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Commissioner of Income-tax Vs. Sigma Paints Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 480 of 1987
Judge
Reported in[1999]238ITR705(Bom)
ActsIncome Tax Act, 1961 - Sections 143, 143(3), 144B and 263
AppellantCommissioner of Income-tax
RespondentSigma Paints Ltd.
Appellant AdvocateR.V. Desai and ;B.M. Chatterjee, Advs.
Respondent AdvocateJ.D. Mistry, Adv. and ;R. Shah and Co.
Excerpt:
.....to be specified under the provisions of chapter xii of the code. in terms of section 41, a police officer may arrest a person without a warrant or order from the magistrate for any or all of the conditions specified in that provision. language of this provision clearly suggested that the police officer can arrest a person without an order from the magistrate. thus, there appears to be no reason why on the strength of section 156(3) of the code, any restriction should be read into the power specifically granted by the legislature to the police officer. of course, freedom of investigation is the essence of these provisions but in order to suppress the mischief it is sufficiently indicated under different provisions of the code that the arresting officer should exercise his power or..........order but was allowed in the assessment order in consequence of the direction of the inspecting assistant commissioner under section 144b it was not open to the commissioner of income-tax to exercise his jurisdiction under section 263 of the income-tax act, 1961, in respect of that part of the assessment order ?'2. this reference pertains to the assessment year 1978-79. the material facts giving rise to this reference are as under :the assessee is a limited company. in the draft assessment order, which was forwarded by the income-tax officer to the inspecting assistant commissioner under sub-section (4) of section 144b of the income-tax act, 1961 ('the act'), the income-tax officer had proposed disallowance of the claim of deduction of rs. 1,36,639 on account of commission to persons.....
Judgment:

B.P. Saraf, J.

1. By this reference under Section 256(1) of the Income-tax Act, 1961, the Income-tax Appellate Tribunal has referred the following question of law to this court for opinion at the instance of the Revenue:

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that where a claim of deduction was proposed to be disallowed by the Income-tax Officer in the draft assessment order but was allowed in the assessment order in consequence of the direction of the Inspecting Assistant Commissioner under Section 144B it was not open to the Commissioner of Income-tax to exercise his jurisdiction under Section 263 of the Income-tax Act, 1961, in respect of that part of the assessment order ?'

2. This reference pertains to the assessment year 1978-79. The material facts giving rise to this reference are as under :

The assessee is a limited company. In the draft assessment order, which was forwarded by the Income-tax Officer to the Inspecting Assistant Commissioner under Sub-section (4) of Section 144B of the Income-tax Act, 1961 ('the Act'), the Income-tax Officer had proposed disallowance of the claim of deduction of Rs. 1,36,639 on account of commission to persons whose names were not disclosed. The Inspecting Assistant Commissioner, after considering the order and the objections of the assessee, directed the Income-tax Officer to allow the above claim for deduction. The Income-tax Officer, completed the assessment in conformity with the direction of the Inspecting Assistant Commissioned and allowed this claim for deduction in working out the business income of the assessee. The Commissioner of Income-tax called for the records of the assessment proceedings and on examination of the same, was of the opinion that the claim of deduction of the above amount was wrongly allowed and the order of the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue in so far as the deduction referred to above was concerned. Accordingly, in exercise of his revisional powers under Section 263 of the Act, the Commissioner of Income-tax set aside the order of assessment and directed the Income-tax Officer to make a fresh assessment after taking into account the observations in his order and giving opportunity of hearing to the assessee. Aggrieved by the above order of the Commissioner of Income-tax under Section 263 of the Act, the assessee appealed to the Income-tax Appellate Tribunal ('the Tribunal'). The Tribunal held that the claim of deduction having been allowed by the Income-tax Officer in pursuance of the directions of the Inspecting Assistant Commissioner under Section 144B of the Act, it was, not open to the Commissioner of Income-tax to exercise his revisional power under Section 263 of the Act for revising that part of the order. Aggrieved by the above order, the Revenue is before us by way of this reference.

3. We have heard Mr. R.V. Desai, learned counsel for the Revenue, and Mr. J.D. Mistry, learned counsel for the assessee. The controversy in this case is whether it is open to the Commissioner to exercise revisional powers under Section 263 of the Act in respect of an order of assessment passed under Section 143(3) read with Section 144B of the Act. This controversy is squarely covered by the decision of this court in CIT v. M.M. Virwani : [1994]207ITR225(Bom) , wherein it was held that only because the procedure under Section 144B was followed, the order did not cease to be an order under Section 143(3). The controversy in that case was whether an order of assessment passed by the Income-tax Officer under Section 143(3) read with Section 144B of the Act after obtaining approval of the Inspecting Assistant Commissioner becomes the order of the Inspecting Assistant Commissioner and consequently ceases to be the subject-matter of suo motu revision by the Commissioner under Section 263 of the Act. This court held that the order passed by the Income-tax Officer under Section 143(3) read with Section 144B of the Act was an order of the Income-tax Officer which was subject to revisional jurisdiction of the Commissioner under Section 263 of the Act. It was observed (page 227) :

'Under Section 143 of the Act, the power of assessment is vested in the Income-tax Officer. Section 144B requires the Income-tax Officer in certain cases where any variation in the income or loss returned by the assessee exceeds the specified amount, to first forward a draft of the proposed order of assessment to the assessee and if any objections are received thereon, to forward the same along with the objections to the Inspecting Assistant Commissioner who may issue such directions as he may deem fit for the guidance of the Income-tax Officer to enable him to complete the assessment. The directions so issued are of course binding on the Income-tax Officer under Sub-section (5) of Section 144B of the Act. This, however, does not make any difference. The fact remains that the assessment is an assessment made by the Income-tax Officer under Section 143(3) of the Act. An order passed by the Income-tax Officer under Section 143(3) of the Act, therefore, continues to be an order under that Section though passed after following the mandatory procedure laid down in Section 144B.'

4. This court also held that Section 144B though inserted as an independent section, in truth and substance, is in the nature of a proviso to Section 143(3) of the Act and should be read as such.

5. The question referred to us in this case is thus squarely covered by the above decision. Following the same, we answer the question in the negative, i.e., in favour of the Revenue and against the assessee.

6. Mr. Mistry, learned counsel for the assessee, contended that in the facts and circumstances of this case, the order of the Income-tax Officer cannot be held to be erroneous which is a condition precedent for exercise of power under Section 263 of the Act. This submission, in our opinion, is wholly irrelevant for the purpose of the present reference. The controversy in this reference is limited to the question whether it is open to the Commissioner to exercise revisional powers under Section 263 of the Act in respect of an order of assessment passed by the Income-tax Officer under Section 143(3) of the Act following the directions of the Inspecting Assistant Commissioner under Section 144B of the Act. The controversy sought to be raised by Mr. Mistry is wholly outside the scope and ambit of the question referred to us. We, therefore, need not go into that question.

7. Reference stands disposed of accordingly with no order as to costs.


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