Interpreting "Record": Revisiting the Scope of Revision Powers u/s 264 and Rectification of Mistake u/s 154

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Deciphering Legal Judgments: A Comprehensive Analysis of the High Court Judgment on Revision u/s 264 in favor of assessee and u/s 154.

Reported as:

2024 (10) TMI 186 - GUJARAT HIGH COURT

Introduction

This article provides a detailed analysis of a significant judgment delivered by the High Court concerning the scope of powers of the Commissioner of Income Tax u/s 264 of the Income Tax Act, 1961 (the Act). The case revolves around the interpretation of the term "record" and the extent to which the Commissioner can consider additional materials or information while deciding a revision petition filed by an assessee u/s 264 of the Act.

Arguments Presented

Petitioner's Contentions

The petitioner, an assessee, challenged the orders passed by the Commissioner of Income Tax u/s 264 and Section 154 of the Act, rejecting the revision petition and the rectification application, respectively. The key arguments advanced by the petitioner were as follows:

The Assessing Officer wrongfully made an addition of Rs. 80 lakhs u/s 68 of the Act on account of share premium received by the assessee during the relevant year, despite the fact that the amount represented the opening balance carried forward from the previous year.
The Commissioner failed to consider the submissions of the assessee and erroneously rejected the revision petition u/s 264 on the ground that the assessee, being a private limited company, could not plead the illness of its director as a reason for non-participation in the assessment proceedings.
The Commissioner committed a mistake apparent on the record by not considering the opening balance for the year under consideration, which could not be added as income by the Assessing Officer.

Respondent's Contentions

The respondents, represented by the Income Tax Department, contended that:

The Commissioner rightly rejected the revision petition and the rectification application filed by the petitioner, as the petitioner, being a private limited company, could not have pleaded the illness of its director as a reason for non-participation in the assessment proceedings.
The Commissioner relied upon the report submitted by the Assessing Officer, which stated that the case was selected for scrutiny, and the assessment order was passed u/s 144 of the Act, adding Rs. 80 lakhs on account of share premium received by the assessee during the year.

Discussions and Findings of the Court

Scope of Powers u/s 264

The High Court discussed the scope of powers conferred upon the Commissioner u/s 264 of the Act. Relying on the decision of the Hon'ble Supreme Court in the case of Pramod R. Agrawal [2023 (10) TMI 1142 - BOMBAY HIGH COURT], the Court held that the Commissioner is duty-bound to consider the revision petition filed by the assessee on merits. The Court emphasized that the Commissioner's powers u/s 264 are wide, and they are intended to meet the situation faced by an aggrieved assessee who is unable to approach the appellate authorities for relief.

Interpretation of the Term "Record"

The Court delved into the interpretation of the term "record" in the context of Section 264 of the Act. Referring to the Circular issued by the Central Board of Direct Taxes (CBDT) and the judgment of the Hon'ble Supreme Court in Commissioner of Income-tax v. Sri. Manjunathesware Packing Products and Camphor Works [1997 (12) TMI 4 - SUPREME COURT], the Court held that the term "record" cannot be limited to the return of income or the order of assessment. It should be extended to include information from other sources that would impact the issue in question.

Reliance on Previous Orders

The Court observed that the objection raised by the Department regarding the interpretation of the term "record" was hyper-technical and ran counter to the stand taken by it in the assessment of the appellant in the three earlier assessment orders. The Court emphasized that the treatment accorded to an issue arising in a continuing transaction should be consistent for the entire period in question, applying the principles of consistency.

Analysis and Decision by the Court

Considering the discussions and findings, the High Court quashed and set aside the impugned orders passed by the Commissioner u/s 264 and Section 154 of the Act. The matter was remanded back to the Principal Commissioner to decide the revision petition filed by the petitioner u/s 264 on merits, taking into account the relevant materials and information available on record.

The Court directed the Principal Commissioner to complete the exercise within twelve weeks from the date of receipt of the copy of the order and to pass a reasoned order dealing with all submissions of the assessee after providing a personal hearing.

Doctrine or Legal Principle Discussed

The judgment primarily discussed and deliberated upon the scope of powers of the Commissioner u/s 264 of the Income Tax Act and the interpretation of the term "record" in the context of revision proceedings. The Court upheld the principle that the Commissioner's powers u/s 264 are wide and intended to provide relief to an aggrieved assessee where the law permits the same. Additionally, the Court emphasized the principle of consistency in the treatment of issues arising in continuing transactions.

Comprehensive Summary of the Judgment

The High Court, in this significant judgment, upheld the wide scope of powers conferred upon the Commissioner of Income Tax u/s 264 of the Income Tax Act. The Court emphasized that the Commissioner is duty-bound to consider the revision petition filed by the assessee on merits and provide relief where the law permits.

Regarding the interpretation of the term "record," the Court adopted a broader view, aligning with the CBDT Circular and the Supreme Court's decision. It held that the term "record" should not be limited to the return of income or the order of assessment but should encompass information from other sources that would impact the issue in question.

The Court also highlighted the principle of consistency, stating that the treatment accorded to an issue arising in a continuing transaction should be consistent for the entire period in question.

Consequently, the High Court quashed the impugned orders passed by the Commissioner and remanded the matter back to the Principal Commissioner to decide the revision petition on merits, considering all relevant materials and information available on record. The Court directed the Principal Commissioner to pass a reasoned order after providing a personal hearing to the assessee.

Full Text:

2024 (10) TMI 186 - GUJARAT HIGH COURT