V.K.JHAMB vs. N.K.VORA,C.I.T. and ANR.

:1: bgp bgp bgp

IN IN IN THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORDINARY ORDINARY ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION

WRIT WRIT WRIT PETITION NO.877 OF 1990 PETITION NO.877 OF 1990 PETITION NO.877 OF 1990

Virendra Kumar Jhamb

of Bombay, Indian inhabitant,

residing at ‘Yogi Smriti’,

J.V.P.D.Scheme, 10th Road,

Bombay - 400 049.

..Petitioner

Vs.

Commissioner of Income Tax and

Wealth Tax, Bombay City IX,

Bombay, having his office on

4th Floor, Piramal Chambers

Parel, Bombay - 400 012.

of Income Tax & Wealth Tax,

Special Range-I, Bombay, having

his office at ‘Piramal Chamber’

Parel, Bombay - 400 012.

..Respondents

Mr.J.D.Mistry a/w.Mr.Vishal Kanade i/b.Mahimtura &

Co. for the Petitioner.

Mr.P.S.Sahadevan for the Respondents.

CORAM CORAM CORAM :- DR.S.RADHAKRISHNAN & :- DR.S.RADHAKRISHNAN & :- DR.S.RADHAKRISHNAN &

A.V.NIRGUDE, A.V.NIRGUDE, A.V.NIRGUDE, JJ. JJ. JJ.

DATE DATE DATE : 11TH JUNE, 2008 : 11TH JUNE, 2008 : 11TH JUNE, 2008

JUDGMENT JUDGMENT JUDGMENT (PER : DR.S.RADHAKRISHNAN,J.) (PER : DR.S.RADHAKRISHNAN,J.) (PER : DR.S.RADHAKRISHNAN,J.)

By this Petition,

the Petitioner is

challenging certain notices issued by the Commissioner

Income Tax and Wealth Tax dated 9th

February,1990

and

13th March,1990 under Section 25(2) of the Wealth CNR No : HCBM020027091990 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:51:09

:2:

Tax

Act,1957

and

263

of the

Income

Tax

Act,1961

respectively,

for

the

assessment

year

1980-81

1986-87

i.e.

for a period of seven years seeking

revise

the

earlier

Assessment

Orders.

When

the

aforesaid

seven

notices dated 9th February,1990

and

13th

March,1990 issued under the aforesaid provisions

the Income Tax and Wealth Tax, were challenged

this

Petitioner

and

the same was

pending

this

Court,

the

Respondent

No.1

proceeded

further

and a revised assessment order with regard to

all

the

aforesaid

seven

assessment

years

seven

different orders of the same dated 13th March,1990

revising the aforesaid assessment.

The brief facts are, the Petitioner-Assessee

the

instant

case,

doing

various

types

construction

work

for the State of Maharashtra

i.e.

through

P.W.D

or Bombay Municipal

Corporation.

appears

that the Assessee was not maintaining regular

books

of accounts, as he had to deal with innumerable

persons and on number of occasions cash payments were

being made to various labourers etc.

Mr.Mistry, the learned Counsel appearing on the Petitioner pointed out that as far

the

Petitioner-Assessee is concerned, the

Respondent

No.1 had accepted the taxable income to be computed at Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:51:09

:3:

the receipts for the A.Y.1980-81

1986-87.

The

appropriate assessment orders were duly passed by

the

Assessing

Officer

under Section 143(3)

the

Income

Tax Act.

Mr.Mistry also pointed out, that for

all the aforesaid seven assessment years i.e.

1980-81

1986-87, the Department had accepted the aforesaid

assessment

computed

at 8% of the receipts

and

that

they

have

not challenged the same by way

Appeal

before the Appellate Authority or the Tribunal or even

before this Court.

Mr.Mistry, thereafter pointed out that as far

A.Y.1987-88

and

1988-89

the

Assessee

concerned, the taxable income is computed at 8% of the

receipts

which was accepted by the Department and

assessment

order

was also passed and the matter

was

carried

for

both the A.Y.1987-88 and 1988-89 by

the

Department

contending

that the percentage should

10% of receipts and not 8%.

However, the Tribunal had

decided

that

the

assessment should be at

8%.

The

Department

had

accepted the same and they

have

not

filed

any Appeal with regard to the A.Y.

1987-88 and

1988-89.

