Delhi High Court

Commissioner Of Income Tax vs M/S Triveni Engineering Works ... on 21 September, 2010

Author: Reva Khetrapal

                                    REPORTED
*   IN THE HIGH COURT OF DELHI AT NEW DELHI

+                     ITR No.225/1991

Commissioner of Income-Tax                 ..... Petitioner
                 Through: Ms. Prem Lata Bansal, Advocate.

             versus

M/s. Triveni Engineering Works Ltd.            ..... Respondent
                  Through: Mr. Ajay Vohra with Ms. Kavita Jha and
                              Ms. Akansha Aggarwal, Advocates.

%                          Date of Reserve : August 28, 2010
                           Date of Decision : September 21, 2010

CORAM:
HON'BLE MR. JUSTICE A.K. SIKRI
HON'BLE MS. JUSTICE REVA KHETRAPAL

1. Whether reporters of local papers may be allowed
   to see the judgment?
2. To be referred to the Reporter or not?                         YES
3. Whether judgment should be reported in Digest?                 YES

: REVA KHETRAPAL, J.

At the instance of the Revenue, the following questions of law are

referred for the opinion of this court:

"1. Whether on the facts and in the circumstances of the case the ITAT was correct in holding that the CIT(A) cannot revise under Section 263 an order of the IAC under Section 143(3), made by him by virtue of the jurisdiction conferred upon him under Section 125, especially when sub- section (2) of Section 125 clarifies that a reference to the ITO in the Act shall be deemed to be a reference to the IAC?

2. Whether on the facts and in the circumstances of the case, the ITAT was correct in holding that the Commissioner of Income-tax wrongly directed

setting aside of the assessment framed by the IAC(A)?"

2. The assessment pertains to the assessment year 1979-80. The

assessment was completed under Section 143(3) of the Income-tax Act,

1961 by the Inspection Assistant Commissioner of Income-tax (Asstt.),

Range-III [„the IAC(A)‟] on 27th February, 1982. The income of the

assessee-company was determined by the IAC(A) at ` 45,23,972/-

against the declared income of ` 35,46,190/-. Interest under Section

216 was not charged while making the assessment. Aggrieved by the

aforesaid order, the assessee-company filed an appeal before the

Commissioner of Income-tax (A) which was disposed of by order dated

14th September, 1983. The assessee-company filed a second appeal

before the Tribunal. While the said appeal was pending before the

Tribunal, the Commissioner (Appeals) assumed jurisdiction under

Section 263 of the Act and by order dated 25 th February, 1984, set aside

the assessment order passed by the IAC(A), holding it to be erroneous

and pre-judicial to the interest of the Revenue, on the ground that the

IAC (A) had failed to charge interest under Sections 215, 216 and 139(8)

and had also failed to initiate penalty proceedings under Section

271(1)(a) and Section 273 of the Act.

3. The assessee appealed to the Tribunal, inter alia, on the ground

that for the assessment year 1977-78, the Tribunal on identical facts had

cancelled the order of the Commissioner (Appeals) on the ground of

lack of jurisdiction [ITA No. 219/DEL/83 dated 27-02-1984]. The

Revenue‟s case before the Tribunal was that Explanation (1) to Section

263(1) was inserted with effect from 1st October, 1984 by virtue of

which even the order which was subject of the appeal before the First

Appellate Authority could be revised by the Commissioner (Appeals) in

exercise of its powers under Section 263.

4. The Tribunal vacated the order of the Commissioner (Appeals)

passed under Section 263 for the following three reasons: (i) Firstly,

similar order for the assessment year 1977-78 had been vacated by the

Tribunal; (ii) Secondly, Explanation (1) to Section 263 (1) having been

inserted with effect from 1st October, 1984 [though the enactment was

passed earlier] could not be effective prior to 1st October, 1984; and

(iii) thirdly, the order of the Income-tax Assistant Commissioner

(Appeals) having been subject matter of appeal before the Commissioner

(Appeals), Section 263 could not be invoked.

