Holding

Section 263(1) of the Income‑Tax Act, 1961, as clarified by the 1988‑89 amendments, means that the "record" includes all records relating to the proceeding that are available at the time of the Commissioner’s examination, even if they were generated after the assessment order.

Summary

The assessee, Shree Man. Junathesware Packing Products and Camphor Works, constructed a cinema theatre and claimed a certain cost in its return for AY 1977‑78. The Income‑Tax Officer (ITO) passed an assessment based on the assessee’s figure because the Departmental Valuation Officer’s (DVO) report was not available at the time. After the assessment, the DVO submitted a higher valuation, and the Commissioner of Income Tax (CIT) invoked Section 263(1) of the Income‑Tax Act to revise the assessment, relying on the valuation report. The assessee argued that the report was not part of the "record" at the time of assessment and therefore could not be used. The Supreme Court examined the meaning of "record" under Section 263(1), considering the 1988 and 1989 amendments that expanded the definition to include all records available at the time of the Commissioner’s examination, with retrospective effect. The Court held that the term indeed includes such later‑available records and that the CIT was justified in considering the valuation report. Consequently, the Court allowed the revenue’s appeal, setting aside the High Court’s decision in favour of the assessee.

Issues considered

The proper interpretation of the term "record" in Section 263(1) of the Income‑Tax Act, 1961, especially whether it includes documents that become available after the assessment order but before the Commissioner’s revision.
The effect of the 1988 and 1989 amendments to the explanation of Section 263(1) on proceedings initiated before 1 June 1988.

Legislation cited

Finance Act, 1988s. explanation to s.263(1)
Finance Act, 1989s. explanation to s.263(1)
Income Tax Act, 1961s. 263(1)

Subjects

Income TaxSection 263recordrevisional powervaluation reportretrospective amendmentassessment orderinterpretation of statute

Judgment

COMMISSIONER OF fNCOME TAX, BANGALORE A
v.
SHREE MAN.JUNATHESWAREPACKING PRODUCTS
AND CAMPHOR WORKS

DECEMBER 2, 1997
B
IG.T. NANAVATI AND M. JAGANNADHA RAO, JJ.]

!11come Tax Act, 1961: Sectioll 263( 1).

Income Tat-AY 1977-78-Revisional Power of Commission of 111- C
come Tax (CIT)-Valuatimz repo11 in re.\]Ject of a building was submitted by
Depwtmental Valuation Officer (DVO) after completioll of assessment by
Income Tax Officer (ITO )-CIT, under S.263( 1), called for and examilled
DVO's rep01t and directed ITO to pass fresh assessment orde1-Validity
of-Held: The word "record" in S.263( 1) is not confined to the record avail-
able at the time of assessment by the ITO but all the records available at the D
time of examinatioll by CIT-He1Zce, CIT entitled, at the time of examination,
to take into collsideration the DVO's repmt-Tlzis is the legal position even
with respect to pre-1988 pe1iod-Fina1Zce Acts, 1988 and 1989.

Collstitution of India, 1950: Alticle 136.
E
SLP-Summmy dismissal-Effect of-Held: Would not mean approval
of the view taken by High Cowt.

Words and Phrases :

"Record''-Meaning of-In the context of S.263( 1) of the Income Tax F
Act, 1961.

