MEHTA CUT PLECE CLOTH HOUSE v. INCOME TAX OFFICER
[Citation -1985-LL-0729-4]

Citation 1985-LL-0729-4
Appellant Name MEHTA CUT PLECE CLOTH HOUSE
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 29/07/1985
Assessment Year 1978-79
Judgment View Judgment
Keyword Tags assessment proceeding • interest of revenue • penalty proceeding • draft assessment • revisional power • trading account • special bench
Bot Summary: As many as five grounds of appeal have been taken but these are in relation to various aspects of the order passed by the CIT. We shall first take up ground No. 2 in which the jurisdiction of the CIT for passing an order under s. 263 has been challenged. Counsel for the assessee contended that once the order was passed by the ITO in accordance with the direction issued by the IAC under s. 144A, it no longer remained his order and the CIT was not justified in involving the jurisdiction under s. 263 as he could invoke this jurisdiction only against the orders passed by the ITO. In support of the above submission he relied upon the decision of the Tribunal in the case of V. V. A. Shamugam vs. Second ITO 16 CTR 39 and also the decision of the same Bench reported in Seshasayee Paper Boards Ltd. vs. ITO 13 TTJ 2. Sub-sequentially, the CIT invoked the jurisdiction under s. 263(1) of the IT Act considering the order passed by the ITO dropping the penalty proceedings under s. 271(1) to be erroneous and prejudicial to the interest of revenue and directing fresh orders to be passed in accordance with law. The Hon ble High Court held that the order passed by the IAC in the order-sheet to the effect no penalty was the order passed by him and the further entries by the ITO in the order-sheet and communication to the assessee could not be considered as an order made by him. 263 speaks only of the order passed by the ITO. It does not speak of an order passed by the ITO on the basis of the directions issued by the IAC, as i s the case, for example, under s. 264(2) in which it is specifically provided that Commissioner. The order in the instant case, which is merely an authenticated order on the basis of the directions of the IAC, which are statutorily binding on him, does not fall within the meaning of the order of the ITO under s. 263 of the Act. Then in a passing way, the Special Bench observed that the order of the ITO on the directions issued under s. 144A may still be his order but hastened to add that the Bench was not really concerned in that appeal with the difference between s. 144A and s. 144B. The attempt was only to show that the IAC has been given wide power in the matter of assessment so that the assessment is put to judicial serunity by a superior officer and that would naturally create a feeling of trust amongst the tax-payers.


RAM RATTAN, A. M. : This is appeal by assessee against order of CIT passed under s. 263 of IT Act holding order of assessment passed by ITO dt. 13th March, 1981 to be erroneous and prejudicial to interest of Revenue n setting aside same with directions to ITO to reframe assessment in accordance with law. As many as five grounds of appeal have been taken but these are in relation to various aspects of order passed by CIT. We shall first take up ground No. 2 in which jurisdiction of CIT for passing order under s. 263 has been challenged. This ground reads as under. That ld. CIT could assume jurisdiction only in case assessment order passed by ITO was erroneous insofar as tit was prejudicial to interest of Revenue. But in instant case, Revenue. But in instant case, assessment order is not erroneous since assessment has been made under binding instruction issued by IAC under s. 144A of Act, 1961." Before considering above ground, it would be necessary to state in brief facts of case. ITO while making assessment was of view that assessee had debited bogus purchases in trading account of order of Rs. 22,849. IAC, however, in exercise of powers conferred on him under s. 144 of IT Act, disapproved addition of Rs. 22,849 contemplated by ITO. ITO, therefore, while passing order did not make addition of Rs. 22,849. Subsequently, CIT considered order passed by ITO as erroneous and prejudicial to interest of Revenue in not making addition of Rs. 22,849. He, therefore, invoking jurisdiction under s. 263 held order passed by ITO as erroneous and prejudicial to interest of Revenue and set aside same for fresh assessment. It is in t h i s background that we have to consider whether CIT could assume jurisdiction under s. 263 when order was passed by ITO after receipt of directions from IAC under s. 144A. ld. counsel for assessee contended that once order was passed by ITO in accordance with direction issued by IAC under s. 144A, it no longer remained his order and, therefore, CIT was not justified in involving jurisdiction under s. 263 as he could invoke this jurisdiction only against orders passed by ITO. In support of above submission he relied upon decision of Tribunal (Madras Bench C ) in case of V. V. A. Shamugam vs. Second ITO (1980) 16 CTR (Trib) 39 and also decision of same Bench reported in Seshasayee Paper & Boards Ltd. vs. ITO (1982) 13 TTJ (Mad) 2. He also relied on decision of Allahabad High Court in case of Ramlal Kishorelal vs. CIT (1972) 84 ITR 138 (All). ld. Departmental Representative, on other hand, contended that even though directions for completion of assessment were issued by IAC under s. 144A, in end result order