Kalpesh M. Nagda vs The Commissioner of Income Tax and Others

The Writ Petition challenges an order dated 23 February 2007 passed by the Commissioner of Income Tax under Section 264 of the Income Tax Act, 1961 ("the Act"). The Petition involves a question, whether the Commissioner, whilst revising an order of the assessing officer under Section 264, could take into account a retrospective amendment made after the order of the assessing officer. The short facts of the case may be stated thus:

The Petitioner filed his return of income for A.Y. 2003-2004 on 25 November 2003 declaring total income of Rs.48,22,312/- along with Form No. 10CCAC for deduction under Section 80HHC of the Act. The return was processed under Section 143(1) on 29 December 2003. Around that time, the availability of the benefit under Section 80HHC to assessees like the Petitioner was a matter of controversy and there was lack of clarity on the subject. The Petitioner, in the premises, filed a revised return on 31 October 2004, reducing export incentives of DEPB by Rs.30,09,163/- with the following reason and reservations:

"Reason for filing Revised Return

Due to latest Supreme Court decision and CBDT Circular, the Deduction u/s. 80HHC claimed at Rs.30,09,163/- in Original Return is now reduced from Deduction under Chapter VIII and tax on same is paid. However, the assessee request the Department to consider his appropriate claim u/s 80HHC in future as and when any favourable court decision/CBDT/ Finance Ministry''s Notification Circular is announced. This Revised Return is filed voluntarily to co-operate with the Department."

The Assessing officer completed the assessment under Section 143(3) on 21 October 2005, accepting the revised return of income, determining the income of Rs.78,52,980/-. The Taxation Laws Amendment Act, 2005 brought an amendment in Sections 28 and 80HHC with retrospective effect from 1 April 1998. By this amendment, the profit derived on sale of DEPB licence was to be considered for proportionate increase of profit derived from export. The Petitioner assessee qualified for this exemption. The Petitioner, therefore, filed a revision application under Section 264 of the Act before the Commissioner. The Commissioner rejected the revision on the ground that the assessment order had been passed in accordance with the law prevailing as on the date of the assessment, i.e. 21 October 2005; and that therefore, there was no error or mistake in the order which could be corrected under Section 264 of the Act. This order is challenged in the present Writ Petition.

Mr. A.R. Singh, learned Counsel for the Petitioner assessee, submits that the law applicable to the assessment, even if the same has been amended subsequent to the passing of the original assessment order but made retrospectively applicable to the particular assessment year, ought to be applied by the revising or appellate authority when it considers the revision or appeal, as the case may be. Learned Counsel relies on judgments of our Court in Clarence Brandenburg Vs. State of Ohio, 395 U.S. 444 (1969) and Clarence Brandenburg Vs. State of Ohio, 395 U.S. 444 (1969) as also CBDT Circular Nos. 725 dt: 16.10.1995 and 14(XL-35) of 1995, C.No.13 (207)-II/50 dated 11.4.1955.

Mr. Suresh Kumar, learned Counsel for the Revenue, opposes the Petition. Learned Counsel contends that whilst it may be permissible to the assessing officer under Section 154 to amend an assessment order passed by him, it is not permissible to the revisional authority to do so under 264 of the Act. It is submitted that the revisional authority has simply to see if there is any error apparent on the record; and that as of the date of the assessment order, there is no error apparent on the face of the record in the order. Learned Counsel for the revenue submits that the record must be reckoned as at the date of the original order. He distinguishes between the Commissioner''s powers under Section 263 and 264 in this behalf and submits that whereas in Section 263, it is specifically provided in the explanation to sub-section (1) (by amending the Section) that ''record'' shall include all records relating to any proceedings under the Act available at the time of examination by the Commissioner, there is no such provision in Section 264. Based on this distinction, it is submitted that whilst examining the record under Section 264, the Commissioner is bound to consider only that record which is available at the time of passing of the original order, which is under consideration for revision. It is emphasised that in case there is an amendment to the law, with retrospective effect, the Commissioner in exercise of his powers under Section 263 of the Act can correct/rectify the same but not in the exercise of his powers under Section 264 of the Act.

