1978 (10) TMI 12 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Additional Commissioner u/s 263 regarding penalty actions.
2. Interpretation of "assessment" in the context of the I.T. Act.
3. Applicability of s. 271(1)(a) during assessment proceedings.
4. Validity of the Tribunal's reliance on a Madras High Court decision.

Summary:

1. Jurisdiction of the Additional Commissioner u/s 263 regarding penalty actions:
The Tribunal questioned whether the Additional Commissioner of Income-tax had jurisdiction u/s 263 to revise the ITO's assessment orders for the years 1967-68 and 1968-69, which did not include penalty notices u/s 271(1)(a) and 273(b). The Tribunal held that the exercise of jurisdiction by the Additional Commissioner was "without jurisdiction, and bad in law." However, the High Court disagreed, stating that the Commissioner has the authority to revise orders if they are "erroneous in so far as it is prejudicial to the interests of the revenue."

2. Interpretation of "assessment" in the context of the I.T. Act:
The High Court emphasized that the term "assessment" is used in a broad sense, encompassing not only the computation of income but also the determination of liability, including penalties. This interpretation is supported by the Supreme Court's decisions in C. A. Abraham v. ITO [1961] 41 ITR 425 and CIT v. Bhikaji Dadabhai & Co. [1961] 42 ITR 123, which state that "assessment" includes the entire procedure for imposing tax liability and penalties.

3. Applicability of s. 271(1)(a) during assessment proceedings:
The High Court clarified that during assessment proceedings, if the ITO discovers facts that attract the provisions of s. 271(1)(a), it is necessary for the ITO to invoke these provisions. The failure to do so constitutes an error that is prejudicial to the interests of the revenue, thereby justifying the Additional Commissioner's revision u/s 263.

4. Validity of the Tribunal's reliance on a Madras High Court decision:
The Tribunal relied on the Madras High Court decision in M. A. Abdul Waheed v. CCT [1972] 30 STC 277, which dealt with the Tamil Nadu General Sales Tax Act. The High Court found this reliance misplaced, as the scheme of assessment under the I.T. Act is broader and includes the consideration of penalties during assessment proceedings. The High Court concluded that the Tribunal's reliance on this decision was incorrect.

Conclusion:
The High Court answered the question in the negative, stating that the Additional Commissioner was justified in exercising jurisdiction u/s 263 to revise the ITO's assessment orders, as the omission to consider penalties constituted an error prejudicial to the interests of the revenue. The Tribunal's decision was set aside, and the parties were directed to bear their own costs.