KELPUNJ ENTERPRISES Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE question referred to this Court by the Tribunal, Cochin Bench, reads as follows :

(2.) THE assessment year is 1964 65 and the corresponding accounting period is the financial year 1963 64. There were credit entries in the accounts of the assessee during the accounting period. These entries may be divided into two groups; one group adding up to Rs. 75,000 and another to Rs. 20,000. The assessing authority questioned the correctness of those entries but eventually accepted the explanation of the assessee in relation to the sum of Rs. 75,000 but did not accept the explanation regarding the sum of Rs. 20,000. The income of the assessee was ultimately fixed by the ITO at Rs. 1,68,920 as against the income of Rs. 25,880 returned by the assessee. The assessee appealed before the AAC on 7th March, 1969. While the appeal was pending the CIT after examining the records of the case was satisfied that the order of the ITO was prejudicial to the Revenue in that certain hundi banker's loans were not properly investigated, and without such investigation accepted as genuine by the ITO. The CIT, therefore, issued notice under S. 263 and after hearing the assessee passed an order, setting aside the ITO's assessment order and holding that the ITO had not properly investigated the genuineness of the hundi loans. A direction was, therefore, given to the ITO to investigate the genuineness of the loans and pass fresh orders. In view of the order of the CIT the AAC dismissed the appeal as infructuous as the assessment order appealed against had already been set aside. The assessee appealed to the Tribunal against the CIT's order and raised two grounds : (1) that the CIT had no material to hold that the ITO's order was prejudicial to the interest of the Revenue; and (2) that when an appeal to the AAC was pending the CIT had no jurisdiction to pass an order under S. 263 of the Act. Regarding the first ground the Tribunal found that there was sufficient material before the CIT and that question is no more alive for the purpose of this reference. Regarding the second contention, the Tribunal held that the order of the CIT under S. 263 was validly passed as the section enabled the CIT to pass such an order even during the pendency of an appeal. Counsel for the assessee submitted before us that the order of the Tribunal is erroneous. It was contended that the assessment order having been appealed against and since the appellate authority has power to enhance the assessment if necessary, the proper and the correct procedure to follow even if the CIT had found out errors in the assessment order while investigating the correctness of that order pursuant to his powers under S. 263, is to instruct the Department to agitate the matter before the appellate authority where the appeal was pending and obtain relief from that authority. In support of this argument counsel relied on the observations of Chief Justice Chagla in the decision in CIT vs. Amritlal Bhogilal & Co. (1963) 23 ITR 420 (Bom) : TC57R.463. The learned Judge observed therein that the revisional power which is meant to safeguard the interest of Revenue should be exercised only in cases where its interest would otherwise be jeopardised. It was held therein that when an appeal had been taken before the AAC there will be no such jeopardy in that the Department could seek enhancement of the assessment before the AAC who has been conferred jurisdiction to enhance the tax, if necessary. So it was held that the CIT could not exercise his power of revision under S. 33B of the Indian IT Act, 1922, during the pendency of an appeal. This is a line of reasoning which is appealing. The exercise of a revisional power under S. 33B should not have the effect of depriving the appellate authority created by statute from dealing with the appeal which it was seized of. We would have been persuaded to accept this argument but for the fact that we have to read S. 263 of the IT Act, 1961, along with s. 264. While S. 263 of the above Act deals with the power of the CIT to revise an order of the ITO, s. 264 is wider in that the CIT has the power to deal with an order of any subordinate authority and, therefore, that of an AAC as well. Sec. 264 is wider in another sense in that it does not say that the CIT should be satisfied that the order is prejudicial to the Revenue. But, there are limitations in the power conferred by S. 264 on the CIT. Sub s. (4) provides :

(3.) IN that light of the above discussions, we answer the question referred to us in the affirmative, that it, in favour of the Department and against the assessee. We direct the parties to bear their respective costs.