The respondent-assessee had constructed a cinema theatre and in
the return filed by it for the assessment year 1977-78 it had shown the cost
of its construction at a certain amount. The Income Tax Officer (ITO) G
wrote to the Departmental Valuation Officer (DVO) to ascertain and
report the correct cost of construction of the cinema theatre. However, the
DVO's report was not available before the date of completion of the
assessment. The ITO, therefore, without waiting for the DVO's report,
passed an order of assessment accepting the valuation mentioned by the
assessee in its return. The DVO determined the cost of construction at an H
109
110 SUPREME COURT REPORTS [1997] SUPP. 6 S.C.R.
• shown in the return. Therefore,
A amount, which was much higher than that
the Commissioner of Income Tax (CIT) issued a notice under Section
263(1) of the Income Tax Act, 1961 to the assessee on the ground that
investment not accounted by the assessee-firm should have been brought
to tax and ,the ITO having not done so, his order was erroneous and
prejudicial to the interest of the Revenue. Before the CIT, it was contended
B by the assessee that as the Valuation Report was not available to the ITO
at the time of passing the assessment order and did not form part of the
record of the proceeding, it could not be a valid basis for initiating an
action under Section 263 of the Act and, therefore, the proceeding deserved
to be dropped. On 3.3.1982 the CIT rejected this contention on the ground
C that the term 'record' occurring in Section 263(1) of the Act would include
all records available at the time of examination by him, set aside the
assessment made by the ITO and directed him to pass a fresh assessment
order in the light of the observations ~ade by him. In the meanwhile
amendments were made on 1.6.1988 with retrospective effect in Section
D 263(1) by the Finance Acts of 1988 and 1989 by which the term "record"
meant all records relating to the proceeding available at the time of
examination by the CIT. The High Criurt allowed the appeal filed by the
assessee. Being aggrievecl the appellant-Revenue preferred the present
appeal.

E On behalf of the respondent-assessee it was contended that the 1988
and 1989 amendments to Section 263 (1) although retrospective, could not
validate the order passed by the CIT on a date prior to 1.6.1988; and that
in a similar case this Court had summarily dismissed the Special Leave
Peti~ion filed against the judgment of a High Court and thus the view of
the High Court was uphelld by this Court.
F
Allowing the appeal, this Court

HELD : 1.1. It cannot be said that the correct and settled legal
position, with respect to the meaning of the word "record" occurring in
G Section 263(1) of the Income Tax Act, 1961 till 1.6.1988, was that it meant
the record which was available to the Income Tax Officer (ITO) at the time
of passing of the assessment order. Further, such a narrow interpretation
of the word "record" was not justified, in view of the object of the provision
and the nature and scope of the power conferred upon the Commissioner
H of Income Tax (CIT). The revisional power conferred on the CIT under
C.1.T. v. MANJUNAIBESWAREPACKING PRODUCTSANDCAMPHOR WORKS 111

Section 263 of the Act is of wide amplitude. Obviously, as a result of the A
· enquiry under that provision CIT may come in possession of new material
and he would be entitled to take that new material into account. If the
material, which was not available to the ITO when he made the assessment
could thus be taken into consideration by the CIT after holding an enquiry,
there is no reason why the material which had already come on record B
though subsequently to the making of the assessment cannot be taken into
consideration by him. Moreover, in view of the clear words used in clause
(b) of the explanation to Section 263(1), it has to be held that while calling
for and examining the record of any proceeding under Section 263(1) it is
and it was open to the CIT not only to consider the record of that
proceeding but also the record relating to that proceeding available to him C
at the time of examination. (120-D-E; G-H; 121-A-B]

CIT v. Slui Arbuda Mills Ltd., Tax Reference Case No. 11 of 1983 and
South India Rolling Mills v. CIT, [1997) 9 SCC 728, relied on.

CWT v. Raj Narain Pratap Narain (HUF), (1989) 177 ITR 34 and D
CWT v. Rajshree S. Parekh, (1991) 191 ITR Statute p. 76, held inapplicable.

Ganga Prope1ties v. Income Tax Officer, (1979) 118 ITR 447; CIT v.
MA. U111zee1ikutty, (1992) 194 ITR 546 and CIT v. S.M. Oil Extraction Pvt.
Ltd., (1991) 190 ITR 404, referred to.
E
1.2. Therefore, it has to be held that it was open to the CIT to take
into consideration all the records available at the time of examination by
him and thus to consider the Valuation Report submitted by the
Departmental Valuation Cell subsequent to the passing of the assessment
order and, so the order passed by him was legal. (122-G-H] F
2. The fact that this Court summarily dismissed a special leave
petition against the judgment of a High Court would not mean that this
Court approved the view that was taken by the High Court. [119-E]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 8467 of G
1997.

From the Judgment and Order dated 6.6.93 of the Karnataka High
Court in I.T.R.C. No. 26 of 1993.

