CIT v. Jawahar Bhattacharjee - Taxpublishers.in

SUBSCRIBE FOR FULL CONTENT


The Tax Publishers2012 TaxPub(DT) 1566 (Gau-Trib) : (2012) 045 (I) ITCL 0554 : (2012) 342 ITR 0074 : (2012) 249 CTR 0529 : (2012) 209 TAXMAN 0174 : (2012) 070 DTR 0208 INCOME TAX ACT, 1961 --Revision under section 263--Erroneous and prejudicial orderLack of sufficient enquiry vis-a-vis order of AO being without jurisdiction--The assessee was assessed for the assessment year 2002-03 by the AO giving the benefit of exemption under section 54F, for long-term capital gains from sale of shares. The shares were purchased on 21-4-2000, for Rs. 19,536 and sold on 2-5-2001, for Rs. 6,36,640, i.e., on the increased price of more than 30 times in one year. The CIT held the order to be erroneous and prejudicial to the interests of the revenue and exercised suo motu revisional jurisdiction under section 263. It was, inter alia, observed that while accepting the genuineness of the share transaction, the AO failed to make any enquiry which, in the facts and circumstances, would normally be made to ascertain the capital gain in question. The assessee was not a habitual operator of share market and had no share of any other company; share was not of a well-known company; the price jumped from Rs. 6 per share to Rs. 200 per share within a short span of thirteen months without any apparent reason. The AO could have obtained annual accounts of the company to satisfy himself whether the commercial activities of the company justified such a jump in price. He could have obtained price quotations of the shares on a few dates to examine the reasonableness of the jump. The alleged sellers and buyers should have been examined. Accordingly, the order was held to be erroneous and prejudicial to the interests of the revenue. The AO was directed to reframe the assessment after conducting the necessary enquiries. On appeal of the assessee to the Tribunal, the order of the CIT was set aside on the ground that in the absence of the order of the AO being without jurisdiction, the same could not be held to be 'erroneous' for invoking the jurisdiction under section 263. Held: No doubt, in Rajendra Singh (1990) 79 STC 10 (Gau), an observation was made that erroneous assessment referred to the defect which is jurisdictional in nature, as against substitution of one view for the other, merely on the ground that a different view was possible. If read as a whole, the judgment does not exclude error in assessment order, by ignoring relevant material. Not holding such inquiry as is normal and not applying mind to the relevant material would certainly be 'erroneous' assessment warranting exercise of revisional jurisdiction. Judgment has to be read as a whole and an observation during the course df reasoning in the judgment should not be divorced from the context in which it was used. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being 'erroneous' and non-application of mind and omission to follow natural justice are in same category. The object of the provision of section 263 is to correct an erroneous order prejudicial to the interests of revenue, as the department has no right to file an appeal against the order of the AO. While the power is not meant to be substituted for the power of the AO to make assessment, the same can certainly be exercised when the order of the AO is erroneous and prejudicial to the interests of the revenue. Whether or not the order is erroneous has to be decided from case to case.[Para 8] This court may now consider the view taken in the two judgments of this court in Rajendra Singh (1990) 79 STC 10 (Gau) and Daga Entrade P. Ltd. (2010) 327 ITR 467 (Gau): 2010 TaxPub(DT) 364 (Gau-HC) [Para 10] In Rajendra Singh (1990) 79 STC 10 (Gau), the issue arose in the context of section 21 of the Tripura Sales Tax Act, 1976, which provided for suo motu revisional jurisdiction, which is in pari materia with section 263. The CIT observed that it was not necessary that the order to be revised should be erroneous. The same could be also revised if it was prejudicial to the interests of the revenue. [Para 11] Reference to the above quoted judgment shows that the exercise of the jurisdiction has not been limited to the defect of jurisdiction. It could extend to an order which may be found to be 'erroneous' or 'not in accordance with law' for having been passed 'without making any enquiry in undue haste'. The 'jurisdictional' defect has been referred to in that sense. Only limitation laid down is that the order could not be revised without the same being 'erroneous' merely because a different view could also be taken. It has not been held that even an order passed, ignoring norms or material could not be interfered with under section 263. [Para 12] It is well known that the word 'jurisdiction' does not have a fixed meaning. Though in one sense it means entitlement to enter upon the enquiry in question and in wider sense it implies right to conduct enquiry into the matter in lawful manner. Even if there is jurisdiction to go into a matter, failure to have regard to the relevant material may also render an order without jurisdiction. [Para 13] This court may now refer to Daga Entrade P. Ltd. (2010) 327 ITR 467 (Gau) : 2010 TaxPub(DT) 364 (Gau-HC). Therein, the AO did not make any enquiry, with regard to the appraisal report available with him on the basis of search conducted, showing that the assessee was providing accommodation entries. On this ground, the CIT exercised the suo motu power under section 263 which was held to be not permissible on the ground that the CIT had not discussed the contents of the appraisal report. On further appeal to this court, the assessee supported the order of the Tribunal by submitting that exercise of the suo motu revisional jurisdiction by the CIT was not permissible in the absence of a jurisdictional error in the order of the AO. If the order of the AO was passed ignoring the relevant material, causing prejudice to the interests of the revenue, suo motu revisional jurisdiction could be exercised by the CIT, even if it could be held that there was no jurisdictional error in the order of the AO. [Para 19] No doubt, in Rajendra Singh (1990) 79 STC 10 (Gau), an observation was made that erroneous assessment referred to the defect which is jurisdictional in nature, as against substitution of one view for the other, merely on the ground that a different view was possible. If read as a whole, the judgment does not exclude error in assessment order, by ignoring relevant material. Not holding such inquiry as is normal and not applying mind to the relevant material would certainly be 'erroneous' assessment warranting exercise of revisional jurisdiction. Judgment has to be read as a whole and an observation during the course of reasoning in the judgment should not be divorced from the context in which it was used. The judgment is neither to be interpreted as an Act of Parliament nor as a holy book. If this principle is kept in mind there is no any conflict in the view taken in Rajendra Singh (1990) 79 STC 10 (Gau) and Daga Entrade P. Ltd. (2010) 327 ITR 467 (Gau) : : 2010 TaxPub(DT) 364 (Gau-HC). Disagreement in Daga Entrade P. Ltd. (2010) 327 ITR 467 (Gau) is only to the interpretation which limits the ratio of the judgment by relying only one sentence in isolation divorced from the entire judgment. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being 'erroneous' non-application of mind and omission to follow natural justice are in same category. [Para 22] Accordingly, Daga Entrade P. Ltd. (2010) 327 ITR 467 (Gau) : 2010 TaxPub(DT) 364 (Gau-HC) lays down correct law and the same is not in conflict with the earlier order of this court in Rajendra Singh (1990) 79 STC 10 (Gau). Jurisdiction under section 263 can be exercised whenever it is found that the order of assessment was erroneous and prejudicial to the interests of the revenue. Cases of assessment order passed on wrong assumption of facts, or incorrect application of law, without due application of mind or without following the principles of natural justice are not beyond the scope of section 263. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 1566 (Gau-Trib) : (2012) 045 (I) ITCL 0554 : (2012) 342 ITR 0074 : (2012) 249 CTR 0529 : (2012) 209 TAXMAN 0174 : (2012) 070 DTR 0208

