Virendra Kumar Jhamb vs N.K. Vohra

S. Radhakrishnan, J.—By this petition, the petitioner is challenging certain notices issued by the Commissioner of Income Tax and Wealth-tax dated 9-2-1990 and 13-3-1990 u/s 25(2) of the Wealth-tax Act, 1957 and Section 263 of the Income Tax Act, 1961 respectively, for the assessment years 1980-81 to 1986-87 i.e., for a period of seven years seeking to revise the earlier assessment orders. When the aforesaid seven notices dated 9-2-1990 and 13-3-1990 issued under the aforesaid provisions of the Income Tax and Wealth-tax were challenged by this petitioner and the same was pending in this Court, the respondent No. 1 proceeded further and passed a revised assessment order with regard to all the aforesaid seven assessment years by seven different orders of the same dated 13-3-1990 revising the aforesaid assessment.

The brief facts are, the petitioner-assessee in the instant case, is doing various types of construction work for the State of Maharashtra, i.e., through P.W.D. or Bombay Municipal Corporation. It appears that the assessee was not maintaining regular books of account, as he had to deal with innumerable persons and on number of occasions cash payments were being made to various labourers etc.

Mr. Mistry, the learned Counsel appearing on behalf of the petitioner pointed out that as far as the petitioner-assessee is concerned, the respondent No. 1 had accepted the taxable income to be computed at 8 per cent of the receipts for the assessment years 1980-81 to 1986-87. The appropriate assessment orders were duly passed by the Assessing Officer u/s 143(3) of the Income Tax Act. Mr. Mistry also pointed out, that for all the aforesaid seven assessment years, i.e., 1980-81 to 1986-87, the Department had accepted the aforesaid assessment computed at 8 per cent of the receipts and that they have not challenged the same by way of appeal before the appellate authority or the Tribunal or even before this Court.

Mr. Mistry, thereafter pointed out that as far as assessment years 1987-88 and 1988-89 of the assessee is concerned, the taxable income is computed at 8 per cent of the receipts which was accepted by the Department and an assessment order was also passed and the matter was carried for both the assessment years 1987-88 and 1988-89 by the Department contending that the percentage should be 10 per cent of receipts and not 8 per cent. However, the Tribunal had decided that the assessment should be at 8 per cent. The Department had accepted the same and they have not filed any Appeal with regard to the assessment years 1987-88 and 1988-89. As far as assessment year 1989-90 is concerned, it was computed at 8 per cent of the receipts and was accepted by the Department and an assessment order was passed by the Assessing Officer at 8 per cent u/s 143(3) of the Income Tax Act. No Appeal has been preferred by the Department against the said order also. Similarly for the assessment years 1990-91 to 1995-96, it was accepted by the Department at 8 per cent of the receipts and assessment order was accordingly passed u/s 143(3) and no appeal was preferred against the same by the Department.

As far as assessment years 1996-97 to 1998-99 i.e., for 3 years are concerned, the assessee had approached the Settlement Commission and the Settlement Commission had accepted computation at 8 per cent of the receipts. For further more seven years, i.e., 1999-2000 to 2005-06 an assessment has been made at 8 per cent and the same has been accepted by the Department and no appeal has been preferred against the same.

Mr. Mistry thereafter referred to Section 263 of the Income Tax Act under which the aforesaid notices were issued for the revision. Section 263 of the Income Tax Act reads as under:

Revision of orders prejudicial to revenue.-(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.

Explanation.-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,-

(a) an order passed on or before or after 1-6-1988 by the Assessing Officer shall include-

(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income Tax Officer on the basis of the directions issued by the Joint Commissioner u/s 144A;

(ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorised by the Board in this behalf u/s 120;

(b) "record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner;

(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject-matter of any appeal filed on or before or after 1-6-1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.

(2) No order shall be made under Sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.

(3) Notwithstanding anything contained in Sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, (National Tax Tribunal) the High Court or the Supreme Court.

Explanation.-In computing the period of limitation for the purposes of Sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to Section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any Court shall be excluded.

Mr. Mistry, the learned counsel appearing on behalf of the petitioner also pointed out, that subsequently in the Income Tax Act, Section 44AD has been added which deals with construction work, like that of the petitioner and the percentage which has been laid down statutorily is of 8 per cent for the purpose of assessment.

Mr. Mistry also pointed out that the assessment orders were passed by the Assessing Officer 4th Wealth Tax Officer, BSD(S), Bombay dated 5-1-1988 for the assessment year 1980-81 and identical orders were passed for seven years by the said Wealth Tax Officer and the Department had accepted the computation of income at 8 per cent of the receipt and the said assessment is based on the directives issued by the Commissioner of Income Tax Act, Bombay City-IX, Mumbai vide its letter No. B.C./IX/S&S/ BSD(S) 246/87-88, dated 30-11-1987. To put it in other words, the Income Tax Officer had passed the assessment order solely on the basis of directive latter issued by the Commissioner of Income Tax dated 30-11-1987 and had accepted 8 per cent of the receipts for the purpose of computing the taxable income.