K.N. Shukla, B.K. Prasad and S. Rajappa for the Appellant. H
112 SUPREME COURT REPORTS (1997] SUPP. 6 S.C.R.

A Ms. Indu Malhotra for the Respondent.

The Judgment of the Court was delivered by

NANAVATI, J. Leave granted.

B Heard learned counsel on both the sides.

This appeal arises out of the judgment and order. passed by the High
Court of Karnataka on 6th June, 1995 in I.T.R.C. No. 26/93. The question
that was referred to the High Court was :

c "Whether, on the facts and in the circumstances of the case, the
Appellate Tribunal is right in law in holding that the word 'record'
used in Sec. 263(1) of the Act would not mean the record as it
stands at the time of examination by the Commissioner, but it
• means the record as it stands at the time the order in question was
D passed by the ITO?"

The respondent-firm, during the previous year relevant to the assess-
ment year 1977-78, had constructed a cinema theatre and in the return filed
by it had shown the cost of construction at Rs. 20,28,498 (Rs. 23,78,242 less
Rs. 3,49,644 being electric portion). The Income-Tax Officer on 2nd
E February, 1980 wrote t0 the Departmental Valuation Officer to ascertain
and r,eport correct cost of construction of the theatre. The Valuation
Officer expressed his inability to give his valuation report by 31st March,
1980 by which date the assessment was to be completed. The Income-Tax
Officer, therefore, without waiting for his report, passed an order of
F assessment accepting the valuation mentioned by the assessee in its return.
The Valuation Officer submitted his report on 16th December 1980. He
determined the cost of construction at Rs. 34,58,600 as against Rs.
20,28,498 stated by the assessee. Therefore, the Commissioner of Incorne-
Tax issued a notice under Section 263(1) of the Income-Tax Act to the
G assessee on the ground that investment not accounted for by the assessee-
firm should have been brought to tax and the Income-Tax Officer having
not done so, his order was erroneous and prejudicial to the interest of the
Revenue. Before the Commissioner, it was contended by the assessee that
as the Valuation Report was not available to the Income-Tax Officer at the
time of passing the assessment order and did not form part of the record
H of the proceeding, it could not be a valid basis for initiating an action under
C.l.T. '· MANJUNATIIESWAREPACKING PRODUCT3AND CAMPHOR WORKS (NANAVATI,J.] 113

Section 263 of the Act and, therefore, the proceeding deserved to be A
dropped. The decision of the Calcutta High Court in Ganga Propeities v.
I. T.O., (1979) 118 ITR 447 was relied upon in support of that contention.
The Commissioner rejected it on the ground that the term 'record' would
include all records available at the time of examination by him, set aside
the assessment made by the Income-Tax Officer and directed him to pass B
a fresh assessment order in light of the observations made by him.

The assessee preferred an appeal to the Income Tax Appellate
Tribunal against that order. The Tribunal upheld the contention of the
assessee relying upon the judgment of the Calcutta High Court in Ganga
Prope1ties case (supra), allowed the appeal and set aside the order passed C
by the Commissioner.

At the instance of the Revenue, the question stated above was
referred to the High Court of Karnataka for its opinion. The High Court
after referring to the decisions of the Calcutta High Court in Ganga D
Prope1ties case and C.J. T. v. S.M. Oil Extraction Pvt. Ltd., (1991) 190 ITR
404, held that though the record contemplated by Section 263 (1) does not
mean only the order of assessment but it comprises all proceedings on
which the assessment is based, yet if there was some record which was not
available on the date of completion of assessment that record would not
form part of the order of the assessment authorities. It, therefore, answered E
the question in affirmative, i.e., in favour of the assessee and against the
Revenue. The Revenue has, therefore, filed this appeal.