INCOME TAX ACT, 1961

--Revision under section 263--Erroneous and prejudicial orderLack of sufficient enquiry vis-a-vis order of AO being without jurisdiction--The assessee was assessed for the assessment year 2002-03 by the AO giving the benefit of exemption under section 54F, for long-term capital gains from sale of shares. The shares were purchased on 21-4-2000, for Rs. 19,536 and sold on 2-5-2001, for Rs. 6,36,640, i.e., on the increased price of more than 30 times in one year. The CIT held the order to be erroneous and prejudicial to the interests of the revenue and exercised suo motu revisional jurisdiction under section 263. It was, inter alia, observed that while accepting the genuineness of the share transaction, the AO failed to make any enquiry which, in the facts and circumstances, would normally be made to ascertain the capital gain in question. The assessee was not a habitual operator of share market and had no share of any other company; share was not of a well-known company; the price jumped from Rs. 6 per share to Rs. 200 per share within a short span of thirteen months without any apparent reason. The AO could have obtained annual accounts of the company to satisfy himself whether the commercial activities of the company justified such a jump in price. He could have obtained price quotations of the shares on a few dates to examine the reasonableness of the jump. The alleged sellers and buyers should have been examined. Accordingly, the order was held to be erroneous and prejudicial to the interests of the revenue. The AO was directed to reframe the assessment after conducting the necessary enquiries. On appeal of the assessee to the Tribunal, the order of the CIT was set aside on the ground that in the absence of the order of the AO being without jurisdiction, the same could not be held to be 'erroneous' for invoking the jurisdiction under section 263. Held: No doubt, in Rajendra Singh (1990) 79 STC 10 (Gau), an observation was made that erroneous assessment referred to the defect which is jurisdictional in nature, as against substitution of one view for the other, merely on the ground that a different view was possible. If read as a whole, the judgment does not exclude error in assessment order, by ignoring relevant material. Not holding such inquiry as is normal and not applying mind to the relevant material would certainly be 'erroneous' assessment warranting exercise of revisional jurisdiction. Judgment has to be read as a whole and an observation during the course df reasoning in the judgment should not be divorced from the context in which it was used. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being 'erroneous' and non-application of mind and omission to follow natural justice are in same category.

