IN THE HIGH COURT OF KERALA AT ERNAKULAM
WA.No. 1223 of 2006()
1. M/S.PANCHAMAN TRADERS,KALARICKAL,
... Petitioner
Vs
1. THE COMMISSIONER OF INCOME TAX,
... Respondent
2. THE INCOMETAX OFFICER, WARD-1,
For Petitioner :SRI.P.BALAKRISHNAN (E)
For Respondent :SRI.JOSE JOSEPH, SC, FOR INCOME TAX
The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR
The Hon'ble MR. Justice V.K.MOHANAN
Dated :30/10/2009
O R D E R
C.R.
C .N. RAMACHANDRAN NAIR &
V.K. MOHANAN, JJ.
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W.A. No. 1223 OF 2006
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Dated this the 30th day of October, 2009
JUDGMENT
Ramachandran Nair, J.
Writ Appeal is filed against the judgment of the learned single
Judge who upheld the suo motu orders issued by the Commissioner
directing revision of appellant’s income tax assessment for the year
1992-93 to determine taxable income, consistent with the decision of
the Supreme Court in UNION OF INDIA V. A. SANYASI RAO, 219
ITR 330 (SC).
2. The appellant-assessee was engaged in arrack business during
the previous year relevant for the assessment year 1992-93. Even
though Profit and Loss account filed along with the income tax returns
showed net income of Rs. 10,53,607/- the assessee returned income
from arrack business only at Rs. 5,25,645/-, which was income
assessable under Section 44AC of the I.T. Act. The assessment was
completed ignoring the higher income shown in the P & L account as
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income from arrack business, but by accepting the income under
Section 44AC of the Act. The original assessment was completed on
7.2.1995. The assessee filed appeal against the assessment before the
CIT (Appeals) on some other issues pertaining to addition made of the
amount shown in the capital account of other partners. The CIT
(Appeals) by order dated 13.12.1995 set aside the assessment and
remanded the case back to the assessing officer for the purpose of
reconsidering the additions contested by the assessee in appeal. It is
thereafter that the Supreme Court pronounced the judgment in
SANYASI RAO’s case referred above on 13.2.1996 holding that
income from liquor business also should be computed in accordance
with Sections 28 to 43C like any other business income and the
provisions of Sections 44AC and 206 are only machinery provisions.
Therefore it was the duty of the assessing officer to have noticed the
judgment of the Supreme Court and made assessment in respect of
income from arrack business based on P & L account filed by the
assessee. However, while revising the assessment based on the orders
in appeal, the assessing officer did not consider the decision of the
Supreme Court above referred, but retained the income assessed in
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respect of arrack business under Section 44AC in the revised
assessment completed on 6.3.1998. The Commissioner of Income tax
on noticing the irregularity committed by the assessing officer, leading
to evasion of tax, initiated suo motu revision proceedings under Section
263 of the Act and passed orders on 30.3.2000 directing revision of
assessment on income from arrack business based on income disclosed
in P & L account and in terms of declaration of law by the Supreme
Court in SANYASI RAO’s case above referred. Even though statutory
appeal was available against Section 263 order, the assessee
approached this Court in writ proceedings contending that the order is
without jurisdiction mainly because it is time-barred. The learned
single Judge upheld the order both on merit as well as on the question
of limitation raised by the appellant. This Appeal is against the said
judgment and we have heard Sri. P. Balakrishnan, counsel appearing
for the appellant and standing counsel appearing for the respondent.
3. The first question raised is against the finding of the learned
single Judge that the order passed by the Commissioner under Section
263 of the IT Act is within time. The case of the appellant-assessee is
that the issue decided by the Officer and which was subject matter of
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revision by the Commissioner under the impugned order issued under
Section 263 is with regard to computation of business income from
arrack under Section 44AC in the original assessment, which should
have been made based on P & L account filed by the assessee, which
showed higher income from business than the income assessable under
Section 44AC. Even though appeal was filed against original
assessment completed on 7.2.1995, this was not the subject matter of
appeal and therefore it was open to the Commissioner to revise the
original assessment on this issue within two years from the date of
original order which was not done in this case. According to counsel
since the issue was not subject matter of appeal, the Commissioner
should have revised the assessment even during the pendency of appeal
before the first appellate authority or after the first appellate authority
disposed of the appeal. The specific case of the assessee therefore is
that suo motu revisional order issued on 30.3.2000 is time barred
because limitation with regard to suo motu revision power under
Section 263 has to be considered with reference to original assessment
completed on 7.2.1995. On the other hand, standing counsel appearing
for the respondent contended that suo motu revision power under
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Section 263 should be considered with reference to revised order issued
based on orders in appeal, if the issue raised by the Commissioner
under Section 263 was not raised or considered by the appellate
authority. In this particular case, the specific case of the department is
that the Commissioner (Appeals) had in fact set aside the original
assessment in appeal and so much so, there was no order available to
the Commissioner for revision under Section 263 until the Officer
revised the assessment. According to standing counsel, revised
assessment was issued by the assessing officer on 6.3.1998 without
considering the law declared by the Supreme Court in SANYASI
RAO’s case and therefore the order prejudicial to the interest of
revenue is revised order issued on 6.3.1998 by the assessing officer
ignoring the judgment of the Supreme Court above referred and so
much so limitation available for revision of order under sub-section (2)
of Section 263 is upto two years from the end of the financial year in
which revised order is passed..
