Kerala High Court
Prestige Marketing Division vs Principal Commissioner Of Income ... on 8 September, 2023
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WP(C) No. 14030 of 2022
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE C.S.DIAS
FRIDAY, THE 8TH DAY OF SEPTEMBER 2023 / 17TH BHADRA, 1945
WP(C) NO. 14030 OF 2022
PETITIONER/S:
M/S PRESTIGE MARKETING DIVISION
IX/28A ID AREA, A.M.ROAD, ERUMATHALA, ALUVA-683 112,
KERALA, REPRESENTED BY ITS MANAGING PARTNER,
MR.C.A.SUBAIR
BY ADVS.
ANIL D. NAIR
TELMA RAJU
BIJU.P.K
EDATHARA VINEETA KRISHNAN
RESPONDENT/S:
1 PRINCIPAL COMMISSIONER OF INCOME TAX
CENTRAL REVENUE BUILDING, IS PRESS ROAD, COCHIN-692
018
2 THE ASSISTANT COMMISSIONER OF INCOME TAX,
CIRCLE-1, ALUVA-683 101
BY ADV CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT
THIS WRIT PETITION (CIVIL) HAVING FINALLY HEARD ON
3.8.2023. THE COURT ON 8.9.2023 DELIVERED THE FOLLOWING:
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WP(C) No. 14030 of 2022
C.S DIAS,J.
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WP(C) No. 14030 of 2022
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Dated this the 8th day of September, 2023
JUDGMENT
The writ petition is filed to quash Ext P5 order
passed by the Principal Commissioner of Income Tax -
the first respondent.
2. The brief relevant facts for the determination of
the writ petition are:
(i) The petitioner is a partnership firm doing
business in PVC pipes. It is an assessee under the
Income Tax Act, 1961 (for brevity, 'Act').
(ii) The petitioner had filed its return of income for
the assessment year 2017-2018 declaring a total income
of Rs.65,12,480/-.
WP(C) No. 14030 of 2022
(iii) The return was taken up for scrutiny and the
assessment was completed on 16.12.2019, by Ext P1
order, under Sec.143(3) of the Act.
(iv) Aggrieved by Ext P1 Assessment Order (A.O),
the petitioner has preferred a statutory appeal before the
Commissioner of Income Tax (Appeals) (for brevity,
'CIT(Appeals)') and the matter is sub-judice. Ext P2 is
the acknowledgment slip.
(v) While so, the petitioner was served with Ext P3
notice by the first respondent stating that he was
proposing to reopen Ext P1 A.O under Sec.263 of the
Act. The petitioner had submitted Ext P4 reply to Ext P3
notice, inter alia, contending that the subject-matter in
the proposed revision is sub-judice in the appeal before
the CIT(Appeals). Therefore, the first respondent may
WP(C) No. 14030 of 2022
not invoke his jurisdiction under Sec.263 of the Act,
especially in view of the express prohibition under
Explanation I (c) of sub-sec.(1) of Sec.263 of the Act.
(vi) Even though the petitioner was heard, the first
respondent has passed Ext P5 order.
(vii) Ext P5 order is patently illegal, arbitrary and
unauthorised in law. Hence the writ petition.
3. The learned Standing Counsel appearing for the
respondents has filed a statement refuting the allegations
in the writ petition and, inter alia, contending that the
assertion in the writ petition that clause (c) of
Explanation I of Sec.263 (1) of the Act ousts the
revisional power of the first respondent, while an appeal
is pending, is untenable. In the case on hand, as the
appeal is pending consideration, the above provision
WP(C) No. 14030 of 2022
cannot be pressed into service. The said provision is
based on the principle of doctrine of merger. Where an
issue in the assessment order is neither agitated before
the CIT(Appeals) nor has been considered by him, that
portion of the assessment order will not merge with the
order of CIT(Appeals). The first respondent has rightly
and judicially exercised his powers, under Sec.263 of
the Act, to correct an error committed by the Assessing
Officer in applying the correct rate of tax applicable to
the additions by way of income made in the assessment.
The petitioner has challenged only the additions made to
the total income in the A.O. Therefore, the jurisdiction
exercised by the first respondent is in consonance with
the provisions of Sec.263 of the Act. The writ petition
is devoid of any merits and is liable to be dismissed.
WP(C) No. 14030 of 2022
4. The petitioner has filed a reply affidavit denying
the assertions in the statement. It is asserted that
Explanation I (c) of sub-sec.(1) of Sec.263 of the Act
has two limbs. The first limb deals with while the matter
is sub-judice before the First Appellate Authority and the
second one deals with when the matter has been decided
in the appeal. Hence, in those matters decided in the
appeal, the doctrine of merger applies. The subject
matter in dispute in the appeal and the revision is one
and the same, and is hence statutorily barred. In the
instant case, the assessing authority, after conducting a
detailed inquiry, has held that the income is from other
sources. It is this turnover which is made the subject-
matter of revision, on the premise that it is to be
assessed at higher rate of tax under Section 115 BBE as
WP(C) No. 14030 of 2022
unexplained credit. Therefore, the revisional authority
ought not to have exercised its jurisdiction under Sec.263
of the Act. Hence, the writ petition may be allowed.