The object of the provision of section 263 is to correct an erroneous order prejudicial to the interests of revenue, as the department has no right to file an appeal against the order of the AO. While the power is not meant to be substituted for the power of the AO to make assessment, the same can certainly be exercised when the order of the AO is erroneous and prejudicial to the interests of the revenue. Whether or not the order is erroneous has to be decided from case to case.[Para 8] This court may now consider the view taken in the two judgments of this court in Rajendra Singh (1990) 79 STC 10 (Gau) and Daga Entrade P. Ltd. (2010) 327 ITR 467 (Gau): 2010 TaxPub(DT) 364 (Gau-HC) [Para 10] In Rajendra Singh (1990) 79 STC 10 (Gau), the issue arose in the context of section 21 of the Tripura Sales Tax Act, 1976, which provided for suo motu revisional jurisdiction, which is in pari materia with section 263. The CIT observed that it was not necessary that the order to be revised should be erroneous. The same could be also revised if it was prejudicial to the interests of the revenue. [Para 11] Reference to the above quoted judgment shows that the exercise of the jurisdiction has not been limited to the defect of jurisdiction. It could extend to an order which may be found to be 'erroneous' or 'not in accordance with law' for having been passed 'without making any enquiry in undue haste'. The 'jurisdictional' defect has been referred to in that sense. Only limitation laid down is that the order could not be revised without the same being 'erroneous' merely because a different view could also be taken. It has not been held that even an order passed, ignoring norms or material could not be interfered with under section 263. [Para 12] It is well known that the word 'jurisdiction' does not have a fixed meaning. Though in one sense it means entitlement to enter upon the enquiry in question and in wider sense it implies right to conduct enquiry into the matter in lawful manner. Even if there is jurisdiction to go into a matter, failure to have regard to the relevant material may also render an order without jurisdiction. [Para 13] This court may now refer to Daga Entrade P. Ltd. (2010) 327 ITR 467 (Gau) : 2010 TaxPub(DT) 364 (Gau-HC). Therein, the AO did not make any enquiry, with regard to the appraisal report available with him on the basis of search conducted, showing that the assessee was providing accommodation entries. On this ground, the CIT exercised the suo motu power under section 263 which was held to be not permissible on the ground that the CIT had not discussed the contents of the appraisal report. On further appeal to this court, the assessee supported the order of the Tribunal by submitting that exercise of the suo motu revisional jurisdiction by the CIT was not permissible in the absence of a jurisdictional error in the order of the AO. If the order of the AO was passed ignoring the relevant material, causing prejudice to the interests of the revenue, suo motu revisional jurisdiction could be exercised by the CIT, even if it could be held that there was no jurisdictional error in the order of the AO. [Para 19] No doubt, in Rajendra Singh (1990) 79 STC 10 (Gau), an observation was made that erroneous assessment referred to the defect which is jurisdictional in nature, as against substitution of one view for the other, merely on the ground that a different view was possible. If read as a whole, the judgment does not exclude error in assessment order, by ignoring relevant material. Not holding such inquiry as is normal and not applying mind to the relevant material would certainly be 'erroneous' assessment warranting exercise of revisional jurisdiction. Judgment has to be read as a whole and an observation during the course of reasoning in the judgment should not be divorced from the context in which it was used. The judgment is neither to be interpreted as an Act of Parliament nor as a holy book. If this principle is kept in mind there is no any conflict in the view taken in Rajendra Singh (1990) 79 STC 10 (Gau) and Daga Entrade P. Ltd. (2010) 327 ITR 467 (Gau) : : 2010 TaxPub(DT) 364 (Gau-HC). Disagreement in Daga Entrade P. Ltd. (2010) 327 ITR 467 (Gau) is only to the interpretation which limits the ratio of the judgment by relying only one sentence in isolation divorced from the entire judgment. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being 'erroneous' non-application of mind and omission to follow natural justice are in same category. [Para 22] Accordingly, Daga Entrade P. Ltd. (2010) 327 ITR 467 (Gau) : 2010 TaxPub(DT) 364 (Gau-HC) lays down correct law and the same is not in conflict with the earlier order of this court in Rajendra Singh (1990) 79 STC 10 (Gau). Jurisdiction under section 263 can be exercised whenever it is found that the order of assessment was erroneous and prejudicial to the interests of the revenue. Cases of assessment order passed on wrong assumption of facts, or incorrect application of law, without due application of mind or without following the principles of natural justice are not beyond the scope of section 263.