Mr. Shukla, learned counsel for the Revenue, submitted that in view
of the amendments made in Section 263(1) by the Finance Act of 1988 and F
the Finance Act of 1989, the term 'record' would mean all records relating
to that proceeding available at the time of examination by the Commis-
sioner. He further submitted that even though the Valuation Report sub- .
mitted by the Departmental Valuation Officer was nut available to the
Income-Tax Officer when he had passed the assessment order, as it was
called for by him before passing of the assessment order, it became a part G
of the record and, therefore, it was open to the Commissioner to consider
the same while exercising his revisional power under that section. Strongly
opposing these submissions, Ms. Indu Malhotra, learned counsel appearing
for the assessee, submitted that as the Commissioner had passed the order
I~
on 3rd March, 1982, the amendments made in Section 263(1), in 1988 and H
J
114 SUPREME COURT REPORTS [1997] SUPP. 6 S.C.R.

A 1989, though with ;etrospective effect cannot have the effect of validating
the order of the Commissioner which was illegal when passed. She sub-
mitted that when the order was passed by the Commissioner the correct .,.>-
position of law was that only that record which was available to the
Income-Tax Officer could be considered by the Commissioner for the
purposes of exercising his power under Section 263 (1). She submitted that
B the legislature by adding the explanation and widening the definition of the
term 'record' has now enabled the Commissioner to take into consideration
all records relating to the proceeding. In her submission, the 1989 amend-
ment has only limited retrospective effect. If an order passed by the
Commissioner under Section 263, after 1st June, 1988, was challenged on
C the ground that he had taken into consideration the material, which was
not available to the income-tax Officer, when he had passed the assessment
order, then its validity had to be determined on the basis that not only all
the record of that proceeding but the record relating to it was also available
to the Commissioner. But an order passed before 1st June, ·1988, if it was
D illegal for the reason that it had taken into consideration other material
also, then the amendment. of 1989 did not have the effect of making it legal.

Earlier Section 263(1) did not contain any explanation. It enables the
Commissioner to call for and examine the record of any proceeding under
the Act and pass such order thereon as the circumstances of the case
E justify, including an order enhancing or modifying the assessment or can-
celling the assessment and directing a fresh assessment, if he considers that
any order passed by the assessing officer is erroneous insofar as it is
prejudicial to the interests of the Revenue. By the Taxation Laws (Amend-
ment) Act, 1984, an explanation was added to Section 263(1) for removal
F of certain doubts but it is not necessary to refer to that. explanation as it
related to the meaning of the expression "order passed by the assessing
officer" and therefore, not relevant for the purpose of this case. By the
Finance Act, 1988, the said explanation was substituted w.e.f. 1st June,
1988. The reason why the Legislature had to make that amendment is
G stated in the Memorandum explaining the provisions in the Finance Bill of
1988. We will refer to only that part which is relevant for us. It was
observed by the Legislature that the provision as it stood then, had given
rise to judicial controversy in respect of the following :

H "48. x x x x x x x x x x x x x
C.l.T. v. MANJUNA THESWARE PACKING PRODUCTS AND CAMPHOR WORKS (NANAVATI, J.( 115
(a) On the interpretation of the term 'record': it has been held in A
some cases that the word 'record' in section 263(1) could not mean
the record as it stood at the time of examination by the Commis-
sioner but it meant ihe record·'as it stood at the time when the
order was passed by the Assessing Officer. Such an interpretation
is against the legislative intent and defeats the very objective sought B
to be achieved by such provisions, since the purpose is to revise
the order on the basis of the record as is available to the Commis-
sioner at the time of examination.

x x x x x x x x x x x x x
c
To eliminate litigation and to clarify the legislative intent in respect
of the provisions in the three Direct Tax Acts, it is proposed to
clarify the legal position in this regard in the Explanation to the
relevant sections. The proposed amendments are intended to make
it clear that 'record' would include all records relating to any D
proceedings under the concerned direct tax laws available at the
time of examination by the Commissioner."

The relevant part of the explanation after its substitution read as follows :
E
"Explanation - For the removal of doubts, it is hereby declared
that, for the purposes of this sub-section, -

(a) ............................... ,,,,,,,,,,,,.