4. Learned counsel for the appellant-assessee has relied on the
decision of the Supreme Court in CIT V. ALAGENDRAN FINANCE
LTD., 293 I.T.R. 1 (SC), and contended that under explanation C to
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Section 263(1) there is no merger of the assessment pertaining to
income from arrack business in the appellate order and so much so, the
Commissioner was free to revise the original assessment under section
263 on this issue even during the pendency of the first appeal before
the first appellate authority. We are unable to accept this contention for
more than one reason. In the first place, assessment on computation of
income from arrack business originally made on 7.2.1992 became an
order prejudicial to the interest of revenue by virtue of declaration of
law by the Supreme Court vide judgment in SANYASI RAO’s case
dated 13.2.1996. Therefore Commissioner could not have been
expected to pass orders under Section 263 until the Supreme Court
pronounced the judgment. Further, if the assessing officer had taken
note of the judgment of the Supreme Court he himself could have
corrected the mistake in the revised assessment either by invoking the
power under Section 154 or by resort to Section 147. Secondly the
Commissioner in exercise of his jurisdiction under Section 263 can
revise the assessment found to be prejudicial to the interest of the
revenue within two years from the end of the financial year in
which such order is passed. In this case, the order sought to be revised
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was set aside in appeal; by the first appellate authority for redoing the
assessment with specific reference to the issues raised in the appeal. In
fact it is pertinent to note that under Section 251 (1)(a) Commissioner
(Appeals) has authority even to enhance assessment which was the
subject matter of appeal before him. The powers of Commissioner
(Appeals) under Section 251(1)(a) are similar to the power of regular
Commissioner who exercises supervisory jurisdiction over the
assessing officers under Section 263 to correct orders prejudicial to the
interest of the revenue. Therefore once the appeal is filed by the
assessee on any ground, it was open to the Commissioner (Appeals) to
consider whether the impugned assessment order is otherwise
prejudicial to the interest of the revenue and to order revision of
assessment to make up for the omissions made or to rectify the
mistakes or to bring to tax the income that has escaped assessment
which in other words means that orders prejudicial to the interest of the
revenue should be ordered to be corrected by the first appellate
authority as well. Therefore there is nothing wrong in the
Commissioner, exercising supervisory powers over the assessing
officers, to wait for the orders in appeal and then to revise the
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assessment on matters which are not considered in appeal by the first
appellate authority. If the result of appeal is setting aside the
assessment though for limited purposes, still in our view no order
survives to be revised by the Commissioner under Section 263 on any
point originally decided. In fact, as already found by us, even after
setting aside the assessment, the assessing officer has ample powers
under Section 154 as well as under Section 147 to correct his own
mistakes in the original assessment so that revised order issued by him
consistent with the orders in appeal will be an order not prejudicial to
the interest of the revenue. It is only when the first appellate authority
omits to correct orders prejudicial to the interest of the revenue and
only if the assessing officer also fails to correct his mistakes in the
original assessment while issuing revised orders giving effect to the
order in appeal, the Commissioner needs to exercise his supervisory
jurisdiction under Section 263 of the Act and so much so the
Commissioner has jurisdiction to revise the revised assessment on
matters concluded by the assessing officer in the original assessment
which are again incorporated in the revised order. We have in this
case already found that limitation does not apply because in first
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appeal, the first appellate authority set aside the assessment within the
period of limitation available to the Commissioner for issuing orders
under Section 263 and once assessment is set aside, revised order is a
new proceeding against which also powers under Section 263 are
available to the Commissioner. Admittedly impugned order of the
Commissioner under Section 263 issued on 30.3.2000 is within two
years from the end of the financial year in which the revised assessment
is issued, that is on 6.3.1998. Therefore we confirm the order of the
learned single Judge holding that the proceedings impugned in the
WPC is within time. However, we make it clear that if the CIT
(Appeals) had not set aside the original assessment in appeal, limitation
for revision under Section 263 has to be worked out from the date of
original assessment and in that event revisional order by the
Commissioner would be time barred. In other words, limitation for
revision under Section 263 on any matter concluded in the original
assessment with reference to revised order issued after appeal arises
only when the CIT (Appeals) sets aside the assessment in appeal within
the period for revision available to the Commissioner for revision
under Section 263 against original assessment.
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5. So far as the challenge against merit of the impugned order is
concerned, we find that the assessing officer passed the revised
assessment after declaration of law by the Supreme Court in SANYASI
RAO’s case, but by ignoring it which led to escapement of assessment
of substantial amount of income because income returned by the
assessee in the arrack business in the P & L Account was almost double
the income returned under Section 44AC and originally assessed by the
assessing officer. In fact, if the assessing officer had noted the decision
of the Supreme Court which was already published much before
revision of assessment, he himself would have corrected the omission
in the original assessment in the course of revision of assessment based
on orders in appeal. Therefore there is no substance in the challenge
against the merit of the impugned order as well.
Consequently we dismiss the writ appeal.
(C.N.RAMACHANDRAN NAIR)
Judge.
(V.K. MOHANAN)
Judge.
kk
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