5. Heard; Sri.Anil D.Nair, the learned Counsel
appearing for the petitioner and Sri.Christopher
Abraham, the learned Standing Counsel appearing for
the respondents.
6. Sri.Anil D.Nair reiterated the contentions in the
writ petition and in the reply affidavit. He argued that
the action of the first respondent in initiating a suo-motu
revision and passing Ext P5 order, during the pendency
of the appeal, is illegal and has caused substantial
prejudice to the petitioner. In fact, Ext P5 order has
rendered the appeal otiose and leaving the petitioner high
and dry. He placed reliance on the decisions of the
WP(C) No. 14030 of 2022
Madras High Court in Commissioner of Income Tax vs
Vam Resorts and Hotels Pvt. Ltd [(2018) 409 ITR
567] and the Allahabad High Court in CIT v. Vam
Resorts and Hotels P. Ltd [(2019) 418 ITR 723] to
fortify his contentions.
7. Sri.Christopher Abraham strenuously defended
Ext P5 order and argued that the first respondent has
unbridled powers to revise an order passed by the
assessing authority, during the pendency of an appeal
under Sec.263 of the Act, when it is noticed that the
Assessing Officer has committed a patent illegality. He
argued that as the assessing authority had applied the
wrong rate of tax, it is well within the domain and
powers of the first respondent to exercise his revisional
powers. He submitted that the petitioner has an
WP(C) No. 14030 of 2022
alternative and efficacious statutory remedy. Hence, no
prejudice will be caused to the petitioner. He placed
emphasis on the decisions of the Honourable Supreme
Court in Commissioner of Income Tax vs.
Shri.Arbuda Mills Ltd. [(1998) 231 ITR 50 (SC)],
Commissioner of Income Tax vs. Jayakumar B. Patil
[(1999) 236 ITR 469 (SC)] and EIMCO K.C.P Ltd vs.
Commissioner of Income Tax [(2000) 242 ITR 659
(SC)] and the decision of this Court in Kelpunj
Enterprises vs. Commissioner of Income Tax , Kerala
[ (1977) 108 ITR 294 (Ker)] to buttress his contentions.
He prayed that the writ petition may be dismissed.
8. The point is whether there is any illegality in
Ext P5 order.
WP(C) No. 14030 of 2022
9. Aggrieved by Ext P1 A.O, the petitioner has
preferred a statutory appeal before the CIT(Appeals) on
15.1.2020.
10. It is during the pendency of the appeal that the
first respondent issued Ext P3 show cause notice dated
21.2.2022, to the petitioner on the finding that, out of the
total addition of Rs.3,35,33,509/- in Ext P1 A.O, only an
amount of Rs.68,25,000/- was taxed at the special rate
under Sec.69 read with Sec.115BBE of the Act and
balance amount of Rs.2,67,08,509/- was assessed to tax
at normal rates, treating it as 'income from other
sources'. The first respondent has found the assessment
not in order because the petitioner had not produced any
proof to get the benefit of normal rate of tax.
WP(C) No. 14030 of 2022
11. Even though the petitioner submitted Ext P4
reply to Ext P3 show cause notice, the first respondent,
by the impugned Ext P5 order, set aside Ext P1 A.O and
directed the Assessing Officer to pass a speaking order in
accordance with law, after affording the petitioner an
opportunity of being heard.
12. It is this action of the first respondent that is
assailed in the writ petition.
13. Sec.263 of the Income Tax Act reads thus:
263 (1) .The Principal Chief Commissioner or Chief Commissioner or
Principal Commissioner or Commissioner may call for and examine the
record of any proceeding under this Act, and if he considers that any order
passed therein by the Assessing Officer is erroneous in so far as it is
prejudicial to the interests of the revenue, he, may, after giving the assessee
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, or cancelling the assessment and directing a fresh
assessment.
WP(C) No. 14030 of 2022
Explanation I - 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
Deputy Commissioner or the Income- tax Officer on the basis of the directions
issued by the Joint Commissioner under section 144A;
(ii) an order made by the Joint 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
Principal Chief Commissioner or Chief Commissioner or Principal Director
General or Director General or Principal Commissioner or Commissioner
authorised by the Board in this behalf under section 120;
(b)" record" shall include and shall be deemed always to have
included all records relating to any proceeding under this Act available at the
time of examination by the Principal [Chief Commissioner or Chief
Commissioner or Principal ] Commissioner or 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 ** Principal
Commissioner or Commissioner under this sub-section shall extend and shall
be deemed always to have extended to such matters as had not been
considered and decided in such appeal.
