KELPUNJ ENTERPRISES Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The question referred to this court by the Income Tax Appellate 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 account of the assessee during the accounting period. These entries may be divided into two groups; one group adding upto 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 Income Tax Officer at Rs. 1,68,920 as against the income Rs. 25, 880 returned by the assessee. The assessee appealed before the Appellate Assistant Commissioner, on 7-3-1969. While the appeal was pending the Commissioner of Income Tax after examining the records of the case was satisfied that the order of the Income Tax Officer was prejudicial to the revenue in that certain hundi bankers loans were not properly investigated, and without such investigation accepted as genuine by the Income Tax Officer. The Commissioner therefore issued notice under S.263 and after hearing the assessee passed and order, setting aside the Income Tax Officer's assessment order and holding that the Income Tax Officer had not properly investigated the genuineness of the hundi loans. A direction was therefore given to the Income Tax Officer to investigate the genuineness of the loans and pass fresh orders. In view of the order of the Commissioner the Appellate Assistant Commissioner dismissed the appeal as infructuous as the assessment order appealed against had already been set aside. The assessee appealed to the Tribunal against the Commissioner's order and raised two grounds: (1) that the Commissioner of Income Tax had no material to hold that the Income Tax Officer's order was prejudicial to the interest of the revenue and (2) that when an appeal to the Appellate Assistant Commissioner was pending the Commissioner 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 Commissioner 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 Commissioner under S.263 was validly passed as the section enabled the Commissioner to pass such an order even during the pendency of an appeal.

(3.) 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 it the Commissioner had found out errors in the assessment order while investigating the correctness of that order pursuant to his power 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 Commissioner of Income Tax v. Amritlal Bhogilal and Co. (1953) 23 ITR 420. 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 Appellate Assistant Commissioner there will be no such jeopardy in that the department could seek enhancement of the assessment before the Appellate Assistant Commissioner who has been conferred jurisdiction to enhance the tax if necessary. So it was held that the Commissioner could not exercise his power of revision under S.38B of the Indian Income Tax 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 Income Tax Act 1961 along with S.264. While S.263 of the above Act deals with the power of the Commissioner to revise an order of the Income Tax Officer, S.264 is wider in that the Commissioner has the power to deal with an order of any subordinate authority and therefore that of an Appellate Assistant Commissioner as well. S.264 is wider in another sense in that it does not say that the Commissioner should be satisfied that the order is prejudicial to the revenue. But there are limitations in the power conferred by S.264 on the Commissioner. Sub-s.(4) provides: