Commissioner of Income Tax vs Smt. Tasneem Z. Madraswala

M.M. Sundresh, J.—The Revenue has come on appeal against the order passed by the Tribunal in I.T.A. No. 2140/Mds/2007 for the assessment year 2004-05 by framing the following substantial questions of law:

Whether on the facts and circumstances of the case, the Tribunal was right in holding that the Commissioner of Income Tax cannot give direction to the Assessing Officer to complete the assessment afresh where it is prejudicial to the Revenue?

Whether on the facts and circumstances of the case, the Tribunal was right in deciding that the Commissioner of Income Tax has only power to set aside the de novo assessment with absolute discretion to the Assessing Officer?

Whether on the facts and circumstances of the case, Section 263 of the Income Tax Act confers power to the Commissioner of Income Tax to revise any proceedings of the Assessing Officer where it is prejudicial to the Revenue or not?

The brief facts of the case are as follows:

(i) The assessee filed her return of income on December 15, 2004, admitting a total income of Rs. 7,77,440 for the assessment year 2004-05. The same was processed u/s 143(1) of the Income Tax Act, 1961, on June 20, 2005. Thereafter, the case was taken up for scrutiny and the regular assessment u/s 143(3) was completed on November 20, 2006, determining the total income at Rs. 8,02,440.

(ii) By exercising the power u/s 263 of the Income Tax Act, 1961, the Commissioner of Income Tax, Chennai VI, has set aside the order passed by the Assessing Officer and further directed the Assessing Officer to pass a fresh assessment order by following the procedure contemplated u/s 50C(2)(b) of the Income Tax Act.

(iii) Challenging the abovesaid order, the assessee filed a further appeal before the Tribunal and the Tribunal by an order dated June 19, 2009, has allowed the appeal filed by the assessee in part by deleting the direction given by the Commissioner of Income Tax by invoking the procedure contemplated u/s 50C(2)(b) of the Act to value the capital asset in a particular manner.

(iv) Challenging the same, the Revenue has filed the present appeal by formulating the abovestated substantial questions of law.

The learned Counsel for the Revenue submitted that the assessment order is erroneous and prejudicial to the interest of the Revenue. The Commissioner of Income Tax has correctly invoked the power available to him u/s 263 of the Income Tax Act, 1961. The learned Counsel also submitted that the power is available to the Commissioner of Income Tax to issue such a direction for the purpose of conducting fresh assessment.

The suo motu power conferred u/s 263 of the Income Tax Act, 1961 can be exercised by the Commissioner when the order of the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. While exercising the said power, the Commissioner will have to satisfy the twin conditions, namely, the order of the Assessing Officer which is sought to be revised is erroneous and also prejudicial to the interests of the Revenue. The said power is of wide import. The phrase, "prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer.

In the present case on hand, the Commissioner has correctly exercised the power, since based upon the records he found that the order passed by the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. In the judgment reported in MALABAR INDUSTRIAL CO. LTD. Vs. COMMISSIONER OF INCOME TAX, the hon''ble apex court was pleased to hold that the power u/s 263 is rather wide provided the Commissioner will have to satisfy himself with the order passed by the Assessing Officer is both erroneous and prejudicial to the interests of the Revenue. Therefore, there is no difficulty in accepting the contention of the Revenue that exercising the power u/s 263 of the Income Tax Act, 1961 is correct and proper. However the question to be considered in the present case is as to whether while exercising such a power, the Commissioner can direct the Assessing Officer to complete the assessment in a particular manner in accordance with law with the directions.

The contention of the learned Counsel for the Revenue cannot be accepted for the reason that while cancelling the order of assessment, there is no power vested with the Commissioner of Income Tax to direct the Assessing Officer to complete the assessment in a particular manner. Therefore, the Tribunal has correctly set aside that portion of the order passed by the Commissioner of Income Tax, who directed the Assessing Officer to complete the assessment by taking recourse to the provisions contained u/s 50C(2)(b) of the Act.

In this connection, it is useful to refer to the analogous provision contained in the Central Excises and Salt Act (1 of 1944). The Supreme Court, while considering the abovesaid provision held that the authority while exercising such power cannot direct the lower authority to complete the assessment in a particular manner. The observation of the apex court in the case of Union of India v. Tata Engineering and Locomotives Co. Ltd. reported in AIR 1998 SC 287 is as follows (page 288):

In our view, this writ petition should not have been entertained by the High Court at all. The Assistant Collector is entitled to complete the assessment as he thinks fit in exercise of the judgment and according to his understanding of the law and facts. For this purpose, he can call for and examine whatever documents he considers relevant. If the Assistant Collector fails to follow any judgment of the High Court or this Court, the assessee had adequate statutory remedies by way of an appeal and revision against the assessment order. The court should not try to control the mode and manner in which an assessment should be made. If the Assistant Collector is of the view that enquiries are necessary to be made as to the price at which trucks were sold at the Regional Sales Offices, the court cannot stop him from making such enquiries.

A reading of the abovesaid judgment would clearly show that while remanding the matter, the Commissioner of Income Tax ought not to have given a specific direction to complete the assessment in a particular manner. Further, the Tribunal has only set aside the abovesaid direction by which the Assessing Officer was directed to complete the assessment by following Section 50C(2)(b) of the Act. We do not find any error in the order passed by the Tribunal. The questions of law raised by the Revenue are answered against the Revenue. Accordingly the tax case appeal is dismissed. No costs.