(a) the order is passed without making inquiries or verification which
should have been made;
WP(C) No. 14030 of 2022
(b) the order is passed allowing any relief without inquiring into the
claim;
(c) the order has not been made in accordance with any order,
direction or instruction issued by the Board under section 119; or
(d) the order has not been passed in accordance with any decision
which is prejudicial to the assessee, rendered by the jurisdictional High Court
or Supreme Court in the case of the assessee or any other person.".
(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.
(3). Notwithstanding anything contained in sub- section (2), an order in
revision under this section may be passed at any time in the case of an order
which has been passed in consequence of, or to give effect to, any finding or
direction contained in an order of the Appellate Tribunal (National Tax
Tribunal), the High Court or the Supreme Court.
Explanation.- In computing the period of limitation for the purposes of sub-
section (2), the time taken in giving an opportunity to the assessee to be
reheard under the proviso to section 129 and any period during which any
proceeding under this section is stayed by an order or injunction of any court
shall be excluded.
14. Interpreting Sec.263 of the Act, in Kelpunj
Enterprises vs. Commissioner of Income Tax (supra),
this Court has held thus:
WP(C) No. 14030 of 2022
" It is significant that there is no such restriction in the exercise of
power conferred by section 263 on the Commissioner to revise an order of
the Income-tax Officer. The vital departure in the language employed in the
two sections has to be given its due weight. The restriction in the powers of
the Commissioner in terms provided by sub-section (4) of section
264 contrasts with the wider and apparently unlimited power given by section
263. We have, therefore, to respect the intent to the legislature which
appears to us to be obvious that the power under section 263 is not
inhibited by the pendency of any appeal before the Appellate Assistant
Commissioner. If the appellate authority had disposed of the appeal
before the Commissioner could pass an order under section
263 another question may arise on the ground of merger of the order of
the Income-tax Officer in the appellate order. But that question does not
arise before us for the interference in this case had been during the
pendency of the appeal and before it was disposed of by the Appellate
Assistant Commissioner. We must not, therefore, examine that question.
(emphasis given)
15. In Commissioner of Income Tax vs.
Shri.Arbuda Mills Ltd (supra) , the Hon'ble Supreme
Court has held as follows:
"The consequence of the said amendment made with retrospective effect is
that the powers under Section 263 of the Commissioner shall extend and shall
be deemed always to have extended to such matters as had not been
WP(C) No. 14030 of 2022
considered and decided in an appeal. Accordingly, even in respect of the
aforesaid three items, the powers of the Commissioner under Section
263 shall extend and shall be deemed always to have extended to them
because the same had not been considered and decided in the appeal filed by
the assessee. This is sufficient to answer the question which has been
referred."
16. In EIMCO K.C.P Ltd vs. Commissioner of
Income Tax (supra), the Hon'ble Supreme Court, after
referring to the decision of this Court in Kelpunj
Enterprises, has reiterated the legal proposition that the
Commissioner can interfere with the order of the Income
Tax Officer on a point which was directly in appeal
before the Appellate Assistant Commissioner under
Sec.263 of the Act.
17. In view of the categoric declaration of law in
the afore-cited decisions, I am unable to accept the
WP(C) No. 14030 of 2022
contention of the petitioner that the first respondent does
not have the power to pass Ext P5 order because the
appeal is pending consideration before the CIT(Appeals).
Going by the law referred to above, the first respondent
has the revisional power to interfere with assessment
order as provided under Sec.263 of the Act, till the
disposal of the appeal. Furthermore, I do not find any
prejudice being caused to the petitioner because, if at all
the petitioner is aggrieved by the order that is to be
passed by the Assessing Officer, in compliance with the
direction in Ext P5 order, the petitioner can very well
challenge the said order also in an appeal,
notwithstanding the pendency of the appeal filed against
Ext P1 order.
WP(C) No. 14030 of 2022
Resultantly, I dismiss the writ petition, reserving
the right of the petitioner to challenge the order, if so
advised, proposed to be passed by Assessing Officer
pursuant to Ext P5 order, in accordance with law,
notwithstanding the challenge against Ext P1 order.
SD/-
sks/4.9.2023 C.S.DIAS, JUDGE
WP(C) No. 14030 of 2022
APPENDIX OF WP(C) 14030/2022
PETITIONER EXHIBITS
Exhibit P1 TRUE COPY OF ASSESSMENT ORDER DATED
16.12.2019 ISSUED BY THE 2ND RESPONDENT.
Exhibit P2 TRUE COPY OF THE ACKNOWLEDGEMENT OF HAVING
FILED THE APPEAL ALONG WITH APPEAL.
Exhibit P3 TRUE COPY OF THE NOTICE DATED 21.2.2022
ISSUED BY 1ST RESPONDENT.
Exhibit P4 TRUE COPY OF THE REPLY DATED 15.03.2022
FILED BY THE PETITIONER
Exhibit P5 TRUE COPY OF THE ORDER DATED 30.03.2022
ISSUED BY 1ST RESPONDENT.
