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TMI Blog2005 (6) TMI 211X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner (Appeals). Thus, under section 263(2), an order sought to be revised cannot be so revised after expiry of two years from the end of the financial year in which such order was passed. We accordingly hold that since the CIT has sought to revise an assessment order dated 27-2-1997, the same is outside the limitation period prescribed u/s 263(2). In this case, it is seen that before the order u/s 143(3) was passed, the assessee was required to explain how he has claimed the credit in respect of Canadian tax and Thailand tax by its letter dated 17-3-1999. In revision, learned CIT has merely set aside the order to re-work the credit in respect of Canadian and Thailand tax claimed under DTAA provision without mentioning any error in the original order sought to be revised. In our opinion, this is not permissible course under the provision of section 263 of the Act. The order cannot be set aside for making roving enquiry without pointing any error in the order. Similar view has been adopted by the Hon ble High Court of Bombay in the case of CIT v. Gabriel India Ltd.[ 1993 (4) TMI 55 - BOMBAY HIGH COURT] . The power of revision is not meant to be exercised for the purpose of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HURY, J.M. AND DEEPAK R. SHAH, A.M. For the Appellant : Padam Khincha For the Respondent : Ajit Korde ORDER Deepak R. Shah, Accountant Member. 1. All these appeals by assessee are directed against the common order of the learned CIT-III, Bangalore dated 20-2-2001 under section 263 of the Income-tax Act (the 'Act'). 2. We first take up the appeal pertaining to assessment year 1994-95. Learned CIT, during the revision proceedings under section 263, issued a notice under section 143(3) dated 6-12-2000 proposing revision of orders passed under section 143(3). Learned CIT was of the opinion that the credit as available under Double Tax Avoidance Agreement (DTAA) between India and Canada was granted without properly applying the provision of article 23 of the said DTAA. Subsequently, a second notice was issued on 31-1-2001 proposing to revise the orders passed under section 143(3) whereby learned CIT was of the opinion that credit for tax paid in Canada as well as in Thailand were granted erroneously without applying the provision of relevant DTAA with Canada as well as Thailand. By order under section 143(3) dated 27-2-1997 for assessment year 1994-95, the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under section 263 need not necessarily mean the original order and it can be any order including an amended order or rectified order, in view of the fact that the word 'order' has not been qualified in any way. Hence, initiation of proceedings under section 263 to revise the order dated 31-3-1999 is not barred by limitation. 4.1 Learned CIT thereafter concluded in para 1.1 of his order that the claim of assessee was allowed without verifying whether the claim is in accordance with the provisions of the relevant DTAA with Canada and Thailand. The failure on the part of Assessing Officer has rendered the orders erroneous and prejudicial to the interest of the revenue. Relying upon the decision of Hon'ble Delhi High Court in CIT v. Anokha Singh [2000] 246 ITR 262, learned CIT held that if the assessment order contains some apparent error of reasoning or of law or fact or where the order is stereotyped, which simply accepts what the assessee has stated and fails to make enquiries, which are called for in the circumstances, it amounts to an erroneous order, which can be revised under section 263. In conclusion, he directed the Assessing Officer to compute the DTA relief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 63 confers a power to the Commissioner to make further enquiry before passing the final order. This power of further enquiry is to enable to reach a conclusion that the order of the Assessing Officer is erroneous insofar as it is prejudicial to the interest of the revenue. The CIT could have made the necessary enquiry. He has failed to do so. Instead he has directed the Assessing Officer to conduct an enquiry. Directing the Assessing Officer to cause an enquiry to be made, to detect the error, is not permissible in an action under section 263. 12. Further the CIT has not pointed out the error. He has only referred to the provisions of article 23 of the Treaty between India and Thailand and India and Canada. He has not demonstrated in what manner the claim of credit of taxes paid in Canada and Thailand made by the appellant-company and allowed by the Assessing Officer was wrong. Not having demonstrated the error, the order of the CIT is bad in law as held in CIT v. Kanda Rice Mills [1989] 178 ITR 446 (Punj. & Har.) 13. The CIT has also failed to notice that the Article on relief from double taxation in the Treaty between India and Thailand is not identically worded with that in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are two or more interpretations possible or permissible, the one in favour of the assessee is to be adopted as held in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) and other cases. The decision of Hind Wire Industries Ltd. v. CIT [1995] 212 ITR 639 (SC) relied on by the CIT in his order under section 263 may not be appropriate for the following reasons: (a) The Supreme Court in the above decision was not concerned with the merger theory explicitly provided for in section 263. (b) The Supreme Court's interpretation in the said decision was to give a benefit/relief to the assessee. The CBDT also has recognized that action under section 154 may be taken beyond the stipulated time of 4 years, if it is to confer a benefit to the assessee. This indicates that the time-limit under section 154 is not sacrosanct. The time-limit for an action under section 263 on the other hand, is binding. 