Supreme Court of India
COMMISSIONER OF INCOME TAX, SHIMLAversusM/S. GREENWORLD CORPORATION, PARWANOO
- Citation
- 2009 INSC 720
- Decided
- 6 May 2009
- Disposal
- Disposed off
- Bench
- S B SINHA
Holding
The assessment order was a nullity because it was passed at the behest of the higher authority without jurisdiction, and the assessment must be reopened by the appropriate assessing authority.
Summary
The Supreme Court examined whether the assessment order against Mis. Greenworld Corporation was passed under the undue influence of the Commissioner of Income Tax, Shimla, thereby rendering it a nullity. It held that a revisional authority under Section 263 can intervene only when an order is erroneous and prejudicial to revenue, not merely because a different view exists. The Court found that the Commissioner of Income Tax, Shimla, lacked jurisdiction to issue the revision order and the consequent Section 148 notices, making them illegal. It also ruled that the appeal filed by the Commissioner before the High Court was maintainable only after the Tribunal’s order, and that the assessee had not shown prejudice. Consequently, the Court directed that the assessment be reopened by the appropriate assessing authority, the Commissioner of Income Tax, Delhi, exercising its extraordinary jurisdiction under Articles 136 and 142 of the Constitution. The appeals were disposed of with no costs.
Issues considered
- Whether the assessment order was passed at the instance of a higher authority, making it a nullity.
- Whether the Commissioner of Income Tax, Shimla, had jurisdiction to exercise revision under Section 263 and issue notices under Section 148.
- Whether the appeal filed by the Commissioner of Income Tax, Shimla, before the High Court was maintainable after the transfer of jurisdiction to the Commissioner of Income Tax, Delhi.
- Whether the notices issued under Section 148 pursuant to the revision order were maintainable.
- Whether the Supreme Court could, under Article 136/142, direct reopening of the assessment proceedings.
Legislation cited
- Constitution of Indias. Article 136, s. Article 142
- Income Tax Act, 1961s. 116, s. 117, s. 118, s. 119, s. 120, s. 124, s. 127, s. 148, s. 149, s. 150, s. 151, s. 253, s. 260A, s. 263, s. 34(1), s. 34(3)
Subjects
Income TaxSection 263Revision jurisdictionAssessment orderAppeal jurisdictionArticle 136Article 142Section 148 noticeNullity of orderTax assessment reopening
Judgment
~ [2009] 8 S.C.R. 175
/
,
COMMISSIONER OF INCOME TAX, SHIMLA A
v.
MIS. GREENWORLD. CORPORATION, PARWANOO
(Civil Appeal No. 3312 of 2009)
MAY 6, 2009
B
[S.B. SINHA AND DR. MUKUNDAKAM SHARMA, JJ.]
Income Tax Act, 1961:
Sections 148, 149, 253 and 263 - Jurisdiction under c
Section 263 - Power to exercise of suo motu of revision is
in the nature of supervisory jurisdiction when the order is
erroneous, or by such erroneous order prejudice has been
caused to the interest of Revenue - Not otherwise - In the
instant case the order under s.263 and consequential notice D
under·s.148 not maintainable - However, on the facts of the
case, in order to do complete justice between the parties
assessment directed to be reopened - Constitution of India,
Article 142.
Constitution of India, 1950: E
Article 136 - Jurisdiction under - In the event an
appropriate case is made out, Supreme Court may either
refuse to exercise its discretionary jurisdiction or quash both
the order if it is found that setting aside of the illegal order F
would give rise to another illegality.
In these appeals, the principal question that arose for
consideration was as.to whether the order of assessment
was passed at the instance of higher authority.
G
Disposing of the appeals, the Court
HELD: 1. An Income Tax Officer while passing an
order of assessment performs judicial function. An
175 H
176 SUPREME COURT REPORTS [2009] 8 S.C.R.
A appeal lies against his order before the Appellate
Authority. A Revision Application would also lie before the
Commissioner of Income Tax. It is trite that the
jurisdiction exercised by the Revisional Authority
pertains to his Appellate jurisdiction. [Para 20] [197-G-HJ
B
Shankar Ramchandra Abhyankar vs. Krishnaji
Dattatraya Bapat AIR (1970) SC 1 relied on.
2. Considering the jurisdiction of the Commissioner
of Income-tax to issue notice in terms of Section 263 of
C the Income Tax Act, 1961, it is noticed that it provides for
a revisional power. It has its own limitations. An order can
be interfered suo motu by the said authority not only when
an order passed by the Assessing Officer is erroneous
but also when it is prejudici<1I to the interests of the
•
D Revenue. Both the conditions precedent for exercising
the jurisdiction under Section 263 of the Act are
conjunctive and not disjunctive. [Para 23] [201-D-FJ
2.2. An order of assessment passed by an lncome-
E tax Officer, therefore, should not be interfered with only
because another view is possible. The Commissioner of
Income-tax, however, has specified a number of reasons
in support of its order, namely, (1) on non-fulfillment of
pre-requisite conditions for deduction under Section 80-
IA/80-18 - it was held that the activities of the assessee
F do not amount to manufacturing; (2) little consumption
of electricity and thus manufacturing is without the aid
of power; (3) non-employment of requisite workers in
manufacturing process; (4) non-fulfillment of the
condition of new plant and machinery; (5) extra-ordinary
G high profits; (6) abrupt closure of business; (7) no reason
for more than ordinary profits; (8) books of accounts
incomplete and unreliable; (9) the manufacturing units at
Parwanoo were not genuinely run; (10) high profits have
H
COMMNR. OF INCOME TAX, SHIMLA v. GREENWORLD 177
CORP. PARWANOO
been declared. [Para 24] (201-G-H; 202-A-B] A
3.1. The scope of provisions of Section 263 of the Act
is no longer res integra. The power to exercise of suo motu
of revision in terms of Section 263(1) is in the nature of
supervisory jurisdiction and same can be exercised only B
if the circumstances specified therein, viz., (1) the order
is erroneous; (2) by virtue of the order being erroneous
prejudice has been caused to the interest of the revenue,
exist. [Para 29] (208-A-B]
3.2. It is beyond any doubt or dispute that only in c
terms of the directions issued by the Commissioner dated
12.7.2004 under Section 263 of the Act, notices under
Section 148 of the Act were issued. [Para 29] [209-G-H;
210-A]
D
3.3. Indisputably, CIT (Shimla) had no jurisdiction to
issue directions. Notices issued pursuant thereto would
be bad in law. [Para 30] [210-A]
Malabar Industrial Co. Ltd. vs. CIT 243 ITR 83 (SC) :
(2000) 2 SCC 718; Commissioner of Income-Tax vs. Max E
India Ltd. (2007) 295 ITR 28~ (SC); Income-Tax Officer, A-
Ward, Sitapur vs. Murlidhar Bhagwan Das 52 ITR 335 (SC);
S.C. Prashar vs. Vasantsen Dwarkadas (1963) 49 ITR 1 and
N. KT. Sivalingam Chettiar vs. Commissioner of Income- Tax,
Madras 66 ITR -586 (SC), referred to. F
4.1. The Noting of the Assessing Officer was specific.
It was stated so in the proceedings sheet at the instance
of the higher authorities itself. No doubt in terms of the
circular letter issued by CBDT, the Commissioner or for G
·I
that matter any other higher authority may have
supervisory jurisdiction but it is difficult to conceive that
even the merit of the decision shall be discussed and the
same shall be rendered at the instance of the higher
authority who, as noticed hereinbefore, is a supervisory
H
178 SUPREME COURT REPORTS [2009] 8 S.C.R.
A authority. It is one thing to say that while making the
orders of assessment the Assessing Officer shall be
bound by the statutory circulars issued by CBDT but it
is another thing to say that the assessing authority
exercising quasi judicial function keeping in view the
B scheme contained in the Act, would lose its
independence to pass an independent order of
assessment. [Para 31] [217-B-E]
4.2. When a statute provides for different hierarchies
C providing for forums in relation to passing of an order as
also appellate or original order; by no stretch of
imagination a higher authority can interfere with the
independence which is the basic feature of any statutory
scheme involving adjudicatory process. [Para 32] [219-
F]
D
Rajinder Nath vs. Commissioner of Income- Tax, Delhi
120 ITR 14 {SC); State of Kera/a & Ors. vs. Kurian Abraham
(P) Ltd. & Anr. (2008) 3 SCC 582; Union of India vs. Azadi
Bachao Ando/an (2004) 10 SCC 1; Commissioner of Police,
E Bombay vs. Gordhandas Bhanji AIR 1952 SC 16; Pancham
Chand & Ors. vs. State of Himachal Pradesh & Ors. (2008) 7
SCC 117; The Purtabpur Company Ltd. vs. Cane
Commissioner of Bihar AIR 1970 SC 1896 and Tarlochan
Dev Sharma vs. State of Punjab & Ors. (2001) 6 SCC 260,
F referred to.
5.1. An appeal is ordinarily maintainable at the
instance of the Assessing Officer. Not only an order of
assessment was passed but also CIT {Shimla) had
already passed an order. Notices under Section 148 of
G the Act had already been issued much prior thereto. [Para
33] [221-D-E]
5.2. In the instant case, CIT {Shimla) had passed an
order. His order was set aside by the Tribunal. He,
H therefore, in ordinary course could have preferred an
'
COMMNR. OF INCOME TAX, SHIMLA v. GREENWORLD 179
CORP. PARWANOO
~
appeal only by the time when administrative decision A
could be taken by him to prefer an appeal. The right to
prefer an appeal arose on the date on which the Tribunal
passed an order. It might have taken some time to prefer
an appeal. Ordinarily, he was the authority who could
have preferred an appeal. By preferring an appeal new B
proceedings were initiated. In any event, nothing has
been shown as to how the assessee was prejudiced. In
a case of this nature, the provisions akin to Section 21
of the Code of Civil Procedure may be held to be
applicable for the purposes of questioning the c
jurisdiction of the High Court to entertain an appeal on
the ground of lack of territorial jurisdiction. In a peculiar
case of this nature, this Court is of the opinion that
prejudice must be shown. [Para 34] [225-8-E]
Commissioner of Income Tax vs. Sahara India Financial D
Corporation Ltd. 212 CTR 178 (Delhi); Commissioner of
Income- Tax, West Bengal & Anr. vs. Anil Kumar Roy
Chowdhury & Anr. 66 ITR 367 (SC); Uday Shankar Triyar vs.
Ram Kalewar Prasad Singh· & Anr. (2006) 1 SCC 75; Kiran
Singh & Ors. vs. Chaman Paswan & Ors. AIR 1954 SC 340 E
and Mantoo Sarkar vs. Oriental Insurance Co. Ltd. & Ors. •
2008 (16) SCALE 197, referred to.
6.1. Whereas the order under Section 263 of the Act
an~ consequently the notices under Section 148 of the F
Act have been held to be not maintainable, this Court is
constrained to think that the_ Assessing Officer had
passed an order at the instance of the higher authority
which is illegal. For the aforementioned purpose, there is
no need to go into the question of bona fide or otherwise G.
of the authorities under the Income Tax Act. They might
.., have proceeded bona fide but the order of assessment
passed by the Assessing Officer on the dictates of the
higher authorities being wholly without jurisdiction, it was
H
180 SUPREME COURT REPORTS (2009) 8 S.C.R.
A a nullity. With a view to do complete justice between the
parties, the assessment proceedings should be gone
through again by the appropriate assessing authority.
