BALBIR SINGH V. COMMISSIONER

ITA/35/2007

AI Insights

The case involves Balbir Singh Banshtu, the appellant, who contested the orders passed by the Commissioner of Income Tax, Shimla, which set aside the assessment orders made by the Assessing Officer under Section 143(3) of the Income Tax Act, 1961. The primary legal question was whether the Commissioner was justified in invoking his powers under Section 263 to set aside the assessment orders, claiming they were erroneous and prejudicial to the interests of the Revenue. The Tribunal and the High Court both upheld the Commissioner's decision, emphasizing the need for a thorough inquiry into the sources of investment in the appellant's house property.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 727816 (HC-HIMACHAL_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 14-03-2012
• Assessment Year: misc
• Other Referred Cases: Malabar Industrial Co.Ltd. vs. Commissioner of Income Tax, Commissioner of Income Tax vs. Max India Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: VANDANA KUTHIALA; RAKESH SHARMA
• Assessee Lawyers: VISHAL MOHAN; VAYUR GAUTAM
• Keywords: Assessment Order; Construction of House Property; Erroneous order; Income Tax; Prejudicial to the interest of the Revenue
• Section: 147; 143(3); 263

Judgement Text

"IN THE HIGH COURT OF HIMACHAL PRADESH SHIMLA ITA Nos.34 of 2007 and 35 of 2007. Date of decision: 14.03.2012. 1. ITA No.34 of 2007. Balbir Singh Banshtu S/o Sh.Sukh Chain Singh, Village Dalgoan, Tehsil Rohroo, District Shimla. … …Appellant Versus Commissioner of Income Tax, Shimla Range, Shimla. … …Respondent 2. ITA No.35 of 2007. Balbir Singh Banshtu S/o Sh.Sukh Chain Singh, Village Dalgoan, Tehsil Rohroo, District Shimla. … …Appellant Versus Commissioner of Income Tax, Shimla Range, Shimla. … …Respondent Coram The Hon’ble Mr.Justice R.B. Misra,J. The Hon’ble Mr.Justice Dev Darshan Sud,J. Whether approved for reporting ?1 Yes. ITA Nos.34 and 35 of 2007. For the Appellant: Mr.Vishal Mohan, Advocate with Mr.Vayur Gautam, Advocate. For the Respondent: Ms.Vandana Kuthiala, Advocate with Mr.Rakesh Sharma, Advocate. Dev Darshan Sud,J. Both these appeals are being disposed of by this judgment as they involve common question of law which is the ambit of the powers of the Commissioner 1 Whether the reporters of Local Papers may be allowed to see the judgement? Yes. 2 under Section 263 of the Income Tax Act, 1961 (hereinafter referred to as the `Act’). 2. These appeals were admitted on the following questions of law: “1. Whether in the facts and circumstances of the case the Ld.Tribunal is right in law in upholding the order of the respondent passed under section 263 of the Income Tax Act vide which the order of the ld.Assessing Officer has been set aside as prejudicial to the interest of the revenue and erroneous? 2. Whether in the facts and circumstances of the case the Ld.Tribunal is right in law in holding that the ld.Assessing Officer is erroneous and prejudicial to the interest of the revenue as he had not applied his mind in respect of the investment made in the construction of house property, whereas complete details of the investments were given to him and the same were duly considered by him? 3. The facts pertaining to these appeals are common except that the assessment years involved are different. In ITA No.34 of 2007 the order of the Tribunal pertains to the assessment years 2000-2001, 2001-2002, 2002-2003 and 2003-2004, whereas in ITA No.35 of 2007 the assessment years are 2000-2001 and 2001-2002. 3 4. Learned Tribunal disposed of both the appeals together filed by the assessee for these years as they involved a common question of law. 5. Adverting to the first appeal ITA No.34 of 2007, what we find is that the appellant-assessee had approached the learned Tribunal under Section 263 of the Act. His grievance was that the Commissioner had acted beyond jurisdiction of his powers under the Act in setting aside the assessment order framed by the Assessing Officer on 16.3.2005 under Section 143(3) of the Act holding that it is prejudicial to the interests of the Revenue. 6. It is undisputed before us that assessee is an individual who had submitted his Income Tax Return for the assessment year 2000-2001 disclosing his income from house property at Rs.18,000/-, apart from other income under the head of `Business and Profession’ and `Agriculture’. The assessee had declared rental income with respect to his residential building known as `Sukh Sadan’ at Sanjauli, Shimla, which was a five storeyed building. After factual verification, the Assessing Officer, who had recorded the statement of the tenants and from the pattern of consumption of electricity, concluded that the building was constructed and completed by July, 2000. He, thereafter, proceeded to compute the income from house property at Rs.1,89,000/- against Rs.18,000/- as the declared income. The assessee also furnished details of the amount which he 4 had invested in the construction of the building amounting to Rs.37 lacs from the previous years relevant to the assessment year 1996-1997 which would be 1995-1996 up to and including the assessment year 2004-2005 (previous year 2003-2004). The assessment was finalized by the Assessing Officer under Sections 143(3) and 147 of the Act on 16.3.2005. 7. The Commissioner examined the records and concluded that the order framed by Assessing Officer was erroneous as it was prejudicial to the interests of the Revenue. He accordingly issued a show cause notice under Section 263 of the Act to the assessee calling upon him to show cause as to why the assessment order should not be set aside as being prejudicial to the interests of the Revenue as the investment made for the construction of the building was not traceable and the sources thereof had not been examined by the Assessing Officer. 