COMMISSIONER OF INCOME TAX vs. VALLABHDAS VITHALDAS

O/ITR/65/1988 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE NO. 65 of 1988 With INCOME TAX REFERENCE NO. 66 of 1988

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE S.H.VORA

====================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? ====================================== COMMISSIONER OF INCOME TAX....Applicant(s) Versus VALLABHDAS VITHALDAS....Respondent(s) ====================================== Appearance: MR PRANAV G DESAI, ADVOCATE for the Applicant(s) No. 1 NOTICE SERVED for the Respondent(s) No. 1 ====================================== CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE S.H.VORA

Date : 30/03/2015

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) Page 1 of 5

O/ITR/65/1988 JUDGMENT [1.0] Both these References, at the instance of the revenue, are referred to this Court for the opinion of this Court by the learned Income Tax Appellate Tribunal, Ahmedabad Bench (hereinafter referred to as the “Tribunal”) to consider the following question of law; “Whether, in law and on facts, the Appellate Tribunal was right in coming to the conclusion that the basis of intervention by the Commissioner should be part of the records in the assessment proceedings of the assessee and the statements in the search operations regarding the son of the assessee could not be considered as forming part of assessment of the assessee and thus the action was invalid?” [1.1] It is required to be noted that both these References initially came to be heard by the Division Bench of this Court (Coram:-M.S. Shah & D.A. Mehta, JJ. [as they then were]) and Hon’ble Mr. Justice M.S. Shah (as he then was) was of the view that the issue was covered by the decision of the Hon’ble Supreme Court in the case of CIT Vs. Manjunathesware Packing Products reported in (1988) 231 ITR 53. Consequently, since the learned Tribunal had set aside the order of the Commissioner only on the aforesaid ground, in his opinion the matter should have been remanded to the learned Tribunal for consideration on merits. Hon’ble Mr. Justice D.A. Mehta (as he then was) was unable to confirm to the said opinion. He gave a differing opinion relying upon several decisions of the Hon’ble Supreme Court including the case of Malabar Industrial Co. Ltd. Vs. CIT reported in 243 ITR 83 and he observed that the Commissioner can assume the jurisdiction under Section 263 of the Act provided the twin Page 2 of 5

O/ITR/65/1988 JUDGMENT conditions of the order of the Assessing Officer being erroneous and being prejudicial to the interest of the revenue are satisfied. [1.2] In view of the difference of opinion between the two learned Judges of this Court, both these References were referred to the third learned Judge and by judgment and order dated 27/02/2015 & 13/03/2015 the learned Single Judge (Hon’ble Mr Justice Akil Kureshi) has concurred with the view of Hon’ble Mr. Justice M.S. Shah (as he then was) and has answered the Reference as under; “In our view, the aforesaid observations of the Apex Court clearly give the widest meaning to the word "record". It is also pertinent to note that while Section 263(1) uses the word "record", the explanation goes further and states that the record includes all records relating to any proceeding under this Act. The use of the plural "records" and "relating to any proceeding under this Act" do not permit any limitation being placed on the power of the Commissioner that the power under Section 263(1) can be exercised only on the basis of the statements which are recorded in the course of search and seizure operations in respect of the very assessee and not in respect of any other person. The Apex Court has in terms overruled the decision of the Calcutta High Court in Ganga Properties' case (118 ITR 447) on which the Tribunal had relied while passing the order giving rise to these references. 7. As regards the reasoning which appealed to the Tribunal, the word "therein" is not necessarily capable of the interpretation which appealed to the Tribunal. When the Commissioner examines the record of search Page 3 of 5

O/ITR/65/1988 JUDGMENT and seizure operations in respect of any person, say the respondent assessees' son as in the instant case, and finds that such person had attributed some undisclosed income to the assessee, it is open to the Commissioner to call for the record in the assessee's case. The exercise of power by the Commissioner under Section 263(1) is obviously in respect of the assessee's case but for the purpose of exercising that power, the examination by the Commissioner is not required to be confined to the record of that assessee's case as such record could be any record relating to any proceeding under the Income-tax Act. There is nothing in the provisions of Section 263(1) to take such a narrow view of the powers of the Commissioner. Any doubt which could arise has been removed by the legislature by inserting through the Finance Act, 1988 an explanation and further amending it by Finance Act, 1989. The interpretation of the provisions of Section 263(1) read with explanation thereto by the Apex Court in light of the legislative intent leaves no room for doubt. 8. In our view, once there is a pronouncement of the highest Court of the land, the same is binding on all Courts, Tribunals and all authorities in view of Article 141 of the Constitution and it is not open to distinguish the same by referring to certain words of those provisions which were very much before the Supreme Court merely on the ground that some other arguments could have been urged which were not considered by the Supreme Court.” [1.3] Thus the question came to be answered in the negative i.e. in favour of the revenue and against the assessee and ordered that the learned Tribunal will hear the appeal of the assessee on merits on remaining grounds. That is how the matters are now placed before this Court after obtaining Page 4 of 5

O/ITR/65/1988 JUDGMENT the order from Hon’ble the Acting Chief Justice for pronouncement of the judgment by the Division Bench in terms of Section 259 of the Act. [2.0] Now, in view of the majority view by Hon’ble Mr. Justice M.S. Shah (as he then was) and Hon’ble Mr. Justice Akil Kureshi, J., the question of law referred to this Court reproduced hereinabove is answered in favour of the revenue and against the assessee. Consequently, the impugned judgment and order passed by the learned Tribunal in ITA No.1403/Ahd/86 for the Assessment Year 1982-83 in the case of Commissioner of Income Tax Vs. Shri Vallabhdas Vithaldas, Rajkot and the order passed by the learned Tribunal in the case of the assessee-Smt Savitaben Vallabhdas wife of Shri Vallabhdas Vithaldas are hereby quashed and set aside. The learned tribunal will now hear the Appeals against the order of the Commissioner on merits on remaining grounds. [3.0] With this, both the References are disposed of accordingly. (M.R. SHAH, J.) (S.H. VORA, J.) Siji Page 5 of 5