[Para 35] [227-8-EJ
6.2. It is true that despite order passed by the High
8
Court, CIT (Delhi) has not been impleaded. Presumably,
because of the said defect in the order passed by the
High Court: of Himachal Pradesh at Shimla, Revenue
could not implead CIT (Delhi) as a party in the appeal. CIT
(Delhi), however, has been impleaded as a party in the
C Special Leave Petition (SLP) filed by the Assessee. CIT
(Delhi) has although in an irregular manner filed a
rejoinder. Counter affidavit was filed by the Assessee in
the appeal preferred by the Revenue and the same is on
record. The said authority, therefore, is otherwise before
D this Court. [Para 36] [227-E-G]
7.1. It is now well settled that this Court in exercise
of its extra··ordinary jurisdiction under Article 136 of the
Constitution of India may, in the event an appropriate
E case is made out, either refuse to exercise its
discretionary jurisdiction or quash both the orders if it is
found that setting aside of one illegal order would give
rise to another illegality. [Para 37] [227-G-H; 228-A]
7.2. In exercise of our juriscliction under Article 142
F of the Constitution of India, it is directed that the
assessment be reopened by the Commissioner of
Income-tax, Delhi -VII. [Para 37] [228-C-D]
Transmission Corpn. of A.P. Ltd. vs. Lanco Kondapal/i
G Power (P)Ltd. (2006) 1 SCC 540, referred to.
Case Law Reference:
AIR (1970) SC 1 Relied on Para 21
H
13.0MMNR. OF INCOME TAX, SHIMLA v. GREENWORLD 181
CORP. PARWANOO
243 ITR .83 (SC) Referred io Para 29 A
(2000) 2 sec 11a ~ef~rrecj tQ P~ra ?~
(2007) 295 ITR 282 (SC) Referred to Para 29
52 ITR 335 (SC) Referred to Para 30 B
(1963) 49 ITR 1 R.eferred to Para 30
66 ITR &as ($C) Referred to P~ra 30
120 ITR 14 (SC) Referred to Para 30
c
(2008) 3 sec 582 Referred to Para 31
(2004) 10 sec 1 Referred to Para 31
AIR 1952 SC 16 Referred to Para 32
j
(2008) 1 sec 111
'
Referred to Para 32 D
AIR 1970 SC 1896 Referred to Para 32
(2001) s sec 2so Referred to Para 32
212 CTR 178 (Delhi) Referred to Para 33 E
66 ITR 367 (SC) Referred to Para 33
(2oos) 1 sec 75 Referred to Para 33
AIR 1954 SC 340 Referred to Para 34
F
2008 (16) SCALE 197 Referred to Para 34
(2006) 1 sec 540 Referred to Para 37
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
3312 of 2009. G
From the Judgment & Order dated 2.03.2006 of the High
Court of Himachal at Shimla, in Income Tax Appeal No. 50 of
2005.
H
182 SUPREME COURT REPORTS [2009] 8 S.C.R.
•
A WITH
C.A. Nos. 3313-3316 of 2009.
I. Venkatanarayana, N.K. Aggarwal, Gaurav Dhingra, B.V.
Balaram Das for the Appellants.
B
Harish N. Salve, Sunil Gupta, Bhargava V. Desai, Ajay
Vohra, Rahul Gupta, Reema Sharma for the Respondent.
The Judgment of the Court was delivered by
c S.B. SINHA, J. 1. Leave granted.
2. These two appeals, being interconnected, were taken
up for hearing together and are being disposed of by this
common judgment.
D
They arise out of a common judgment and order dated
2.3.2006 in ITA No. 50 of 2005 and Civil Writ Petition No.800
of 2005 as also out of common judgment and order dated
3.4.2007 in Civil Review No. 15 and 16 of 2006 in ITA No.50
E of 2005 and C.W.P. No. 800 of 2005 passed by the High court
)
of Himachal Pradesh, Shimla.
3. Mis Green World Corporation is a partnership concern
of Shri R.S. Gupta and his wife Smt. Sushila Gupta. They had
set up two units for manufacturing exercise books, writing pads,
F etc. at Parwanoo in the State of Himachal Pradesh in the year
1995. The said purported units were established after
declaration and enforcement of a policy for tax holiday for
certain period specified in the Union Budget. They had also set
up a third unit for manufacturing computer software. They
G started filing income tax returns from the Assessment Year
1996-97 showing huge profits. In the return for the Assessment
Year 2000-01 they disclosed their total sales to the tune of
Rs.1,51,69,515/- out of which a sum of Rs.74,69,314/- was
shown as net profit. Thus, the profits bore a proportion of 49%
H to the gross sales. For the earlier assessment year, i.e. 1999-
COMMNR. OF INCOME TAX, SHIMLA v. GREENWORLD 183
,/
CORP. PARWANOO [S.B. SINHA, J.]
2000, the proportion of the net profit to the total sales was as A
high as 66% because out of the total sales of Rs. 2,97, 12, 106/
- net profits were declared to be to the tune of Rs.1,96,77,631/
- For the subsequent three assessment years i.e. 2001-2002,
2002-2003 and 2003-2004, the proportionate net profits to the
gross sales were 81%, 95% and 95% respectively. B
It is furthermore stated that the total investment on plant and
machinery for unit No. 1 was shown to be just Rs.1,25,000/- and
a very small amount of money was shown to have been spent
on plant and machinery for the second unit.
c
4. On or about 7.2.2000, the Assessing Officer ('AO')
conducted a survey at the premises of the assessee in terms
of Section 133-A of the Income Tax Act, 1961 (hereinafter
referred to for the sake of brevity as, "the said Act") and verified
for herself: (a) factum of the existence and actual working of D
Unit; (b) Installation of Plant and machinery working with the aid
of power; (c) Presence of requisite number of workers, some
of whose statement were records; (d) available of stock of raw,
semi-finished and finished material prior to Assessment year
2000-2001. E
On or about 19.12.2002, AO after completing the
__,, proceeding for assessment passed an order, which reads as
under:
"Return declaring nil income after deduction under Section F
8018 on the profit of Rs.74,79,995/- was filed on
31.10.2000 which was processed under Section 143(1)(a)
on 26.7.2001 at returned income by my predecessor.
Survey under Section 133A was conducted in the G
~ business premises of the assessee on 7.2.2000 by the
then ITO. The case was selected under compulsory
scrutiny. Detailed questionnaire along with statutory notices
under Section 143(2)/142(1) was issued and in response
to the same, Shri Surinder Babbar, CA attended the
H
184 SUPREME COURT REPORTS [2009] 8 S.G.R.
A assessment proceedings from time to time. Various
details/information called for were supplied which were
verified. The case is discussed as under:
The assessee details in nianufacturir19 of Exetcisa
books and Writing pads. The firm has two partners namely
B
Shri Radhey Shyam Gupta and Smt. Sushila Gupta. Two
units were set up by the assessee for manufacturing of
Exercise Books in Unit-I and that of Writing Pads in Unit-
11. Separate books of account were maintained for both the
units and 11 workers were found working at the time of
c survey. Certain discrepancies as per cash book to that of
day book were found which could not explain by the
Accountant at the time of survey which were reconciled by
the counsel of the assessee during the ccwrse of
assessment proceedings. On sale of Rs.88,55,592/- gross
D profit of Rs.57,28,980/- giving rate of 64.69% for unit - 1 •
and on sale of Rs.63, 16,392/-, gross profit of
Rs.19, 12,565/- for Unit-II giving 30.29% has been declared
by the assessee. Sales were made both on credit as well
as cash basis. Confirmed copy of account of the creditors
E has been produced, which is placed on record.
Keeping in view the information supplied by the
assessee and facts on file, the income returned by the ....
assessee is hereby accepted."
F In the said order of assessment, AO recorded a note,
which reads as under:
"After receiving a call from Shimla on 3.12.2002, I visited
the office of Worthy CIT, Shimla on 4.12.2002 along with
G all the assessment records and relevant documents of M/
s Green World Corporation. The case was thoroughly
discussed with (sic) records and relevant worthy CIT,
Shimla in the presence of learned Addi. CIT, Solan Range,
-
Solan. All the documents and queries raised and further
H reply submitted by the assessee was properly glanced
COMMNR. OF INCOME TAX, SHIMLA v. GREENWORLD 185
CORP. PARWANOO [S.B. SINHA, J.]
through by the worthy CIT and after going through the A
questionnaire issued to the assessee on 18.10.2002 and
reply submitted by the assessee in response to that on
7.11.2002, 13.11.2002 and 25.11.2002, worthy CIT has
directed that since the reply submitted by the assessee is
satisfactory and upto the mark, no more information is B
required to be called for and to assess the case as such.
He, therefore, directed in presence of the learned Addi.
CIT, Solan Range, Solan to incorporate that discussion in
the body of the order sheet. Needful has been done as
directed. A copy of the draft assessment order was sent c
to the Addi. CIT, Solan Range, Solan under the office letter
No. ITO/PWN .2002/03/2127 dated 13.12. 2002 for
according necessary approval. Approval to complete the
assessment was received through telephonic from the
office of the Addi. Commissioner of Income Tax, Solan
D
Range Solan and assessment has been completed and
the assessment order has been served upon the assessee
on 19.12.2002."
5. Indisputably, the Commissioner of Income Tax ("CIT', for
short) on whose dictates the order of assessment dated E
19.12.2002 purported to have been passed was transferred and
~his successor on or about 5.12.2003 issued notice to the
·-'
assessee purported to be under Section 263 of the Act for the
Assessment Year 2000-2001 only, inter alia on the premise
that the said order of assessment dated 19.12.2002 was F
prejudicial to the interests of the Revenue.
Assessee filed its reply thereto on or about 16.3.2004.
6. He inter alia on account of his old age, ill-health, etc.
also filed an application for transfer of its cases from CIT G
i
(Shimla) to CIT (Delhi) on 4.5.2004.
The CIT (Shimla) passed an order dated 12.7.2004 under
Section 263 of the Act inter alia on the premise that the
Assessing Officer while finalizing the Assessment had not H
186 SUPREME COURT REPORTS [2009] 8 S.C.R.
•
A examined the case properly. In the said order, the following
directions were issued:
"16.3 Under the circumstances, I am left with no
alternative but to decide the proceedings on the
basis of material 0.1 record. In the assessment year
B
under review, I estimate the assessee's income
from Units at Parwanoo at 5% of the declared
turnover. The income shown in excess of 5%
amount is treated as undisclosed income from
undisclosed sources. As the assessee does not
c fulfill many of the conditions for being entitled to
deduction u/s 801A/IB, no part of the total income,
not even the one estimated @ 5% of the turnover
at Parwanoo, would be entitled for deductioh u/s
80IA/IB. i
D
16.4 Charge interest u/s 2348/C for non-payment of
advance tax. Penalty proceedings u/s 271 (1 )(c) are
initiated separately for furnishing of in-accurate
particulars of income assessed. The Assessing
E Officer is directed to calculate the tax and interest
on this income and issue Demand Notice and
Challan to the assessee firm.
....