was passed by ITO and, therefore, it remained order of ITO. In support of this contention he relied upon decision of Calcutta High Court in case of CIT vs. Christian Mica Industries Ltd. (1979) 120 ITR 627 (Cal). He also relied upon para 18 of order of Special Bench of Tribunal in case of East Coast Marine Products (P) Ltd. vs. ITO. (1983) 4 ITD 73 (Hyd). He, therefore, urged that CIT had rightly assumed jurisdiction under s. 263 of IT Act. We have given our very careful consideration to rival submissions. We shall first consider whether ratio of decision of Allahabad High Court reported in Ramlal Kishorelal vs. CIT (1972) 84 ITR 138 (All) is applicable to facts of case or not. In this case, facts briefly stated were that under s. 274(2) of Act, IAC was authorised to impose penalty for concealment under s. 271(1) (C) of IT Act if minimum penalty imposable exceeded sum of Rs. 1,000. Minimum penalty imposable in case before High Court was Rs. 2,000. Since it was more than minimum penalty prescribed under s. 274(2). ITO referred issue regarding levy of penalty to IAC. IAC, however, passed order in his file as under: "No penalty". and signed his name below it. Thereafter ITO made following entry in order sheet of his records: "Penalty dropped vide IAC-P-e. No. Alld/63-64 dt. 9th Sept., 1963. On same date ITO wrote to assessee informing him that penalty proceedings stated under s. 271(1) (c) for asst. yr. 1962-63 had been dropped. Sub-sequentially, CIT invoked jurisdiction under s. 263(1) of IT Act considering order passed by ITO dropping penalty proceedings under s. 271(1) (c) to be erroneous and prejudicial to interest of revenue and directing fresh orders to be passed in accordance with law. Hon ble High Court held that order passed by IAC in order-sheet to effect "no penalty" was order passed by him and further entries by ITO in order-sheet and communication to assessee could not be considered as order made by him. In fact, ITO had no power to pass any order of penalty in that case. We, therefore, hold that ration of decision of Allahabad High Court is not applicable to facts of case before us in as much as in case before Hon ble High Court order of penalty was required to be passed by IAC alone and not by ITO. ITAT, Madras Bench C in case of V. V. A. Shanmugam (supra) has held that CIT had no jurisdiction to pass order under s. 263 where order was passed by ITO in light of directions issued by IAC under s. 144A of IT Act. head notes at page 40 read as under: "Sec. 263 speaks only of order passed by ITO. It does not speak of order passed by ITO on basis of directions issued by IAC, as i s case, for example, under s. 264(2) (f) in which it is specifically provided that Commissioner. (A) are empowered to decide appeals against orders of assessment made under s. 143(3) on basis of directions issued by IAC under s. 144B. As pointed above, there is no such provision under s. 263. Therefore, order in instant case, which is merely authenticated order on basis of directions of IAC, which are statutorily binding on him, does not fall within meaning of order of ITO under s. 263 of Act. provisions of s. 263 cannot be invoked by CIT to revise order that emerged from ITO on binding directions of IAC given statutorily under s. 144A (1) of Act." We are in respectful agreement with above decision of Tribunal and hold that CIT has no jurisdiction under s. 263 where order has been passed by ITO in consequence of direction issued by IAC under s. 144A. In this connection we shall also usefully refer to judgment of Hon ble Punjab and Haryana High Court in case of S. Sewa Singh Gill vs. CIT (1962) 46 ITR 152 (P & H). This is case when provisions similar to s. 144A were not on statute book. Sec. 144A was brought on statute book by Taxation Laws (Amendment) Act, 1975 w. e. f. 1st Jan., 1976. assessment year involved before Hon ble High Court in case of S. Sewa Singh Gill (supra) was 1945-46. In that case, CIT had issued instructions to ITO to submit draft assessment order for approval of IAC before finalising said assessment and ITO did submit draft assessment order to IAC. It was submitted before Hon ble High Court on behalf of petitioner that there was no legal warrant whatever in IT Act or any other Act for assessment to be made subject to approval of superior Officer of Officer who is to make assessment and that, therefore, one ITO had made his assessment. it at once became final and could not be changed by him even if approval of superior officer which was wrongly ordered was withheld. Hon ble High Court held direction given by CIT for obtaining approval of IAC before passing assessment order to be illegal and unwarranted. draft assessment order submitted by ITO to IAC, therefore, became final order of assessment. From this judgment of Hon ble High Court it is clear that any directions issued by superior authority without authority of law, vitiated order passed by authority competent to pass such order it no longer remains his order. Sec. 144A of IT Act which was brought on statute book w. e. f. 1st Jan., 1976 provides that IAC may, on his own motion or on reference being made to him by ITO or on application of assessee, call, for and examine records of any proceedings in which assessment is pending and if he considers that having regard to nature of case or amount involved or for any other reasons, it is necessary or expedient so to do, he may issue such directions as he