(b) "record" includes all records relating to any proceeding under F
this Act available at the time of examination by the Commissioner;

(c) ,,,,,,,,.,,,,,,,,,,,,,,,,,,. "

Thus, by this amendment, definition of the term "record" for the
purpose of Section 263, was provided by the legislature. But a doubt G
regarding the meaning of the term 'record' still persisted and, therefore, a
further amendment was made by the Legislature while enacting Finance
Act of 1989. The Memorandum explaining the provisions in the Finance
Bill, 1989 makes that clear. Paragraph 28 of the said Memorandum reads
as under : H
116 SUPREME COURT REPORTS [1997] SUPP. 6 S.C.R.

A "28. Under the existing provisions of section 263 of the Income-tax
Act and corresponding provisions of the Wealth-tax Act and the
Gift-tax Act, the Commissioner of Income-tax is empowered to
call for and examine the record of any proceeding and if he
considers that the orders passed by the Assessing Officer is er-
roneous in so far as it is prejudicial to the interests of Revenue,
B he may pass such order thereon as the circumstances of the case
justify, including an order enhancing or modifying the assessment,
or cancelling the same or directing a fresh assessment. By the
Finance Act, 1986, an Explanation was substituted with effect from
1st June, 1988, to the relevant sections of the Income-tax Act,
c Wealth-tax Act and Gift-tax Act to clarify that the term "record"
would include all records relating to any proceeding available at
the time of examination by the Commissioner. Further, it was also
clarified that the Commissioner is competent to revise an order of
assessment passed by the Assessing Officer on all matters except
those which have been considered and decided in an appeal. The
D
· abov:: Explanation was incorporated in the Finance Act, 1988, to
clarify this legal position to have always been in existence. Some
Appellate Authorities have, however, decided that the Explanation
will apply only prospectively, i.e., only to those orders which are
passed by the Commissioner after 1.6.1988. Such an interpretation
E is against the legislative intent and it is, therefore, proposed to
amend section 263 of the Income-tax Act, so as to clarify that the
provisions of the Explanation shall be deemed to have always been
in existence.

Amendments on the above lines have been proposed in section
F
25 of the Wealth-tax Act and section 24 of the Gift- tax Act also."

After that amendment, the relevant part of the Explanation reads as
under:

G "Explanation : - for removal of doubts, it is hereby declared that,
for the purposes of this sub-section, -

(a) ................................................... .

. (b) "record" shall include and shall be deemed always to have
H included all records relating to any proceeding under this Act
CI.T. '· MANJUNATHESWAREPACKINGPRODUCTSAND CAMPHOR WORKS (NANAVATI,J.) 117

available at the time ofexamination by the Commissioner." A
After referring to the history of this proVi.sion, wi: will now refer to
the decisions, which were relied upon by the learned counsel in support of
the rival contentions with respect to the correct interpretation of the word
"record". The Calcutta High Court in Ganga Prope1ties v. Income-tax Of-
. fleer, (1979) 118 ITR 447, after observing that provision of Section 263(1) B
o.f the Act has to be understood on its own language and in the context of
the revisional jurisdiction of the Commissioner conferred by it and also the
scheme of the Act, held as under :

"Whereas s. 263(1) of the Act uses the words "is erroneous" C
and not the words "has become subsequently erroneous". Under
this section, the Commissioner may call for and examine "the
record" of the "proceeding" in order to consider in his revisional
jurisdiction as to whether the order in question by the ITO "is
erroneous". Therefore, he is to call for the "record" of the "proceed-
ing" which was before the ITO and examine it in order to consider D
whether on the basis of .the material which were before the ITO
and formed part of that record the order passed by the ITO is
"erroneous" and prejudicial to the interests of the revenue.

Therefore, the materials which were not in existence at the time E
the assessment was made but afterwards came into existence
cannot form part of the record of the proceeding of the ITO at
the time he passes the order and, accordingly, it cannot be taken
into consideration by the Commissioner for the purposes of invok-
ing his jurisdict10n under this section, for he is not an appellate
authority under this section and exercise only revisional jurisdiction F
and hence he can only take into consideration the record as it
stood before the ITO and the materials in such record for the
purposes of ascertaining whether the order in question was er-
roneous and prejudicial to the interests of the revenue.