17. Similar conditions i.e. non fulfillment of the
prerequisite conditions for deduction u/s 801A/IB
F and excessive declared profits prevailed in the
preceding assessment years i.e. A.Y. 1996-97 ,
1997-98, 1998-99 and 1999-2000; and succeeding
assessment years i.e. A.Y. 2001-02, 2002-03 and
2003-04 also. It is thus obvious that either the whole
G or substantially the whole of income shown by the
assessee in the aforementioned different
assessment years could not be said to be income
derived from the business of industrial undertaking
and was therefore not entitled to deduction u/s 801A/
H 18. Thus substantial taxable income for these
COMMNR. OF INCOME TAX, SHIMLA v. GREENWORLD 187
CORP. PARWANOO [S.B. SINHA. J.]
assessment years have escaped assessment A
because of non fulfillment of the pre-requisite
conditions for deduction u/s 801A/801B. The
Assessing Officer is hereby directed to examine
the case records for all the preceding assessment
years including those for assessment year 1996-97 B
and initiate necessary proceedings u/s 148 within
a week. The Assessing Officer is further directed
to examine the succeeding assessment years also
i.e. A.Y. 2001-02, 2002-03 and 2003-04 and initiate
appropriate action u/s 148/143(2) as may be c
applicable, in a week's time."
Pursuant thereto or in furtherance thereof, notices under
Section 148 of the Act were issued to the Assessee for the
Assessment Years 1996-97 to 1999-2000, 2001-2002 and
2002-2003. D
7. Assessee preferred an appeal against the order dated
12.7.2004 before the Income Tax Appellate Tribunal (for short,
"ITAT"). In its memo of appeal, the assessee raised contentions
-I
relating to: (1) jurisdiction, (2) bias on the part of the CIT E
(Shim la), and (3) on merit of the matter. The Income Tax Officer
of CIT (Shimla) himself remained personally present before
ITAT for the purpose of defending his order under Section 263
of the Act.
8. By reason of an order dated 15.4.2005, ITAT allowed F
the appeal filed by the assessee setting aside the order of the
CIT (Shimla) on the jurisdictional issue alone. It did not enter
into the merit of the matter. It was held:
"43. As such, considering all the facts of the case and legal G
·position emanating from the aforesaid judicial
pronouncements, we are of the considered opinion from
the assessment in the present case was made by the
' Assessing Officer after making proper and adequate
enquiries as required in the facts of the case and since H
1
188 SUPREME COURT REPORTS [20091 8 S.C.R.
A the claim of the assessee for deduction u/s 80-IA was
allowed by her on proper application of mind to the
detailed submissions made on behalf of the assessee as
well as the other relevant material including the findings of
the survey, there was no error in her order as alleged by
B the learned CIT. On the other hand, the learned CIT held
the said assessment to be erroneous mainly on the basis
of surmises and conjectures without there being any
material to support and substantiate the same and he
having virtually reviewed the assessment order passed by
c the Assessing Officer applying his mind again to the entire
material available on record and by making fresh enquiry
brushing aside totally the examination made by the
Assessing Officer, we hold that his impugned order
passed u/s 263 was not sustainable in law. The same is,
therefore, set aside restoring back the order of the
D
Assessing Officer passed u/s 143(3).
44. It is worthwhile to note here that the claim of the
assessee for deduction u/s 80-IA was allowed by the
Assessing Officer in the immediately preceding years
E involving identical facts and circumstances and this
material and relevant aspect again appears to have been
ignored by the learned CIT while exercising his powers
•
'
conferred u/s 263. On the contrary he directed the
Assessing Officer by issuing notices u/s 148 and also '"
F directed him to examine the returns filed by the assessee
for the subsequent years by his impugned order which was
beyond the jurisdiction conferred on him u/s 263 since the
same was confined only to the year for which the
G
assessment order was sought to be revised. We,
therefore, direct that the said directions pertaining to the
.
~
~
years other than the year under consideration as contained
in the impugned order be omitted.
r
45. As a result of our decision on ground Nos. 1 to 5
cancelling the impugned order passed by the learned CIT
H
COMMNR. OF INCOME TAX, SHIMLA v. GREENWORLD 189
CORP. PARWANOO [S.B. SINHA, J.]
u/s 263, the other grounds raised by the assessee in this A
appeal have been rendered only of academic nature. We,
therefore, do not deem it necessary or expedient to
consider and decide the same on merits."
On or about 5.7.2005, notice under Section 148 of the Act
8
was also issued for the Assessment year 2000-2001.
9. Assessee questioned the legality of the notice under
Section 148 of the Act by filing a Writ Petition before the
Himachal Pradesh High Court on or about 5.8.2005, which was
marked as Civil Writ Petition No. 800 of 2005. C
10. Indisputably, the Central Board of Direct Taxes (for
short, "CBDT"), on the application for transfer of the case filed
by the assessee on 4.5.2004, passed an order dated 1.9.2005
transferring the case from the jurisdiction of CIT (Shimla) to that D
of CIT (Delhi) with effect from 5.9.2005, stating:
"In exercise of powers conferred by clause (b) of sub-
section (2) of Section 127 of the Income Tax Act, 1961 [43
of 1961], the Central Board of Direct Taxes hereby orders
the transfer,of the jurisdiction over the case of "The Green E
World Corporation" [PAN NO. AAAFG6719Q] from the
Income Tax Officer, Parwanoo in the Commissionerate of
Income Tax, Shimla in the region of Chief Commissioner
of Income Tax, Shimla to the Income Tax Officer, Ward 19
[3], New Delhi in the Commissionerate of Income Tax, F
Delhi-VII, New Delhi, in the region of Chief Commissioner
of Income Tax, Delhi-VII, New Delhi.
The said order shall take effect from 5th September,
2005." G·
CIT (Shimla) preferred an appeal before the High Court
under Section 260A of the Act on or about 17.10.2005.
On or about 30.11.2005, the High Court while condoning
the delay admitted the appeal without formulating the substantial H
190 SUPREME COURT REPORTS [2009) 8 S.C.R.
A questions of law as required under Section 260A.
By reason of an order dated 9.1.2006, the High Court
entertained the appeal, stating:
"Learned Counsel for the appellant states that though CIT,
B Shimla has locus-standi to file the present appeal, but as
an abundant caution appeal may also be taken to have
been filed by CIT, Delhi as well and CIT Delhi may be
ordered to be impleaded as appellant No. 2. Ordered
accordingly, Registry to make necessary correction in the
c memo of parties.
Learned Counsel for the appellants undertakes to file
amended memo of parties and also the Vakalatnama for
appellant No. 2 in the Registry.
D
Arguments heard. Judgment reserved."
11. Assessee filed Special Leave Petition No. 3273 of
2006 before this Court questioning the orders dated
30.11.2005 and 9.1.2006 passed by the High Court.
E
12. By reason of the impugned order dated 2.3.2006, the
High Court· while allowing the Appeal filed by CIT (Shimla)
dismissed the writ petition filed by the assessee, inter alia,
opining: "
F (1) The order of the Assessing Officer, having been
based on 'uncalled for interference' in the judicial functions
of the Commissioner, was bad in law.
(2) The issue in regard to the maintainability of the
G appeal vis-a-vis the locus standi of the CIT (Shimla) was
significant as CIT (Delhi) had also been impleaded
(3) As the Assessing Officer had acted under the
dictates and pressure of CIT (Shimla), the order of
assessment was not maintainable.
H
COMMNR. OF INCOME TAX, SHIMLA v. GREENWORLD 191
CORP. PARWANOO [S.B. SINHA, J.]
(4) Assessee not being a new unit, the order of A
assessment was bad in law.
(5) CIT could issue directions for reopening the
proceedings for the other Assessment Years apart from
Assessment Year 2000-2001 also, subject of course to the
B
law of limitation.
13. Feeling aggrieved by the said judgment and order
dated 2.3.2006, Assessee filed two Review Petitions being
Civil Review Nos. 15 and 16 of 2006. Civil Review No.14 of
2006 was also filed by the Income Tax Officer, Shimla against c
the same. Another Civil Review No. 22 of 2006 also came to
be filed by the Mr. D. Khare, who was the CIT at the time of
passing of the Assessment Order dated 19.12.2002 as certain
strictures were passed in the said order dated 2.3.2006 against
him without giving an opportunity of hearing to him. A Special D
Leave Petition No. 1789 of 2007 was also filed by the CIT
(Shimla) against the said High Court's judgment and order
dated 2.3.2006.
14. On or about 7.4.2006, this Court dismissed the Special
E
Leave Petition No. 3273 of 2006 filed by the Assessee as
infructuous.
.i On or about 14.11.2006, Civil Review No. 14 of 2006 filed
by the Income Tax Officer, Shimla was dismissed.
F
15. By reason of an order dated 3.4.2007, the High Court
while allowing Mr. Khare's Civil Review No. 22 of 2006
expunging all observations made in the order dated 2.3.2006
rejected the assessee's review petitions to recall order against
it founded on the same observations. G
16. The High Court in its impugned order dated 3.4.2007
inter alia held:
"4. We have heard the learned counsel for the review
petitioner. It is true that no notice was issued to the review H
192 SUPREME COURT REPORTS [2009] 8 S.C.R.
A petitioner nor any opportunity of being heard was granted
to him by this Court before making the observations. But
the aforesaid observations are not the findings of this Court
that the review petitioner in fact interfered with the
functioning of the Assessing Officer, Solan or pressurized
B her into closing the inquiry and passing tne order of
accepting the return as such. These observations are
based on the interpretation and construction of the note
appearing below the order dated 19.12.2002 of the
Assessing Officer, Solan. Even though the observations
c are based on the interpretation and the construction of the
note below the aforesaid order of the Assessing Officer,
still at certain points in para 16 and particularly in para 41
this Court has not specifically said that these observations
are based on the interpretation of the said note and one
may gather an impression (from some of the observations,
D l.
about which there is no specific reference) that the same
are the Court's own observations/findings. As a matter of
fact there was no material before this Court suggesting
whether what was written in the note was true or untrue.
The observations were made because the note appears
E below the order. The purpose of making the observations
in para 16 was to elaborate that the order of the
Assessing Officer was bad having been passed on
account of interference and under pressure from the ...
Superior authority, according to the Assessing Officer
F herself. Whether the interference and the pressure
mentioned in the said note, were real or imaginary, that
was not gone into by this Court nor was it necessary to
do so for the purpose of disposing of the appeal, because
in their case (that is to say, in the case of the interference
G and pressure being real or even in the case of it being
unreal or imaginary) the order was bad because of its
being not based on any reasoning and hence an order
passed without application of mind.
H 5. In view of the above stated position, we allow the present
COMMNR. OF INCOME TAX, SHIMLA v. GREENWORLD 193
CORP. PARWANOO [S.S. SINHA, J.)
petition (Civil Review Petition No. 22 of 2006) and order A
the expunction of all those observations appearing in para
16 or 41 or elsewhere in the judgment, which give the
impression that the review petitioner stands indicted for
interfering with the working of the Assessing Officer, Solan
or pressurizing her into accepting the return as submitted B
by the assessee, without making any further probe. In fact
the inquiry ordered by this Court, vide para 41 of the
judgment, is for the purpose of finding out whether the
review petitioner had actually interfered with the working
of the Assessing Officer, Solan and pressurized her into c
passing the order of acceptance of the return as stated in
the foot note of the order of Assessing Officer.
