1979 (11) TMI 2 - SC - Income Tax

Limitation of two years for passing order by CIT in revision not applies to order passed on remand from Tribunal - Tribunal s order vacating the Commissioner s order and directing the Commissioner to make assessment afresh after giving due opportunity to the respondent-assessee was proper - appeal of revenue is allowed

Issues Involved:

1. Proper construction of Section 33B of the Indian Income-tax Act, 1922, particularly the scope of sub-section (4) and the effect of sub-section (2)(b) on sub-section (4).
2. Validity of the assumption of jurisdiction by the Commissioner under Section 33B.
3. Appropriateness of the Tribunal's action in vacating the Commissioner's order and directing a fresh disposal under Section 33B after giving due opportunity to the assessee.

Issue-wise Detailed Analysis:

1. Proper Construction of Section 33B of the Indian Income-tax Act, 1922:

The judgment primarily revolves around the interpretation of Section 33B, focusing on sub-section (4) and the effect of sub-section (2)(b). Sub-section (1) grants the Commissioner the power to revise the Income-tax Officer's (ITO) orders, provided the order is erroneous and prejudicial to the revenue's interests and the assessee is given an opportunity to be heard. Sub-section (2)(b) imposes a limitation period of two years for the Commissioner to make an order under sub-section (1). Sub-section (4) confers wide appellate powers on the Tribunal, similar to those under Section 33(1).

The key question was whether the limitation period in sub-section (2)(b) applies to orders made by the Commissioner pursuant to a direction from the Appellate Tribunal under sub-section (4). The court concluded that literal interpretation of sub-section (2)(b) would lead to absurd results, as it would restrict the Tribunal's appellate powers and prevent it from remanding cases to the Commissioner after the limitation period. The court held that sub-section (2)(b) should be construed as applicable only to the Commissioner's suo motu orders and not to those made following a direction from the Tribunal.

2. Validity of the Assumption of Jurisdiction by the Commissioner under Section 33B:

The Commissioner issued a notice to the assessee to show cause why the assessments should not be canceled under Section 33B, citing three grounds: (a) minors were partners, making the firm's status as an unregistered firm incorrect, (b) unreliable books of account, and (c) lack of territorial jurisdiction by the ITO. The Tribunal upheld the Commissioner's assumption of jurisdiction on merits but found that the Commissioner had violated principles of natural justice by not giving the assessee a proper opportunity to be heard. The Tribunal vacated the Commissioner's order and remanded the case for fresh disposal.

The High Court affirmed the Tribunal's decision on the first question, holding that the Commissioner's assumption of jurisdiction was valid. However, it disagreed on the second question, concluding that the Tribunal acted properly in vacating the Commissioner's order but could not direct a fresh disposal due to the expiration of the limitation period under sub-section (2)(b).

3. Appropriateness of the Tribunal's Action in Vacating the Commissioner's Order and Directing Fresh Disposal:

The Tribunal's action in vacating the Commissioner's order and directing a fresh disposal was challenged. The High Court held that while the Tribunal acted correctly in vacating the order, it erred in directing a fresh disposal due to the limitation period. The Supreme Court disagreed with this view, stating that such a construction would lead to absurd results and restrict the Tribunal's appellate powers. The court emphasized that the Tribunal should have the authority to remand the case to the Commissioner for fresh disposal, even if the limitation period had expired, to ensure that erroneous orders prejudicial to the revenue are corrected.

The Supreme Court approved the Bombay High Court's view in CIT v. Kishoresinh Kalyansinh Solanki, which held that the limitation period in sub-section (2)(b) does not apply to orders made by the Commissioner following a Tribunal's direction. The court rejected the Assam High Court's contrary view in CIT v. Sabitri Devi Agarwalla, which had held that the limitation period was absolute and applied to all orders.

Conclusion:

The Supreme Court allowed the appeal, holding that the Tribunal's order vacating the Commissioner's order and directing fresh disposal was proper. The court emphasized that the limitation period in sub-section (2)(b) should be construed as applicable only to the Commissioner's suo motu orders and not to those made following a Tribunal's direction. This interpretation ensures that the Tribunal's wide appellate powers are not curtailed and that erroneous orders prejudicial to the revenue can be corrected.

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