5. With regard to the direction of the Commissioner (Appeals)

relating to the initiation of the penalty proceedings, the Tribunal was of

the view that the issue was directly covered by the decision of this Court

rendered in the case of P.C. Puri vs. CIT (1985) 151 ITR 584.

6. First, a look at the relevant provisions of law. Indubitably, by

virtue of the provisions of sub-Section (1) of Section 263 of the Act as it

stood prior to its amendment by the Taxation Laws Amendment Act,

1984, the Commissioner could call for and examine the records of any

proceedings under this Act, and if he considered that any order passed

therein "by the Income-tax Officer was erroneous in so far as it was

pre-judicial to the interest of the Revenue, he could, after giving the

assessee an opportunity of being heard and after making or causing

to be made such enquiry as he deemed necessary, pass such order

thereon as the circumstances of the case justified."

7. By virtue of Section 47 of the Taxation Laws Amendment Act,

1984, reported in 149 ITR (St.) 97, however, the legislature with effect

from the 1st day of October, 1984, inserted an Explanation at the end of

Sub-Section (1) of Section 263 as follows: -

"Explanation.-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section, an order passed by the Income- tax Officer shall include-

(a) an order of assessment made on the basis of directions issued by the Inspecting Assistant Commissioner under section 144A or section144B; and

(b) an order made by the Inspecting Assistant Commissioner in exercise of the powers or in performance of the functions of an Income-tax Officer conferred on, or assigned to, him under clause (a) of sub- section (1) of section 125 or under sub- section (1) of section 125A."

8. By the Circular No. 394 of 1984 dated 14th September, 1984,

reported in 150 ITR (St.) 3, purpose for amending the provision with the

insertion of the Explanation was sought to be clarified by Explanatory

Notes on the provisions thereof, the relevant portion whereof reads as

follows: -

"AMENTDMENT OF SECTION 263 OF THE INCOME-TAX ACT RELATING TO REVISION OF ORDERS PREJUDICIAL TO REVENUE

35.1 The Amending Act has modified the provisions of section 263 of the Income-tax Act in certain respects.

35.2 Under one of the amendments, a new Explanation has been inserted at the end of sub-section (1) of section 263. The new Explanation declares, for the removal of doubts, that for the purposes of the said sub- section, an order passed by the income-tax Officer shall include an order of assessment made on the basis of directions issued by the Inspecting Assistant Commissioner under section 144A or section 144B of the Income- tax Act. The new Explanation also provides that an order made by the inspecting Assistant Commissioner in exercise of the powers or in performance of the functions of an Income-tax Officer conferred on, or assigned to, him under Section 125(1)(a) or section 125A(1) of the Income-tax Act, shall also be regarded as an order passed by the Income-tax Act. The new Explanation seeks to clarify the aforesaid position with a view to removing further controversy and litigation on these points."

9. At the outset, Ms. Prem Lata Bansal, the learned counsel for the

Revenue, strongly contended that the provisions of the Explanation

being declaratory/clarificatory in nature have retrospective effect, as has

been held by various High Courts [See : Commissioner Of Income-Tax

vs. Vithal Textiles (1989) 175 ITR 629 (MP); CIT v. Dulichand Bhatia

(1989) 175 ITR 634 (MP); CIT v. Satishkumar and Co. [1990] 181

ITR 57 (MP); CIT v. Gangaram Mohanlal Mittal and Sons (1990) 181

ITR 392 (MP); CIT v. Vincentian Orissa Society (1992) 194 ITR 743

(Orissa); Commissioner Of Income Tax vs V.V.A. Shanmugam (1999)

236 ITR 878 (Mad) and Tarajan Tea Co. Pvt. Ltd. vs Commissioner of

Income-Tax (1994) 205 ITR 45 (Gauhati)]. Alternatively, it was

submitted by her that even before the insertion of the Explanation, the

Commissioner (Appeals) was armed with sufficient powers under

Section 263 to revise the order passed by the IAC (A) in view of the

clear-cut provisions of Section 125(1) / 125(2)(a) / 125A (4) (a).

