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1983 Supreme(Pat) 39
PATNA HIGH COURT
Nagendra Prasad Singh and Ashwini Kumar Sinha JJ.
Commissioner Of Income Tax
Versus
Shantilal Agarwala
Taxation Case No. 28 of 1974 ; 29 of 1974 ; 60 of 1974 ; 61 of 1974 ;
Decided On : FEBRUARY 01, 1983
The Commissioner's power under Section 263(1) of the Income-tax Act, 1961, to cancel an assessment order is subject to the condition that the Commissioner must be satisfied that the assessment order is erroneous and prejudicial to the revenue.
Headnote:
INCOME TAX - JURISDICTION - ASSESSMENT ORDER - JURISDICTIONAL ERROR - POWER OF COMMISSIONER TO CANCEL ASSESSMENT ORDER - CONDITIONS PRECEDENT - SECTION 263(1) OF THE INCOME TAX ACT, 1961.
Fact of the Case:
The assessee filed a return before the Income-tax Officer, B Ward, Dhanbad, who later transferred the file to the Income-tax Officer, D Ward, who passed the assessment order. The Additional Commissioner of Income-tax issued a notice to the assessee, intending to pass an order under Section 263(1) of the Act, as he considered the assessment order prejudicial to the revenue. The Additional Commissioner canceled the assessment order and directed a fresh assessment by the Income-tax Officer, Ward B, who had jurisdiction over the assessee.
Finding of the Court:
The Tribunal held that the Additional Commissioner could only exercise the power under Section 263(1) if he concluded that the assessment order was prejudicial to the revenue. The Tribunal found that the Additional Commissioner had not shown how the assessment was prejudicial to the revenue and canceled the Additional Commissioner's order.
Issues: Whether the Tribunal was correct in canceling the orders under Section 263 of the Income-tax Act for the assessment years 1966-67 and 1967-68.
Ratio Decidendi: The Court held that the Commissioner could not exercise the power under Section 263(1) merely because the Income-tax Officer lacked jurisdiction over the assessee. The Court interpreted Section 263(1) to require the Commissioner to be satisfied that the assessment order was erroneous and prejudicial to the revenue before canceling it. The Court found that the Additional Commissioner had not provided any materials or reasons to support his conclusion that the assessment order was prejudicial to the revenue.
Final Decision: The Court answered the question in the affirmative, upholding the Tribunal's decision to cancel the Additional Commissioner's orders under Section 263(1) of the Act.
Nagendra Prasad Singh, J.
1. These four Taxation cases arise out of four assessment orders passed against the same assesses in respect of four assessment years, 1966-67, 1967-68, 1968-69 and 1969-70. In all the four cases similar question has been referred by the Income-Tax Appellate Tribunal (hereinafter to be referred to as the Tribunal) under Sec.256(1) of the Income-tax Act, 1961 (hereinafter to be referred to as the Act) for opinion of this Court, and, as such, they are being disposed of by a common order. In Taxation case Nos. 28 and 29 of 1974 the question referred to this Court for opinion is as follows:
Whether on the facts and in the circumstances of the case the Tribunal was correct in canceling the orders under Sec.263 of the Income-tax Act for the assessment years 1966-67 and 1967-68.
Same question has been referred to in other two Taxation cases for the two other assessment years.
2 I shall first take up Taxation Case No. 28 of 1974 For the assessment year 1966-67, return was filed on behalf of the assesses on 7-10-1966 before the Income-tax Officer, B Ward, Dhanbad. Later on, this file was transferred to the Income-Tax Officer D Ward who passed the assessment order aforesaid on 27-5-1969. On 7-5-1971, the Additional Commissioner of Income-Tax issued notice to the assesses informing him that he intended to pass an order under Section 263(1) of the Act as, according to him, the assessment order passed in respect of the aforesaid year was prejudicial to the interest of the revenue. The Additional Commissioner heard the assesses and passed an order on 21-5-1971 canceling the aforesaid order of assessment dated 27-5-1969 made by the Income-Tax Officer, D Ward and directed a fresh assessment to be made for that assessment year by the Income-Tax Officer Ward B who had the jurisdiction over the assesses at the relevant time. This order was passed, because the Income-Tax Officer of Ward D had no jurisdiction over the assesses at the relevant time and the assessment order could have been passed only by the Income-Tax Officer, ward B. Against that order, the assesses filed an appeal before the Tribunal. According to the Tribunal, the power under Sec.263(1) of the Act could have been exercised only if the Additional Commissioner had come to the conclusion that the assessment order in question was prejudicial to the interest of revenue. The Tribunal pointed out that the Additional Commissioner had not at all shown in what respect under-assessment had been made and how the assessment made was prejudicial to the interest of the revenue. According to the Tribunal, no materials had been mentioned in the order of the Additional Commissioner on the basis of which the aforesaid conclusion could have been arrived at. On the aforesaid view, the Tribunal cancelled the order of the Additional Commissioner. On an application being filed on behalf of the Department reference has been made to this Court; as already stated above.
3. Learned Standing Counsel for the Department, Mr. B.P. Rajgarhia, submitted that when the Tribunal has found that on the relevant date the Income-Tax Officer, Ward D had no jurisdiction over the assesses in question, then there was no occasion for the Tribunal to cancel the order passed by the Additional Commissioner under Sec.263(1) canceling the order of assessment of the Income-Tax Officer.
4. In view of Sec.124(1) the Income-Tax Officers have to perform their functions in respect of such areas or of such persons or classes of persons or of such incomes or classes of income or of such cases or classes of cases as the Commissioner may direct. Sub-section (3) of Sec.124 says that within the limits of the area assigned to him the Income-Tax Officer shall have jurisdiction in respect of any person carrying on a business or profession; if the place at which such person carries on his business or profession is situate within the area. Sub-section (4) thereof is a provision under which if there is any disput
