2002 (7) TMI 72 - HC - Income Tax

Revision, Limitation, Extension Of Period Of Limitation - Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the exercise of powers by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961, for the assessment years 1980-81 and 1981-82 was within the period of limitation? - we answer the references against the assessee and in favour of the Revenue.

Issues Involved:
1. Whether the exercise of powers by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961, for the assessment years 1980-81 and 1981-82 was within the period of limitation.

Detailed Analysis:

1. Limitation Period for Exercising Powers under Section 263:

The primary issue revolves around the interpretation of the limitation period for the exercise of powers by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961. The original section provided a limitation of two years from the date of passing the order for revising that order. However, an amendment by section 47 of the Taxation Laws (Amendment) Act, 1984, changed this, stating that the limitation period would start from the end of the relevant financial year, effectively extending the limitation period.

2. Application of the Amended Section 263(2):

The amended section 263(2) reads: "No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed." This suggests that even if the order to be revised was passed earlier, the limitation period starts from the end of the relevant financial year, thus extending the limitation.

3. Case Facts and the Commissioner's Action:

The assessee made a voluntary disclosure of Rs. 1,00,000 for the income of 1974-75 and earlier years. The Income-tax Officer did not include the income from the sale of some goods in the assessee's total income for the relevant years. The Commissioner considered this omission erroneous and sought to revise the order under section 263. The action was initiated in March 1985, which the assessee claimed was beyond the limitation period as per the original section.

4. Tribunal's Decision:

The Tribunal upheld the Commissioner's action, stating it was within the limitation period as per the amended section 263. The Tribunal's decision was based on the interpretation that the limitation period starts from the end of the financial year in which the order was passed, not from the date of the order itself.

5. Assessee's Argument Based on CBDT Circular:

The assessee relied on Circular No. 402, dated November 1, 1984, which stated that the limitation period would stand extended only if the original limitation had not expired before October 1, 1984. The circular advised that to avoid controversy, orders under section 263 should be passed within two years of the date of the order sought to be revised if the order was passed before October 1, 1984.

6. Court's Analysis of the Circular:

The court noted that the circular advised initiating actions within two years of the order date "as far as possible." The circular did not divest the revisional authority of its power nor make the exercise of such power illegal if the extended period was used. The court found that the circular's language allowed for flexibility and did not mandate strict adherence to the old limitation period.

7. Differentiation from Previous Judgments:

The court distinguished the present case from the judgment in Mahalingam's case, where it was stated that the Department consistently followed the circular. The court noted that the factual circumstances differed and that the Department, in some cases, had to rely on the amended provision due to practical constraints.

8. Binding Nature of Departmental Circulars:

The court acknowledged the binding nature of departmental circulars as per the Supreme Court's judgment in UCO Bank v. CIT. However, it emphasized that the circular in question allowed for exceptions and did not strictly bind the Department to the old limitation period.

Conclusion:

The court concluded that the Tribunal was correct in holding that the Commissioner's action under section 263 was within the limitation period as per the amended section. The court found no discrimination or inconsistency in applying the amended provision when practical constraints prevented adherence to the old limitation period. The references were answered against the assessee and in favor of the Revenue.

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