As far as A.Y.

1989-90 is concerned, it was

computed at 8% of the receipts and was accepted by the

Department

and an assessment order was passed by

the

Assessing

Officer

at 8% under Section 143(3) of

the

Income

Tax Act.

No Appeal has been preferred by

the

Department against the said order also.

Similarly for Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:51:09

:4:

the

A.Y.1990-91

to 1995-96, it was accepted

the

Department

at 8% of the receipts and assessment order

was

accordingly

passed under Section 143(3)

and

Appeal was preferred against the same by the

Department.

As far as A.Y.1996-97 to 1998-99 i.e. for 3

years

are concerned, the Assessee had approached

the

Settlement

Commission

and the Settlement

Commission

had

accepted computation at 8% of the receipts.

For

further

more seven years i.e.

1999-2000 to 2005-2006

assessment

has been made at 8% and the

same

has

been accepted by the Department and no Appeal has been

preferred against the same.

Mr.Mistry thereafter referred to Section 263

the

Income

Tax

Act under

which

the

aforesaid

notices were issued for the revision. Section 263 of

the Income Tax Act reads as under:

Section Section Section 263: 263: 263:

(1)

The Commissioner may call for and examine the

record of any proceeding under this Act, and if he

considers

that

any order passed therein

the

[Assessing]

Officer is erroneous in so far as

is prejudicial to the interests of the revenue, he

may,

after giving the assessee an opportunity

being heard and after making or causing to be made

such

inquiry

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. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:51:09

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Explanation Explanation Explanation - - - For the removal of doubts, it is

hereby declared that, for the purposes of this

sub-section,-

a) an order passed on or before or after the 1st

day of June,1988 by the Assessing Officer shall

include -

order

of assessment

made

the

Assistant

Commissioner

Deputy

Commissioner

or the Income-tax Officer

the

basis of the directions issued by

the

Joint Commissioner under section 144A;

ii) an order made by the Joint Commissioner

exercise

the

powers

the

performance

the

functions

Assessing Officer conferred on, or assigned

to,

him

under

the orders

directions

issued

the

Board

the

Chief

Commissioner

Director

General

Commissioner

authorised

by the

Board

this behalf under section 120;

"record" shall include and shall be deemed

always

have included all records relating

any proceeding under this Act available at the

time of examination by the Commissioner;

where any order referred to in this

sub-section

and

passed by the Assessing

Officer

had been the subject matter of any appeal filed on

before or after the 1st day of June,1988,

the

powers

of the Commissioner under this sub-section

shall

extend

and shall be deemed always to

have

extended to such matters as had not been

considered and decided in such appeal.

order shall be made under sub-section

(1)

after

the expiry of two years from the end of the

financial year in which the order sought to be

revised was passed.

Notwithstanding

anything

contained

sub-section

(2), an order in revision under

this

section

may be passed at any time in the case

order which has been passed in consequence of,

give effect to, any finding

direction

contained

in an order of the Appellate

Tribunal,

(National Tax Tribunal) the High Court or the

Supreme Court.

Explanation Explanation Explanation

computing

the

period

limitation

for

the purposes of sub-section

(2),

the

time

taken in giving an opportunity

the

assessee

reheard

under

the

proviso

section

129

and

any

period

during

which

any

proceeding

under

this

section is stayed

an Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:51:09

:6:

order or injunction of any Court shall be

excluded.

Mr.Mistry the learned Counsel appearing on the

Petitioner

also

pointed

out, that

subsequently

in the Income Tax Act, Section 44AD

has

been

added

which deals with construction

work, like

that

the Petitioner and the percentage which

has

been laid down statutorily is of 8% for the purpose of

assessment.

Mr.Mistry also pointed out that the assessment

orders

were by the

Assessment

Officer

4th

Wealth

Tax

Officer,

BSD(S),

Bombay,

dated

5th

January,1988

for the A.Y.1980-81 and identical orders

were for seven years by the said

Wealth

Tax

Officer

and

the

Department

had

accepted

the

computation

income at 8% of the receipt

and

the

said

assessment is based on the directives issued

the

Commissioner

of Income Tax Act, Bombay

City-IX,

Mumbai

vide its letter No.B.C./IX/S&S/BSD(S)246/87-88

dated

30th November, 1987.