Part E of Chapter XX of the Act providing for revision by the Commissioner, contains two provisions, Sections 263 and 264. Section 263 provides for revision of orders prejudicial to revenue, whilst Section 264 provides for revision of other orders. In case of any order other than an order to which Section 263 applies passed by an authority subordinate to him, the Commissioner is empowered to call for the record of any proceeding under the Act and "may make such inquiry or cause such inquiry to be made". Any order that the Commissioner may pass on such inquiry has to be "subject to the provisions of this Act" and cannot be "an order prejudicial to the assessee". Subject to these two restrictions he may pass such order as he thinks fit. There is nothing in Section 264 which places any restriction on the revisional powers of the Commissioner in this behalf. The contention of the revenue implies that there is a restriction on the powers of the Commissioner, namely, that he can only consider whether the impugned order was correct on the date it was passed and cannot take into account any change in the law introduced subsequently but with a retrospective effect. No such restriction can be spelt out from the section itself. The Supreme Court in Commissioner of Income Tax, Bombay Vs. Amritlal Bhogilal and Co., , whilst examining the predecessor provisions of Sections 33A and 33E of the Income Tax Act, 1922 comparable to Sections 263 and 264 of the present Act, held that whether or not the revisional power of the Commissioner can be exercised in a given case must be determined solely by reference to the terms of the particular section itself, and courts are not justified in imposing additional limitations on the exercise of that power on hypothetical considerations of policy or the extraordinary nature of the power.

That is exactly what is proposed by the Revenue in the present case. It is submitted that the power of revision being restricted to examining the correctness or validity of the order impugned, the exercise must be restricted to the law considered by the assessing officer on the date he passed the order. In other words, the Revenue would have a restriction placed on the power on considerations of the nature of that power ex hypothesi. That is clearly impermissible. Besides, even if one has regard to the nature of the power, namely, to correct an error apparent on the record, the law being retrospectively amended and made applicable to the assessment year to which the impugned order pertains, the order, when it comes before the revising authority, does exhibit a clear error apparent on the face of the record. It is in contravention of the law on the subject.

The Revenue, however, contends that the ''record'' within the meaning of Section 264 is the record as on the date of the order and that the same includes the law on the subject as it then stood. The Revenue distinguishes between the provisions of Section 263, which explain that the ''record'' for the purposes of that Section includes all records relating to any proceeding available at the date of examination by the Commissioner, and the provisions of Section 264, which do not contain any such explanation. The distinction is of no consequence in the present facts for the reason that the retrospective amendment to the Act, makes the amended provisions a part of the record on the date when the order sought to be revised is passed. Therefore, if the applicable law has undergone any change with retrospective effect, then full effect must be given to the statutory fiction subject to limitation as found in the Act. The order passed does exhibit an error on the face of such record, when the order is examined. And this error, the Commissioner under Section 264 is certainly correct.

Our Court in Commissioner of Income Tax Vs. Mrs. Kamla S. Asrani, clarified the position thus in the context of an application for reference by this Court under Sections 256(1) and 256(2) of the Act.

"It is an accepted position that, when the law is amended with retrospective effect, the court, when it decides any proceeding, has to apply such retrospectively amended law as if it were in force at all material times. Therefore, for example, when a reference under section 256(1) is being decided, the High Court has to take into account any retrospective amendment of the law which may have taken place after the Tribunal''s decision and during the pendency of the reference. On this aspect, there is no dispute. Even the Andhra Pradesh judgment Addl. Commissioner of Income Tax Vs. M.J. Devda, clearly states that, while deciding a reference under section 256(1), the court must take into account such retrospective legislation. In the case of Commissioner of Sales Tax Vs. Satyanarain Singh, , the Allahabad High Court considered this question in respect of a reference made under the U.P. Sales Tax Act, section 11. It said that when a question has been referred to the High Court and, in the meanwhile, the law is amended with retrospective operation, it would be the duty of the High Court to apply the law so amended. The application of the relevant law to the problem raised in the reference before the High Court normally is not excluded merely because at the date when the Tribunal decided the question, the relevant law was not or could not be brought to its notice. There is nothing so peculiar in the nature of a reference under the Sales Tax Act that in deciding it the High Court is compelled to apply the law which, since the date of the reference made by the Tribunal, has been superseded by the Legislature. There are similar observations of the Calcutta High Court in Union of India (UOI) Vs. Additional Member, Board of Revenue and Another, and of the Punjab and Haryana High Court in Sheo Karan Dass Bhoj Raj Vs. The State of Haryana, ."

