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TMI Blog1998 (4) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... cting Assistant Commissioner, the order made cannot be the subject-matter of revision by the Commissioner under section 263 ? 3. Whether, the Appellate Tribunal's view that there was no clear finding in the order passed by the Commissioner of Income-tax under section 263 regarding the items allowed by the Income-tax Officer which could be termed as prejudicial to the interests of the Revenue is sustainable in law and is reasonable on the facts obtaining in this case ?" The questions relate to the jurisdiction of the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). The assessee is a public limited company. The assessment for the assessment years 1975-76 and 1976-77 were completed by the Income-tax Officer under section 143(3) read with section 144B of the Act. The Commissioner of Income-tax, on a perusal of the records of the assessee for the two assessment years noticed that the orders were erroneous and prejudicial to the interests of the Revenue and accordingly show-cause notices were issued to the assessee requiring to show cause as to why the orders of assessment made by the Assessing Officer should not be set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear finding that any of the items listed in the order was erroneous and prejudicial to the interests of the Revenue. According to the Tribunal, the Commissioner has not considered the objections of the assessee. The Tribunal also held that there is no material to show the assessments were made in a hurry especially when the procedure prescribed under section 144B had been followed, and the higher authority had been associated in making the orders of assessment. The Tribunal also held that the Commissioner of Income-tax had surrendered his judgment to the audit party and delegated his discretion to the Assessing Officer. The Tribunal, therefore, held that the procedure adopted by the Commissioner would vitiate the order of the Commissioner of Income-tax and cancelled the order passed by the Commissioner and allowed the appeal preferred by the assessee. The Appellate Tribunal, on the basis of the directions of this court, has stated a case and referred the questions of law set out earlier for the two assessment years in question. Learned counsel for the Revenue submitted that the order of the Tribunal is erroneous in law as the Tribunal proceeded on the assumption that the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT [1987] 163 ITR 129 and submitted that the prejudice contemplated in section 263 is prejudice to the income-tax administration as a whole. Reliance was placed by learned counsel for the assessee on the decision of the Bombay High Court in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108 wherein the Bombay High Court held that the Commissioner could not direct the Income-tax Officer to re-examine the question, where the Commissioner after initiating the revision proceedings did not decide that the claim of the assessee was erroneous and the expenditure claimed was not of revenue in nature, but capital in nature. He, therefore. submitted that on the same analogy the Commissioner had not exercised powers of revision conferred upon him. Learned counsel for the assessee also submitted that the orders of the Income-tax Officer should not only be erroneous but the order should have resulted in prejudice to the interests of the Revenue and unless the two conditions prescribed in section 263 of the Act, are satisfied, the Commissioner has no power to revise the orders of the Income-tax Officer. Learned counsel placed reliance on the decision of the Karnataka High Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion that the order passed by the Income-tax Officer was erroneous in so far as it was prejudicial to the interests of the Revenue. Once he comes to the conclusion on the basis of material that the order of the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue, the Commissioner is empowered to pass an order as the circumstances of the case may warrant. He may pass an order enhancing the assessment or he may modify the assessment. He is also empowered to cancel the assessment and direct a fresh assessment. The Commissioner is fully empowered to adopt any one of the three courses indicated by the provisions of section 263 of the Act and the Commissioner's power cannot be faulted because he cancelled the assessment and directed a fresh assessment. In the instant case, the order of the Commissioner shows that he has gone through the records of the Income-tax Officer and he considered the order to be erroneous and prejudicial to the interests of the Revenue on several matters for both the assessment years. The Commissioner also found that the records do not show that the Income-tax Officer has considered the points on which the revision was made while c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of law is well-settled by the decision of the Gujarat High Court in the case of Addl. CIT v. Mukur Corporation [1978] 111 ITR 312, wherein the Gujarat High Court held as under : "Now, even on this question, we find that there is nothing in section 263(1) to show that before passing the final order under that section, the Commissioner must necessarily and in all cases record final conclusions about the points in controversy before him. As already noted by us above, we would have expected him to record final conclusions, which he thought proper if he was to settle the assessment finally but since he has not settled the assessment finally, and has preferred to direct the Income-tax Officer to make an order for fresh assessment, it was proper that he did not express any final conclusions and recorded only prima facie conclusions at which he had arrived with reference to the facts of the case. Here it should be noted that, as the assessment was to be freshly made by the Income-tax Officer, the only proper course for the Commissioner was not to express any final opinion as regards the controversial points." The further question that arises is whether in the absence of the final con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the Income-tax Officer had not considered the points raised in the show-cause notice and we are of the opinion that the Commissioner had properly exercised the jurisdiction under section 263 of the Act. In the case of Indian Textiles v. CIT [1986] 157 ITR 112, this court held that the Commissioner had jurisdiction under section 263 of the Act where the Income-tax Officer had granted certain relief without verifying the facts and the orders passed by the officer was held to be prejudicial to the interests of the Revenue. This court also held that the Commissioner has the power to set aside a portion of the order of the assessing authority which is against the Revenue or he may remit the matter to the Income-tax Officer for further enquiry after setting aside the relief given by the Assessing Officer. Therefore, the Commissioner in our opinion had set aside the orders of the Income-tax Officer in so far they related to the matters which were the subject-matters of revision. Learned counsel for the assessee strongly placed reliance on the decision of this court in the case of Venkatakrishna Rice Company v. CIT [1987] 163 ITR 129, wherein this court held that the prejudice co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the matter and he has no power to set aside the orders of assessment and direct the Income-tax Officer to re-examine the issue. On the other hand, on the facts of the case it was found by the Commissioner that the Income-tax Officer had not conducted the enquiry which was expected of him and also that some of the items allowed by the Income-tax Officer were not allowable and warranted by the provisions of the Act. The Commissioner here has recorded a finding that the orders of the Income-tax Officer were erroneous and prejudicial to the interests of the Revenue. Therefore, the decision of the Bombay High Court cited supra has no application to the facts of the case. There is no quarrel over the proposition of law laid down by the Karnataka High Court in the case of CIT v. T. Narayana Pai [1975] 98 ITR 422, wherein the Karnataka High Court held that the twin conditions prescribed in section 263, viz., the order must be erroneous and prejudicial to the interests of the Revenue should be satisfied. Learned counsel also relied upon the decision of the Supreme Court in the case of Sirpur Paper Mill Ltd. v. CWT [1970] 77 ITR 6 and the decision of the Calcutta High Court in Jeewanla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax Officer. The report of the internal audit party does not have any binding, effect on the Commissioner and the order passed by the Commissioner shows that he has applied his mind independently to the errors pointed out by the internal audit party and then came to the conclusion that the orders passed by the Income-tax Officer were erroneous and prejudicial to the interests of the Revenue. Therefore, it is not a case of the action initiated by the Commissioner on the binding circular issued by the higher authorities, nor is it a case of surrender of jurisdiction in favour of any other authority, but it is a case where the Commissioner had exercised the powers of revision after applying his mind in considering the question whether the orders were erroneous and prejudicial to the interests of the Revenue, in the revisional proceedings. Consequently, we hold that the commissioner had exercised the powers and assumed the jurisdiction property and the Tribunal was not correct in holding that the Commissioner lacked the jurisdiction under section 263 of the Act. In the result, we answer questions Nos. 1 and 3 also in the negative, and in favour of the Revenue. The Revenue will be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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