8. We advert to the notice dated 10.7.2006 issued by the Commissioner which states that on going through the assessment record for the assessment year 2000-2001 he found that the order as framed is prejudicial to the interest of the revenue as no proper inquiry has been made with respect to the source of funding for the construction of the house. The basic ground on which the Commissioner proceeded was that the source of investment of funds in the building were not ascertained/verified properly. Reply to this notice 5 was filed by the assessee stating therein that the relevant information had already been furnished. The Commissioner thereafter proceeded in detail to hold that while inquiries have been made by the Assessing Officer, he has not ascertained the source of such investment. The order of the Assessing Officer was set aside. He, therefore, proceeded to direct that two assessment orders dated 16.3.2005 for the assessment years 2000-2001 and 2001-2002 set aside and directions were issued to the Assessing Officer to examine and ascertain the amount of investment made by the assessee up to 31.3.2000 and the further investment made during the financial year 2000-2001. He was also called upon to examine the source of each assessment and pass fresh assessment for the two years in accordance with law. 9. Learned Tribunal takes note of this order and thus holds that it cannot be said that the power under Section 263 was invoked improperly. Before the learned Tribunal a submission was made that the written reply furnished by the assessee, which was addressed to the Assessing Officer, contained the detail of such investment. What the Tribunal held on the basis of the material before it was that the order was prejudicial to the Revenue for the reasons that it is a non- speaking order. The Tribunal holds that neither the Commissioner nor the Tribunal was calling upon the Assessing Officer to make certain additions to the income disclosed by the assessee, but only to conduct 6 an inquiry with respect to the source before finalizing the assessment order. It was urged before the learned Tribunal that the Commissioner had acted without jurisdiction. We take note of two decisions of the Supreme Court which were cited before the Commissioner and which were also urged before us. 10. In Malabar Industrial Co.Ltd. vs. Commissioner of Income Tax, (2000) 243 I.T.R.83, the Supreme Court, holds:- “… … …To consider the first contention, it will be apt to quote section 263(1) which is relevant for our purpose: “263. 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 in so far 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-…” A bare reading of this provision makes it clear that the prerequisite to the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the 7 Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the Income- tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to section 263(1) of the Act. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase “prejudicial to the interests of the Revenue” is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy and Co.v. S.P. Jain (1957) 31 ITR 872, the High Court of Karnataka in CIT v.T.Narayana Pai (1975)98 ITR 422, the High Court of Bombay in CIT v.Gabriel India Ltd. (1993)203 ITR 108 and the High Court of Gujarat in CIT v.Smt.Minalben S.Parikh (1995) 215 ITR 81 treated loss of tax as prejudicial to the interests of the Revenue. Mr.Abraham relied on the judgment of the Division Bench of the High Court of Madras in Venkatakrishna Rice Company v.CIT (1987) 163 ITR 129 interpreting 8 “prejudicial to the interests of the Revenue.” The High Court held (page 138): “In this context, it must be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievious error in the order passed by the Income- tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue administration.” In our view, this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income Tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase “prejudicial to the interests of the Revenue” has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income- tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by 9 this court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. Ram pyari Devi Saroagi v.CIT (1968) 67 ITR 84 (SC) and in Smt.Tara Devi Aggarwal v.CIT (1973) 88 ITR 323 (SC).” (pp.87-88) 11. This established principle has been reaffirmed by the Supreme Court in Commissioner of Income Tax vs. Max India Ltd., (2007)295 ITR 282, holding:- “At this stage we may clarify that under paragraph 10 of the judgment in the case of Malabar Industrial Co.Ltd.v.CIT (2000) 243 ITR 83 this court has taken the view that the phrase “prejudicial to the interests of the Revenue” under section 263 has to be read in conjunction with the expression “erroneous” order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law. … … … …“ (pp.283-284) 10 12. These decisions leave no doubt for argument that it is not every error of the Assessing Officer which vests jurisdiction in the Commissioner to exercise powers under Section 263. The law is very clear that such jurisdiction must satisfy two conditions that is (a) the order of the Assessing Officer is erroneous and (b) it is prejudicial to the interests of the Revenue. Further, the Supreme Court in Max India Private Ltd’s case also held that every loss of Revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial. When an Assessing Officer adopts one of the courses permissible in law and that result in loss, it cannot vest jurisdiction in the Commissioner to revise the order or where two views are possible and one view is adopted by the Officer still, the order would not be revivable. It is only when the conditions as set out coalesces as held by the Supreme Court in Malabar Industrial Co.Ltd case that the order can be said to be prejudicial to the interests of the Revenue. 13. We find that the Commissioner has undertaken a meticulous exercise in arriving at the conclusion that no proper inquiry was conducted by the Assessing Officer. In other words the order shows non- application of mind and it is in these circumstances that the Commissioner directs that the assessment be set aside and inquiry be made into the source of the funds. The order in no way calls upon the Assessing 11 Officer to make additions or impose penalty etc. on the assessee. This is but obvious since it is only the source of the funds which has to be ascertained and then the assessment proceeded with. 14. In these circumstances, we answer both the questions in favour of the revenue and against the assessee. We hold that the Commissioner as also the learned Tribunal in up-holding and affirming the decision of the Commissioner has committed no mistake in directing an inquiry into the source of the funds. Both these appeals are dismissed. (R.B. Misra) Judge. March 14, 2012. (Dev Darshan Sud) (aks) Judge. "