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2008 (6) TMI 633 - HC - Income TaxRevision u/s 263 - Seven notices issued by the CIT - seeking to revise the earlier assessment orders for a period of seven years - respondent No. 1 proceeded further and passed a revised assessment order with regard to all the aforesaid seven assessment years by seven different orders of the same revising the aforesaid assessment. HELD THAT - From the records, It is clear that the petitioner had approached under the Amnesty Scheme and after discussion with the Commissioner of Income Tax, it was agreed that rate of taxable income should be 8 per cent instead of 4 per cent and accordingly he was directed to file revised return at 8 per cent. Even thereafter, the second CIT, on scrutiny and verification found that the earlier decision of the CIT at 8 per cent to be fair and justifiable and accordingly, had issued directions to the LAC, BSD(S) Range, Bombay. It is very pertinent to note that the revised assessment orders passed by the concerned ITO were solely based on the directives of the CIT, in fact the assessment orders do not indicate any other reason other than the directions mentioned by the CIT also could not dispute that the Department was bound by the Circulars. We find that the ITO had passed revised assessment order based on the revised return at 8 per cent. The said order is solely based on the directives given by the earlier CIT and the same could not be revised by the subsequent CIT exercising the power u/s 263. Over and above, we do not find any error or anything unsustainable in law. On the contrary, it appears that the second CIT consistently took a view that 8 per cent would be a fair percentage and a third CIT could not consider the same as 'erroneous' or 'unsustainable in law'. In fact both the notices which were issued u/s 263 as well as revised assessment orders passed by the CIT are totally unsustainable in law for the aforesaid reasons. Hence, all the seven notices issued u/s 263 as well as seven assessment orders passed by the CIT stand quashed and set aside. Accordingly, rule is made absolute with no order as to costs.
Issues Involved:
1. Validity of notices issued under Section 25(2) of the Wealth-tax Act, 1957 and Section 263 of the Income Tax Act, 1961. 2. Whether the assessment orders for the years 1980-81 to 1986-87 were erroneous and prejudicial to the interests of revenue. 3. Applicability and binding nature of the directives issued by the Commissioner of Income Tax. 4. Impact of the Amnesty Scheme and CBDT Circulars on the assessment orders. 5. Legality of the subsequent Commissioner of Income Tax revising the assessment orders. Detailed Analysis: 1. Validity of Notices Issued under Section 25(2) of the Wealth-tax Act, 1957 and Section 263 of the Income Tax Act, 1961: The petitioner challenged the notices issued by the Commissioner of Income Tax and Wealth-tax dated 9-2-1990 and 13-3-1990 for the assessment years 1980-81 to 1986-87, seeking to revise earlier assessment orders. These notices were issued under Section 25(2) of the Wealth-tax Act, 1957, and Section 263 of the Income Tax Act, 1961. The petitioner argued that these notices were invalid as the assessment orders were already accepted and not appealed against by the Department. 2. Whether the Assessment Orders for the Years 1980-81 to 1986-87 were Erroneous and Prejudicial to the Interests of Revenue: The petitioner contended that the assessment orders were not erroneous as they were based on the directives of the Commissioner of Income Tax, who had agreed to compute the taxable income at 8% of the receipts. The Department had accepted this computation for several years without any appeal, making it a consistent practice. The court referred to the case of CIT v. Gabriel India Ltd., which held that an assessment order cannot be deemed erroneous if it is in accordance with the law. 3. Applicability and Binding Nature of the Directives Issued by the Commissioner of Income Tax: The petitioner highlighted that the assessment orders were passed based on the directives issued by the Commissioner of Income Tax in a letter dated 30-11-1987, which agreed to an 8% computation rate. The court found that the assessment orders were solely based on these directives and that the subsequent Commissioner could not revise these orders under Section 263 of the Income Tax Act. The court emphasized that the directives from a superior authority, in this case, the Commissioner of Income Tax, were binding and could not be deemed erroneous or prejudicial to the revenue's interest. 4. Impact of the Amnesty Scheme and CBDT Circulars on the Assessment Orders: The petitioner had approached the Deputy Director of Intelligence (Investigation) under the Amnesty Scheme and agreed to pay taxable profit at 8% of the total receipts. The court noted that the CBDT Circulars, which were legally binding on the revenue, supported the petitioner's case. The court referred to the Supreme Court's decision in UCO Bank v. CIT, which held that CBDT Circulars are binding on the revenue even if they deviate from the correct interpretation of the law. 5. Legality of the Subsequent Commissioner of Income Tax Revising the Assessment Orders: The court found that the subsequent Commissioner of Income Tax could not exercise the power of revision under Section 263 of the Income Tax Act as the original assessment orders were based on the directives of the Commissioner of Income Tax. The court held that the revised assessment orders dated 13-3-1990 were unsustainable in law as they contradicted the earlier directives and consistent practice accepted by the Department for 19 years. Conclusion: The court quashed and set aside all seven notices issued under Section 263 of the Income Tax Act dated 9-2-1990, as well as the seven assessment orders passed by the Commissioner of Income Tax dated 13-3-1990. The rule was made absolute with no order as to costs.
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