6. Two other Review Petitions No. 15 and 16 of 2006 have
been filed by the assessee. The contents and the pith and
j.
substance of both the two review petitions are the same. D
Instead of one, two petitions have been filed because by
the judgment of this Court not only the appeal filed against
the assessee by the Revenue but also a writ petition filed
by the assessee were disposed of. One petition is for the
review of the order passed in the writ petition and the other E
for the review of the judgment passed in the appeal.
7. We have heard the learned counsel for the assessee.
,,
The points raised by him are:
F
(a) The appeal itself was not maintainable, because it was
the Commissioner of Income Tax, New Delhi (to whom the
area, where the assessee was doing his business, stands
transferred) who had the competence to file the appeal,
but the same had been filed by the Income Tax
Commissioner, Shimla. G
-<
(b) Appeal was admitted on twelve questions as submitted
to the Court by the appellant - Commissioner of Income
Tax, but this Court formulated two questions after the
conclusion of the hearing and answered only those two H
194 SUPREME COURT REPORTS [2009] 8 S.C.R.
A questions, which was contrary to the spirit of Section 260-
A of the Income Tax Act;
(c) Questions which this Court dealt with, while disposing
of the appeal, did not arise out of the order of the Tribunal
as the Tribunal dealt with only the question of jurisdiction
B
while disposing of the appeal and it did not touch the
merits.
8. We find no merit in any of the aforesaid submissions.
Question of maintainability of the appeal, which was initially
c filed by the Income Tax Commissioner, Shimla and to
which the Income Tax Commissioner, Delhi was later on
added as a co-appellant, was considered by this Court
while passing the judgment and the contention raised by
the counsel for the assessee was dismissed with a clear
D cut finding that the appeal was maintainable. It is not open
to the review petitioner to assail and challenge the said
finding by way of review.
9. Coming to the next point, it is true that the appeal was
admitted on twelve questions, but while making their
E
submissions the counsel for the parties confined
themselves only to a few points, which were covered partly
by one and partly by some other questions and so the ...
questions were re-formulated into two questions, confining
their scope only to those points about which submissions
F were made by the learned counsel for the parties.
Otherwise also, by the judgment, in question, this Court
decided not only the appeal but also a writ petition filed
by the review petitioner itself and this also necessitated
reformulation of questions.
G
10. As regards submission [CJ above, learned counsel
submitted that this court gave the finding that the order of
-.
the Assessing Officer, Solan was bad but that such a
question did not arise out of the appeal decided by the
H Income Tax Appellate Tribunal as the Tribunal had dealt
COMMNR. OF INCOME TAX, SHIMLA v. GREENWORLD 195
CORP. PARWANOO [S.B. SINHA, J.]
with the question of jurisdiction only and hence this court A
exceeded its appellate jurisdiction while holding that the
order was bad on account of non-application of mind. The
submission is factually incorrect. The Tribunal while
accepting the appeal of the assessee held that the order
had been passed by the Assessing Officer under Section B
263 of the Income· Tax Act on the basis of the inquiry
conducted by her and that the Commissioner of Income
Tax could not have interfered with the said order merely
because he formed a different view on scanning the
record. Appellate Tribunal clearly said that the order of the c
Assessing Officer was based on an inquiry conducted by
her. This court did not approve of this finding of the
Tribunal, because the note appearing below the order of
the Assessing Officer clearly shows that it is not passed
on application of mind but on the interference by the D
Commissioner of Income Tax.
·11. Since none of the submissions made by the learned
counsel has any merit, both the review petitions (petition
Nos. 15 and 16 of 2006) filed by the assessee, i.e. M/s
The Green World Corporation, are dismissed." E
17. Mr. Harish N. Salve and Mr. Sunil Gupta, learned
,, Senior Counsel appearing on behalf of the Assessee inter alia
would submit:
i. Having regard to the order of transfer passed by F
CBDT transferring the case from CIT (Shimla) to
CIT (Delhi), CIT (Shimla) had no locus standi to
maintain the appeal preferred before the High Court
under Section 260A of the Act.
G
ii. Despite order by the High Court, CIT (Delhi) having
not been impleaded as a party, it must be held that
the CIT (Shimla) has no locus standi to maintain the
appeal.
H
196 SUPREME COURT REPORTS [2009] 8 S.C.R.
A iii. Notice under Section 263 having been issued in
respect of Assessment Year 2000-2001 only,
directions in respect of the past and the future years
of Assessments could not have been issued; some
of them being barred by limitation.
B
iv. The order of the CIT (Shimla) being biased, the
Tribunal has rightly interfered therewith as the
notices under Section 148 of the Act had been
issued pursuant to the directions of the CIT
..
(Shimla), the same are not maintainable.
c
v. Mere error of law and/or a different view from that
of the Assessing Officer by itself could not have
been a ground for exercising the jurisdiction under
Section 263 of the Act.
D
vi. Section 150(1) of the Act whereupon reliance has
been placed by the Revenue is not applicable.
vii. Special Leave Petition filed by CIT (Shimla) on the
self same reasons is not maintainable.
E
viii. CIT (Shimla) has not raised any question that the
order of assessment was passed at the behest of
the CIT, the High Court committed a serious error
...
in passing the impugned judgment relying on or on
F the basis of the said footnote. The said footnote
was issued having regard to the circular letter
issued by the CBDT itself dated 3.7.2001.
ix. In any event, the Tribunal having not entered into the
merit of the matter, the only option available to the
G High Court was to remand the matter back to the
Tribunal and not to enter into the merit itself.
x. CIT's direction to the Assessing Officer to initiate
action under Section 148 of the Act for the earlier
H and subsequent years was illegal and bad in law,
COMMNR. OF INCOME TAX, SHIMLA v. GREENWORLD 197
CORP. PARWANOO [S.B. SINHA, J.)
and, thus, the proceedings so initiated were also A
illegal, bad in law and were liable to be quashed.
18. Mr. I. Venkatanarayana, learned Senior Counsel
appearing on behalf of the Revenue, on the other hand, would
contend: B
i. CIT (Shimla) had the locus standi to prefer an
appeal before the High Court as he had passed the
~
order prior to the order of transfer.
ii. The Assessee having played fraud on the c
Department as it had shown a huge amount of profit
without there being sufficient number of workmen
. engaged and without consuming requisite units of
electrical energy only with a view to enjoy the tax
holidays, CIT (Shimla) had rightly interfered D
therewith.
iii. The amount of profit shown from the Parwanoo
having been holding disproportionate to the
investment made, the High Court was correct in
passing the impugned judgment. E
iv. In any event, the Assessee cannot be said to have
.)
been prejudiced in any manner whatsoever by the
order of the High Court, as the appeal although was
improperly filed may be held to be maintainable. F
19. The principal question which arises for consideration
is as to whether the order of assessment was passed at the
instance of the Higher Authority.
20. An Income Tax Officer while passing an order of G
· assessment performs judicial function. An appeal lies against
his order before the Appellate Authority. A Revision Application
would also lie before the Commissioner of Income Tax. It is trite
that the jurisdiction exercised by the Revisional Authority
pertains to his Appellate jurisdiction. {See Shankar H
198 SUPREME COURT REPORTS [2009] 8 S.C.R.
A Ramchandra Abhyankar vs. Krishnaji Dattatraya Bapat [AIR
1970 SC 1]}
21. The Act provides for its own hierarchy of authorities.
Section 116 of the Act occurring in Chapter XIII thereof provides
B for classes of Income-tax authorities for the purpose of the Act.
Clauses (e) and (f) thereof read as under:
"(e) Assistant Directors of Income-tax or Assistant
Commissioners of Income-tax.
c (f) Income-tax Officers"
Section 117 of the Act provides for appointment of
Income-tax authorities. Control of Income-tax authorities is .
specified in Section 118 in the following terms:
D "118. The Board may, by notification in the Official Gazette, •
direct that any income-tax authority or authorities specified
in the notification shall be subordinate to such other
income-tax authority or authorities as may be specified in
such notification."
E
Section 119 lays down the manner in which the instructions
may be given to the subordinate authorities by the higher
authorities. Sub-Section (1) thereof provides for the power of
the Board whereas sub-section (2) specifies the power of the
F Board to issue such directions. The said orders passed by the
Board are required to be placed before each House of
Parliament. It must be read before each House of Parliament
by the Central Government.
Section 120 of the Act provides for the jurisdiction of
G Income-tax authorities. Sub-section (1) thereof reads as under:
"120. (1) Income-tax authorities shall exercise all or any of
the powers and perform all or any of the functions conferred
on, or, as the case may be, assigned to such authorities
H by or under this Act in accordance with such directions as
COMMNR. OF INCOME TAX, SHIMLA v. GREENWORLD 199
CORP. PARWANOO [S.B. SINHA, J.]
the Board may issue for the exercise of the powers and A-
performance of the functions by all or any of those
authorities."
Section 124 of the Act lays down the jurisdiction of
Assessing Officers.
B
Power to transfer cases is provided for under Section 127;
sub-Sections (1) and (2) whereof read as under:
"127. Power to transfer cases
(1) The Director General or Chief Commissioner or
c
Commissioner may, after giving the assessee a
reasonable opportunity of being heard in the matter,
wherever it is possible to do so, and after recording his
reasons for doing so, transfer any case from one or more
Assessing Officers subordinate to him (whether with or D
without concurrent jurisdiction) to any other Assessing
Officer or Assessing Officers (whether with or without
concurrent jurisdiction) also subordinate to him.
(2) Where the Assessing Officer or Assessing Officers from E
whom the case is to be transferred and the Assessing
Officer or Assessing Officers to whom the case is to be
transferred are not subordinate to the same Director
General or Chief Commissioner or Commissioner,-
F
(a) where the Directors General or Chief Commissioners
or Commissioners to whom such Assessing Officers are
subordinate are in agreement, then the Director General
or Chief Commissioner or Commissioner from whose
jurisdiction the case is to be transferred may, after giving G
the assessee a reasonable opportunity of being heard in
the matter, wherever it is possible to do so, and after
recording his reasons for doing so, pass the order;
(b) where the Directors General or Chief Commissioners
or Commissioners aforesaid are not in agreement, the H
200 SUPREME COURT REPORTS (2009] 8 S.C.R.
A order transferring the case may, similarly, be passed by
the Board or any such Director General or Chief
Commissioner or 9ommissioner as the Board may, by
notification in the Official Gazette, authorise in this behalf."
The Explanation appended to the said provision states:
B
"Explanation.-- In section 120 and this section, the word
"case", in relation to any person whose name is specified
in any order or direction issued thereunder, means all
proceedings under this Act in respect of any year which
c may be pending on the date of such order or direction or
which may have been completed on or before such date,
and includes also all proceedings under this Act which may
be commenced after the date of such order or direction
in respect of any year."
D
Sections 131 to 136 provide for the administrative powers
of the Commissioner.
