The Hindu Business Line : The power to revise assessment

The Commissioner cannot revise an assessment order that was correct based on the materials existing when it was made, by taking into consideration the material that comes in later on.

When assessment proceedings are completedwithin the time limit of two years from the end of the assessment year, a taxpayer heaves a sigh of relief. He can appeal to the Commissioner (Appeals) on any issue dealt with in the assessment order. The I-T Department has no right of appeal to the CIT (A) against any order passed by the assessing officer. Therefore, Section 263 of the Income-Tax Act, 1961, arms the Commissioner with the power of revising any order of the assessing officer, where the order is erroneous and the error has resulted in prejudicing the interests of the Revenue.

No prejudice to the Revenue

No prejudice is caused to the interests of the Revenue by the mere fact that the assessing officer had no jurisdiction over the assessee, or by his omission to issue notice. The assessment order cannot be said to be prejudicial to the interests of the Revenue merely because the assessing officer has made it in accordance with one of two legally permissible methods, when the adoption of the other method might have resulted in collection of larger revenues.

The Section, when it empowers the Commissioner to "call for and examine the record of any proceedings," refers to the record as it existed before the assessing officer and not as it when the Commissioner takes action in revision. The Commissioner cannot revise an assessment order which was correct on the materials existing when it was made, by taking into consideration the material which came into existence later on.

Powers of revision

In an interesting point, the Gujarat High Court considered whether the Commissioner can exercise his powers of revision where assessment proceedings have been dropped. This point was considered in New Jagat Textile Mills P. Ltd vs CIT (282 ITR 399).

The facts in this case are that on June 12, 1982, the assessee had filed a statement of advance tax payable under Section 209-A showing total income subject to advance tax at Rs 1,35,404. Gross income tax chargeable on the income had been worked out at Rs 76,332 and after taking credit for tax deducted at source of Rs 2,332, the net tax payable was worked out at Rs 74,000.

The assessee had not paid advance tax in three equal instalments of Rs 24,667, aggregating Rs 74,001. He failed to file the return for the assessment year 1983-84 within the prescribed time, and the assessing officer issued notice under Section 139(2). The assessee applied for extension of time for filing the return.

However, thereafter, nothing happened and, ultimately, the tax officer made the following entry in the order sheet: "The assessee company untraceable, proceedings dropped". The Commissioner, acting under Section 263, set aside the order of the assessing officer dropping the assessment proceedings, and directed the latter to make a fresh assessment in accordance with law after making inquiries and giving the assessee company a reasonable opportunity of being heard.

This order was upheld by the Tribunal.

Best judgment assessment

The Gujarat High Court held that on failure to file a return required by a notice under Section 139(2) of the Act, the assessing officer was bound to make an assessment of the total income or loss, to the best of his judgment and determine the sum payable by the assessee or refundable to the assessee on the basis of such assessment.

The assessing officer does not have any option to make or not make a best judgment assessment. The language employed by the provision is mandatory in terms and, therefore, the assessing officer has to frame a best judgment assessment after taking into account all relevant material he may have gathered.

This legal provision by itself is sufficient to empower the I-T Commissioner to invoke Section 263 and exercise jurisdiction. The action of the assessing officer in not making the best judgment assessment under Section 144, despite the failure of the assessee to file a return of income upon being served with a notice under Section 139(2), was erroneous in law. The action of the assessing officer in dropping the proceedings had prejudiced the interests of the revenue and the second limb of Section 263 was satisfied.

Not a correct contention

The Gujarat High Court held that the contention on the notings by the assessing officer not being an order, is not a correct contention. As held by the apex court in the following two cases"no proceedings" would be an order amenable to reassessment proceedings: Esthuri Aswathiah vs ITO (41 I.T.R. 539; SC) and CIT vs Bidhu Bhusan Sarkar (63 I.T.R. 278; SC). In the second decision, the words used were "the case is, therefore, filed".

The settled legal position is that even if the proceedings are dropped, terminated or filed, any such noting would amount to an order and it would be open to the Revenue to initiate reassessment proceedings or revisional proceedings upon the necessary conditions being fulfilled for the exercise of jurisdiction under one or the other provision.

In the case of New Jagat Textile Mills P. Ltd, it is not shown that non-service of the order made by the assessing officer resulted in causing any prejudice to the assessee. In fact, the noting made by the assessing officer showed that the proceedings had been dropped; there was no assessment and the assessee was not even called upon to make payment of any tax.

The contention that the noting made by the assessing officer in the present case was not an assessment order and could not be subject to action under Section 263, is not supported by the plain language of Section 263. It empowers the Commissioner to take up for consideration "any order passed" in any proceeding under the Act. In these circumstances, it is not possible to read the provision as being limited to exercising revisional powers qua the order of assessment only. It would take within its sweep even orders where either proceedings are dropped or filed.

To conclude, against an order of revision passed by the Commissioner, the assessee has the right to appeal directly to the Income-tax Appellate Tribunal under Section 253(1)(c) of the Act. Alternatively, in exceptional circumstances, a writ petition may be filed before the High Court. The Court may, at its discretion, entertain the writ petition in an appropriate case despite the existence of the alternative remedy of going in appeal to the Tribunal.

(The author, a Mumbai-based advocate specialising in tax laws, can be contacted at ranina@bom2.vsnl.net.in)

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