To put it in other words,

the Income Tax Officer had passed the assessment order

solely

on the basis of directive letter issued by the

Commissioner

Income Tax dated 30th and had accepted 8% of the receipts for the purpose of

computing the taxable income. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:51:09

:7:

Mr.Mistry pointed out that when the notices

were

issued

under Section 263 of the Income Tax

Act

for

the

aforesaid seven assessment years dated

13th

March,1990,

there was absolutely no reference to

the

aforesaid

letter of Commissioner of Income Tax

dated

30th Mr.Mistry also highlighted

that

though the notices seeking to revise under Section 263

the

Income

Tax

Act

were

issued,

were

under

challenge

and

pending in this Court, the

Respondent

No.1 hurriedly went ahead and passed the assessment

order dated 9th February,1990.

10.

Mr.Mistry contended that under the Amnesty

Scheme,

the

Petitioner

had

approached

the

Deputy

Director

Intelligence

(Investigation)

and

had

offered

to pay the taxable profit for the A.Y.1980-81

1986-87

and

had offered @ 4%

the

total

receipts.

Finally, after discussion with the

Deputy

Director

Intelligence (Investigation) as well

the Commissioner of Income Tax, it was mutually agreed

that the Petitioner should file revised return for the

A.Y.1980-81

1986-87 @ 8% of the

receipts.

This

fact is very clearly recorded in a letter addressed by

the

Petitioner’s

Advocate

dated

26th

March,1987,

wherein

it is clearly mentioned that it was

mutually

agreed

@ 8% of the profit on the total sale

proceeds

and

the receipts realised from the sale.

This letter

was

addressed

the Commissioner

Income

Tax, Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:51:09

:8:

Bombay

City-X,

Bombay.

This

fact

has

not

been

disputed

the Respondents also.

appears

that

thereafter

the

Income

Tax

Authority

made

various

investigations

and

enquiries

and

finally,

the

Commissioner of Income Tax, Mumbai City-11, Mumbai, by

his

aforesaid letter dated B.C.IX/S&S/BSD(S)246/87-88

dated

30th

had issued to

the

I.A.C.,

BSD(S) Range, Mumbai, after a detailed analysis of the

earlier order of the Commissioner of Income Tax and

had accepted 8% to be the correct percentage.

11.

During the course of hearing, we requested

Mr.Sahadevan,

the

learned Counsel appearing for

the

Respondents

produce

the copy

the

aforesaid

letter

dated

30th

, which

was

fairly

conceded

and produced before us.

On a perusal of the

aforesaid

letter,

it is very clearly mentioned

that

the

matter

was discussed by the Petitioner with

the

earlier

Commissioner

of Income Tax,

Mumbai

City-11

Mumbai

and after discussion, the Petitioner had filed

revised

return of income on 8% of gross receipts

and

was

agreed to by the then Commissioner of

Income

Tax.

The

letter also remarks that the Assessee

had

declared

the

profit at 8% under the

Amnesty

Scheme

after

discussion with the Commissioner of Income Tax,

and

no further verification was necessary.

The

said

letter

also

indicates

that the profit ought

computed at 8% and computation of 9% would not be fair Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:51:09

:9:

and

justifiable,

accordingly

the

subsequent

Commissioner

Income

Tax

who

re-verified

and

directed the IAC BSD(S) Range, Mumbai to advise Income

Tax

Officer suitably.

The aforesaid letter makes

abundantly

clear that even the second Commissioner of

Income Tax had again verified and found that 8% would

the fair percentage in the above.

12.

Mr.Mistry contended that the power under

Section 263 of the Income Tax Act only be exercised if

the

order

assessment was "erroneous".

that he contended, that the first Commissioner

Income Tax, after scrutiny and discussion had accepted

that

would

the

proper

percentage

and

accordingly,

the

Petitioner

was

advised

file

revised

return.

Thereafter,

even

the

second

Commissioner

Income Tax again re-verified and

his

letter

dated 30th had agreed

with

the

said percentage of 8%.

Mr.Mistry emphasized that

the

assessment

order

was passed on the basis

superiors’

directives

which

was

issued

30th the Commissioner of Income Tax

and

the

order

was

accordingly passed by

the

concerned

Income

Tax

Officer.

Mr.Mistry

therefore

contended

that

the

Appellate

Authority, while

following

the

superior’s

directives

could not be construed

either

"erroneous"

"prejudicial

the

interest

revenue".

