1990 PLP (Trib (PTD)

(1) (1979) 118 ITR 447 (Cal. H.C.) Ganga Properties v. Income‑tax Officer, (2) (1978) 111 ITR 326 (All. H.C.) J.P. Shrivastava & Sons v. C.I.T. (3) (1977) 109 ITR 229 (Cal. H.C.) Russell Properties (Pvt.) Ltd. Co. v. Additional Commissioner of Income‑tax. (4) (1975) 98 ITR 422 (Karanataka H.C.) T. Narayana Pai.

3. Mr. KA. Nomani, the learned D.R. however has suppoted the learned C.I.T.

4. I have heard both the learned counsel for the appellant as well as learned D.R. Since the main thrust of the arguments of learned counsel for the appellant is against the jurisdictional aspect of the controversy, I, therefore, start my discussion with reproduction of section 66‑A of the Income Tax Ordinance which reads:‑ "66‑A. Powers of Inspecting Assistant Commissioner to reuse Income‑tax Officer's Order.‑‑ (1) The Inspecting Assistant Commissioner may call for and examine the record of any proceedings under this Ordinance, and if he considers that any order passed therein by the Income Tax Officer is erroneous in so far as it is prejudicial to the interests of revenue, he may, after giving the assessee an opportunity of being heard and after making, or causing to tie made, such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify including an order enhancing or modifying the assessment, or cancelling the assessment and directing, a fresh assessment to be made. (2) No order under section 1 shall be made after the expiry of four years from the date of the order sought to be revised. From its perusal, it appears that before an I.A.C. or C.I.T. as the case may be exercises his powers under this section the following conditions must be fulfilled namely:‑‑ (a) He calls for and examines the record of any proceedings. (b) He considers that the order recorded by the assessing officer is erroneous in so far as it is prejudicial to the interest of the revenue. (c) He provides the assessee with an opportunity of hearing. (d) He, then, makes or causes to be made such enquiry which he deems fit,

5. Thus, the first issue which requires my consideration pertains to the interpretation of the expression "record of any proceedings" Mr. Sirajul Haq vehemently argues that this expression means that record which was available before the I.T.O. and in order to fortify his submission he has relied upon the rulings mentioned above. Let me, therefore, deal with them before prop‑ceding further.

6. In the case of M/s. Ganga Properties (Supra) the assessee had declared value of lands sold to different persons at Rs.7,51,512 in its return of income, The I.T.O. however, accepted it subject to the determination of its value by the valuer and framed assessment order accordingly. The assessee then paid the tax demand as created. against him. Thereafter, the Commissioner issued notice under section 263 of the Indian Income Tax Act, which is equivalent to section 66‑A of Income Tax Ordinance, for the reason that the valuation officer had valued the fair market value of the land at Rs. 10,85,250 and that the order of the I.T.O. was erroneous in so far as it was prejudicial to the interest of the revenue. It was contended before their Lordships of Calcutta High Court that in section 263(1) of the Indian Income Tax Act, the words used were "is erroneous" and not the words "has become subsequently erroneous", hence the Commissioner was not justified in relying upon the market value of the valuation officer which subsequently made the order of the I.T.O. erroneous. Upholding the submission, their Lordships of Calcutta High Court were pleased to observe that the Commissioner had no jurisdiction to exercise his powers under section 263(1) of the Income Tax Act on the basis of subsequent report of the valuation officer. It was further laid down by their Lordships that the word record "meant and implied that record which was available before the I.T.O. and not that which was made available to the C.I.T."

7. In the case of M/s. Gulati (Supra) the assessee claimed Rs. 1,00,000 as exempt income in Part 1V of his return. The I.T.O. framed assessment but did not deal with the issue of exemption and subsequently issued notice under section 148 disclosing his intention of taxing escaped assessment but as luck could have it, he could not frame assessment within prescribed time and consequently it become time‑barred. Thereafter, we Commissioner of Income Tax issued notice under section 33‑B of the old Indian Income Tax Act. It was contended before him that he could not invoke his jurisdiction under section 33‑B of the old Income Tax Act as the matter was still pending before the I.T.O. The C.I.T however repelled this objection with the observation that since the assessment had become time‑barred, the proceedings could not be deemed to be pending and after cancelling; the ?assessment order, he sent the matter back to the I.T.O. for de novo assessment. Under these facts and circumstances their Lordships of Allahabad High Court held that section 33‑B of the old Indian Income Tax Act contemplated that unless the C.I.T. overruled the objection raised by the assessee that the assessment order was neither prejudicial nor erroneous to the revenue interest he would have no jurisdiction to take any further action.

