Revisionary powers of Commissioner u/s 263 in respect of orders u/s 132(5). - Income Tax - 1322/CBDT

INSTRUCTION NO. 1322/CBDT Dated: March 21, 1980 The Board had occasion to examine the question whether a Commissioner can exercise revisionary powers under section 263 of the Income-tax Act, 1961 in respect of orders under section 132(5). 2. Section 263 of the Income-tax Act empowers a Commissioner to call for and examine the records of any proceeding and if he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may pass such order thereon as the circumstances of the case justify. Thus, one of the essential conditions for the exercise of the power under this provision is that the order passed by an I.T.O. is prejudicial to the interests of the revenue. If this condition is satisfied, the Commissioner would be legally justified in exercising his jurisdiction under the said section., The words 'prejudicial to the interests of revenue ' have not been defined. However, they have been considered by the Calcutta High Court in the case of Dawjee Dadabhoy Co. V/s.S.P. Jain (31 ITR 872) and the Gujarat High Court in the case of Additional CIT V. Mukur Corporation [1976 Taxation 44(3)69]. It has been held by the Courts that an order of assessment will be prejudicial to the interests of revenue if it is not in accordance with law, in consequence whereof, the lawful revenue due to the State has not been realised or cannot be realised. 3. Sub-section (5) of section 132 of the Income-tax Act, 1961 empowers an I.T.O. to make an order, with the previous approval of the Inspecting Assistant Commissioner. (i) estimating the undisclosed income in a summary manner to the best of his judgment on the basis of materials available before him; (ii) Calculating and determining the tax, interest payable and penalty imposable on the income so estimated; (iii) Specifying the amount which will be required to satisfy any existing liability under the Income-tax or other Direct Taxes Acts specified in section 230-A(1)(a); and (iv) indicating the retention of so much of seized assets as would satisfy the aggregate of amounts referred to in clauses (ii), (iia) and (iii) of sub-section (5) and clearly indicating the release of remaining seized assets. It is clear from the above that I.T.O.'s order falls broadly into two parts. The first part determines the extent of concealed income and the tax payable by the assessee including any existing liability and the second part releases seized assets after retaining so much as would satisfy the tax liability determined by him. Therefore, when an I.T.O. passes an order under section 132(5) without properly following the provisions of section 132(5)(i) (ii), (iia) and (iii) it can easily be concluded that his order is erroneous and it fails to make proper provision for the realisation of the lawful revenue due to the State and therefore, it is an order prejudicial to the interests of the revenue. In such a case, the Commissioner would be competent to exercise his revisionary powers under section 263 of the Act. It may, however, be mentioned that no general guidelines can be laid down in this respect. The Commissioner may have to examine each case on its own facts and satisfy himself that the provisions of clause (ii), (iia) and (iii) of sub-section (5) of section 132 have not been complied with. Then only it can be concluded that the order passed by the I.T.O. has failed to provide for the realisation of the lawful revenue of the State. 4. A question may arise as to whether in view of the limitation of 90 days prescribed under section 132(5), the I.T.O's order will suffer from any infirmity if he has to pass the order a fresh in consequence of the direction given by the Commissioner of Income-tax under section 263. This objection is not tenable in view of the decision of the Supreme Court in the case of D.I. (Inv), New Delhi and another v. Pooran Mall Sons and another (96 ITR 396-para 2) , and the decision of Gujarat High Court in the case of Vasan Co. v. CIT , Gujarat (112 ITR 825 para 2) . The ratio of the two decisions is that the statutory limit of 90 days is applicable to the initial or first order of the I.T.O. and this limitation does not apply to any subsequent order which he may be required to pass to give effect to orders passed by authorities superior to him.