Mr.Mistry

also

emphasised

that

the Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:51:09

:10:

Income

Tax

Department

had

accepted

for

years

i.e.from

1986-87 to 2004-05 at 8%, then how it can be

said

"erroneous"

for

the

earlier

years.

contended

that

the

error

means

should

unsustainable

in law and in the instant case, no such

error is pointed out.

In that behalf Mr.Mistry relied

judgment

our High Court

the

case

Commissioner Commissioner Commissioner

of Income Tax Vs.

Gabriel India Ltd.203

of Income Tax Vs.

Gabriel India Ltd.203

of Income Tax Vs.

Gabriel India Ltd.203

ITR ITR ITR 108

108

108, wherein, this Court had in certain terms held

that erroneous means deviating from the law, erroneous

application

legal principles i.e.

to say it

was

not

accordance

with

law.

The

said

judgment

proceeds

further

and states that if the

Income

Tax

Officer

while

acting

in accordance with

law

makes

certain

assessment,

the

same cannot be

branded

"erroneous"

the Commissioner simply because,

the

order

should

have

been

written

more

elaborately.

Similarly,

the

said

judgment also states

that

the

Commissioner, on perusal of the records, may be of the

opinion

that

the

estimate

made

the

officer

concerned

was

the

lower side and

left

the

Commissioner

he would have estimated the income at

figure

higher

than the one determined by the

Income

Tax

Officer.

That would not vest

the

Commissioner

with power to re-examine the accounts and determine

the income himself at a higher figure. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:51:09

:11:

13.

Mr.Mistry also referred to a judgment of the

Hon’ble

Supreme

Court in that behalf with regard

the expression "erroneous" in the case of Commissioner Commissioner Commissioner

of of of

Income

Tax

Vs.

Max India Ltd.

295

ITR

282,

Income

Tax

Vs.

Max India Ltd.

295

ITR

282,

Income

Tax

Vs.

Max India Ltd.

295

ITR

282,

wherein

the

Hon’ble Supreme Court had

categorically

held

that the phrase "prejudicial to the interests of

the

Revenue"

under

Section 263 of

the

Income

Tax

Act,1961

has

read in

conjunction

with

the

expression

"erroneous" order passed by the

Assessing

Officer.

The Hon’ble Supreme Court emphasised that an

erroneous order prejudicial to the Revenue should be

unsustainable in law.

14.

Mr.Mistry also contended that as per the CBDT

Circular,

whenever

an Assessee approaches under

the

Amnesty

Scheme and thereafter the assessment has been the

same

cannot

again

reopened

challenged.

In that behalf, he brought to our notice

a decision of the Hon’ble Supreme Court in the case of

UCO UCO UCO

Bank Vs.

Commissioner of Income Tax (SC) 237 ITR

Bank Vs.

Commissioner of Income Tax (SC) 237 ITR

Bank Vs.

Commissioner of Income Tax (SC) 237 ITR

889, 889, 889,

wherein,

the Hon’ble Supreme Court had

clearly

held

that

the circular issued by the CBDT

would

binding

the Revenue.

Hon’ble Supreme Court

also

referred

another

judgment

the

case

K.P.Varghese K.P.Varghese K.P.Varghese Vs.

Vs.

Vs.

ITO (1981) 131 ITR 597

ITO (1981) 131 ITR 597

ITO (1981) 131 ITR 597, wherein, the

Hon’ble

Supreme

Court

had

taken a

view

that

the

circulars

issued

by the CBDT are legally binding

the Revenue and this binding character attaches to the Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:51:09

:12:

circulars even if they be found not in accordance with

the correct interpretation of the section and they

depart or deviate from such construction.

15.

Mr.Mistry also emphasized that the power of

revision

under

Section

263 of the

Income

Tax

Act

cannot

exercised

by a

subsequent

Officer.

further

contended that the original assessment

order

was

though

passed by the Income Tax Officer, it

was

based

on the directives of the Commissioner of Income

Tax,

it is explicitly apparent from the

original

assessment

order

dated 5th January,1988.

The

only

reason

given in the said assessment order that it

based

on the directives given by the Commissioner

Income

Tax,

Mumbai

his

letter

dated

30th If the assessment order was as per the

directives

the

Commissioner of Income

Tax,

the

subsequent

Commissioner of Income Tax could not

have

exercised

the power of revision under Section 263

the Income Tax Act.