8. In the case of Russel Properties (Supra) the assessee had let out certain premises and the amounts received from the tenants included service maintenance charges. It was contended before the I.T.O. that the service and maintenance charges amounted to income from business and he, relying upon a decision of the Tribunal recorded in the case of the assessee itself for an earlier assessment year, upheld the contention of the assessee. The C.I.T., however, exercising his jurisdiction under section 263 of the Indian Income Tax Act cancelled the assessment order as he was of the view that the order of the I.T.O. was erroneous in so far as it was prejudicial to the interest of revenue. Their Lordships of Calcutta High Court held that the order of the I.T.O. could not be said to be erroneous and prejudicial to the interest of revenue because the decision of the Tribunal was binding on him and he rightly followed it. Consequently, the revisional order of the C.I.T. recorded under section 263 was held to be without jurisdiction.

9. In the case of Narayana Pai (Supra) the assessee had transferred certain shares to a Trust at cost price. They were partly paid up but not quoted in the market and there were no ready buyers for them. The I.T.O. framed the assessment order on total income of Rs.29,062 which included shares of profit from various firms and also dividends and interest on security. The C.I.T., however, called upon the assessee to show cause as to why the assessment order should not be revised and the I.T.O. asked to reframe the assessment by assessing capital gains arising out of sale of the shares by applying the provision of section 52 of the Act and after considering the explanation he was pleased to set aside the assessment order and sent the matter back to him with the direction that he should frame fresh assessment. However, on appeal, the Tribunal set aside the order passed by the I.T.O. as it was found erroneous in so far as it was prejudicial to the interest of the revenue. On reference before their Lordships of Karanataka High Court, it was contended that the Tribunal was wrong in setting aside the order of C.I.T. as the market value of each share stood at Rs.16.90 as against the paid‑up value of Rs.7.50. However, their Lordships 4rejected the aforesaid submission for the reason that the Commissioner did not record any finding to the effect that the consideration for the transfer of shares declared by the assessee was not the fair market value on the date of transfer and that the fair market value as estimated by him was more than 15% of the value declared so as to attract the provision of section

52. According to their Lordships this was necessary because the assessee had not suppressed the fact of sale of the shares and this fact was before the ITO when he framed the assessment order. Consequently the order of the Tribunal was upheld.

10. Thus, in view of discussion made above and from perusal of aforesaid cases, it appears that the case of the appellant falls within all fours of Ganga Properties' case (Supra) though other cases do not appear to be relevant for our purposes. In other words, the submission of Mr. Sirajul Haq, the learned counsel for the appellant that the learned CIT fell in error in relying upon material which was not available before the ITO appears to be factually and legally correct.

11. Now, if we turn to the second ingredient of section 66‑A it appears that learned CIT is required to consider that any order passed therein by the ITO is erroneous in so far as it is prejudicial to the interest of the revenue. It is important to note that the legislature has used here the word "consider". However, from perusal of various statutes we find that the words like, "think", "consider", "satisfy", and "in his opinion" are used frequently and invariably by the legislature. Since they are not synonyms of each other, they could not be taken to convey the same meaning. I would, therefore, like to point out the difference between these expressions in the light of the meaning which is ascribed to them by Dictionaries or which they connote in common parlance.

12. In my view, when a fact is brought from my subconscious part to the conscious part of the mind it is said that I "think" about it. However, if fantasy is added to my thinking it would be said that I am "imagining". But, if I add reasoning faculty to my thinking, it is said that I am "considering". On the other hand, if after considering arrive at some conclusion and express it, it is said to be my "opinion". However, when my opinion reaches the stage of my personal conviction, it is said that "I am satisfied". Let me mention here that the word "opinion" also carries technical meaning. The judgment of a member of House of Lords is called an opinion. Similarly, a document prepared by a counsel reflecting his understanding of law or fact is also called an opinion. The Sindh High Court has elaborately dealt with the concept of opinion in a case reported as (1976) 30 Tax

27. However. as I have pointed out earlier, it differs from the word "consider". According to Black's Law Dictionary, the word "consider" means and implies "to fix the mind on with a view to careful examination, to examine, to inspect, to deliberate about and ponder over, any entertainment or give heat to".