"We do not see how a different view can be taken while deciding an application under section 256(2). The Andhra Pradesh High Court in Addl. Commissioner of Income Tax Vs. M.J. Devda, , felt that, in deciding an application under section 256(2), the High Court could decide the correctness or otherwise of the Tribunal''s decision only in the light of the law which was in force when the Tribunal rendered the decision. In our view, this is not the correct way of reading section 256(2). When a law is amended retrospectively so that it is deemed to have been in force at the time when the Tribunal decided the question, full effect has to be given to such a deeming provision and the High Court is bound to consider the law so amended retrospectively as being in force at the time when the Tribunal decided the question. The correctness of the Tribunal''s decision will, therefore, have to be judged in the light of the law amended retrospectively by giving effect to the deeming provision. If, in the light of such retrospective amendment, a question of law does arise, and if the Tribunal''s view that no such question arises is incorrect in the light of such retrospectively amended law, the court cannot refuse to direct the Tribunal to frame a question and refer the case merely because the Tribunal''s decision on the question of law, as it stood when the Tribunal decided it, was correct when the law was unamended. In our view, this would be drawing an artificial distinction between section 256(1) and section 256(2). With all respect, therefore, to the Andhra Pradesh High Court, in our view, we cannot ignore any retrospective amendment in the law while considering an application under section 256(2)."

The above discussion also applies to the powers of revision of the Commissioner under Section 264 of the Act. As in the case of Sections 256(1) and 256(2), the revenue is seeking to draw an artificial distinction between Sections 263 and 264, in relation to the applicability of the retrospectively amended law, which would not be permissible.

If one has regard to the applicable law (applicable by virtue of a retrospective amendment), there is clearly an over assessment of the Petitioner assessee. The assessee has been charged more tax than what is due and payable by him. The Commissioner is not only entitled but is duty bound to correct the assessment in revision. We may recall what this Court said in the case of Sanchit Software and Solutions (P.) Ltd. Vs. Commissioner of Income Tax-8, , where one of us (M.S. Sanklecha, J.) was a party. In that case, the Court observed as follows :

"5 In any civilized system, the assessee is bound to pay the tax which he is liable under the law to the Government. The Government on the other hand is obliged to collect only that amount of tax which is legally payable by an assessee. The entire object of administration of tax is to secure the revenue for the development of the Country and not to charge the assessee more tax than that which is due and payable by the assessee. It is in aforesaid circumstances that as far back as in April 11, 1955, the Central Board of Direct Tax had issued a circular directing Assessing Officer not to take advantage of assessee''s ignorance and/or mistake. The relevant portion of the above circular is as under:"3. Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the Department for it would inspire confidence in him that he may be sure of getting a square deal from the Department. Although, therefore, the responsibility for claiming refunds and reliefs rests with assessees on whom it is imposed by law, officers should- (a) draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other; (b) freely advise them when approached by them so to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs."

Therefore the above Circular should always be borne in mind by the officers of the respondent-Revenue while administering the said Act."

In the above view, the impugned order cannot be sustained and will have to be set aside. Accordingly, the Rule is made absolute and the impugned order of the Commissioner dated 23 February 2007 is set aside. Respondent No. 1 is directed to consider the Petitioner''s claim of deduction under Section 80HHC of the Act on merits and in accordance with the amended law.