COMMISSIONER OF INCOME-TAX vs. SHIVABHAI B. PATEL

PDF · subscribers
ITR/112/1984HC GujaratGJHC24011786198411 November 1998Author: HONOURABLE MR. JUSTICE R.BALIA,HONOURABLE MR. JUSTICE ANIL R. DAVE3 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that once an order under Section 263 setting aside original assessments is itself set aside, the original assessments are restored. Consequently, any fresh assessment orders made in pursuance of the now-invalid Section 263 order must also fail. The court reasoned that the purpose of the Income Tax Act's appellate and further proceeding provisions would be rendered redundant if orders passed in compliance with a subsequently cancelled order were allowed to stand. The court affirmed that the consequence of setting aside an order under Section 263 must be that any order passed in consequence thereof also fails. This principle was supported by the fact that a previous reference on the Section 263 order itself had been decided in favour of the Assessee by the High Court. The questions referred were answered in the affirmative, in favour of the Assessee and against the Revenue. No issue was expressly left undecided.

What were the facts?

For assessment years 1975-76 and 1976-77, the Income Tax Officer completed original assessments on December 4, 1977. The Commissioner of Income-tax, under Section 263, set aside these assessments on February 8, 1979, deeming them prejudicial to revenue and directing fresh assessments. The Income Tax Appellate Tribunal (ITAT) subsequently set aside the Commissioner's order. The Revenue appealed this ITAT order to the High Court. Meanwhile, the Income Tax Officer made fresh assessments as per the Commissioner's directions. The Commissioner of Income-tax (Appeals) then set aside these fresh assessments, reasoning that consequential orders could not stand if the Section 263 order was invalid. The Revenue's appeal to the ITAT against this decision was also dismissed, with the ITAT noting the sole ground was the pending High Court reference.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in concluding that the order dated 8th February, 1979, passed by the Commissioner of Income-tax under Section 263 of the Act was liable to be set aside? The Revenue contended that the ITAT's decision to set aside the Commissioner's Section 263 order was incorrect. The Assessee's position, as reflected in the High Court's eventual decision, was that the Tribunal was indeed correct. 2. Whether, the Tribunal was right in law and in facts and circumstances of the case in concluding that since they had found the order under Section 263 itself was bad, there was no question of upholding the consequential orders of the Income-tax Officer to give effect to the order of the Commissioner under Section 263? The Revenue argued that the consequential orders of the Income-tax Officer should be upheld. The Assessee argued that if the Section 263 order was bad, then the consequential orders derived from it must also fail. The Tribunal found in favour of the Assessee.

Which sections of the Income-tax Act were involved?

Section 263

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 112 of 1984

For Approval and Signature:

Hon'ble MR.JUSTICE R.BALIA. and MR.JUSTICE A.R.DAVE ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements?

2.

To be referred to the Reporter or not?

3.

Whether Their Lordships wish to see the fair copy of the judgement?

4.

Whether this case involves a substantial question 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?

-------------------------------------------------------------- COMMISSIONER OF INCOME-TAX Versus SHIVABHAI B. PATEL -------------------------------------------------------------- Appearance: MR MANISH R BHATT for Petitioner NOTICE SERVED for Respondent No. 1

--------------------------------------------------------------

CORAM : MR.JUSTICE R.BALIA. and MR.JUSTICE A.R.DAVE Date of decision: 11/11/98

ORAL JUDGEMENT

1.

For two assessment years 1975-76 and 1976-77 a composite statement of case has been submitted and following questions of law have been referred by Income Tax Appellate Tribunal, Ahmedabad Bench "C" arising out of its decision in Income Tax Appeal Nos. 2240 and 2241/Ahd./81 as required by the Commissioner of Income Tax, Ahmedabad:

1.

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the order dated 8th February, 1979, passed by the Commissioner of Income-tax under Section 263 of the Act was liable to set aside?

2.

Whether, the Tribunal was right in law and in facts and circumstances of the case in coming to the conclusion that since they had found the order under Section 236 itself was bad, there was no question of upholding the consequential orders of the Income-tax Officer to give effect to the order of the Commissioner under Section 263"

2.

The facts relevant for the present purposes and out of which reference has been made may be notice.

For the two assessment years in question, Income Tax Officer has completed original assessments on 4.12.1977. Those assessments were set aside by Commission in exercise of his powers under Section 263 by holding the same to be prejudicial to the interest of revenue by his order dated 8.2.79 and the Income Tax Officer was directed to make fresh assessments. The order under Section 263 was ultimately set aside by the Tribunal. Against the order of Tribunal setting aside the order under Section 263 passed by Commissioner of Income Tax, the order of Tribunal was made subject matter of reference before this court, and the Income Tax Officer made fresh assessments in accordance with directions contained in the order of Commissioner of Income Tax which had been set aside. On appeal against the assessment orders, Commissioner of Income Tax (Appeals) set aside the fresh assessment orders on the ground that order of the Commissioner of Income Tax under Section 263 having been cancelled the consequential orders could not have been passed in pursuance of those directions. On appeal Revenue failed before the Tribunal also. The only ground raised before the Tribunal was that since reference application is pending before the High Court, the order passed by the Income Tax Officer ought not to be set aside, until decision of those reference applications.

3.

The order of the Tribunal setting aside the order under Section 263 was subject matter of Income Tax Reference No. 113 of 1982. The same has been decided by this court on 8.10.93 answering the questions in favour of Assessee and against the Revenue.

4.

There cannot be any doubt about the proposition that once original assessments have come into force unless the same are set aside in accordance with law in appropriate proceedings, they hold the field and there cannot be two operative assessments at the same time. The effect of order under Section 263 made by the Commissioner of Income Tax was that the original assessment stood set aside. However, once an order under Section 263 was set aside it resulted in restoration of original assessments on record, there cannot be any room for fresh assessment orders even if the same have come into existence in pursuance of direction issued under Section 263. It cannot be said that by complying with the direction under Section 263, the remedy of appeal or getting determination of the question by way of further proceedings in accordance with the provisions of Income Tax Act become redundant. The consequence of setting aside of an order under Section 263 must follow, namely, the order passed in consequence thereof, must also fail. As has been noticed above, the order passed by the Commissioner under Section 263 was set aside by the Tribunal and on further reference, the High Court has found the order of the Tribunal to be justified in that regard.

5.

We therefore have no hesitation in answering the question referred to us in affirmative, that is to say, in favour of the Assessee and against the Revenue.

No one appeared on behalf of the assessee.

There shall be no order as to costs.

(Rajesh Balia, J)

(A.R. Dave, J)

More judgments on Section 263

All 13,616 judgments and leading authorities on Section 263 →

Recent GST High Court judgments

Search GST case law →