13. Thus, from this discussion, it is clear that the word "consider" has been used in section 66‑A to mean something more than mere thinking but something lesser than the opinion or satisfaction of IAC or CIT as the case may be. However, in any case, the IAC or CIT, as the case may be, is required to apply his mind with a view to carefully examining all the facts and circumstances of the case which come to his notice from the record of any proceedings. However, when he comes to the conclusion that the order of the ITO is erroneous in so far as it is prejudicial to the interest of the revenue, he has to follow the third ingredient of section 66‑A namely, he must serve a show‑cause notice on the appellant and after getting the explanation he may make or cause to be made any enquiry which he deems necessary in order to meet the fourth ingredient. It is needless to say that if he makes such an enquiry he must confront the assessee with it also before putting any reliance on it. Thus, he is allowed to record his final order under section 66‑A after passing through all these stages.

14. Turning to the third and fourth ingredients of section 66‑A it again appears that learned CIT acted illegally. What appears from his order is that he got an enquiry conducted and then after confronting the appellant with its result set aside the assessment order. But it is not clear how and through whom he got the enquiry conducted. Secondly, he appears to be of the view of the law required him to confront the appellant with the result of the enquiry and not with the report of the enquiry. Since Mr. Sirajul Haq has not dwelt upon this aspect of the matter in his submissions, I, therefore, leave this issue to be considered subsequently in some appropriate case.

15. Now, reverting to the facts of this case, it appears that the learned CIT has jumped to the fourth right from the first stage and then turned to 'third before arriving at the second ‑ age of holding that the order of the ITO was erroneous in so far as it was prejudicial to the revenue interest. Thus, his order appears to be illegal for this reason also. If the legislature wants a particular course of action to be followed by an authority, it can't be allowed to substitute its own procedure Let me mention here that if the learned CIT had got some information after assessment order he should have passed it on to the ITO and he could have exercised his powers under section

65. As is clear from case of Ganga Properties (supra) the CIT had no jurisdiction to consider it under section 66(A). 15‑A. Mr. Sirajui Haq, the learned counsel, has also vehemently argued that the order of learned CIT recorded under section 6fi‑A was not sustainable in law because it was nothing but change of opinion. However, with due respect to the learned counsel, I do not see any force in his submissions. However, before dilating on this issue, let me revert to section 32‑A of the Income Tax Ordinance as the issue regarding change of opinion could be decided after undertaking true import and meaning of this section.

16. Section 32‑A reads as under:‑‑ "Documents Certificates etc. to be Furnished b Certain Companies.‑?(1) Every private company as defined in the Companies Act, 1913 (VII of 1913) whose paid‑up capital on the last day of any income year is three million rupees or more shall, with the return of total income for that year duly certified by a person who is a Chartered Accountant within the meaning of the Chartered Accountants Ordinance, 1961 (X of 1961) or a Cost and Management Accountant within the meaning of the Cost and Management Accountants Act, 196 (XIV of 1966). (2) Where a company has not complied with the requirements of sub‑section (1) its income, profits and gains shall be computed upon such basis and in such manner as the Income Tax Officer may determine:"

17. From its perusal, it appears that: (1) every private company which has been created under the Companies Act, 1913, and (2) its paid‑up capital on the last day of any income year is 3 million rupees or more shall file alongwith its return of total income‑‑ (a) a copy of the balance sheet: (b) profit and loss account for that year; and (c) an auditor's report m form 35 (a) of the Companies (General Provisions and Forms, Rules, 1985, duly signed and prepared by a person who is a Chartered Accountant within the meaning of Chartered Accountants Ordinance, 1961 or a Cost and Management Accountant within the meaning of the Cost and Management Accountants Act of 1966."

18. Now, from perusal of the record, it appears that the appellant is a private limited company created under Companies Act, 1913. It further appears that its paid‑up capital on the last day of relevant income year was more than 3 million rupees. But it is fully established from evidence on record that it failed to file auditor's report duly prepared and signed by him as required. However, the assessing officer did not invoke his jurisdiction under subsection (21 of aforesaid section 32‑A and instead of rejecting the trading results the assessing officer accepted the accounts of the appellant. From perusal of the assessment order, it appears that the learned Chairman of the Panel accepted the accounts of the appellant because of four reasons: (1) Firstly because he found the explanation offered by the appellant for not filing the auditor's report quite satisfactory. (2) Secondly because he found purchases from verifiable parties and through cheques. (3) Thirdly because he found that proper books of accounts were maintained. (4) Fourthly because he found that the declared results were better in turn over and GP rate than the results of earlier assessment years.