thinks fit for guidance of ITO to enable him to complete assessment and such directions shall be binding on ITO. In our opinion, situation in case of S. Sewa Singh Gill (supra) has been over-come by provision contained in s. 144A. But ration laid down by Hon ble High Court is that when direction is issued from superior authority, it no longer remains order of officer who is o pass it. There is no denying fact that assessment proceeding before ITO are quasi-judicial in nature and any extraneous circumstance will vitiate his order unless authorised by law. Undoubtedly direction issued by IAC are extraneous which have influenced ITO to pass that order though such action is authorised by law i. e., by s. 144A. What we derive from above discussion is that after instructions are received from superior authority even though authorised by law, it no longer remains order of lower authority, Though order is finlay passed by ITO but fact remains that it is order influenced by directions issued by IAC. These directions are not of administrative nature but are binding on ITO. Even in this view of matter, we are of opinion that order passed by ITO in consequence of directions issued by Inspecting IAC under s. 144A cannot be reviewed by CIT in exercise of jurisdiction conferred on him under s. 263 of IT Act. ld. Departmental Representative has relied on order (Para 18) of Special Bench of Tribunal reported in East Coast Marine Products P. Ltd. vs. ITO (1983) 4 ITD (Hyd) 73. In fact in this case, question was whether CIT could assume jurisdiction under s. 263 against order passed by ITO in consequence of he directions issued by IAC under s. 144B of IT Act. Special Bench took view that CIT had no jurisdiction under s. 263 to review such order passed by ITO. In para 18 of this order, Tribunal tried to compare powers conferred on IAC under two ss. viz. 144A and 144B which were simultaneously brought on statute book w. e. f. 1st Jan., 1976. It was observed by Special Bench that s. 144A is sort of revisional power but with only one difference, namely, that this power is exercised before assessment is completed. It was also observed that power given to IAC under s. 144A is of wide amplitude as compared to s. 263 with only difference that this power is to be exercised before assessment is completed. Further directions under s. 144A were of general nature in regard to assessment and any matter connected therewith whereas under s. 144B, IAC has to decide matters covered by specific objections. Then in passing way, Special Bench observed that order of ITO on directions issued under s. 144A may still be his order but hastened to add that Bench was not really concerned in that appeal with difference between s. 144A and s. 144B. attempt was only to show that IAC has been given wide power in matter of assessment so that assessment is put to judicial serunity by superior officer and that would naturally create feeling of trust amongst tax-payers. scope of s. 144A vis-a-via s. 263 was, therefore, not subject matter of consideration before Special Bench in case relied upon by ld. Departmental Representative. on contrary, this decision helps assessee. Directions under both ss. 144A and 144B are for purpose of guiding ITO to enable him to complete assessment and in both cases such direction shall be binding on ITO In this view of he matter, we do not think that ratio of decision of Special Bench would not be applicable to order passed by ITO in consequence of directions issued by IAC under s. 144A of IT Act. Even on this account, we are of opinion that CIT has on jurisdiction under s. 263 to review order of ITO. We shall now consider decision of Calcutta High Court relied upon by Revenue reported in CIT vs. Christian Mica Industries Ltd. (1979) 120 ITR 627 (Cal). In this case, ITO had dropped proceedings for levy of penalty for concealment under s. 28(1) (c) of he India IT Act, 1922 after obtaining approval of IAC, Against order dropping penalty proceeding by ITO with approval of IAC, CIT invoked jurisdiction under s. 33B (1) (which is parimateria with s. 263 of IT Act, 1961). Their Lordships of Calcutta High Court held that IAC had merely approved recommendation of ITO to drop proceedings and his approval could not be regarded as order as contemplated by s. 23A (8) of 1922 Act. ratio is that where ITO himself had proposed particular action and that was merely approved by IAC, approval by superior authority could not be regarded as order passed by him and, therefore, CIT was competent to invoke jurisdiction under s. 33B of IT Act, 1922. facts before us are different inasmuch as here ITO had contemplated addition of Rs. 22,849 but was ordered to be not included in income of assessee by IAC, Therefore, ratio of decision of Calcutta High Court is also not available to Revenue. In view of detailed discussions made above, we have no doubt in our In view of detailed discussions made above, we have no doubt in our mind that CIT is not competent to invoke jurisdiction under s. 263 of IT c t where order has been passed by ITO in consequence of directions issued by IAC under s. 144A. assessee, therefore, succeeds. order of CIT being without jurisdiction is annulled. Since we have annulled order of CIT we are not going into other grounds of appeal raised by assessee. In result, appeal is allowed. *** MEHTA CUT PLECE CLOTH HOUSE v. INCOME TAX OFFICER
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