1997 (12) TMI 4 - SC - Income Tax

Notice issued by CIT under section 263(1) - Whether it was open to the Commissioner to take into consideration all the records available at the time of examination by him and thus to consider the valuation report submitted by the Department valuation cell subsequent to the passing of the assessment order and, so the order passed by him was legal - Held, yes.

Issues Involved:

1. Interpretation of the term "record" under section 263(1) of the Income-tax Act, 1961.
2. Applicability of amendments to section 263(1) made by the Finance Acts of 1988 and 1989.
3. Legality of the Commissioner's order based on the valuation report received after the assessment order.

Issue-Wise Detailed Analysis:

1. Interpretation of the term "record" under section 263(1) of the Income-tax Act, 1961:

The primary issue was whether the term "record" in section 263(1) refers to the record as it stood at the time of examination by the Commissioner or as it stood at the time the order in question was passed by the Income-tax Officer. The High Court of Karnataka, relying on previous judgments like Ganga Properties v. ITO [1979] 118 ITR 447, held that the "record" meant the record available at the time of the assessment order. This interpretation was challenged by the Revenue, which argued that the term should include all records available at the time of examination by the Commissioner, as clarified by amendments in 1988 and 1989.

2. Applicability of amendments to section 263(1) made by the Finance Acts of 1988 and 1989:

The amendments to section 263(1) by the Finance Acts of 1988 and 1989 were crucial in this case. These amendments clarified that "record" includes all records relating to any proceeding under the Act available at the time of examination by the Commissioner. The Revenue argued that these amendments, having retrospective effect, should apply to the case. The assessee contended that the amendments could not validate an order that was illegal when passed, as the correct legal position before the amendments was that only the record available to the Income-tax Officer at the time of passing the assessment order could be considered.

3. Legality of the Commissioner's order based on the valuation report received after the assessment order:

The Commissioner had issued a notice under section 263(1) based on a valuation report received after the assessment order was passed. The assessee argued that this report could not be considered as it was not part of the record at the time of the assessment. The Commissioner and the Revenue contended that the valuation report, though received later, became part of the record and could be considered for revisional purposes.

Supreme Court's Analysis:

The Supreme Court examined the legislative intent and the amendments to section 263(1). It noted that the amendments aimed to clarify that "record" includes all records available at the time of examination by the Commissioner, thus eliminating judicial controversies. The Court referred to the Memorandum Explaining the Provisions in the Finance Bill of 1988 and 1989, which stated that the amendments were intended to clarify the legal position and ensure that the term "record" would always include all relevant records.

The Court also reviewed previous judgments, including Ganga Properties v. ITO [1979] 118 ITR 447 and CIT v. S. M. Oil Extraction Pvt. Ltd. [1991] 190 ITR 404, and found that the interpretation of "record" had evolved. It emphasized that the revisional power of the Commissioner is of wide amplitude, allowing consideration of new material obtained during an enquiry.

Conclusion:

The Supreme Court held that the term "record" under section 263(1) includes all records available at the time of examination by the Commissioner, including those obtained after the assessment order. The amendments made by the Finance Acts of 1988 and 1989 were applicable retrospectively, validating the Commissioner's order. The High Court's contrary view was set aside, and the question was answered in favor of the Revenue and against the assessee. There was no order as to costs.

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