17. Apart from above arguments pertaining to all the years under appeal, Shri Khincha, for assessment year 1994-95, specifically submitted that the order of revision is time-barred as it was taken more than two years after the original assessment order was passed. The issue of relief fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merge with the appellate order. 21. He further submitted that tax computation is an integral part of the assessment order. Error is in the tax computation part of the assessment. The dispute is regarding credit of taxes paid by the assessee. Tax credit is given while determining tax payable by the assessee or tax refundable to the assessee. The tax computation follows the assessment of income as done in the body of the assessment order. Thus, determination of income and tax payable thereof are integral part of the assessment. In this connection, attention is drawn to the judgment of the Supreme Court in which the Supreme Court has held as under: "'Assessment' is one integrated process involving not only the assessment of the total income but also the determination of the tax. The Income-tax Officer has to determine by order in writing not only the total income but also the nets on which will be payable by the assessed for the assessment year in question and the demand notice has to be issued under section 156 of the Income-tax Act, 1961 in consequence of such an order .... If, therefore, the Income-tax Officer first draws up an order assessing the total income and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llate order on all issues, whether appealed against or not, whether decided or not decided by the appellate authority in the appellate order as held by Hon'ble Karnataka High Court in Kalasa Tea Produce Co. Ltd. v. Commissioner of Commercial Taxes [2004] 267 ITR 292. The tax computation which is integral part of the assessment order continues to be part of the order giving effect to the CIT(A)'s order as well. Tax computation is mandatory. Assessing Officer does not have any scope for excising discretion. The Assessing Officer's error in this case pertains to the tax computation part. Nature of the error is of not giving tax credit of the taxes paid abroad according to the Article of the DTAA. The assessee contended that the applicability of DTAA provisions was not before the CIT(A). Therefore, to that extent, the original assessment order has not merged with the appellate order and hence the order under section 263 is passed beyond time. Though, this issue was not before the CIT(A), tax computation has not become final as, applicability of the DTAA provisions will have to be considered even at the stage of computing of taxes payable in consequence to the CIT(A)' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court, that since the word 'order' in the expression "from the date of the order sought to be amended" in section 154(7) was not qualified in any way, it did not necessarily mean the original assessment order it could be any order including the amended or rectified order. The view taken by the Tribunal was the correct one and the High Court was wrong in setting aside the decision of the Tribunal." Hind Wire Industries Ltd. v. CIT [1995] 212 ITR 639 (SC) 22.2 Last para, page 536 in CIT v. Mysore Iron & Steel Ltd. [1986] 157 ITR 531 (Kar.) "In the result, our answer to the question is that the time-limit provided under section 154(7) should be computed from the date of the order of reassessment and not from the earlier order of rectification." CIT v. Mysore Iron & Steel Ltd. [1986] 157 ITR 531 (Kar.) Bihar State Road Transport Corpn. v. CIT [1986] 162 ITR 114 (Pat.) Here, error in tax computation was neither appealed against nor considered by the appellate authority, therefore the issue of tax computation has not merged with the appellate order. Such part can be revised. This rate is laid down by the Full Bench of the Karnataka High Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of an Assessing Officer merges with that of an appellate authority, conflicting decisions have been given by the courts. The judicial controversy centres around the question as to whether the entire order of assessment passed by an Assessing Officer merges with the order of the first appellate authority or the merger is only with respect to that part of the order of the Assessing Officer which relates to the matters considered and decided by such an authority. Some High Courts have held that there is complete merger once an appeal is decided against an order even on one or two points alone, while a number of High Courts have held that there is only a partial merger confined to points adjudicated upon. To eliminate any further litigation, the Finance Act has amended section 263 by inserting an Explanation to the effect that the Commissioner will be competent to revise an order of assessment passed by an Assessing Officer on all matters except those that have been considered and decided in appeal. This amendment also has been carried out for removal of doubts." 