THE HON’BLE SRI JUSTICE B. PRAKASH RAO AND THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN REFERRED CASE No. 7 1 of 1996 J U D G M E N T : (Per RR,J) The question, referred for our opinion, reads as under: “Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in cancelling the order of the Commissioner under section 263 of the Income Tax Act, holding that the action of the assessing officer in following the decision of the A.P. High Court in the case of A. Sanyasi Rao and Others (178 ITR-31) which was holding the field as on the date of assessment viz., 20-3-1992, and the operation of which came to be suspended only subsequently viz., on 31-3-1992 202 ITR-584) was neither erroneous nor prejudicial to the interests of the Revenue ?” 2. Facts, in brief, are that the assessee is a partnership firm carrying on business in the purchase and sale of arrack. For the assessment year 1989-90, the assessee filed their returns declaring Rs.4,21,910/- as their income. The assessing authority held that, though the income of the assessee was required to be computed applying the presumptive rate specified in Section 44-AC of the Income Tax Act, in view of the Judgment of this Court in “A. Sanyasi Rao V/s. Government of Andhra Pradesh & Ors.[1]”, wherein this court held that the income should be computed by applying the provisions of Section 28 to 43-C, without resort to the provisions of Section 44-AC, the assessment was being completed following the said judgment. The order of assessment dated 20-3-1992 was, accordingly, passed. 3. While matters stood thus, the Revenue carried the order of this Court, in A. Sanyasi Rao1, in appeal to the Supreme Court. The Supreme Court, by its order dated 31-3-1992 (202 ITR-584), while granting interim stay of operation of the said judgment, clarified that the effect of its order was to permit the Revenue to complete assessment involving cases under Section 44-AC, irrespective of the observations in the judgment of the High Court of the limited applicability of these Sections. 4. The Commissioner of Income Tax, in exercise of his powers under Section 263 of the Income Tax Act, initiated Revision proceedings. In his order dated 17.12.1993, the Commissioner observed that, as on the date of assessment order, the provisions of Section 44-AC were on the Statute book and, as the Supreme Court in its order dated 31-3- 1992 had suspended the operation of the decision of this Court in A. Sanyasi Rao1, the provisions of Section 44-AC would automatically apply with retrospective effect; and consequently the assessment made on 20-3-1992, for the assessment year 1989-90, was erroneous and prejudicial to the interests of revenue. As the assessing officer had not followed the statutory provisions of Section 44-AC of the Act, the Commissioner set aside the order of assessment, for the year 1989-90, and directed the assessing authority to pass orders afresh in accordance with law. 5. Aggrieved thereby, the assessee carried the matter in appeal to the Income Tax Appellate Tribunal, Hyderabad (ITAT) in ITA.No.823/Hyd/94. The ITAT, in its order dated 06-2-1995, observed that the assessment order passed by the assessing officer, following the decision of this Court in A. Sanyasi Rao1, was good law as on the date of assessment; as the operation of the said judgment had not been suspended, as on the date of assessment, the assessing officer was duty bound to follow the said judgment; the power of Revision under Section 263 could be exercised only if the order of the assessing authority was erroneous and was prejudicial to the interests of revenue; the Revisional jurisdiction under Section 263 was required to be exercised in the light of the records as it stood then; and, as at the time when the assessment order was passed the order of the Supreme Court staying the operation of the judgment of the A.P. High Court in A. Sanyasi Rao1 was not in existence, it could not be said that the assessment order dated 20-3-1992 was erroneous or prejudicial to the interests of revenue. 6. As noted hereinabove the Supreme Court, by its order dated 31.3.1992, not only granted stay of operation of the judgment of the High Court but also permitted the authorities to complete the assessment on the basis of Section 44-AC irrespective of the observations in the judgment of the High Court. 7. Sri S.R. Ashok, Learned Senior Counsel appearing on behalf of the Revenue, would submit that Judgments of the Supreme Court are declaratory in nature; the relevant point of time at which proceedings under Section 263 of the Act can be said to have been initiated is the date on which the Revisional authority calls for the record and, since the date of calling for the record is subsequent to 31-3-1992, the interim order of the Supreme Court enabled the assessment to be proceeded with; and as the order of the assessing authority, relying on A. Sanyasi Rao1, was erroneous and prejudicial to the interests of Revenue, the Revisional authority had the jurisdiction to revise the said order. Learned Senior Counsel would further contend that the observations of the ITAT, that the law as on the date of passing the assessment order should alone be taken into consideration, was contrary to a catena of judgments of the Supreme Court and this Court; and, as the law laid down by the Supreme Court is declaratory in nature, it relates back to the date on which the provision was introduced in the Act and not on the date on which the Supreme Court passed the order. Learned Senior Counsel would also draw our attention to Explanation ‘b’ to Section 263 of the Income Tax Act, as inserted w.e.f. 1-10-1984 and substituted w.e.f. 01-6-1988., which reads thus:- (b) “record” [shall include and shall be deemed always to have included] all records relating to any proceeding under this Act available at the time of examination by the Commissioner. 8. Learned Senior counsel would submit that, since the record would include all such records available at the time of examination by the Commissioner, it is the interim order of the Supreme Court which forms the basis for revising the assessment; and the ITAT had erred in holding otherwise. 9. While the aforesaid submissions of the Learned Senior Counsel cannot be said to be without merit, we cannot, however, lose sight of the fact that the order of this Court in A. Sanyasi Rao1 was affirmed by the Supreme Court in its judgment dated 13-2-1996 (Volume 219 ITR- 330). The Supreme Court held that, in view of absence of material, this Court was justified in its view that the remedy specified by Section 28 to 44-AC was disproportionate to the evil that prevailed and so, to the extent the non-obstante clause in Section 44-AC excluded the provisions of Section 28 to 43-C (applicable to all assessees), the provisions were unreasonable. The Supreme Court held that Section 44-AC was a valid piece of legislation, and was an adjunct to, and explanatory to, Section 206-C; and it did not dispense with the regular assessment, as provided for, in accordance with Sections 28 to 43-C of the Act. 10. In the light of the Judgment of the Supreme Court dated 13.02.1996, affirming in part the Judgment of this Court in A. Sanyasi Rao1, we see no reason to now examine and answer the question referred for our opinion. Suffice to hold that this question of law, referred for our opinion, is left open for examination in an appropriate case. R.C. No.71 of 2006 is, accordingly, disposed of. ______________________ B . PRAKASH RAO,J Date: 22-06-2010. ______________________________ RAMESH RANGANATHAN,J Isl/asp I s L IN THE HIGH COURT OF JUDICATURE ANDHRA PRADESH AT HYDERABAD TUESDAY THE TWENTYSECOND DAY OF JUNE TWO THOUSAND AND TEN PRESENT THE HONOURABLE SRI JUSICE B. PRAKASH RAO AND THE HONOURABLE SRI JUSTICE RAMESH RANGANATHAN REFERRED CASE No. 7 1 OF 1996 {under section 256 (1) of the Indian Income Tax Act, 1961 in RA.No.255/Hyd/95, dated 07-08-1995 Andhra Pradesh : ITAT Hyderabad Bench ‘A’} Between: The Commissioner of Income-tax Andhra Pradesh-II, Hyderabad. …. Petitioner V/s. M/s. M.Venkat Reddy & Ors. Nizamabad. ` …. Respondents Counsel for the Applicant : Sri S.R. Ashok Senior Counsel Counsel for the Respondents: Party in-person [1] 178 ITR-31