in accordance with DTA provision Since the Commissioner revised the order directing the Assessing Officer to verify whether the claim is in accordance with relevant provision of DTAA with Canada and Thailand, the assessee is in further appeal before us. 31. Learned counsel for assessee Shri Khincha reiterated the stand taken in appeal pertaining to assessment year 1994-95. He further submitted that credit for tax paid in Canada was not given in original assessment order. An application under....
X X X X Extracts X X X X
X X X X Extracts X X X X
....has mentioned as under:- As mentioned earlier, the Assessing Officer has allowed the assessee's claim without verifying whether the claim is in accordance with the provisions of the relevant double taxation agreement with Canada and Thailand. This failure on the part of the Assessing Officer has rendered the three orders erroneous and prejudicial to the interest of revenue. As observed by the Delhi High Court in the case reported in 246 ITR 26, if the Assessing Officer's order contains some apparent error of reasoning or of law or fact, or it is a stereotyped order which simply accepts what the assessee has stated in his return of income and failure to make enquiries which are called for in the circumstances, such order can be revised under section 263. The present case is one such case where the Assessing Officer simply accepted the claims of the assessee for credit of TDS in Canada and Thailand without verifying whether the claim of the assessee is in accordance with the relevant provisions of double taxation agreement with these countries. Hence these orders are erroneous and prejudicial to the interest of the revenue. The Assessing Officer is therefore directed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Officer has allowed the claim without verifying the claim in accordance with law. Even in the revision order, the Commissioner has not been able to point out any mistake in giving the credit. An order can be revised only when the order is demonstrated to be an erroneous. The Assessing Officer has adopted one of the possible modes of granting credit in respect of income arising in Canada and Thailand. Since the Commissioner has not pointed out any error in such order, we set aside the order of Commissioner passed under section 263 for assessment year 1995-96 also. 33. We now take up the appeal of assessee for assessment year 1996-97. 33.1 The following chronology of events will explain the facts:- 1. 29-11-1996 Return filed Credit for Canadian TDS claimed Rs. 47,94,816, Thailand TDS claimed Rs. 64,469 2. 31-3- 1997 Intimation under Section 143(l)(a) Full credit for Canadian TDS was given Rs. 47,94,816 and Thailand TDS Rs. 64,469 3. 17-3-1999 Infosys letter Giving clarification on Canadian Tax and Thailand credit claimed in return 4. 26-3- 1999 Assessment order under Section 143(3) Full credit for Canadian TDS was given Rs. 47,94,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....State Road Transport Corpn. v. CIT [1986] 162 ITR 114 (Pat.) and Nicco Corpn. Ltd. v. CIT [2005] 272 ITR 58 (Cal). As the subject-matter of the relief from the double taxation was not an issue before CIT(A) and the order of rectification dates back to the original order of assessment, the order of the CIT under section 263 is beyond time as it has been passed more than 2 years from the expiry of the year in which the assessment order was passed. 33.3 Learned DR reiterated the submission made as noted earlier while dealing the appeal for assessment year 1995-96. 33.4 In this case, it is seen that before the order under section 143(3) was passed, the assessee was required to explain how he has claimed the credit in respect of Canadian tax and Thailand tax by its letter dated 17-3-1999. The assessee had claimed the credit on following basis:- "We have claimed credit in respect of tax deducted in Canada on the invoices raised by us on Bell Northern Research. As per the Indo-Canadian Double Taxation Avoidance Agreement, the amount of Canadian tax payable under the laws of Canada and in accordance with the provisions of the agreement, whether directly or by deduction, by a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and taken earlier as explained by its letter dated 17-4-2000 and further elaborated by letter dated 21-4-2000. At this time also, no fault was found with the manner in which the credit was claimed and allowed. 35. The Assessing Officer therefore took no action for modifying the claim. Learned CIT in his revision jurisdiction has simply mentioned that the claim of assessee has been allowed without verifying the provision of relevant DTAA. No error has been pointed out in the order when the credit has been given. It is not correct to say that the claim has been allowed without verification. The Assessing Officer was made aware of the manner in which the claim has been put forward. The Assessing Officer has adopted one of the possible views. In revision, learned CIT has merely set aside the order to re-work the credit in respect of Canadian and Thailand tax claimed under DTAA provision without mentioning any error in the original order sought to be revised. In our opinion, this is not permissible course under the provision of section 263 of the Act. The order cannot be set aside for making roving enquiry without pointing any error in the order. Similar view has been adopted by the ....