Section 253 of the Act provides for appeals to the
Appellate Tribunal. Sub-Section (1) whereof reads thus:
E
253. Appeals to the Appellate Tribunal.
(1) Any assessee aggrieved by any of the following orders "
may appeal to the Appellate Tribunal against such order-
F (a) an order passed by a Deputy Commissioner (Appeals)
before the 1st day of October, 1998 or, as the case may
be, a Commissioner (Appeals) under section 154, section
250, section 271, section 271A or section 272A; or
G (b) an order passed by an Assessing Officer under clause
(c) of section 158BC, in respect of search initiated under
section 132 or books of account, other documents or any
assets requisitioned under section 132A, after the 3oth day
of June, 1995, but before the 1st day of January, 1997; or
H
COMMNR. OF INCOME TAX, SHIMLA v. GREENWORLD 201
CORP. PARWANOO [S.B. SINHA, J.]
(ba) an order passed by an Assessing Officer under sub- A
section (1) of section 115VZC; or
(c) an order passed by a Commissioner under section
12AA or under clause (vi) of sub-section (5) of section 80G
or under section 263 or under section 271 or under section B
272A or an order passed by him under section 154
amending his order under section 263 or an order passed
by a Chief Commissioner or a Director General or a
Director under section 272A."
An appeal before the High Court would lie on a substantial C
question of law as provided for under Section 260A of the Act.
22. We may, at this juncture, also notice the CBDT circular
issued on 3.7.2001 vesting powers on different Commissioners;
Item 27 whereof confers power in the Commissioner of Income- o
tax, Delhi-VII, Delhi to exercise jurisdiction in respect of offices
of the Income Tax Assessing Officer situate at Civil Lines (No.
114).
23. Before, however, adverting to the jurisdictional issue
· raised by the Assessee herein, we may consider the jurisdiction E
of the Commissioner of Income-tax to issue notice in terms of
•
Section 263 of the Act. It provides for a revisional power. It has
its own limitations. An order can be interfered suo motu by the
said authority not only when an order passed by the Assessing
Officer is erroneous but also when it is prejudicial to the F
interests of the Revenue. Both the conditions precedent for
exercising the jurisdiction under Section 263 of the Act are
conjunctive and not disjunctive.
24. An order of assessment passed by an Income-tax G
Officer, therefore, should not be interfered with only because
another view is possible. The Commissioner of Income-tax,
however, has specified a number of reasons in support of its
order, namely, (1) on non-fulfillment of pre-requisite conditions
for deduction under Section 80-IA/80-IB - it was held that the
H
202 SUPREME COURT REPORTS [2009) 8 S.C.R.
A activities of the assessee do not amount to manufacturing; (2)
little consumption of electricity and thus manufacturing is without
the aid of power; (3) non-employment of requisite .workers in
manufacturing process; (4) non-fulfillment of the condition of
new plant and machinery; (5) extra-ordinary high profits; (6)
B abrupt closure of business; (7) no reason for more than ordinary
profits; (8) books of accounts incomplete and unreliable; (9) the
manufacturing units at Parwanoo were not genuinely run; (10)
high profits have been declared.
C In regard to reasons for more than ordinary profits, it was
stated:
"12.1. Many of the essential expenses without which
business cannot be run or either not debited at all or have
been suppressed considerably. Depreciation of assets
D such as furniture, fixtures, car, scooter etc. has also been
claimed at half the rate while have been with the assessee
through out the year. The lower claim of depreciation
prejudices the revenues case for the subsequent years
also."
E
It was concluded:
"15.6. Keeping in view the totality of the facts and
circumstances of the case, the only inescapable conclusion
in this case is that the assessee has/had no genuine
F manufacturing unit at Parwanoo. The Parwanoo base is
being only used as a fa<;:ade to convert/route its otherwise
undisclosed income from undisclosed sources through the
units at Parwanoo to claim deduction u/s 801A/801B.
Otherwise, there was no reason that the partners should
G not have stationed themselves at Parwanoo or nearby.
There is no justification for abrupt closure of almost each
of the three units in the 4th or 5th year when they were
yielding peak profits. The Unit No. 1 and Unit 2 were closed
following a surprise survey u/s 133A which revealed that
H there was little industrial activity in the premises at
COMMNR. OF INCOME TAX, SHIMLA v. GREENWORLD 203
CORP. PARWANOO [S.B. SINHA, J.]
Parwanoo. It was with a view to avoid the embarrassing A
situation of defending the indefensible that the assessee
deemed it fit to show these units as having been closed
before the date of Survey in the accounting period relevant
to A.Y. 2000-01."
B
It was held:
16. I have carefully considered the written submission
of the assessee and these are not acceptable as
being incorrect. In view of the above, I am of the
view that the Assessing Officer has acted not only C
erroneously, but also in a manner prejudicial to the
interest of revenue by allowing the deduction u/s
8018 in the assessment order dated 19.12.2002
where he had brought substantial amount of
evidence against it on record and proved beyond D
all reasonable doubts that the assessee had falsely
made claim· of heavy deductions knowing fully well:
that its activities/operations did not amount to
manufacturing; E
that the manufacturing, if any, was not carried with
tt)e aid of power; ·
that it does not fulfill the condition of n~w Plant &
Machinery; : F
that it did not satisfy the condition of employment
of 20 workers throughout or through the substantial
part of the year, and
that the declared profits were reasonably high and G
.
I
exorbitant and non genuine also."
On the aforementioned finding, it was held:
"16.3. Under the circumstances, I am left with no alternative .H
204 SUPREME COURT REPORTS [2009) 8 S.C.R.
A but to decide the proceedings on the basis of material on
record. In the assessment year under review, I estimate the
assessee's income from Units at Parwanoo at 5% of the
declared turnover. The income shown in excess of 5%
amount is treated as undisclosed income from
B undisclosed sources. As the assessee does not fulfill many.
of the conditions for being entitled to deduction u/s 801A/
18, no part of the total income, not even the one estimated
@5% of the turnover at Parwanoo, would be entitled for
deduction u/s 801A/IB."
c Other directions were issued and diverse proceedings
were also directed to be initiated.
25. Indisputably, the Assessee carried the matter in
appeal. Before the Appellate Authority, a large number of
D grounds were raised. We may, however, notice that a question •
with regard to the propriety on the part of the Commissioner of
Income-tax to interfere with the functions of the Assessing
Officer was raised, stating that the said order was passed at
the dictate of the higher authorities.
E
26. The Tribunal in its order dated 15.4.2005 referred to
in great details the respective contentions raised by the parties
before it. It, however, went to the merit of the matter to opine
inter alia that the machineries were installed; production of
finished goods was shown in the books of accounts; Assessee
F had furnished explanation with regard to the queries made and
also filed its detailed reply as required by the Assessing Officer;
books of account have been produced by the Assessee before
the Assessing Officer as would appear from the letter of the
Assessing Officer dated 18.10.2002; the activities of the
G Assessee amounted to manufacture and it was wrongly held
by the Commissioner of Income-tax that the unit of the
Assessee was not registered with the Central Excise
Department; it was exempt from payment of excise duty. It was
·furthermore held that there was no error in the order of
H assessment passed by the Assessing Officer.
COMMNR. OF INCOME TAX, SHIMLA v. GREENWORLD 205
CORP. PARWANOO [S.B. SINHA, J.]
It was observed: A
"38. Similarly, the other discrepancies sought to be
pointed out by the learned CIT in his impugned order were
duly explained on behalf of the assessee firm leaving no
error in the order of assessment passed by the Assessing 8
Officer u/s 143(3). For instance, the lower claim of the
assessee for depreciation in the year under consideration
was based on straight line method followed by the
assessee and since the same method followed
cohsistently in the preceding years was accepted by the C
Department, the order of the Assessing Officer accepting
the same even in the year under consideration as per rule
of consistency could not be held to be erroneous. In any
case, the entire income of the assessee being deductible
u/s 801A, the lower claim of depreciation was not causing
any prejudice to the interest of Revenue at least in the year D
under consideration and the apprehension of the learned
CIT about such prejudice which may be caused to the .
Revenue in the subsequent years was based on
assumptions and surmises depending on ultimate
eventualities like the one happened in the present case E
when the units were finally closed down by the assessee
after five years. Even the other discrepancies pointed out
~ by the learned CIT in his impugned order in terms of
maintenance of stock record and books of accounts
including cash book were duly examined by the Assessing F
Officer as is evident from the specific queries raised by
her in writing seeking clarification/explanation from the
assessee and the elaborate submissions made in reply
on behalf of the assessee explaining/clarifying each and
every query so raised. Even the closure of unit by the G
assessee firm situated at Parwanoo despite substantial
profit was entirely a decision taken by the assessee which
might have been influenced by different considerations and
in any case, this aspect was not relevant so much so to
make the assessment completed by the Assessing Officer H
206 SUPREME COURT REPORTS (2009] 8 S.C.R.
A to be erroneous for non-consideration of the same."
We must also place on record that the incumbent of the
office of the CIT (Shimla) himself appeared before the Tribunal
which is a bit unusual.
8 27. In fact, in the memo of appeal, the Revenue went to
the extent of attributing bias to the Tribunal, stating that after
the great amount of arguments that Shri A.K. Manchanda, CIT,
Shimla who was himself the respondent also and had a natural,
legal and constitutional right to defend his case that the Hon'ble
C Tribunal permitted him to represent the case on facts subject
to the condition that he would not be permitted to address the
bench on legal issue.
28. The High Court furthennore noticed the objection of the
0 Assessee that CIT (Shimla) could not maintain appeal before
it. It furthennore noticed the question raised before it for the first
time that the Assessment Order has been passed by the
Assessing Officer at the dictates of the higher authorities.
Before the High Court as many as 12 questions were
E raised.
The High Court held:
"37. The aforesaid discussion pertaining to the
interpretation of Sections 150 (1) and 153(3)(ii) including
F
the operation of Section 149, prescribing limitation for
issue of notice, under Section 148 and Section 153(2)
providing limitation for passing an order, under Section
147, however, does not mean that the Commissioner of
Income Tax, in exercise of his power, under Section 263
G of the Income Tax Act, cannot record a finding or give a
direction for re-opening the assessment pertaining to
assessment years other than the assessment year(s)
covered by the revisional proceedings. The only effect of
the above discussion and interpretation is that the bar of
H limitation contained in Sections 149 and 153 (2) will not
COMMNR. OF INCOME TAX, SHIMLA v. GREENWORLD 207
j CORP. PARWANOO [S.B. SINHA, J.)
be lifted, if the order or the finding or the direction of the A
appellate or the revisional authority, pertain to an
assessment year other than the assessment year, which
was the subject matter of the appellate or revisional
proceedings, unless the case is covered by Explanations
2 and 3 to Section 153. In other words, the Revenue cannot B
successfully press into service the provisions of Sections
150(1) and 153(2) lifting the bar of limitation in cases
where the order of revisional or appellate authority relates
to assessment year (s) other than the assessment year(s) .
to which the appeal or revision pertained."
'
c
In regard to the validity of the notices under Section 14.8
of the Act, it was opined that they were not saved from the,
limitation under the exclusionary provisions of Sections 150(1)
and 153(3)(ii) of the Act. It was directed:
D
"41. Before parting with the judgment, we feel that is
desirable and in the public interests that the Chief
Vigilance Commissioner is approached by the Appointing
Authority of the Commissioner of Income Tax, who
interfered in the statutory functioning of the Assessing E
Officer and pressurized her to pass the order accepting
the return of the assessee to inquire into the matter and if
on inquiry the Chief Vigilance Commissioner finds and
reports that the said Commissioner of Income Tax was
guilty of misconduct, action is taken against him by his F
such Authority, as per law. We direct the Appointing
Authority of the said Commissioner accordingly."