19. The learned CIT on the other hand appears to have come to the conclusion that purchases worth Rs.2,28,310 were unverifiable, hence the order of the ITO was erroneous in so far as it was prejudicial to the interest of revenue. It is important to note that the learned CIT has come to this conclusion to spite of the fact that the learned counsel has shown his willingness in writing that he was prepared to produce any party from whom purchases were made if the CIT so desired. However, the learned CIT not only did not call upon the appellant to produce three allegedly non‑verifiable parties but also failed to record any finding on interpretation of section 32‑A of the Income Tax Ordinance.

20. Mr. Sirajul Haq, the learned counsel for the appellant, however, has vehemently argued that under subsection (2) of section 32‑A, it was not obligatory on an assessing officer to necessarily reject the trading results. I think that his submissions carry weight. From perusal of subsection (2) of section 32‑A, it appears that it has vested the assessing officer with the powers of computing the income, profit and gains of an assessee who has failed to file the auditor's report in such a way as he deems fit under the facts and circumstances of each case. He is, therefore, not required to compulsorily reject the trading results of such defaulting assessee. Thus, if the learned Chairman of the Panel after considering all the facts and circumstances of this appeal, came to the conclusion that the accounts of the appellant should be accepted, he committed no error. In fact, he has recorded a speaking order and the reasons as reproduced above have been given in support of his conclusion that the accounts of the appellant be accepted.

21. Now, reverting to the issue regarding change of opinion, it can be concluded in the light of discussion made above that under the facts and circumstances of this appeal, no question regarding change of opinion arises. In my humble opinion, the order recorded by learned IAC or CIT as the case may be, under section 66‑A would not be hit by the concept of change of opinion as both of them exercise their supervisory jurisdiction and can come to a different conclusion on the basis of the same points of law and facts which were available before the assessing officer. A Full Bench of this Tribunal in a decision reported as 1986 PTD 408, has dealt extensively with the respective powers of an AAC and an 1AC. It has been observed on page 430 as follows:‑‑ "Firstly it gave power to Inspecting Assistant Commissioner to proceed further under section 34‑A if he finds an order of Income Tax Officer erroneous in so far as it is prejudicial to the interest of the revenue. Secondly, in case of appeal filed by the assessee, the precaution was taken by the legislature to expose the entire assessment before Appellate Assistant Commissioner without confining his powers to any particular matter taken before him by the Assessee. The Legislature gave these two types of power to both Inspecting Assistant Commissioner and Appellate Assistant Commissioner who are the officers of equal rank appointed under section 5(1)(c) of the repealed Income Tax Act to exercise them within the scope of their authority. The Inspecting Assistant Commissioner's scope of authority was confined to the Income Tax Officer's order if it was erroneous and prejudicial to the revenue interest. Likewise the Appellate Assistant Commissioner's scope of authority was determined by section 31 of the repealed Income Tax Act. In both cases, the interest of the revenue kept upper‑most but at the same time precaution was taken to avoid any conflict of jurisdiction between two officers of equal rank ??"

22. Thus, it is clear that an IAC or an AAC has been given powers of revising the orders recorded by assessing officer. If the concept of change of opinion is accepted, then neither an AAC nor IAC would be in a position to come to a different conclusion than that of the assessing officer. This argument of Mr. Sirajul Haq, therefore, stands rejected. However, before parting with this issue, let me point out that the change of opinion, if I may call it so, bars the re‑opening of the assessment order in such cases where necessary material was on the record but because of his carelessness, the ITO did not look into it while framing assessment order and subsequently wanted to rely upon it in re‑assessment proceedings. (Please see Gemini Leather Stores v. The ITO, 100 ITR 1). Similarly, if an ITO takes erroneous view of the law, he would not be permitted to re‑open the assessment so as to change his earlier view on correct appreciation of law. (Please see CIT v. Bhanji Lavji, 79 ITR 582 S). But, if the ITO gets some information which was not on record while he framed original assessment order or the information which was supplied by the assessee is found incorrect subsequently, he can, of course, invoke his jurisdiction of re‑opening assessment.

23. Now, to conclude, I hold that the learned CIT has jurisdiction to exercise his powers under section 66‑A of the Income Tax Ordinance as he has been given powers by law to appreciate the law and facts in the light of his own experience and legal knowledge and come to a different conclusion than that of an assessing officer. However, under the facts and circumstances of this appeal do not find the order of learned CIT sustainable in law for the reasons given above.

24. The appeal is, therefore, hereby allowed and consequently the order of the assessing officer stands restored. M.B.A./899/T????????????????????????????????????????????????????????????????????????????????????? Appeal allowed.