In other words, any material which comes into existence later G
on cannot form part of the record of the ITO for the purposes of
invoking the Commissioners' power under s. 263(1) of the Act.
And it is only after the proceeding is lawfully initiated by the
Commissioner on the basis of the record of the ITO that the
Commissioner can take into account any material which may come H
118 SUPREME COURT REPORTS [1997] SUPP. 6 S.C.R.

A into existence later on in view of the expression "after making or
causing to be made such enquiry as he deems necessary" used in
the second limb of this section."

The Calcutta High Court interpreted the word "record" under Section
B 263(1) before it was amended by the Finance Acts of 1988 and 1989.
Following that decision Kerala High Court in Commissioner of Income-Tax
v. MA. Un11ee1ikutty, (1992) 194 ITR 546, also took the same view. In that
case attention of the Kerala High Court was drawn to the amendments
made by Finance Acts of 1988 and 1989. The High Court, however, did not
consider the effect of the said amendments as it was of the view that there
C was no occasion for the Tribunal to consider the scope of the amended ·
Section because it came into force only in 1988, much later than the order
disposing of the revision~and, therefore no such question arose out of the
order of the Tribunal. It was submitted by the learned counsel for the
respondent that Section 263(1) was thus interpreted by the Calcutta and
D Kerala High Courts before it was amended in 1988 and 1989 and, therefore,
that was the correct legal position till 1st June, 1988. The learned counsel
also drew our attention to the decision of Allahabad High Court in
Commissioner of Wealth Tax v. Raj Narain Pratap Namin (HUF), (1989)
177 ITR 34. In that case, in the wealth-tax proceedines for the assessment
years 1978-79 and 1979-80 the Assessing Officer had determined the fair
E market value of an immovable property at Rs. 7,35,086 as on the' two
valuation dates relevant for the years in dispute. After the completion of
those assessments, the Commissioner of Wealth-tax, on coming to know
that the property was sold by the assessee on August 18, 1983 for a
consideration of Rs. 36 lakhs, initiated proceeding under Section 25(2) of
F the Wealth-Tax Act and subsequently passed an order holding the im-
pugned assessment orders erroneous and prejudicial to the interests of the
revenue. On appeal by the assessee,· the Income Tax Appellate Tribunal
held that "the expression "record" in section 25(2) of the Act cannot mean
the record as it stands at the time when the action under that section is
taken but it means the record as it stands when the assessment order was
G passed by the assessing officer". In support of this view the Tribunal had
relied upon the decision of the Calcutta High Court in Ganga Prope1ties
case (supra). Against the order. of the Tribunal the Commissioner .of
Wealth Tax had preferred two applications under Section 27(3) of the
Wealth-Tax Act but they were rejected by the High Court. The view taken
H by the Allahabad High Court was that the question raised by the Depart-
C:l.T. v. MANJUNATilESWAREPACKING,J'RODUCTSAND CAMPHOR WORKS [NANAVATI.J.J 119

ment was academic because the Tribunal had not passed its order entirely A
on the meaning of the expression "record" and the other reasoning on
which the decision of the Tribunal was based was a factual one and was
equally fatal to the cause of revenue. This decision is, therefore, of not any
help at all.