Mr. Mistry pointed out that when the notices were issued u/s 263 of the Income Tax Act for the aforesaid seven assessment years dated 13-3-1990, there was absolutely no reference to the aforesaid letter of Commissioner of Income Tax dated 30-11-1987. Mr. Mistry also highlighted that though the notices seeking to revise u/s 263 of the Income Tax Act were issued, were under challenge and pending in this Court, the respondent No. 1 hurriedly went ahead and passed the assessment order dated 9-2-1990.

Mr. Mistry contended that under the Amnesty Scheme, the petitioner had approached the Deputy Director of Intelligence (Investigation) and had offered to pay the taxable profit for the assessment years 1980-81 to 1986-87 and he had offered @ 4 per cent of the total receipts. Finally, after discussion with the Deputy Director of Intelligence (Investigation) as well as the Commissioner of Income Tax, it was mutually agreed that the petitioner should file revised return for the assessment years 1980-81 to 1986-87 @ 8 per cent of the receipts. This fact is very clearly recorded in a letter addressed by the petitioner''s Advocate dated 26-3-1987, wherein it is clearly mentioned that it was mutually agreed @ 8 per cent of the profit on the total sale proceeds and the receipts realised from the sale. This letter was addressed to the Commissioner of Income Tax, Bombay City-X, Bombay. This fact has not been disputed by the respondents also. It appears that thereafter the Income Tax Authority made various investigations and enquiries and finally, the Commissioner of Income Tax, Mumbai City-II, Mumbai, by his aforesaid letter No. B.C. 1X/ S&S/BSD(S)246/87-88, dated 30-11-1987 had issued to the 1AC, BSD(S) Range, Mumbai, after a detailed analysis of the earlier order of the Commissioner of Income Tax and had accepted 8 per cent to be the correct percentage.

During the course of hearing, we requested Mr. Sahadevan, the learned Counsel appearing for the respondents to produce the copy of the aforesaid letter dated 30-11-1987, which was fairly conceded and produced before us. On a perusal of the aforesaid letter, it is very clearly mentioned that the matter was discussed by the petitioner with the earlier Commissioner of Income Tax, Mumbai City-II, Mumbai and after discussion, the petitioner had filed revised return of income on 8 per cent of gross receipts and 8 per cent was agreed to by the then Commissioner of Income Tax. The letter also remarks that the assessee had declared the profit at 8 per cent under the Amnesty Scheme after discussion with the Commissioner of Income Tax, and no further verification was necessary. The said letter also indicates that the profit ought to be computed at 8 per cent and computation of 9 per cent would not be fair and justifiable, accordingly the subsequent Commissioner of Income Tax who re-verified and directed the IAC BSD(S) Range, Mumbai to advise Income Tax Officer suitably. The aforesaid letter makes it abundantly clear that even the second Commissioner of Income Tax had again verified and found that 8 per cent would be fair percentage in the above.

Mr. Mistry contended that the power u/s 263 of the Income Tax Act only be exercised if the order of assessment was "erroneous". In that behalf, he contended, that the first Commissioner of Income Tax, after scrutiny and discussion had accepted that 8 per cent would be the proper percentage and accordingly, the petitioner was advised to file revised return. Thereafter, even the second Commissioner of Income Tax again re-verified and by his letter dated 30-11-1987 had agreed with the said percentage of 8 per cent. Mr. Mistry emphasized that the assessment order was passed on the basis of a superiors'' directives which was issued on 30-11-1987 by the Commissioner of Income Tax and the order was accordingly passed by the concerned Income Tax Officer. Mr. Mistry therefore contended that the Appellate Authority, while following the superior''s directives could not be construed either "erroneous" or "prejudicial to the interest of revenue". Mr. Mistry also emphasised that if the Income Tax Department had accepted for 19 years, i.e., from 1986-87 to 2004-05 at 8 per cent, then how it can be said as "erroneous" for the earlier years. He contended that the error means it should be unsustainable in law and in the instant case, no such error is pointed out. In that behalf Mr. Mistry relied on a judgment of our High Court in the case of Commissioner of Income Tax Vs. Gabriel India Ltd., , wherein, this Court had in certain terms held that erroneous means deviating from the law, erroneous application of legal principles, i.e., to say it was not in accordance with law. The said judgment proceeds further and states that if the Income Tax Officer while acting in accordance with law makes certain assessment, the same cannot be branded as "erroneous" by the Commissioner simply because, the order should have been written more elaborately. Similarly, the said judgment also states that the Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income Tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure.

Mr. Mistry also referred to a judgment of the Hon''ble Supreme Court in that behalf with regard to the expression ''erroneous'' in the case of Commissioner of Income Tax Vs. Max India Ltd., , wherein the Hon''ble Supreme Court had categorically held that the phrase ''prejudicial to the interests of the revenue'' u/s 263 of the Income Tax Act, 1961 has to be read in conjunction with the expression ''erroneous'' order passed by the Assessing Officer. The Hon''ble Supreme Court emphasised that an erroneous order prejudicial to the revenue should be unsustainable in law.

