COMMISSIONER OF INCOME-TAX vs. KANTILAL R. PATEL

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ITR/129/1986HC GujaratGJHC24010753198618 June 2002Author: HONOURABLE MR. JUSTICE MOHIT S. SHAH,HONOURABLE MR. JUSTICE K.A.PUJ4 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court answered both referred questions in favour of the revenue and against the assessee. Regarding the first question, the Court held that the Tribunal was not right in deeming the revisional order invalid. The Court reasoned that the failure to charge interest under Section 215, when it was automatically chargeable due to the advance tax paid being less than 75% of the assessed tax, rendered the assessment order erroneous and prejudicial to the revenue. The Court relied on its own decision in Sarabhai Chemicals Pvt. Ltd. vs. CIT and the Supreme Court's decision in I.S.A.L. Narayan Row vs. Ishwarlal Bhagwandas, stating that charging of interest under Section 215 is automatic. For the second question, the Court held that the CIT's powers under Section 263 are not extinguished by the merger of the ITO's order with the CIT(A)'s order, citing the Supreme Court's decision in CIT vs. Shri Arbuda Mills Ltd. The Court clarified that Section 263 powers extend to matters not considered and decided in appeal. Therefore, the CIT had the jurisdiction to direct the charging of interest under Section 215.

What were the facts?

The Commissioner of Income-tax (CIT) invoked revisional powers under Section 263 of the Income-tax Act, 1961, by an order dated 29.3.1984. The CIT concluded that interest was chargeable to the assessee under Section 215 of the Act, which the Income-tax Officer (ITO) had failed to charge during the assessment finalized under Section 143(3) on 31.3.1982. The CIT directed the ITO to charge this interest, deeming the assessment order erroneous and prejudicial to the revenue. The assessee appealed this order to the Income-tax Appellate Tribunal (ITAT), Ahmedabad. The ITAT, by its order dated 22.10.1985, held the revisional order invalid, following a Madhya Pradesh High Court decision, on the ground that there was no financial loss to the revenue. The revenue preferred a reference application to the High Court, which referred two questions for opinion.

What were the issues?

1. Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the revision order under Section 263 of the CIT was invalid, based on the decision of the Madhya Pradesh High Court reported in (1982) 130 ITR 518? 2. Whether, on the facts and in the circumstances of the case and in law, it can be said that as the ITO's order merged with the order of the CIT(A), the CIT had no jurisdiction to pass the revisional order under Section 263 directing the ITO to charge interest under Section 215, even though the chargeability of interest under Section 215 was not the subject matter of appeal before the CIT(A)? Assessee's contentions (as understood from the judgment): - The revisional order under Section 263 was invalid because there was no financial loss to the revenue, especially if interest under Section 217 was considered. - The ITO's order merged with the CIT(A)'s order, divesting the CIT of jurisdiction under Section 263 for matters not appealed. Revenue's contentions: - Interest under Section 215 was chargeable and not charged by the ITO, making the assessment order erroneous and prejudicial to the revenue. - The High Court's decision in Sarabhai Chemicals Pvt. Ltd. vs. CIT supports the automatic chargeability of interest under Section 215. - The Supreme Court's decision in CIT vs. Shri Arbuda Mills Ltd. clarifies that Section 263 powers extend to matters not considered and decided in appeal.

Which sections of the Income-tax Act were involved?

Section 263,Section 215,Section 143(3),Section 217,Section 256(1)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No 129 of 1986 For Approval and Signature: Hon'ble MR.JUSTICE M.S.SHAH and Hon'ble MR.JUSTICE K.A.PUJ ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO ------------------------------------------------------------- COMMISSIONER OF INCOME-TAX Versus KANTILAL R PATEL -------------------------------------------------------------- Appearance: 1. INCOME TAX REFERENCE No. 129 of 1986 MR BB NAIK, for Petitioner No. 1 MR BD KARIA, for Respondent No. 1 -------------------------------------------------------------- CORAM : MR.JUSTICE M.S.SHAH and MR.JUSTICE K.A.PUJ Date of decision: 18/06/2002 ORAL JUDGEMENT (Per : MR.JUSTICE K.A.PUJ) At the instance of the revenue, following two questions are referred to this Court :- 1. Whether on the facts and in the circumstances of the case and in law the Tribunal was right in holding that the revision order u/s. 263 of the C.I.T. was invalid, based on the decision of the Madhya Pradesh High Court reported in (1982) 130 ITR 518 ? 2. Whether on the facts and in the circumstances of the case and in law it can be said that as the I.T.O's order merged with the order of the C.I.T. (A) giving thereby the C.I.T. no jurisdiction to pass the revisional order u/s. 263 directing the ITO to charge the interest u/s. 215 of the Act eventhough the question of chargeability of the interest u/s. 215 was not subject matter of appeal before the C.I.T. (A) ? 2. In this case, the Commissioner of Income-tax had exercised revisional powers under Section 263 of the Income-tax Act, 1961 while passing an order on 29.3.1984 wherein he had come to the conclusion that the interest was chargeable upon the assessee under Section 215 of the Act and the same was not charged by the Income-tax Officer on finalization of the assessment under Section 143(3) on 31.3.1982. The order of assessment was, therefore, erroneous and prejudicial to the interests of the revenue. The Commissioner, therefore, directed the Income-tax Officer to charge the same under Section 215

of the Act by passing appropriate order.

3.

The said order of the Commissioner was challenged in appeal by the assessee before the Income-tax Appellate advocate appearing for the respondent-assessee.

6.

So far as the first question is concerned, the Tribunal has proceeded on the footing that there was no financial loss to the revenue and hence the assessment order was not erroneous and prejudicial to the interest of revenue and hence order passed under Section 263 of the Act was not valid. For arriving at this finding, the Tribunal accepted the contention urged on behalf of the assessee that the interest under Section 217 has been charged and if the said aspect was taken into account, there was no prejudice to the revenue. The Tribunal has construed the meaning of the word "prejudice" as actual loss of revenue i.e. a financial loss.

7.

It is argued on behalf of the revenue that the Income-tax Officer has not charged the interest under Section 215 of the Act though it was chargeable under that Section. The assessee has filed return of income and declared the income of Rs.1,02,676/-. The return was subsequently revised declaring the total income of Rs.2,02,126/-. The assessment was framed on the total income of Rs.2,37,861/- and tax payable thereon was calculated at Rs.1,40,203/-. Even after getting certain reliefs in appeal from the Commissioner of Income-tax (Appeals), the tax was reduced to Rs.1,16,364/-. As against this, the assessee had paid advance tax of Rs.10,005/- on estimate. Thus, it was obviously less than 75% of the "assessed tax" as defined in Section 215 Since interest was not charged by the Income-tax Officer when the assessment was framed, the order was erroneous to that extent and hence it was prejudicial to the interest of the revenue. In this view of the matter, we hold that the the Tribunal was not right in taking the view that the revisional order passed by the Commissioner of Income-tax under Section 263 of Act was invalid. The the Income-tax Officer was merged in the order of the Commissioner of Income-tax (Appeals) and, therefore, the sundar/-

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