IMPORTANT POINT
While calling for and examining the record of any proceeding u/s 263(1) of the Income Tax Act, it is open to the Commissioner not only to consider the record of that proceeding but also the record relating to that proceeding available to him at the time of examination.

Headnote:Income Tax Act, 1961-Section 263(1)-Word record -Meaning-Whether the word record would means the record as it stands at time of examination by the Commissioner or the record as it stands at the time the order in question was passed by ITO-Assessment Year 1977-78-Assessee firm constructed a cinema theatre-ITO wrote to Departmental Valuation Officer to ascertain and report correct cost of construction of the theatre-Valuation Officer expressed his inability to give report by the date the assessment was to be completed-Order of assessment passed without waiting for the report, accepting the valuation mentioned by assessee-Subsequently, Valuation Officer submitted his report-Commissioner of Income Tax issued a notice u/s 263(1) to assessee on ground that investment not accounted for by assessee should be taxed-Commissioner set aside assessment made by ITO, holding that the term record would include all records available at time of examination by him-Appeal against -Whether order of Commissioner was legally sustainable?-(Yes)-It was open to Commissioner to take into consideration all records available at time of examination by him.
       Held : The revisional power conferred on the Commissioner under Section 263 is of wide amplitude. It enables the Commissioner to call for and examine the record of any proceeding under the Act. It empowers the Commissioner to make or cause to be made such enquiry as he deems necessary in order to find out if any order passed by the assessing officer is erroneous insofar as it is prejudicial to the interests of the revenue. After examining the record and after making or causing to be made an enquiry if he considers the order to be erroneous then he can pass the order thereon as the circumstances of the case justify. Obviously, as a result of the enquiry he may come in possession of new material and he would be entitled to take that new material into account. If the material, which was not available to the Income-Tax Officer when he made the assessment could thus be taken into consideration by the Commissioner after holding an enquiry, there is no reason why the material which had already come on record though subsequently to the making of the assessment cannot be taken into consideration by him. Moreover, in view of the clear words used in clause (b) of the explanation to Section 263(1), it has to he held that while calling for and examining the record of any proceeding under Section 263(1) it is and it was open to the Commissioner not only to consider the record of that proceeding but also the record relating to that proceeding available to him at the time of examination. (Para 9)
       It was open to the Commissioner to take into consideration all the records available at the time of examination by him and thus to consider the Valuation Report submitted by the Departmental Valuation Cell subsequent to the passing of the assessment order and, so the order passed by him was legal. The High Court was wrong in taking a contrary view. (Para 12)

JUDGMENT

Nanavati, J.-Leave granted. Heard learned counsel on both the sides.

2. This appeal arises out of the judgment and order passed by the High Court of Karnataka on 6th June, 1995 in I.T.R.C. No. 26/93. The question that was referred to the High Court was :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the word `record used in Section 263(1) of the Act would not mean the record as it stands at the time of examination by the Commissioner, but it means the record as it stands at the time the order in question was passed by the ITO?"

3. The respondent-firm, during the previous year relevant to the assessment year 1977-78, had constructed a cinema theatre and in the return filed by it had shown the cost of construction at Rs. 20,28,498/- (Rs. 23,78,242 less Rs. 3,49,644 being electric portion). The Income-Tax Officer on 2nd February, 1980 wrote to the Departmental Valuation Officer to ascertain and report correct cost of construction of the theatre. The Valuation Officer expressed his inability to give his valuation report by 31st March, 1980 by which date the assessment was to be completed. The Income-Tax Officer, therefore, without waiting for his report, passed an order of assessment accepting the valuation mentioned by the assessee in its return. The Valuation Officer Submitted his report on 16th December, 1980. He determined the cost of construction at Rs. 34,58,600/- as against Rs. 20,28,498/- stated by the assessee. Therefore, the Commissioner of Income-Tax issued a notice under Section 263(1) of the Income-Tax Act to the assessee on the ground that investment not accounted for by the assessee-firm should have been brought to tax and the Income-Tax Officer having not done so, his order was erroneous and prejudicial to the interest of the Revenue. Before the Commissioner, it was contended by the assessee that as the Valuation Report was not available to the Income-Tax Officer at the time of passing the assessment order and did not form part of the record of the proceeding, it could not be a valid basis for initiating an action under Section 263 of the Act and, therefore, the proceeding deserved to be dropped. The decision of the Calcutta High Court in Ganga Properties v. I.T.O.1, was relied upon in support of that contention. The Commissioner rejected it on the ground that the term record would include all records available at the time of examination by him, set aside the assessment made by the Income-Tax Officer and directed him to pass a fresh assessment order in light of the observations made by him.

4. The assessee preferred an appeal to the Income Tax Appellate Tribunal against that order. The Tribunal upheld the contention of the assessee relying upon the judgment of the Calcutta High Court in Ganga Properties case (supra), allowed the appeal and set aside the order passed by the Commissioner.

At the instance of the Revenue, the question stated above was referred to the High Court of Karnataka for its opinion. The High Court after referring to the decisions of the Calcutta High Court in Ganga Properties case and C.I.T. v. S.M. Oil Extraction Pvt. Ltd.2, held that though the record contemplated by Section 263(1) does not mean only the order of assessment but it comprises all proceedings on which the assessment is based, yet if there was some record which was not available on the date of completion of assessment that record would not form part of the order of the assessment authorities. It, therefore, answered the question in affirmative, i.e., in favour of the assessee and against the Revenue. The Revenue has, therefore, filed this appeal.

5. Mr. Shukla, learned counsel for the Revenue, submitted that in view of the amendments made in Section 263(1) by the Finance Act of 1988 and the Finance Act of 1989, the term record would mean all records relating to that proceeding available at the time of examination by the Commissioner. He further submitted

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1997 Supreme(SC) 1566

IMPORTANT POINT While calling for and examining the record of any proceeding u/s 263(1) of the Income Tax Act, it is open to the Commissioner not only to consider the record of that proceeding but also the record relating to that proceeding available to him at the time of examination.

Cases Referred (3)

IMPORTANT POINT
While calling for and examining the record of any proceeding u/s 263(1) of the Income Tax Act, it is open to the Commissioner not only to consider the record of that proceeding but also the record relating to that proceeding available to him at the time of examination.