Mr.Mistry emphasized, that in the

instant

case, the order dated 30th

was

issued

the

second Commissioner

Income

Tax,

considering

the original Commissioner of Income Tax’s

decision

to have 8% and even the second

Commissioner

Income

tax found the same to be fair.

Under

the

aforesaid

facts

and

circumstances

the

case,

Mr.Mistry

submitted

that the impugned notices

dated

9th

February,1990

well

impugned

assessment Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:51:09

:13:

orders dated 13th March,1990 are liable to be quashed

and set aside.

16.

Mr.Sahadevan, the learned Counsel appearing on the

Revenue

fairly

admitted

that

the

aforesaid letter dated 30th was not even

dealt

with when the impugned notices were issued

for

revision

under Section 263 of the Income Tax Act

and

while passing assessment orders during the pendency of

this

Petition.

Mr.Sahadevan

also

could

not

controvert,

that

as it was apparent from the

record

that

the

original Commissioner of Income Tax,

after

discussion

with the Assessee, it was agreed that

the

income

should

computed at 8% of the

profit

and

accordingly, he was directed to file revised return at

8%.

Even the second Commissioner of Income Tax, after

re-verification,

his

letter

dated

30th

November,2007

agreed with the said 8%.

Mr.Sahadevan

also

does

not

controvert that

the

Department

had

accepted

8% to be the fair percentage for computation

income for 19 years right from 1980-81 to 2004-05.

Mr.Sahadevan could not point out any error in law or

anything unsustainable in law based on the material.

17.

Having heard both the learned Counsel for the

parties,

must

record

our

appreciation

that

Mr.Sahadevan

very

fairly obtained the

letter

dated Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:51:09 30th which

is very crucial

this

matter.

have

perused the same and in

fact

the

xerox

copy of the same also has been taken on record,

which

clearly

indicates

that

the

Petitioner

had

approached

under

the

Amnesty

scheme

and

after

discussion with the Commissioner of Income Tax, it was

agreed

that

rate

taxable income

should

instead

of 4% and accordingly he was directed to file

revised

return

at 8%.

Even thereafter,

the

second

Commissioner

Income

Tax,

scrutiny

and

verification

found

that the earlier decision of

the

Commissioner

Income

Tax

at 8% to

fair

and

justifiable

and accordingly had issued directions

the I.A.C., BSD(S)Range, Bombay.

It is very pertinent

note that the revised assessment orders passed

the

concerned Income Tax Officer on 5th

January,1988

were

solely

based

the

directives

the

Commissioner

Income Tax, in fact

the

assessment

orders do not indicate any other reason other than the

directions

mentioned

by the Commissioner

Income

Tax.

Mr.Sahadevan

also could not dispute

that

the

Department was bound by the Circulars.

We find in the

instant

case

that the Income Tax Officer had revised

assessment order based on the revised

return

8%.

The

said

order

solely

based

the

directives given by the earlier Commissioner of Income

Tax

and

the

same

could

not

revised

the

subsequent Commissioner of Income Tax exercising the

power under Section 263 of the Income Tax Act. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:51:09

:15:

18.

Over and above, we do not find any error or

anything

unsustainable

in law.

On the contrary,

appears

that

the second Commissioner of

Income

Tax

consistently

took

view that 8% would

fair

percentage

and

third Commissioner of

Income

Tax

could

not

consider

the

same

"erroneous"

"unsustainable

law".

In fact both

the

notices

which

were issued under Section 263 of the Income Tax

Act

dated

9th

February,1990,

well

revised

assessment orders passed by the Commissioner of Income

Tax dated 13th March,1990 are totally unsustainable in

law

for the aforesaid reasons.

Hence, all the

seven

Notices issued under Section 263 of the Income Tax Act

dated

9th

February,1990 as well as seven

assessment

orders

passed by the Commissioner of Income Tax stand

quashed and set aside. Accordingly, Rule is made

absolute with no order as to costs.

(A.V.NIRGUDE,J.) (A.V.NIRGUDE,J.) (A.V.NIRGUDE,J.)

(DR.S.RADHAKRISHNAN,J.) (DR.S.RADHAKRISHNAN,J.) (DR.S.RADHAKRISHNAN,J.) Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:51:09 Powered by TCPDF (www.tcpdf.org)