1997 (12) TMI 4 - SC - Income Tax

Nature and scope of the power conferred upon the Commissioner under section 263 - Interpretation of the term record under section 263(1) of the Income-tax Act 1961 - Notice issued by CIT under section 263(1) - Determination of the valuation report - HELD THAT - The Calcutta High Court in the case of CIT v. S. M. Oil Extraction Pvt. Ltd. 1990 (10) TMI 33 - CALCUTTA HIGH COURT held that the record contemplated in section 263(1) does not mean only the order of assessment but it comprises all proceedings on which the assessment is based. The Commissioner is entitled for the purpose of exercising his revisional jurisdiction to look into the whole evidence. The expression record as used in section 263 of the Act is comprehensive enough to include the whole record of evidence on which the original assessment order was based. The valuation proceeding is a part of the assessment proceeding. But once the valuation report was received by the Income-tax Officer although subsequent to the completion of the assessment it forms part of the records of the assessment year in question. It further held that where any proceeding is initiated in the course of the assessment proceeding having a relevant and material bearing on the assessment to be made and the result of such proceeding was not available with the Income-tax Officer before the completion of the assessment but the result came subsequently the revising authority is entitled to look into such material as it forms part of the assessment records of the particular assessment year . The Calcutta High Court took this view without referring to the definition of the word record contained in the Explanation to section 263(1) of the Act. It therefore cannot be said as contended by learned counsel for the respondent that the correct and settled legal position with respect to the meaning of the word record till June 1 1988 was that it meant the record which was available to the Income-tax Officer at the time of passing of the assessment order. Further we do not think that such a narrow interpretation of the word record was justified in view of the object of the provision and the nature and scope of the power conferred upon the Commissioner. The revisional power conferred on the Commissioner under section 263 is of wide amplitude. It enables the Commissioner to call for and examine the record of any proceeding under the Act. It empowers the Commissioner to make or cause to be made such enquiry as he deems necessary in order to find out if any order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. After examining the record and after making or causing to be made an enquiry if he considers the order to be erroneous then he can pass the order thereon as the circumstances of the case justify. Obviously as a result of the enquiry he may come into possession of new material and he would be entitled to take that new material into account. If the material which was not available to the Income-tax Officer when he made the assessment could thus be taken into consideration by the Commissioner after holding an enquiry there is no reason why the material which had already come on record though subsequently to the making of the assessment cannot be taken into consideration by him. Moreover in view of the clear words used in clause (b) of the Explanation to section 263(1) it has to he held that while calling for and examining the record of any proceeding under section 263(1) it is and it was open to the Commissioner not only to consider the record of that proceeding but also the record relating to that proceeding available to him at the time of examination. We therefore hold that 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. The High Court was wrong in taking a contrary view. We therefore allow this appeal set aside the judgment and order passed by the High Court and answer the question referred to the High Court in the negative i.e. in favour of the Revenue and against the assessee. Thus there shall be no order as to costs.

Summary

1. ISSUES PRESENTED and CONSIDERED

The primary issue considered in this judgment was whether the term "record" as used in section 263(1) of the Income-tax Act, 1961, refers to the record as it stood at the time the order was passed by the Income-tax Officer or as it stood at the time of examination by the Commissioner. This determination was crucial in deciding whether the Commissioner could rely on a valuation report obtained after the assessment order was passed to exercise revisional powers under section 263.

2. ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents:

Section 263(1) of the Income-tax Act empowers the Commissioner to revise any order passed by the Assessing Officer if it is deemed erroneous and prejudicial to the interests of the Revenue. The legal question centered on the interpretation of "record" within this section. The Finance Acts of 1988 and 1989 amended the section, introducing an Explanation to clarify that "record" includes all records available at the time of examination by the Commissioner.

Precedents considered included the Calcutta High Court's decision in Ganga Properties v. ITO, which held that "record" referred to what was available to the Income-tax Officer at the time of the assessment order. The Kerala High Court in CIT v. M. A. Unneerikutty and the Allahabad High Court in CWT v. Raj Narain Pratap Narain also supported this view. However, the Calcutta High Court later took a different stance in CIT v. S. M. Oil Extraction Pvt. Ltd., suggesting a broader interpretation of "record."

Court's Interpretation and Reasoning:

The Court analyzed the legislative amendments and the intent behind them, emphasizing that the amendments were meant to clarify that "record" should include all records available at the time of the Commissioner's examination. The Court reasoned that the revisional power under section 263 is broad, allowing the Commissioner to consider new material that comes into existence after the assessment order if it is relevant to the proceeding.

Key Evidence and Findings:

The Court noted the legislative history and explanatory memoranda accompanying the Finance Bills of 1988 and 1989, which aimed to resolve judicial controversies by clarifying that "record" includes all relevant materials available to the Commissioner at the time of examination.

Application of Law to Facts:

The Court applied the amended definition of "record" to the case at hand, concluding that the valuation report, although received after the assessment order, was part of the "record" available to the Commissioner. Thus, the Commissioner was within his rights to consider it while exercising revisional powers under section 263.

Treatment of Competing Arguments:

The Court addressed the arguments presented by the respondent, who relied on earlier judicial interpretations that limited "record" to what was available at the time of the assessment order. The Court dismissed these arguments by highlighting the retrospective effect of the legislative amendments and the broader interpretation intended by the legislature.

Conclusions:

The Court concluded that the Commissioner was justified in considering the valuation report obtained after the assessment order, as it formed part of the record available at the time of the Commissioner's examination. Therefore, the Commissioner's order was legal, and the High Court's contrary view was incorrect.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning:

The Court stated, "The revisional power conferred on the Commissioner under section 263 is of wide amplitude. It enables the Commissioner to call for and examine the record of any proceeding under the Act."

Core Principles Established:

The judgment established that the term "record" in section 263(1) includes all records available at the time of examination by the Commissioner, not just those available at the time of the assessment order. The legislative amendments of 1988 and 1989 were intended to clarify this interpretation and apply retrospectively.

Final Determinations on Each Issue:

The Court determined that the valuation report submitted after the assessment order could be considered by the Commissioner, and thus, the Commissioner's order was valid. It overturned the High Court's decision, answering the referred question in the negative, in favor of the Revenue and against the assessee.