According to her, by virtue of the provisions of Section 125 (2A)

reference to Income Tax Officer in Section 263 (1) shall be deemed to be

reference to the IAC.

10. The contention of Mr. Ajay Vohra, the learned counsel for the

respondent, on the other hand, was that action under Section 263 of the

Act by the Commissioner (Appeals) was not warranted, inter alia, on the

ground that the assumption of jurisdiction by the Commissioner

(Appeals) has to be decided vis-à-vis the law on the date when the

Commissioner (Appeals) passed the order under Section 263 of the Act,

i.e. on 25th February, 1984. The amendment made by the Taxation Laws

Amendment Act, 1984, by insertion of Clause (b) of Explanation with

effect from 1st October, 1984 could not validate jurisdiction assumed by

the Commissioner (Appeals), which was lacking at the time when action

was taken under the said Section. He contended that the issue whether

an order passed by the IAC(A) could be rectified under Section 263 was

clearly debatable and it is settled law that action under Section 263 of the

Act cannot be taken in respect of a debatable issue. Reliance was placed

by him in this context on the decisions of the Supreme Court in Malabar

Industrial Co. Ltd. vs. CIT : 243 ITR 83 (SC) and CIT vs. Max India

Ltd. : 295 ITR 282.

11. We may note at this juncture that the precise question as to

whether prior to 1st October, 1984, the Commissioner could revise an

assessment order passed by the IAC(A) had arisen before the ITAT,

Delhi Bench „E‟ in the case of Ms. Asha M. Primlani vs. Inspecting

Assistant Commissioner in Income Tax Appeal No. 2624 of 1984. The

Tribunal opined that the legislature in its legislative wisdom having

made the Explanation to Section 263 effective from 1st October, 1984,

and there being no indication in the Explanation itself or anywhere else

that it is retrospective in nature, the inference that the words „Income-tax

Officer‟ mentioned in Section 263 could imply also and could include

the IAC was not justified and hence the Commissioner, on the date when

the Commissioner made the order, lacked the lawful authority to revise

the assessment order passed by the IAC, more so, as the statute itself

does not confer powers of the Income-tax Officer upon the IAC. In fact,

the statute in Sections 125 and 125A merely invests the Commissioner

with the enabling powers to confer upon the IAC powers conferred on

the Income-Tax Officer and also by general or special order in writing,

to confer concurrent jurisdiction upon the IAC and the ITO to exercise

the same concurrently.

12. Endorsing the above view of the Tribunal, this Court in ITR No.

532 of 1986, Commissioner of Income Tax vs. Smt. Asha M. Primlani

(supra) opined in favour of the assessee holding that the amendment to

Section 263 of the Act, which was the subject matter of the reference,

was with effect from 1st October, 1984. Significantly, the Division

Bench in the course of opining on the reference undertook the exercise

of comparing and contrasting the language used in Section 47 of the

Taxation Laws (Amendment) Act, 1984 with the language used in the

subsequent amendment to Section 263 of the Act by the Finance Act,

1989, which introduced clause (c) to the Explanation. For the sake of

ready reference, the Explanation to Section 263 as inserted by Section 47

of the Taxation Laws (Amendment) Act, 1984 and the Explanation as

amended by the Finance Act, 1989 are reproduced hereunder: -

"The Explanation as inserted by the Taxation Laws (Amendment) Act, 1984

47. Amendment to section 263. - In section 263 of the Income-tax Act, with effect from the 1st day of October, 1984, -

(a) In sub-section (1), the following Explanation shall be inserted at the end, namely:

Explanation.-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section, an order passed by the Income-tax Officer shall include-

(a) an order of assessment made on the basis of directions issued by the Inspecting Assistant Commissioner under section 144A or section144B; and

(b) an order made by the Inspecting Assistant Commissioner in exercise of the powers or in performance of the functions of an Income-tax Officer conferred on, or assigned to, him under clause (a) of sub-section (1) of section 125 or under sub-section (1) of section 125A.";

XXXX XXXX XXXX XXXX XXXX

The Explanation as inserted by the Finance Act, 1989 which made the amendment operative from 1st June,

(b) for sub-section (2), the following sub- section shall be substituted, namely: - "(2) No order shall be made under sub- section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed."