Two sets of review applications were filed; one by Shri
Dhirendra Khare, and another by the Assessee. The High Court
while allowing the Khare's review application expunging all G
'
observations made in its order dated 2.3.2006 rejected the
review application filed by the Assessee.
H
208 SUPREME COURT REPORTS [2009) 8 S.C.R.
A JURISDICTION UNDER SECTION 263
29. The scope of provisions of Section 263 of the Act is
no longer res integra. The power to exercise of suo motu of
revision in terms of Section 263(1) is in the nature of
supervisory jurisdiction and same can be exercised only if the
8
circumstances specified therein, viz., (1) the order is erroneous;
(2) by virtue of the order being erroneous prejudice has been
caused to the interest of the revenue, exist.
In Malabar Industrial Co. Ltd. vs. CIT [243 ITR 83 (SC)] :
C [(2000) 2 SCC 718), this Court held:
"7. 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
D 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.
E
)()()( )()()( )()()(
10. The phrase 'prejudicial to the interests of the revenue'
has to be read in conjunction with an erroneous order
F passed by the assessing officer. Every loss of revenue
as a consequence of an order of 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
G 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 this court that
H
COMMNR. OF INCOME TAX, SHIMLA v. GREENWORLD 209
CORP. PARWANOO [S.B. SINHA, J.]
.l
where a sum not earned by a person is assessed as A
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."
B
(emphasis supplied)
The principle laid down therein was followed in
Commissioner of Income-Tax vs. Max India Ltd. [(2007) 295
ITR 282 (SC)], stating:
c
"In our view at the relevant time two views were possible
on the word "profits" in the proviso to Section 80HHC(3).
It is true that vide the 2005 amendment the law has been
clarified with retrospective effect by insertion of the word
"loss" in the new proviso. We express no opinion on the D
scope of the said amendment of 2005. Suffice it to state
that in this particular case when the order of the
Commissioner was passed under Section 263 of the
Income Tax Act, 1961, two views on the said word "profits"
existed."
E
Referring to Malabar Industrial Co. Ltd. (supra), it was
observed:
"Every loss of revenue as a consequence of an order of
the assessing officer cannot be treated as prejudicial to F
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 G
• 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 is beyond any doubt or dispute that only in terms of the
directions issued by the Commissioner dated 12.7.2004 under H
210 SUPREME COURT REPORTS [2009] 8 S.C.R.
•
A Section 263 of the Act, notices under Section 148 of the Act
were issued.
30. Indisputably, CIT (Shimla) had no jurisdiction to issue
directions. Notices issued pursuant thereto would be bad in law.
We may, however, place on record that the Revenue in the 'List
B
of Dates' while questioning the observations made by the High
Court that the notices under Section 148 of the Act for
Assessment Years 1996-97 and 1997-98 are not saved from
the rigors of the law of limitation, under the exclusionary
provisions of Sections 150(1) and 153(3)(ii) of the Act, stated:
c
"In this regard, it is important to note that these notices
were issued to give effect to the directions contained in
the revision order u/s 263 passed by the CIT on 12.7.2004
unlike Section 149 of the Act, there is no time limit u/s
D 150(1) that starts with non obstante clause and to that
extent the observations of the Hon'ble High court are in
error.
Further Section 150(2) provides necessary
restriction on Section 150(1) and even under the said
E
restriction provided by Section 150(2), the issue of notices
u/s 148 of the AY 1996-97 and 1997-98 in instant case is
within the restricted time limit provided u/s 150(2) of the
IT Act." '
F Section 150 of the Act reads as under:
"150 - Provision for cases where assessment is in
pursuance of an order on appeal, etc. (1) Notwithstanding
anything contained in section 149, the notice under section
G 148 may be issued at any time for the purpose of making
an assessment or reassessment or recomputation in
consequence of or to give effect to any finding or direction
contained in an order passed by any authority in any
proceeding under this Act by way of appeal, reference or
revision or by a Court in any proceeding under any other
H
COMMNR. OF INCOME TAX, SHIMLA v. GREENWORLD 211
CORP. PARWANOO [S.B. SINHA, J.]
.I
law. A
(2) The provisions of sub-section (1) shall not apply in any
case where any such assessment. reassessment or
recomputation as is referred to in that sub-section relates
to an assessment year in respect of which an assessment,
8
reassessment or recomputation could not have been
made at the time the order which was the subject-matter
of the appeal, reference or revision, as the case may be,
was made by reason of any other provision limiting the time
within which any action for assessment, reassessment or
recomputation may be taken." C
The aforementioned provision although appears to be of
a very wide amplitude, but would not mean that recourse to
reopening of the proceedings in terms of Sections 147 and 148
of the Act can be initiated at any point of time whatsoever. Such o
a proceeding can be initiated only within the period of limitation
prescribed therefor as contained in Section 149 of the Act.
Section 150 (1) of the Act is an exception to the
aforementioned provision. It brings within its ambit only such E
cases where reopening of the proceedings may be necessary
to comply with an order of the higher authority. For the said
purpose, the records of the proceedings must be before the
) appropriate authority. It must examine the records of the
proceedings. If there is no proceeding before it or if the
Assessment year in question is also not .a matter which would F
fall for consideration before the higher authority, Section 150
of the Act will have no application.
In Income-Tax Officer, A-Ward, Sitapur vs. Murlidhar
Bhagwan Das [52 ITR 335 (SC)], it was held: G
"The proceedings would be in time, if the second proviso
to section 34(3) of the Act could be invoked. The question,
therefore, is what is the true meaning of the terms of the
second proviso to section 34(3) of the Act. It reads:
H
212 SUPREME COURT REPORTS [2009] 8 S.C.R.
A "Provided further that nothing in this section limiting
the time within which any action may be taken, or any order,
asse§sment or re-assessment may be made, shall apply
to a r~-asse$sment made under section 27 or to an
asse$sment or re-assessment made on the assessee or
8 any person in consequence of or to give effect to any
finding or direction contained in an order under section 31,
section 33, section 33A, section 338, section 66 or
section 66A." j
Prima facie this proviso lifts the ban of limitation
c imposed by the other provisions of the section in the matter
of taking an action in respect of or making an order of
assessment or re-assessment falling within the scope of
the said proviso. The scope of the proviso is confined to
an assessment or re-assessment made on the assessee
D or any person in consequence of an order to give eff~ct
to any finding or direction contained in any order made
under section 31 i.e., in an appeal before the Assistant
Appellate Commissioner, under section 33 i.e., in an
appeal before the Tribunal, under section 33A i.e., in a
E revision before the Commissioner, under section 338 i.e.,
in a revision before the Commissioner against an order
of the Income-tax Officer, and under sections 66 and 66A
i.e., in a reference to the High Court and appeal against
the High Court's order to the Supreme Court. Learned
F counsel for the appellant contends that the scope of the
proviso is only confined to the assessment of the year that
is the subject-matter of the appeal or the revision, as the
case may be. Learned counsel for the Department argues
that the comprehensive phraseology used in the proviso
takes in its broad sweep any finding given by the
G
appropriate authority necessary for the disposal of the
appeal or the revision, as the case may be, and to any
direction given by the said authority to effectuate its finding
and tnat the said finding or direction may be in respect of
any year or any person. As the phraseology used iA the
H
COMMNR. OF INCOME TAX, SHIMLJ\ v. GREENWORLD 213
CORP. PARWANOO [S.B. SINHA, J.]
proviso is not clear or unambiguous, the question rai~~g A
c~nnot be satisfactorily resolved without having a precise
appreciation of a brief history of section 34 of the Act
01.1lmin<1ting in the ~nactment of the p.rgyi~o in the present
form."
B
This Court notic;ed the c;levelopm1mt of law ?.§ also th~ fa.ct
that the decision of the lncome-Tc:ix Offici;ir giv~f! in a partic1,1lar
year does not operate as res judicata to opine:
"The lifting of the ban was only to give effect to the orders
that may be made by the appellate, revisional or reviewing C
tribunal within the scope of its jurisdiction. 1t the intention
was to remove the period of limitation in respect of any
a5sessment against any person, the proviso would not
have been added as a proviso to sub-section (3) of section
34, which deals with completion of an assessment, but D
would have been added to sub-section (1) thereof."
In regard to the question that what would be the meaning
of the term 'finding' or 'direction', it was held:
"A "finding", therefore, can be only that which is necessary E
for the disposal of an appeal in respect of an assessment
of a particular year. The Appellate Assistant
Commissioner may hold, on the evidence, that the income
shown by the assessee is not the income for the relevant
year and thereby exclude that income from the assessment F
of the year under appeal. The finding in that context is that
that income does not belong to the relevant yeaf:. He may
incidentally find that the income belongs to another year,
but that is not a finding necessary for the disposal of an
- appeal in respect of the year of assessment in question. G
The expression "direction" cannot be construed in vacuum,
but must be collated to the directions which the Appellate
Assistant Commissioner can give under section 31. Under
that section he can give directions, inter alia, under section
31(3)(b), (c) or (e) or section 31(4). The expression H
214 SUPREME COURT REPORTS (2009] 8 S.C.R.
A "directions" in the proviso could only refer to the directions
which the Appellate Assistant Commissioner or other
tribunals can issue under the powers conferred on him or
them under the respective sections. Therefore, the
expression "finding" as well as the expression "direction"
B can be given full meaning, namely, that the finding is a
finding necessary for giving relief in respect of the
assessment of the year in question and the direction is a
direction which the appellate or revisional authority, as the ,
case may be, is empowered to give under the sections
c mentioned therein."
It was clarified that the words 'any person' would refer to
those who were not eo nominee parties to the appeal although
the assessment of their income would depend upon the
assessments of the Assessee.
D
Mudholkar, J. speaking for the minority referred to this
Court's decision in S.C. Prashar vs. Vasantsen Dwarkadas
((1963) 49 ITR 1] wherein the validity of the aforementioned
provisions was questioned; read down the proviso appended
E to Section 34(1) stating:
"No doubt, this Court has recently held in S. C. Prashar &
Anr. v. Vasantsen Dwarkadas & Ors. ((1963) 49 ITR 1] that
the proviso in so far as it removes the bar of limitation with
respect to persons other than the assessee, is invalid as
F it infringes the provisions of Art. 14 of the Constitution.
That, however, is a question apart. What we have to
consider is the legislative intent, and for ascertaining it, it
is legitimate to look also at that part of the enactment which
has been held to be invalid."
G
To the similar effect are the decisions of this Court In N.
KT. Sivalingam Chettiar vs. Commissioner of Income-Tax,
Madras (66 ITR 586 (SC)] and Rajinder Nath vs.
Commissioner of Income-Tax, Delhi [120 ITR 14 (SC)].