24. Reading of the circular makes it clear that the Legislature has stayed away from the controversy of theory of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xamined by the Assessing Authorities, the power under section 263 of the Income-tax Act, 1961 can be invoked." 28.1 Both the counsels have invited our attention to the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, wherein it was held thus:- "... an incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous in the same category fall orders passed without applying the principle of nature of justice or without application of mind. The phrase 'prejudicial to the interests of revenue' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the Income-tax Officer, the revenue is losing tax lawfully payable by a person, it will certainly deal prejudicial to the interest of revenue." 28.2 Learned DR further submitted that the CIT has rightly asked the Assessing Officer to apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsport Corpn. v. CIT [1986] 162 ITR 114 (Pat.) * Nicco Corpn Ltd. v. CIT [2005] 272 ITR 58 (Cal.) Above judgments in fact support contention of the Department for rectifiable error, time-limit should commence from the date of the order to sought to be revised. [See ratio of Bihar State Road Transport Corpn. v. CIT [1986] 162 ITR 114 (Pat.)]. 29. We have carefully considered the relevant facts, arguments advanced and host of the decisions cited. For assessment year 1994-95, firstly we need to determine whether the order under section 263 dated 20-2-2001 is barred by limitation. From the facts narrated above, it is seen that the assessee was given full credit for Canadian tax, in the order under section 143(3) dated 27-2-1997. In the said order, no discussion is made as regards how the credit is eligible or to be allowed. Since the credit was allowed as claimed, the matter was not carried before Commissioner (Appeals). The Commissioner (Appeals) while deciding certain other disputes, gave partial relief. The effect of said order was given on 31-3-1999. In this order also, the credit for Canadian tax was fully given. Meanwhile, the Assessing Officer by notice under section 154 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder this Act, and if he considers that any order passed therein by any authority subordinate to him is erroneous insofar as it is prejudicial to the interests of the revenue, he may, after giving the assessed an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, cancelling the assessment and directing a fresh assessment. (2) No power shall be exercisable under sub-section (1) after the expiry of four years from the date of order to be revised." 29.2 From the aforesaid revision of the Act, it is clear that an order under section 263 can be passed by Commissioner revising the order by an Assessing Officer being the Assistant Commissioner or Dy. Commissioner or ITO or Joint Commissioner. As per clause (c) of the Explanation to section 263(1), the Commissioner can revise an order by an Assessing Officer, which has been subject-matter of appeal, if the matters had not been considered and decided in such appeal, such matters can also be revised by Commissioner under section 263(1). As per section 263(2), th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Admittedly, in this case, the credit for tax paid in Canada was granted in order under section 143(3) dated 27-2-1997. If the Commissioner in revision proceeding is of the opinion that this credit is not properly given or is not in accordance with law, he can revise such order provided the same is within limitation period. It is settled policy of law that there must be point of finality in all legal proceedings, that settled issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi judicial controversies as it must in other spheres of human activity. These principles are required to be observed by all concerned in administration of statutory enactments. It is not the case that there is any mistake in giving effect to appellate order by Commissioner (Appeals). Thus, under section 263(2), an order sought to be revised cannot be so revised after expiry of two years from the end of the financial year in which such order was passed. We accordingly hold that since the CIT has sought to revise an assessment order dated 27-2-1997, the same is outside the limitation period prescribed under section 263(2). I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4-2000 Infosys reply to 154 notice No mistake apparent on record as the matter is discussed in length 13. 21-4-2000 Infosys further replies to 154 notice Giving the basis of TDS claim 14. 6-12-2000 Notice for revision under Section 263 Assessment orders are erroneous insofar as credit from Canadian TDS 15. 1-1-2001 Infosys reply (a) Justifying the method of credit claimed (b) Proceedings are barred by limitation 16. 1-2-2001 Revised notice under Section 263 Matter relating to the rectification of TDS credit of Thailand for assessment year 1996-97 inserted 17. 15-2-2001 Infosys reply (a) Proceedings are barred by limitation (b) Credit for tax paid in Canada and Thailand have been claimed correctly 18. 