Dr. K. Raghotham Reddy vs. Income Tax Officer

THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN

ITTA No.516 of 2010

Dated:06.09.2010

Between:

Dr.K.Raghotham Reddy.

…Appellant

and

Income Tax Officer, Ward-3, Warangal.

…Respondent

THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN

ITTA No.516 of 2010

JUDGMENT: (per Hon’ble Sri Justice V.V.S.Rao)

The appellant filed his return for the assessment year 2003- 2004 returning a total income of Rs.1,01,860/-. The Assessing Officer made certain disallowances and determined total income of Rs.2,28,170/- after due completion of the assessment under Section 143(3) of the Income Tax Act, 1961 (the Act), on 28.03.2006. The Commissioner of Income Tax initiated suo motu revision under Section 263(1) of the Act, and issued a show cause notice with regard to four issues, namely, inflated agricultural income, unexplained investment of construction of property at Warangal for the purpose of running a Nursing Home, the peak cash deficit and low withdrawals. In the show cause notice, the Commissioner pointed out that some of the items of expenditure in the construction of Nursing Home which ought to have been taken into consideration were ignored, the Assessing Officer failed to get the true valuation of the building from the Valuation Cell of the Department, and for the holding of Ac.1.30 guntas, an income of Rs.3 lakhs as exempted from tax is unreasonable. The appellant herein submitted

explanation. Statedly, he also filed the valuation report before the Commissioner of Income Tax. After due consideration, by an order dated 28.03.2008, the revisional Commissioner came to the conclusion that the order of the Assessing Officer is erroneous inasmuch as it is prejudicial to the interest of the revenue, and accordingly set aside the assessment order, and remanded the matter to the Assessing Officer with a direction to redo the same in the light of the findings. The appellant then went in second appeal before the Income Tax Appellate Tribunal. He was unsuccessful there too. Counsel for the appellant relies on Commissioner of Income Tax v Gabriel India Limited[1] and submits that unless and until an assessment order is ex facie erroneous and prejudicial to the revenue, exercise of suo motu revisional jurisdiction under Section 263(1) of the Act is unsustainable. He contends that necessary material was placed before the Commissioner, who failed to consider the same while exercising revisional jurisdiction, and, lastly, he would urge that if the matter is remanded, there is a likelihood of a roving enquiry by the Assessing Officer, which would cause prejudice to the appellant.

We have gone through the order of the Assessing Officer, revisional Commissioner and the learned Tribunal carefully. The scope of the jurisdiction exercised under Section 263 of the Act has been considered in some detail in Gabriel India Limited. While holding that, so as to attract the revisional jurisdiction under Section 263(1) of the Act, the order of the Assessing Officer should be erroneous and, by virtue of the order being erroneous, it is prejudicial to the interest of the revenue, the Division Bench made the following observations. We, therefore, hold that in order to exercise power under sub-section (1) of section 263 of the Act there must be material before the Commissioner to consider that the order passed by the Income-tax Officer was erroneous in so far as it is prejudicial to the interests of the Revenue. We have already held what is erroneous. It must be an order which is not in accordance with the law or which has been passed by the Income-tax Officer without making any enquiry in undue haste. We have also held as to what is prejudicial to the interests of the Revenue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realized or cannot be realized. There must be material available on the record called for by the Commissioner to satisfy him prima facie that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exercise of power. It is well settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the court it would be open to the courts to examine whether the relevant

objective factors were available from the records called for and examined by such authority…

Reliance was also placed on Russell Properties Private Limited v A.Chowdhury, Additional Commissioner of Income Tax[2]. After perusing both the judgments, we are in respectful agreement with the opinion of the Bombay and Calcultta Division Benches. The issue, however, before us is slightly different. Whether there was sufficient material before the Commissioner to initiate revisional jurisdiction under Section 263(1) of the Act? A plain reading of the provision would show that, while initiating revision under Section 263(1) of the Act, it is not incumbent that there should be a detailed and thorough enquiry by the Commissioner. If the order is found to be erroneous, in the sense that it is not in accordance with law, or it is in ignorance of the necessary regulations, that itself would be sufficient for the Commissioner to issue a notice under Section 263(1) of the Act proposing to exercise revisional jurisdiction pointing out the reasons for coming to the conclusion that the order of assessment is erroneous, and is prejudicial to the interest of revenue. After receiving the show cause notice, depending on the facts and circumstances of each case, the burden lies on the assessee to show that all relevant factors have been considered by the Assessing Officer. In the case on hand, the Commissioner has pointed out at least four reasons for coming to the conclusion that the assessment order is erroneous. For instance, as pointed out by the Commissioner, the items of expenditure towards electrical fittings were not at all taken into consideration while estimating the value of the building. Similarly, while allowing the allowances towards agricultural income, the Assessing Officer without any objective consideration accepted the assessee’s estimate of agricultural income. The Assessing Officer should have referred to the Valuation Cell the assessee’s claim that the cost of construction of the nursing home was Rs.39.00 lakhs. Therefore, we are convinced that the assessment order is certainly erroneous warranting exercise of jurisdiction under Section 263(1) of the Act. We are also convinced that the order of assessment passed by the Commissioner was justified in the facts of the case, and even now it is always open to the appellant to place all the material before the Assessing Officer. We make it clear that the order of remand does not enable the Assessing Officer to reopen the entire matter in a roving manner. The consideration must be restricted to the issues pointed out by the Commissioner. We do not find any reason to admit the appeal. The appeal is therefore, dismissed.

__________________ (V.V.S.RAO, J)

______________________________

(RAMESH RANGANATHAN, J)

06.09.2010 vs

[1] (1993) 203 ITR 108 (Bom.) [2] (1977) 109 ITR 229 (Cal.)