-
H
COMMNR. OF INCOME TAX, SHIMLA v. GREENWORLD 215
CORP. PARWANOO [S.8. SINHA, J.)
i
In N.KT. Sivalingam Chettiar (supra), this Court held: A
"Counsel for the commissioner contends that the principle
of Murlidhar Bhagwan Das's case does not govern the
present case, because in that case proceedings for
assessment were commenced in consequence of or to
B
give effect to an express direction of the Appellate
Assistant Commissioner and it was held by this court that
a direction not necessary for the disposal of the appeal in
respect of the assessment of the year in question before
him was inoperative to remove the bar of limitation. C
Counsel says that, where a mere finding in recorded by
the appellate or revisional authority different considerations
arise and the bar of limitation prescribed by section 34
would be removed if a proceeding be commenced for
assessment in consequence of or to give effect to the
finding. This argument has, in our judgment, no force. D
xxx xxx xxx
It is clear from the observation made by this court
that a finding within the second proviso to section 34(3) E
must be necessary for giving relief in respect of the
assessment of the year in question. The court in that case
expressly lent approval to the observations of the Allahabad
High Court in Pt. Hazari Lal v. Income-tax Officer, Kanpur
that the word "finding" only covers "material questions
which arise in a particular case for decision by the authority
F
hearing the case or the appeal which, being necessary for
passing the final order or giving the final decision in the
appeal, has been the subject of controversy between the
interested parties or on which the parties concerned have
been given a hearing." G
In Rajinder Nath (supra), this Court held:
"The expressions "finding" and "direction" are limited in
meaning. A finding given in an appeal, revision or H
216 SUPREME COURT REPORTS [2009) 8 S.C.R.
A reference arising out of an assessment must be a finding
necessary for the disposal of the particular case, that is
to say, in respect of the particular assessee and in relation
to the particular assessment year. To be a necessary
finding, it must be directly involved in the disposal of the
B case. It is possible in certain cases that in order to render
a finding in respect of A, a finding in respect of B may be
called for. For instance, where the facts show that the
income can belong either to A or B and to no one else, a
finding that it belongs to B or does not belong to B would
c be determinative of the issue whether it can be taxed as
A's income. A finding respecting B is intimately involved
as a step in the process of reaching the ultimate finding
respecting A If, however, the finding as to A's liability can
be directly arrived at without necessitating a finding in
respect of B, then a finding made in respect of B is an
D
incidental finding only. It is not a finding necessary for the
disposal of the case pertaining to A The same. principles
seem to apply when the question is whether the income
under enquiry is taxable in the assessment year under
consideration or any other assessment year. As regards
E the expression "direction" in Section 153(3)(ii) of the Act,
it is now well settled that it must be an express direction
necessary for the disposal of the case before the authority
or court. It must also be a direction which the authority or
court is empowered to give while deciding the case before
F it. The expressions "finding" and "direction" in Section
153(3)(ii) of the Act must be accordingly confined. Section ,,
153(3)(ii) is not a provision enlarging the furisdiction of the
authority or court. It is a provision which merely raises the
bar of limitation of making an assessment order under
G Section 143 or Section 144 or Section 147. Income Tax
Officer, A-Ward, Sitapur v. Murlidhar Bhagwan Das 52
l.T.R. 335 and N. Kt. Sivalingam Chettiar v.
Commissioner of Income-tax, Madras 66 l.T.R. 586
(S.C.). The question formulated by the Tribunal raises the
H point whether the Appellate Assistant Commissioner could
COMMNR. OF INCOME TAX, SHIMLA v. GREENWORLD 217
CORP. PARWANOO [S.B. SINHA, J.]
convert the provisions of Section 147(1) into those of A
Section 153(3)(ii) of the Act. in view of Section 153(3)(ii)
dealing with limitation merely, it is not easy to appreciate
the relevance or validity of the point."
It is, thus, evident that jurisdiction to issue directions is B
limited.
31. We may now consider the effect of the 'Noting'. The
Noting of the Assessing Officer was specific. It was stated so
in the proceedings sheet at the instance of the higher
authorities itself. No doubt in terms of the circular letter issued c
by CBDT, the Commissioner or for that matter any other higher
authority may have supervisory jurisdiction but it is difficult to
conceive that even the merit of the decision shall be discussed
and the same shall be rendered at the instance of the higher
authority who, as noticed hereinbefore, is a supervisory D
authority. It is one thing to say that while making the orders of
assessment the Asses:;ing Officer shall be bound by the
statutory circulars issued by CBDT but it is another thing to say
that the assessing authority exercising quasi judicial function
keeping in view the scheme contained in the Act, would lose E
its independence to pass an independent order of assessment.
., In State of Kera/a & Ors. vs. Kurian Abraham (P) Ltd. &
Anr. [(2008) 3 SCC 582), noticing Union of India vs. Azadi
Bachao Ando/an [(2004) 10 SCC 1], this Court held:
F
"26. In Union of India and Anr. vs. Azadi Bachao Ando/an,
a circular was issued by CBDT under Section 119 of the
Income-tax Act, 1961. It was challenged ir:iter alia on the
ground that it was ultra vires the provisions of Section
.19(1 ). The argument was rejected by this Court in the G
~
following words: (SCC p.32, para 47)
'47. It was contended successfully before the High
Court that the circular is ultra vires the provisions of Section
119. Sub-section (1) of Section 119 is deliberately worded. H
218 SUPREME COURT REPORTS [2009] 8 S.C.R.
A in a general manner so that CBDT is enabled to issue
appropriate orders, instructions or directions to the
'
subordinate authorities "as it may deem fit for the proper
administration of this Act". As long as the circular
emanates from CBDT and contains orders, instructions or
B directions pertaining to proper administration of the Act,
it is relatable to the source of power under Section 119
irrespective of its nomenclature. Apart from Sub-section
(1), Sub-section (2) of Section 119 also enables CBDT
'for the purpose of proper and efficient
c management of the work of assessment and
collection of revenue, to issue appropriate orders,
general or special, in respect of any class of
income or class of cases, setting forth directions or
instructions (not being prejudicial to the assessees)
D as to the guidelines, principles or procedures to be ....
followed by other Income Tax Authorities in the work
relating to assessment or collection of revenue or
the initiation of proceedings for the imposition of
penalties.
E
In our view, the High Court was not justified in reading the
circular as not complying with the provisions of Section
119. The circular falls well within the parameters of the
powers exercisable by CBDT under Section 119 of the ..
F Act.'
27. Lastly, the binding effect of the said circular No. 16/98
needs to be kept in mind. As stated above, the said
circular was issued by the Board by exercising statutory
powers vested in it under Section 3(1A). As stated above,
G Section 3(1A) provides for an enabling power of the Board
which was recognized as an Authority under the 1963 Act.
The said power was to be exercised in special cases. As
stated above, granting of administrative reliefs by the
Board came within its authority. As stated abol(e, the said
H circular was issued for just and fair administration of the
COMMNR. OF INCOME TAX, SHIMLA v. GREENWORLD 219
CORP. PARWANOO [S.S. SINHA, J.]
1963 Act. As stated above, Section 3(1A) is similar to A
Section 119(1) of the 1961 Act. The circulars of this nature
are issued by the Board consisting of highest senior
officers in the Revenue Department. These circulars are
to be respected by the officers working under the
supervision of the Board. These circulars are binding on B
all the authorities administering the tax department. The
power of the Board to issue such circular is traceable to
Section 3(1A)(c) of the Act. The said circular is statutory
in nature. Therefore, it is binding on the Department though
not on the courts and the assessees. In the present case, c
as stated above, completed assessments were sought to
be reopened by the AO on the ground that the said circular
No. 16/98 was not binding. Such an approach is
unsustainable in the eyes of law. If the State Government
was of the view that such circulars are illegal or that they D
are ultra vires Section 3(1A), which it is not, it was open
to. the State to nullify/withdraw the said circular under
Section 60 of the 1963 Act. Till today, the circular continue
to remain in force. Till today, it has not been withdrawn. In
the circumstances, it is not open to the officers
administering the law working under the Board of Revenue E
to say that the said circular is not binding on them. If such
a contention was to be accepted, it would lead to chaos ·
and indiscipline in the administration of tax laws."
32. When a statute provides for different hierarchies F
providing for forums in r-elation to passing of an order as also
appellate or original order; by no stretch of imagination a higher
authority can interfere with the independence which is the basic
feature of any statutory scheme involving adjudicatory process.
G
In Commissioner of Police, Bombay vs. Gordhandas
Bhanji [AIR 1952 SC 16], this Court has held:
[7] This sanction occasioned representations to
Government presumably by the "public" who were
opposing the scheme. Anyway, the Commissioner wrote H
220 SUPREME COURT REPORTS [2009) 8 S.C.R.
A to the respondent on the 19/20th September, 1947, and
direct him "not to proceed with the construction of the
cinema pending Government orders." Shortly after, on the
27/30th September, 1947, the Commissioner sent the
respondent the following communication:
B
"I am directed by Government to inform you that the
permission to erect a cinema at the above site granted to
you under this office letter... dated the 16th July, 1947, is
hereby cancelled."
c It was furthermore opined:
"We are clear that public orders, publicly made, in exercise
of a statutory authority cannot be construed in the light of
explanations subsequently given by the officer making the
order of what he meant, or of what was in his mind, or what
D
he intended to do. Public orders made by public .
authorities are meant to have public effect and are
intended to affect the actings and conduct of those to
whom they are addressed and must be construed
objectively with reference to the language used in the order
E
itself."
{See also Pancham Chand & Ors. vs. State of Himachal
Pradesh & Ors. [(2008) 7 SCC 117)
F Yet again in The Purtabpur Company Ltd. vs. Cane
Commissioner of Bihar [AIR 1970 SC 1896), this Court held:
" ... The power exercisable by the Cane Commissioner
under Clause 6(1) is a statutory power. He alone could
have exercised that power. While exercising that power he
G cannot abdicate his responsibility in favour of anyone - not
even in favour of the State Government or the Chief
Minister. It was not proper for the Chief Minister to have
interfered with the functions of the Cane Commissioner.
In this case what has happened is that the power of the
H Cane Commissioner has been exercised by the Chief
COMMNR. OF INCOME TAX, SHIMLA v. GREENWORLD 221
CORP. PARWANOO [S.B. SINHA, J.]
Minister, an authority not recognised by Clause (6) read A
with Clause (11) but the responsibility for making those
orders was asked to be taken by the Cane Commissioner.
14. The executive officers entrusted with statutory
discretions may in some cases be obliged to take into B
account considerations of public policy and in some
context the policy of a Minister or the Government as a
whole when it is a relevant factor in weighing the policy but
this will not absolve them from their duty to exercise their
personal judgment in individual cases unless explicit
statutory provision has been made for them to be given
c
binding instructions by a superior."
[See also Tarlochan Dev Shanna vs. State of Punjab &
ors. ((2001) 6 sec 260)
D
33. The other question which requires determination is as
to whether the CIT (Shimla) could maintain an appeal before
the High Court.
An appeal is ordinarily maintainable at the instance of the
Assessing Officer. Not only an order of assessment was E
passed but also CIT (Shimla) had already passed an order.
Notices under Section 148 of the Act had already been issued
• much prior thereto .
Before us, reliance has been placed upon some decisions F
by Mr. Salve to contend that CIT (Shimla) has no jurisdiction.
