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TMI Blog1989 (8) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... the close of either of the two accounting years relevant to the assessment years in question. 3. Later the Commissioner found that Sri Ratnakar who is one of the partners having 50% share in the assessee firm was assessed to personal income-tax on a total income of Rs. 1,07,750 for assessment year 1983-84 and on an income of Rs. 1,20,710 for assessment year 1984-85. In view of this the learned Commissioner felt that if the provisions of sec. 183(b) of I.T. Act, 1961 were to be applied to the assessee's case for the two assessment years in question, then the tax payable by the assessee as registered firm and its partners would be much more than the tax payable by the partners of the assessee and assessee if it is treated as an unregistered firm. The learned Commissioner of Income-tax felt that by dint of the fact that the Income-tax Officer had not applied the provisions of sec. 183(b) of I.T. Act and computed the tax, the assessments made against the firm for assessment years 1983-84 and 1984-85 because erroneous in so far as they are prejudicial to the interest of revenue and hence she issued notice u/s. 263 of the I.T. Act seeking to revise the assessments. The assessee firm fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not make the order a fit one to be revised. Commissioner erred in holding that the Income-tax Officer completed his assessments without proper inquiry and verification and without applying the provisions of sec. 183(b) of the I.T. Act. The orders of assessment dated 13-2-1981 are not prejudicial to the interest of revenue. 7. Sri Ratnakar argued that there must be an error causing prejudice to invoke the powers of sec 263. However, the learned Commssioner conveniently forgot to point out any error in the assessment orders. He contended that simple 'prejudice' without 'error' cannot confer jurisdiction u/s. 263. Sri Ratnakar also argued that a reading of sec. 183(b) reveals that it was not incumbent or mandatory for the Income-tax Officer to exercise the option of assessing an unregistered firm as a registered firm. Exercising the option by the Income-tax Officer u/s 183(b) is purely discretionary and the failure to exercise such an option cannot be called in question in the revisionary proceedings. It is the Income-tax Officer while making the assessment who is entitled to exercise the option u/s 183(b). If the option u/s 183(b) is not exercised by the Income-tax Officer it may r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and he or she cannot extend the state of record or inquiry during the revisional proceedings by looking into other records than those looked into by Income-tax Officer for making the assessment. Reliance is placed upon the Calcutta High Court's decision in the case of Ganga Properties v. ITO [1979] 118 ITR 447. He also relied upon the decisions in State of Gujarat v. Chelabhai Bhanabhai Prajapati [1974] 33 STC 147 (Guj.) and Jagatjit Distilling & Allied Industries Ltd. v. State [1971] 28 STC 709 (Punj.). 8. Countering the arguments on behalf of the assessee, the learned Departmental Representative contented that it is obvious that the provisions of sec. 183(b) were not taken into consideration when assessments were made against the assessee for 1983-84 and 1984-85. Whethere non-application of sec. 183(b) by the Income-tax Officer is an error committed by him or not is the main question for consideration. The question of exercising discretion given to the Income-tax Officer u/s. 183(b) does not merely vest with the Income-tax Officer. The said power is available with all the higher executives more so with the Commissioner endowed with the revisionary powers u/s. 263. The Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble by its partners individually falls short of the total tax payable by the firm if it was assessed as a registered firm and its partners individually. In my opinion the firm's tax, and the individual tax of all the partners together, if it is treated as a registered firm should exceed the aggregate amount of tax payable by its partners individually, then only there is scope for the Income-tax Officer to exercise option available to him u/s. 183(b). In my considered opinion to give a clear opportunity for the Income-tax Officer to excercise his option u/s 183(b) the particulars of tax payable by the firm as unregistered, the tax payable by each of the partners constituting the firm must be available with Income-tax Officer by the time of making the assessment against the unregistered firm. If the tax particulars payable in the individual assessments of all or any one of the partners of any unregistered firm are not available by the date of assessment of the firm, then the Income-tax Officer would not have any opportunity whatsoever to exercise his option u/s. 183(b), for, he cannot come to a definite conclusion, whether the one or the other computation, would give a higher tax to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by Mr. Pal and also in view of the expression "any mistake apparent from the record" used in these two sections. Whereas section 263(1) of the Act uses the words "is erroneous" and not the words "has become subsequently erroneous". Under this section, the Commissioner may call for and exanube "the record" of the "proceeding" in order to consider in his revisional jurisdiction as to whether the order in question by the ITO "is erroneous". Therefore, he is to call for the "record" of the "proceeding" which was before the ITO and examine it in order to consider whether on the basis of the materials which were before the ITO and formed part of that record the order passed by the ITO is "erroneous" and prejudicial to the interests of the revenue. Therefore the materials which were not in existence at the time the assessment was made but afterwards came into existence cannot form part of the record of the proceeding of the ITO at the time he passes the order and, accordingly, it cannot be taken into consideration by the Commissioner for the purposes of invoking his jurisdiction under this section, for he is not an appellate authority under this section and exercises only a revision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtners individually can be found out only after the assessment is made against the partners in their individual assessments and it would not be possible for the Income-tax Officer to find out the tax payable by the partners in their individual assessments unless the returns are filed and unless the computation of the income was made by a validly framed assessment. In my understanding of the law and the ambit of sec. 183(b), I hold that the state of record available by 13-2-1985 would not be sufficient to come to a definite conclusion whether the one or the other type of computation of tax u/s. 183(b) would give a higher rate of tax to the revenue. In the absence of full record which enables the Income-tax Officer to exercise his option under section 183(b) the Income-tax Officer cannot be said to have committed an error in so far as it is prejudicial to the interest of the revenue. Therefore, I hold that there is no error committed by the assessee in not exercising his option u/s. 183(b). Secondly the impugned order did not reflect in what way prejudice to the revenue was caused and how much prejudice was caused in terms of money. No calculation was provided in the impugned order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner as to how the contention of the assessee in its reply dated 17-3-1987 is wrong. In the absence of the failure to show that the tax payable as a registered firm plus the tax payable by the partners would be more than the tax payable by the unregistered firm plus the tax payable by the partners. I am unable to see how the orders of the Income-tax Officer are even shown to be prejudicial to the interests of the revenue. Thirdly the argument of Sri Ratnakar that more prejudice to the interest of the revenue would not be enough but both prejudice and error should be present in any impugned assessment to make it liable for revisionary jurisdiction is to be accepted as correct, in view of the ratio of the Madras High Court's decision in Venkatakrishna Rice Co.'s case at p. 136 of the reported decision the Madras High Court held as follows : " It is quite clear from the above phrasing that two things must co-exist in order to give jurisdiction to the Commissioner to interfere in revision. The order of the Income-tax Officer in question must not only be erroneous but also the error in the Income-tax Officer's order must be of such a kind that it can be said of it that it is prejudic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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