She further submitted that in a matter arising under the Wealth- tax
B
Act Gujarat High Court had also taken the same view and the
Department's special leave petitions Nos. 8511-13 of 1984 Commissioner of
Wealth-tax v. Rajshree S. Parekh, (1991) 191 ITR Statutes p. 76 though were
heard after the said two amendments, this Court dismissed them summarily
and thus the view taken by the Gujarat High Court was upheld. In that C
case the Wealth-tax Officer had assessed the assessee's property as per the
approved valuer's report. The Commissioner in suo motu revision dir~cted
valuation in accordance with the departmental valuer's report. The
Tribunal allowed the assessee's appeal against the order passed by the
Commissioner and also rejected the Department's reference application. D
The High Court also rejected the reference application made by the
Department. Aggrieved by the view taken by the High Court the Depart -
ment had filed said special leave petitions in this Court. It is true that the
said special leave petitions were dismissed summarily but that would not
mean that this Court approved the view that was taken by the High Court
E
In a later decision in Commissioner of Income-Tax v. S.M. Oil Extrac-
tion Pvt. Ltd., (1991) 190 ITR 404, Calcutta High Court itself interpreted
the word "record" differently. In that case the assessment was completed
on February 1, 1983. The Income Tax Officer before he completed the
assessment had referred the matter of plant and machinery and electrical F
installation to the Valuation Officer (P & M). His report was not received
by the Income Tax Officer when the assessment was completed. The
Commissioner of Income-Tax took into consideratiDn the said Valuation
Report and found the assessment order erroneous. In that context the
question which had arisen for consideration was whether the Commissioner
in exercise of jurisdiction under Section 263( l) of the Act could have relied G
upon the valuation report which had come into the possession of the
Income-Tax Officer subsequent to the completion of the assessment. The
· Calcutta High Court held that "the reco.·d contemplated in section 263(1)
does not mean only the order of assessment but it comprises all proceed-
ings on which the assessment is based. The Commissioner is entitled, for H
120 SUPREME COURT REPORTS (1997] SUPP. 6 S.C.R.

A the purpose of exercising his revisional jurisdiction, to look into the whole
evidence. The expression "record" as used in section 263 of the Act is
comprehensive enough to include the whole record of evidence on which
the original assessment order was passed. The valuation proceeding is a
part of the assessment proceeding. But once the valuation report was
received by the Income Tax Officer, although subsequent to the completion
B of the assessment, it forms part of the assessment year in question". It
further held that "where any proceeding is initiated in the course of the
assessment· proceeding having a relevant and material bearing on the
assessment to be made and the result of such proceeding was not available
with the Income-Tax Officer before the completion of the assessment, but
C the result came subsequently, the revising authority is entitled to look into
such material as it forms part of the assessment records of the particular
assessment year". Calcutta High Court took this view without referring to
the definition of the word "record" contained in the explanation to Section
263(1) of the Act.
D
•
It, therefore, cannot be said, as contended by the learned counsel for
the respondent, that the correct and settled legal position, with respect to
the meaning of the word "record" till 1st June, 1988, was that it meant the
record which was available to the Income Tax Officer at the time of passing
of the assessment order. Further, we do not think that such a narrow
E interpretation of the word "record" was justified, in view of the object of
the provision and the nature and scope of the power conferred upon the
Commissioner. The revisional power conferred on the Commissioner under
Section 263 is of wide amplitude. It enables the Commissioner to call for

F
and examine the record of any proceeding under the Act. It empowers the
Commissioner to make or cause to be made such enquiry as he deems
necessary in order to find out if any order passed by the assessing officer'
is erroneous insofar as it is prejudicial to the interests of the revenue. After
-
examining the record and after making or causing to be made an enquiry
if he considers the order to be erroneous then he can pass the order
thereon as the circumstances of the case justify. Obviously, as a result of
G the enquiry he may come. in possession of new material and he would be
entitled to take that new material into account. If the material, which was
not available to the Income-Tax Officer when he made the assessment
could thus be taken into consideration by the Commissioner after holding
an enquiry, there is no reason why the material which had already come
H on record though subsequently to the making of the assessment C'!nnot be
C.l.T. '· MANJUNATHESWAREPACKJNG PRODUCTS AND CAMPHOR WORKS [NANAVATI.J.] 121

