Panchaman Traders vs Commissioner of Income Tax and Another

C.N. Ramachandran, J.—The 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 the appellant''s Income Tax assessment for the year 1992-93 to determine the taxable income, consistent with the decision of the Supreme Court in Union of India and another etc. etc. Vs. A. Sanyasi Rao and other etc. etc., .

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 u/s 44AC of the Income Tax Act, 1961. The assessment was completed ignoring the higher income shown in the profit and loss account as income from arrack business, but by accepting the income u/s 44AC of the Act. The original assessment was completed on February 7, 1995. The assessee filed appeal against the assessment before the Commissioner of Income Tax (Appeals) on some other issues pertaining to addition made of the amount shown in the capital account of other partners. The Commissioner of Income Tax (Appeals) by order dated December 13, 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 Union of India and another etc. etc. Vs. A. Sanyasi Rao and other etc. etc., on February 13, 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 the profit and loss 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 to but retained the income assessed in respect of arrack business u/s 44AC in the revised assessment completed on March 6, 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 u/s 263 of the Act and passed orders on March 30, 2000, directing revision of assessment on income from arrack business based on income disclosed in the profit and loss account and in terms of declaration of law by the Supreme Court in Union of India and another etc. etc. Vs. A. Sanyasi Rao and other etc. etc., above referred to. 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 the merits 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.

The first question raised is against the finding of the learned single judge that the order passed by the Commissioner u/s 263 of the Income Tax Act is within time. The case of the appellant-assessee is that the issue decided by the officer and which was, subject-matter of revision by the Commissioner under the impugned order issued u/s 263 is with regard to computation of business income from arrack u/s 44AC in the original assessment, which should have been made based on the profit and loss account filed by the assessee, which showed higher income from business than the income assessable u/s 44AC. Even though appeal was filed against the original assessment completed on February 7, 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 the 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 March 30, 2000, is time barred because limitation with regard to suo motu revision power u/s 263 has to be considered with reference to the original assessment completed on February 7, 1995. On the other hand, standing counsel appearing for the respondent contended that suo motu revision power u/s 263 should be considered with reference to revised order issued based on orders in appeal, if the issue raised by the Commissioner u/s 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 u/s 263 until the officer revised the assessment. According to the standing counsel, revised assessment was issued by the Assessing Officer on March 6, 1998, without considering the law declared by the Supreme Court in Union of India and another etc. etc. Vs. A. Sanyasi Rao and other etc. etc., and, therefore, the order prejudicial to the interests of the Revenue is revised order issued on March 6, 1998, by the Assessing Officer ignoring the judgment of the Supreme Court above referred to and so much so limitation available for revision of order under Sub-section (2) of Section 263 is up to two years from the end of the financial year in which revised order is passed.

Learned Counsel for the appellant-assessee has relied on the decision of the Supreme Court in (2007) 293 ITR 1 , and contended that under Explanation (c) to 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 u/s 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 February 7, 1992, became an order prejudicial to the interests of the Revenue by virtue of declaration of law by the Supreme Court vide the judgment in Union of India and another etc. etc. Vs. A. Sanyasi Rao and other etc. etc., dated February 13, 1996. Therefore, the Commissioner could not have been expected to pass orders u/s 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 u/s 154 or by resort to Section 147. Secondly, the Commissioner in exercise of his jurisdiction u/s 263 can revise the assessment found to be prejudicial to the interests 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 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 u/s 251(1)(a) the Commissioner (Appeals) has authority even to enhance assessment which was the subject-matter of appeal before him. The powers of the Commissioner (Appeals) u/s 251(1)(a) are similar to the power of regular Commissioner who exercises supervisory jurisdiction over the Assessing Officers u/s 263 to correct orders prejudicial to the interests 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 interests 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 interests 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 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 u/s 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 u/s 154 as well as u/s 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 interests of the Revenue. It is only when the first appellate authority omits to correct orders prejudicial to the interests 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 u/s 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 appeal, the first appellate authority set aside the assessment within the period of limitation available to the Commissioner for issuing orders u/s 263 and once assessment is set aside, revised order is a new proceeding against which also powers u/s 263 are available to the Commissioner. Admittedly, the impugned order of the Commissioner u/s 263 issued on March 30, 2000, is within two years from the end of the financial year in which the revised assessment is issued, that is on March 6, 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 Commissioner of Income Tax (Appeals) had not set aside the original assessment in appeal, limitation for revision u/s 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 u/s 263 on any matter concluded in the original assessment with reference to revised order issued after appeal arises only when the Commissioner of Income Tax (Appeals) sets aside the assessment in appeal within the period for revision available to the Commissioner for revision u/s 263 against original assessment.

So far as the challenge against the merits of the impugned order are concerned, we find that the Assessing Officer passed the revised assessment after declaration of law by the Supreme Court in Union of India and another etc. etc. Vs. A. Sanyasi Rao and other etc. etc., , 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 profit and loss account was almost double the income returned u/s 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.