15-2-2001 order under Section 263 Directing assessing officer to verify claim in accordance with DTA provision Since the Commissioner revised the order directing the Assessing Officer to verify whether the claim is in accordance with relevant provision of DTAA with Canada and Thailand, the assessee is in further appeal before us. 31. Learned counsel for assessee Shri Khincha reiterated the stand taken in appeal pertaining to assessment year 1994-95. He furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven any finding that the credit is erroneously given. No such error has been pointed out. The Commissioner has mentioned as under:- As mentioned earlier, the Assessing Officer has allowed the assessee's claim without verifying whether the claim is in accordance with the provisions of the relevant double taxation agreement with Canada and Thailand. This failure on the part of the Assessing Officer has rendered the three orders erroneous and prejudicial to the interest of revenue. As observed by the Delhi High Court in the case reported in 246 ITR 26, if the Assessing Officer's order contains some apparent error of reasoning or of law or fact, or it is a stereotyped order which simply accepts what the assessee has stated in his return of income and failure to make enquiries which are called for in the circumstances, such order can be revised under section 263. The present case is one such case where the Assessing Officer simply accepted the claims of the assessee for credit of TDS in Canada and Thailand without verifying whether the claim of the assessee is in accordance with the relevant provisions of double taxation agreement with these countries. Hence these orders are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfied himself after proper enquiry, not only once but twice, it cannot be said that the Assessing Officer has allowed the claim without verifying the claim in accordance with law. Even in the revision order, the Commissioner has not been able to point out any mistake in giving the credit. An order can be revised only when the order is demonstrated to be an erroneous. The Assessing Officer has adopted one of the possible modes of granting credit in respect of income arising in Canada and Thailand. Since the Commissioner has not pointed out any error in such order, we set aside the order of Commissioner passed under section 263 for assessment year 1995-96 also. 33. We now take up the appeal of assessee for assessment year 1996-97. 33.1 The following chronology of events will explain the facts:- 1. 29-11-1996 Return filed Credit for Canadian TDS claimed Rs. 47,94,816, Thailand TDS claimed Rs. 64,469 2. 31-3- 1997 Intimation under Section 143(l)(a) Full credit for Canadian TDS was given Rs. 47,94,816 and Thailand TDS Rs. 64,469 3. 17-3-1999 Infosys letter Giving clarification on Canadian Tax and Thailand credit claimed in return 4. 26-3- 1999 Assessment order under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pn. v. CIT [1986] 162 ITR 114 (Pat.) and Nicco Corpn. Ltd. v. CIT [2005] 272 ITR 58 (Cal). As the subject-matter of the relief from the double taxation was not an issue before CIT(A) and the order of rectification dates back to the original order of assessment, the order of the CIT under section 263 is beyond time as it has been passed more than 2 years from the expiry of the year in which the assessment order was passed. 33.3 Learned DR reiterated the submission made as noted earlier while dealing the appeal for assessment year 1995-96. 33.4 In this case, it is seen that before the order under section 143(3) was passed, the assessee was required to explain how he has claimed the credit in respect of Canadian tax and Thailand tax by its letter dated 17-3-1999. The assessee had claimed the credit on following basis:- "We have claimed credit in respect of tax deducted in Canada on the invoices raised by us on Bell Northern Research. As per the Indo-Canadian Double Taxation Avoidance Agreement, the amount of Canadian tax payable under the laws of Canada and in accordance with the provisions of the agreement, whether directly or by deduction, by a resident of India in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time also, no fault was found with the manner in which the credit was claimed and allowed. 35. The Assessing Officer therefore took no action for modifying the claim. Learned CIT in his revision jurisdiction has simply mentioned that the claim of assessee has been allowed without verifying the provision of relevant DTAA. No error has been pointed out in the order when the credit has been given. It is not correct to say that the claim has been allowed without verification. The Assessing Officer was made aware of the manner in which the claim has been put forward. The Assessing Officer has adopted one of the possible views. In revision, learned CIT has merely set aside the order to re-work the credit in respect of Canadian and Thailand tax claimed under DTAA provision without mentioning any error in the original order sought to be revised. In our opinion, this is not permissible course under the provision of section 263 of the Act. The order cannot be set aside for making roving enquiry without pointing any error in the order. Similar view has been adopted by the Hon'ble High Court of Bombay in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108. The power of revision is n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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