[ Explanation : For the removal of doubts, it is hereby declared that, for the purposes of this sub-section, -

(a) An order passed [on or before or after the 1st day of June, 1988] by the Assessing Officer shall include -

(i) An order of assessment made by the Assistant Commissioner or the Income- tax Officer on the basis of the directions issued by the Deputy Commissioner under section 144A;

(ii) An order made by the Deputy Commissioner in exercise of the powers

or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120;

(b) "record" [shall include and shall be deemed always to have included] all record relating to any proceeding under this Act available at the time of examination by the Commissioner;

(c) Where any order referred to in this sub- section and passed by the Assessing Officer had been the subject matter of any appeal [filed on or before or after the 1st day of June, 1988], the powers of the Commissioner under this sub-section shall extend [and shall be deemed to have extended] to such matters as had not been considered and decided in such appeal."

13. It is worth mentioning that in the case of Asha M. Primlani

(supra) the above context, this Court also relied upon the decision of the

Supreme Court in Commissioner of Income Tax vs. Shri Arbuda Mills

Ltd. (1998) 231 ITR 50 and concluded as follows:

"Reading the differences in the language used in the 1984 Amendment Act as well as in the Finance Act, 1989, there can be no doubt that the amendment to Section 263 of the Act, which is the subject matter of the present reference, was with effect from 1st October, 1984."

14. The view expressed in Asha M. Primlani (supra) was reiterated

by this Court in the case of Mitsui and Co. Ltd. vs. CIT 167 Taxman

179. In paragraphs 7 to 11 of the said judgment of this Court, the

following apposite observations were made:

"7.The subsequent amendment in 1989 has been interpreted by the Supreme Court in CIT vs. Shri Arbuda Mills Ltd. [1998] 231 ITR 50. This has been reiterated in CIT vs. Shree Manjunathesware Packing Products & Camphor Works [1998]231 ITR 53 (SC), a decision cited by learned counsel for the revenue.

8. Thus within the same provision, that is, the Explanation to section 263, two different types of languages are used. The words "shall be deemed always to have extended to such matters" occurring in clause (c) is absent in clause (a). It was the presence of those words in clause (c) that persuaded the Supreme Court in Shri Arbuda Mills Ltd.'s case (supra) to hold that clause (c), which was introduced by the 1989 Amendment was retrospective, that is, even prior to the date of the said amendment. On the other hand, apart from the fact that such words are absent in clause (a), the opening line of section 47 of the Amendment Act of 1984 indicates that such provision has been inserted only with effect from 1-10-1984. Recognition of this fact is of crucial importance.

9. We, have examined the decisions cited by learned counsel for the revenue. We may straightway point out that the decision in K.C. Rangaiah & Co.'s case (supra) deals with the subsequent amendment concerning clause (b) of the Explanation and therefore is not immediately relevant for the present case. However, what is significant is that even in clause (b), the words "shall include and shall be deemed always to have included" occur and therefore puts this clause on a different footing as regards its retrospective nature.

10. As regards the other decisions of the Calcutta, Orissa and Madhya Pradesh High Courts, there was no occasion for those High Courts to compare the 1984 Amendment with the subsequent amendment in 1989 which has been explained by the Supreme Court in Shri Arbuda Mill's case (supra). It must be pointed out that the judgment of a learned Single Judge of the Calcutta High Court in Duncan Agro Industries Ltd.'s case (supra) given in 2001, does refer to Shri Arbuda Mills Ltd.'s case (supra) but does not notice the contrast in the language of the two amendments, that is, the amendment in 1984 and the subsequent amendment in 1989.