Even in a situation of this nature such a view appears to have
been taken in Commissioner of Income Tax vs. Sahara India
Financial Corporation Ltd. [212 CTR 178 (Delhi)] wherein a
question whether the appeal preferred by the Revenue in the G
~
Delhi High Court was questioned by the assesse on the ground
of lack of territorial jurisdiction, it was held:
"11. Learned Counsel for the assessed contended that··
since the assessment orders had already been passed in
respect of the assessed and a decision had also been H
\
222 SUPREME COURT REPORTS (2009] 8 S.C.R.
A taken by the Tribunal, there was no question of transferring
the jurisdiction in respect of the assessed from one place
to another. We are of the view that this argument is
completely misplaced. The Explanation to Section 127(4)
of the Act tells us what the word 'case' rneans in relation
B to any person whose name is specified in any order or
direction issued under Section 127 of the Act. The
Explanation says that 'case' means all proceedings under
the Act in respect of any year:
(i) which may be pending on the date of the order or
c direction;
(ii) which may have been completed on or before the date
of the order or direction;
D (iii) including all proceedings which may be commenced
after the date of the order or direction in respect of any
year.
12. In other words, the Explanation to Section 127(4) of
the Act talks of proceedings, past, present and future in
E respect of a person whose name is specified in the order
or direction passed under Section 127 of the Act and this
would apply to any previous year.
•
13. The order passed under Section 127(2) of the Act
F clearly relates to the 'case' of the assessed mentioned in
the Schedule, and by virtue of the Explanation, all future
proceedings that may be taken under the Act (obviously
including an appeal under Section 260A thereof) would
now have to be in harmony with the order passed under
G Section 127(2) of the Act. Consequently, the jurisdiction
J_
in respect of the 'case' and the assessed having been
shifted from Lucknow to Delhi, the Revenue could file the
appeal under Section 260A of the Act only in Delhi and it
could not have filed an appeal in the Lucknow Bench of
the Allahabad High Court."
H
COMMNR, OF INCOME TAX, SHIMLA v. GREENWORLD 223
CORP. PARWANOO [S.B. SINHA, J.]
Yet again in Commissioner of Income-Tax, West Bengal A
& Anr. vs. Anil Kumar Roy Chowdhury & Anr. [66 ITR 367
(SC)] this Court opined:
"It may be that the Income-tax Officer who completed the
original assessment would also be concerned with the B
appeal to be filed by the Commissioner, but it does not
mean that he is exclusively so concerned. If the case had
been transferred by the Commissioner or the Board of ·
Revenue from the Income-tax Officer who completed the
assessment to another Income-tax Officer, then obviously C
the former officer will have no concern with the appeal. But
if there has been no such transfer then we are unable to
appreciate why he alone is concerned with the appeal. The
Income-tax Officers can have concurrent jurisdiction over
some matters. On illustration of this is provided by section
~M)." D
The High Court dissented from the decision of the
Punjab High Court in R. B. L. Benarsi Das v.
Commissioner of Income-tax. The Punjab High Court in
that case held that there was nothing in section 33(2) to E
prohibit the Commissioner from directing any Income-tax
Officer, other than the one who in fact passed the
assessment order, to appeal. We consider that it is not
correct to say that any Income-tax Officer who has concern
with the appeal. F
The High Court rightly relied on Commissioner of
Income-tax v. S. Sarkar & Co. in dissenting from the view
expressed by the Punjab High <;ourt in R. B. L. Benarsi
Das v. Commissioner of Income-tax, but in our view the
High Court erred in holding that the facts of the present G ,.
case are governed by the earlier decision of the Calcutta
High Court. In this case, on the facts found by the Appellate
Tribunal, one Income-tax Officer had passed the
assessment order while another Income-tax Officer has
H
224 SUPREME COURT REPORTS [2009] 8 S.C.R.
A jurisdiction over the assessee. In our view, the latter
Income-tax Officer having jurisdiction over the assessee
could be directed by the Commissioner to file the appeal."
In the aforementioned case, therefore, this Court
proceeded on the basis that the concurrent jurisdiction of two
8
authorities is permissible.
In Uday Shankar Triyar vs. Ram Kalewar Prasad Singh
& Anr. [(2006) 1 SCC 75], this Court referring to the provisions
of the Code of Civil Procedure held as under:
c
"17. Non-compliance with any procedural requirement
relating to a pleading, memorandum of appeal or ,
application or petition for relief should not entail automatic
dismissal or rejection, unless the relevant statute or rule
D so mandates. Procedural defects and irregularities which
are curable should not be allowed to defeat substantive
rights or to cause injustice. Procedure, a hand-maid to
justice, should never be made a tool to deny justice or
perpetuate injustice, by any oppressive or punitive use. The
well recognized exceptions to this principle are:
E
(i) where the Statute prescribing the procedure, also
prescribes specifically the consequence of non-
compliance;
F (ii) where the procedural defect is not rectified even after
it is pointed out and due opportunity is given for rectifying
it;
(iii) where the non-compliance or violation is proved to be
deliberate or mischievous;
G
(iv) where the rectification of defect would affect the case
on merits or will affect the jurisdiction of the court;
(v) in case of Memorandum of Appeal, there is complete
H absence of authority and the appeal is presented without
COMMNR. OF INCOME TAX, SHIMLA v. GREENWORLD 225
CORP. PARWANOO [S.B. SINHA, J.]
the knowledge, consent and authority of the appellant;" A
It was a case where the Assessing Officer before whom
the case was transferred completed the proceedings. It was in
the aforementioned context it was opined that new Assessing
Officer assumes jurisdiction exclusively in completing the B
proceedings. Such is not the case here.
34. In this case, CIT (Shimla) had passed an order. His
order was set aside by the Tribunal. He, therefore, in ordinary
course could have preferred an appeal only by the time when
administrative decision could be taken by him to prefer an c
appeal. The right to prefer an appeal arose on the date on
which the Tribunal passed an order. It might have taken some
time to prefer an appeal. Ordinarily, he was the authority who
could have preferred an appeal. By preferring an appeal new
proceedings were initiated. In any event, nothing has been D
shown as to how the assessee was prejudiced.
In a case of this nature, the provisions akin to Section 21
of the Code of Civil Procedure may be held to be applicable
for the purposes of questioning the jurisdiction of the High Court E
to entertain an appeal on the ground of lack of territorial
jurisdiction. In a peculiar case of this nature, we are of the
·• opinion that prejudice must be shown.
{See Kiran Singh & Ors. vs. Chaman Paswan & Ors. [AIR
1954 SC 340] Para 11} F
In Mantoo Sarkar vs. Oriental Insurance Co. Ltd. & Ors.
[2008 (16) SCALE 197], this Court held:
"17. The Tribunal is a court subordinate to the High Court.
G
An appeal against the Tribunal lies before the High Court.
The High Court, while exercising its-appellate power, would
follow the provisions contained in the Code of Civil
Procedure or akin thereto. In view of sub-section (1) of
Section 21 of the Code of Civil Procedure, it was,
therefore, obligatory on the part of the appellate court to H
226 SUPREME COURT REPORTS [2009) 8 S.C.R.
·- A pose unto itself the right question, viz., whether the first
respondent has been able to show sufferance of any
prejudice. If it has not suffered any prejudice or otherwise
no failure of justice had occurred, the High Court should
not have entertained the appeal on that ground alone.
B
18. We, however, while taking that factor into consideration
must place on record that we are not oblivious of the fact
that a decision rendered without jurisdiction would be
coram non juris. Objection in regard to jurisdiction may be
taken at any stage. ( See Chief Engineer, Hyde/ Project
c v. Ravinder Nath , [ (2008) 2 sec 350 I ) wherein inter
alia the decision of this Court in Kiran Singh v. Chaman
Paswan, [AIR 1954 SC 340) was followed, stating:
"26. The Court also relied upon the decision in
D Kiran Singh v. Chaman Pawan [AIR 1954 SC 340)
and quoted (in Harshad Chiman Lal case {[(2005)
7 sec 791), sec pp. 804-805, para 33} therefrom:
{Kiran Singh case (supra), AIR p.342, para6
E '6 .... It is a fundamental principle well established
that a decree passed by a court without
jurisdiction is a nullity, and that its invalidity
could be set up whenever and wherever it is
sought to be enforced or relied upon, even
at the stage of execution and even in
F
collateral proceedings. A defect of
jurisdiction, ... strikes at the very authority of
the court to pass any decree, and such a
defect cannot be cured even by consent of
parties."
G
Though in the aforementioned decision these observations
were made since the defendants before raising the
objection to the territorial jurisdiction had admitted that the
court had the jurisdiction, the force of this decision cannot
H be ignored and it has to be held that such a decree would
COMMNR. OF INCOME TAX, SHIMLA v. GREENWORLD 227
CORP. PARWANOO [S.S. SINHA, J.) ·
continue to be a nullity." A
19. A distinction, however. must be made between a
jurisdiction with reg;m:l to subject matter of the suit and that
of territorial and pecuniary jurisdiction. Whereas in the
case falling within the former category the judgment would
8
be a nullity, in th!:3 h:itter it would not be .. ,"
35. Thi$ case poses before us some peculiar questions,
Whereas the order under Section 263 of the Act and
consequently the notices under Section 148 of the Act have
been held to be not maintainable, we are constrained to think C
that the Assessing Officer had passed an order at the instance
of the higher authority which is illegal. For the aforementioned
purpose, we may not go into the question of bona fide or
otherwise of the authorities under the Income Tax Act. They
might have proceeded bona fide but the order of assessment D
passed by the Assessing Officer on the dictates of the higher
authorities being wholly without jurisdiction, it was a nullity. We,
th!:3refgre, are of the opinion that with a view to do complete
justice between the parties, the assessment proceedings
should be gone through again by the appropriate assessing E
authority.
36. It js true that gespite ord§r passed by the High Court,
CIT (Delhi) has not been impleaded. Presumably, because of
the said defect in the order passed by the High Court of
Himachal Pradesh at Shimla, Revenue could not implead CIT F
(Delhi) as a party in the appeal. CIT (Delhi), however, has been
impleaded as a party in the Special Leave Petition (SLP) filed
by the Assessee. CIT (Pelhi) has although in an irregular
manner filed a rejoinder. Counter affidavit was filed by the
Assessee in the appeal preferred by the Revenue and the G
same is on record. The said authority, therefore, is otherwise
before us.
37. It is now well settled that this Court in exercise of its
extra-ordinary jurisdiction under Article 136 of the Constitution H
228 SUPREME COURT REPORTS [2009) 8 S.C.R.
A of India may, in the event an appropriate case is made out,
either refuse to exercise its discretionary jurisdiction or quash
both the orders if it is found that setting aside of one illegal order
would give rise to another illegality.
In Transmission Corpn. of A.P. Ltd. vs. Lanco Kondapalli
8
Power (P) Ltd. [(2006) 1 SCC 540], this Court held:
"53. It is now well-settled that this Court would not interfere
with an order of the High Court only because it will be
lawful to do so. Article 136 of the Constitution vests this
C Court with a discretionary jurisdiction. In a given case, it
may or may not exercise its power."
We, therefore, in exercise of our jurisdiction under Article
142 of the Constitution of India direct that the assessment be
0 reopened by the Commissioner of Income-tax, Delhi -VII.
38. These appeals are disposed of with the
aforementioned directions. No costs.
G.N. Appeals disposed of.
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