Mr. Mistry also contended that as per the CBDT Circular, whenever an assessee approaches under the Amnesty Scheme and thereafter the assessment has been passed, the same cannot be again reopened or challenged. In that behalf, he brought to our notice a decision of the Hon''ble Supreme Court in the case of UCO Bank, Calcutta Vs. Commissioner of Income Tax, West Bengal, , wherein, the Hon''ble Supreme Court had clearly held that the circular issued by the CBDT would be binding on the revenue, Hon''ble Supreme Court also referred to an another judgment in the case of K.P. Varghese Vs. Income Tax Officer, Ernakulam and Another, , wherein the Hon''ble Supreme Court had taken a view that the circulars issued by the CBDT are legally binding on the revenue and this binding character attaches to the circulars even if they be found not in accordance with the correct interpretation of the section and they depart or deviate from such construction.

Mr. Mistry also emphasized that the power of revision u/s 263 of the Income Tax Act cannot be exercised by a subsequent Officer. He further contended that the original assessment order was though passed by the Income Tax Officer, it was based on the directives of the Commissioner of Income Tax, as it is explicitly apparent from the original assessment order dated 5-1-1988. The only reason given in the said assessment order that it is based on the directives given by the Commissioner of Income Tax, Mumbai by his letter dated 30-11-1987. If the assessment order was as per the directives of the Commissioner of Income Tax, the subsequent Commissioner of Income Tax could not have exercised the power of revision u/s 263 of the Income Tax Act. Mr. Mistry emphasized, that in the instant case, the order dated 30-11-1987 was issued by the second Commissioner of Income Tax, considering the original Commissioner of income tax''s decision to have 8 per cent and even the second Commissioner of Income Tax found the same to be fair. Under the aforesaid facts and circumstances of the case, Mr. Mistry submitted that the impugned notices dated 9-2-1990 as well as impugned assessment orders dated 13-3-1990 are liable to be quashed and set aside.

Mr. Sahadevan, the learned Counsel appearing on behalf of the revenue fairly admitted that the aforesaid letter dated 30-11-1987 was not even dealt with when the impugned notices were issued for revision u/s 263 of the Income Tax Act and while passing assessment orders during the pendency of this petition. Mr. Sahadevan also could not controvert, that as it was apparent from the record that the original Commissioner of Income Tax, after discussion with the assessee, it was agreed that the income should be computed at 8 per cent of the profit and accordingly, he was directed to file revised return at 8 per cent. Even the second Commissioner of Income Tax, after re-verification, by his letter dated 30-11-2007 agreed with the said 8 per cent. Mr. Sahadevan also does not controvert that the Department had accepted 8 per cent to be the fair percentage for computation of income for 19 years right from 1980-81 to 2004-05. Mr. Sahadevan could not point out any error in law or anything unsustainable in law based on the material.

Having heard both the learned counsels for the parties, we must record our appreciation that Mr. Sahadevan very fairly obtained the letter dated 30-11-1987, which is very crucial in this matter. We have perused the same and in fact the xerox copy of the same also has been taken on record, which clearly indicates that the petitioner had approached under the Amnesty Scheme and after discussion with the Commissioner of Income Tax, it was agreed that rate of taxable income should be 8 per cent instead of 4 per cent and accordingly he was directed to file revised return at 8 per cent. Even thereafter, the second Commissioner of Income Tax, on scrutiny and verification found that the earlier decision of the Commissioner of Income Tax at 8 per cent to be fair and justifiable and accordingly, had issued directions to the LAC, BSD(S) Range, Bombay. It is very pertinent to note that the revised assessment orders passed by the concerned Income Tax Officer on 5-1-1988 were solely based on the directives of the Commissioner of Income Tax, in fact the assessment orders do not indicate any other reason other than the directions mentioned by the Commissioner of Income Tax. Mr. Sahadevan also could not dispute that the Department was bound by the Circulars.

We find in the instant case that the Income Tax Officer had passed revised assessment order based on the revised return at 8 per cent. The said order is solely based on the directives given by the earlier Commissioner of Income Tax and the same could not be revised by the subsequent Commissioner of Income Tax exercising the power u/s 263 of the Income Tax Act.

Over and above, we do not find any error or anything unsustainable in law. On the contrary, it appears that the second Commissioner of Income Tax consistently took a view that 8 per cent would be a fair percentage and a third Commissioner of Income Tax could not consider the same as ''erroneous'' or ''unsustainable in law''. In fact both the notices which were issued u/s 263 of the Income Tax Act dated 9-2-1990, as well as revised assessment orders passed by the Commissioner of Income Tax dated 13-3-1990 are totally unsustainable in law for the aforesaid reasons. Hence, all the seven notices issued u/s 263 of the Income Tax Act dated 9-2-1990 as well as seven assessment orders passed by the Commissioner of Income Tax stand quashed and set aside. Accordingly, rule is made absolute with no order as to costs.