taken into consideration by him. Moreover, in view of the clear words used A
in clause (b) of the explanation to Section 263(1), it has to be held that
while calling for and examining the record of any proceeding under Section
263( 1) it is and it was open to the Commissioner not only to consider _the
record of that proceeding but also the record relating to that proceeding
available to him at the time of examination.
B
The view that we are taking receives support from the two decisions
of this Court, though the point which is raised before us was not specifically
raised in those two cases in Tax Reference Case No. 11 of 1983 (771e
Commissioner of Income-Tax, Gujarat v. Slui Arbuda Mills Ltd.) this Court
after considering the effect of the amendment made in Section 263(1) of C
the Act by the Finance Act, 1989 whereby clause (c) of the explanation was
also amended with retrospective effect from 1st June, 1988, held that "the
consequence of the said amendment made with retrospective effect is that
the powers under Section 263 of the Commissioner shall extend and shall
be deemed always to have extended to such matters as had not been D
considered and decided in an appeal. Accordingly, even in respect of the
aforesaid three items, the powers of the Commissioner under Section 263
shall extend and shall be deemed always to have extended to them because
those items had not been considered and decided in the appeal filed by
the assessee". In that case the assessment was completed on 31.3.1978 and
the Income Tax Officer while computing loss and income of the assessee E
had accepted the claim of the assessee in respect of those three items.
Obviously, in the appeals filed by the assessee those items were not the
subject-matter of the appeals as the decision in respect thereof was in its
favour. In respect of those three items the Commissioner had exercised his
power under Section 263 of the Income-Tax Act and, therefore, the ques- F
tion which had arisen for consideration was "whether on the facts and in
the circumstances of the case, the order of assessment passed by the ITO
u/s 143(3) read with section 144B on 31.7.1978 had merged with that of the
. Commissioner (Appeals) dated 15.12.1979 in respect of the three items in
dispute so as to exclude the jurisdiction of the Commissioner of Income-
Tax under sec. 263"? Thus the amendment made in clause (c) was held G
applicable to the orders passed before 1st June, 1988.

In South India Steel Rolling Mills, Madras v. Commissioner of Income
Tax, Madras, (1997) 9 SCC 728, the Commissioner in exercise of his power
under Section 263 had withdrawn the development rebate granted for the H
122 SUPREME COURT REPORTS [1997] SUPP. 6 S.C.R.

A years 1962-63, 1963-64 and 1967-68 and 1968-69 on the ground that since
the partnership stood dissolved on 3.3.1968 on the death of one of the two
partners, before the expiry of eight years the assessee firm was not entitled
to the benefit of the development rebate under Section 33(1)(a) of the Act.
The said order passed by the Commissioner was challenged before the
Tribunal but the assessee's appeal had failed. At its instance the following
B question was referred to the Madras High Court :-

"Whether on the facts and circumstances of the case the revision
of assessment under Section 263 by the Commissioner for
withdrawing the development rebate granted for Assessment Years
c 1962-63, 1963-64, 1967-68 and 1968-69 is proper and justified."

The High Court also decided against the assessee. In the appeal filed by
the assessee the order of Commissioner was challenged inter alia on the
ground that the power under Section 263 could have been invoked on the
D basis of the record as it stood when the order was passed by the Income
Tax Officer and that it was not open to the Commissioner to take into
account dissolution of the assessee firm, which took place after passing of
the assessment order because that circumstance was not disclosed by the
record which was before the Income Tax Officer. Rejecting this contention
this Court held " As regards his taking into consideration an event which
E had occurred subsequent to the passing of the order by the Income-Tax
Officer, it may be stated that in Explanation (b) in Section 263 there is an
express provision wherein it is prescribed that "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
F Commissioner''. The death of one of two partners resulting in the dissolu-
tion of the assessee firm on account of such death took place prior to the
passing of the order by the Commissioner and it could, therefore, be taken
into consideration by him for the purpose of exercising his powers under
Section 263 of the Act." In that case also the amendment was held ap-
plicable to an order passed before 1st June, 1988.
G
We, therefore, hold that it was open to the Commissioner to take
into consideration all the records available at the time of examination by
him and thus to consider the Valuation Report submitted by the
Departmental Valuation Cell subsequent to the passing of the assessment
H order and, so the order passed by him was legal. The High Court was
C.l.T. '· MANJUNATHESWAREPACKING PRODUCTS AND CAMPHOR WORKS INANAVATI,J.J 123

wrong in taking a contrary view. We, therefore, allow this appeal, set aside A
the judgment and order passed by the High Court and answer the question
referred to the High Court in the negative i.e. in favour of the Revenue
and against the ·assessee. In view of the facts and circumstances of the case,
there shall be no order as to costs.

v.s.s. Appeal allowed. B