2007 (1) TMI 184 - SC - Income Tax

Whether on the facts and in the circumstance of the case, the hon ble Income-tax Appellate Tribunal was justified in law in holding that the Commissioner of Income-tax lacked jurisdiction to revise the order of assessment under section 263 of the Income-tax Act? Whether on the facts and in the circumstances of the case, the hon ble Income-tax Appellate Tribunal was justified in holding that the issue of excess deduction under sections 80HH and 80-I contained in the order under section 143(3) was merged with the order under section 154 particularly when no rectification under section 154 was made in this regard? Whether the view taken by the hon ble Income-tax Appellate Tribunal that the Assessing Officer did not consider the issue of excess deductions under sections 80HH and 80-I for rectification in his order under section 154 after due application of his mind, could in law justify its conclusion that there was no jurisdiction under section 263 in respect of the said issue in terms of the assessment order dated March 10, 1995? Held that - Initiation of a proceeding under section 263 of the Act cannot be held to have become bad in law only because an order of rectification was passed. No such hard and fast rule can, in our opinion, be laid down. Each case is required to be considered on its own facts. In a given situation, the High Court may be held to be entitled to set aside both orders and remit the matter for consideration of the matter afresh. But in our opinion, it would not be correct to contend that only because a proceeding for rectification was initiated subsequently, the revisional jurisdiction could not have been invoked under any circumstances whatsoever. If such a proceeding was initiated, in our opinion, the contesting parties could bring the same to the notice of the Commissioner so as to enable him to take into consideration the subsequent events also. It goes without saying that if and when the Commissioner of Income-tax takes up for consideration a subsequent event, the assessee would be entitled to make its submission also in regard thereto. For the reasons aforementioned, the impugned judgment cannot be sustained. It is set aside accordingly. Our attention has been drawn to the fact that the Assessing Officer had allegedly taken into consideration the application of sections 80HH and 80-I of the Act. In our opinion, therefore, the interest of justice would be met if the Commissioner of Income-tax is directed to have a fresh look at the matter in the light of the order of rectification passed by the assessing authority. Appeal allowed.

Summary

Issues:
Interpretation of provisions of section 154 vis-a-vis section 263 of the Income-tax Act.

Analysis:
The case involved a dispute regarding the jurisdiction of the Commissioner of Income-tax under sections 154 and 263 of the Income-tax Act. The respondent, an assessee, had filed its return for the assessment year 1992-93, and the order of assessment was completed under section 143(3) of the Act. Subsequently, the Commissioner invoked his jurisdiction under section 263 to set aside the order of assessment, excluding certain amounts towards transport receipts and interest from the total income based on sections 80HH and 80-I of the Act. The Tribunal upheld the assessee's contention that a notice of rectification under section 154 had been issued by the Assessing Officer, and therefore, the Commissioner lacked jurisdiction to initiate proceedings under section 263. The High Court, relying on precedent, held that no substantial question of law arose for reference to the Tribunal.

The Supreme Court clarified the distinction between the proceedings for rectification under section 154 and revision under section 263. It emphasized that rectification does not confer a power of review and is limited to correcting mistakes apparent on the face of the record. On the other hand, revision under section 263 is a special provision vested in the Commissioner to correct orders prejudicial to the Revenue. The Court highlighted the principle of judicial discipline, stating that lower authorities are bound by orders of higher authorities.

The Court criticized the High Court's reliance on certain decisions, stating that the power of review or rectification is not akin to an administrative power but a statutory one. It clarified that the doctrine of merger does not apply to orders subject to revision under section 263. The Court emphasized that the initiation of a proceeding under section 263 does not become invalid solely due to a subsequent rectification order. Each case must be considered based on its own facts, and the Commissioner has the authority to consider subsequent events during revision proceedings.

Ultimately, the Supreme Court set aside the High Court's judgment, directing the Commissioner to re-examine the matter in light of the rectification order. The appeal was allowed with no order as to costs.

This detailed analysis of the judgment clarifies the legal principles surrounding the interpretation of sections 154 and 263 of the Income-tax Act and the respective powers of rectification and revision conferred upon the authorities involved in the assessment process.