IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN FRIDAY, THE 30TH OCTOBER 2009 / 8TH KARTHIKA 1931 WA.No. 1223 of 2006() --------------------- AGAINST THE JUDGEMENT/ORDER IN OP.17978/2000 Dated 09/03/2006 .................... APPELLANT(S): PETITIONER ------------------------ M/S.PANCHAMAN TRADERS,KALARICKAL, KUNNAMTHANAM,MALLAPPALLY. BY ADV. SRI.P.BALAKRISHNAN (E) RESPONDENT(S): RESPONDENTS -------------------------- 1. THE COMMISSIONER OF INCOME TAX, TRIVANDRUM. 2. THE INCOMETAX OFFICER, WARD-1, THIRUVALLA. ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 30/10/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.R. C .N. RAMACHANDRAN NAIR & V.K. MOHANAN, JJ. -------------------------------------------- W.A. No. 1223 OF 2006 -------------------------------------------- Dated this the 30th day of October, 2009 JUDGMENT Ramachandran Nair, J. Writ Appeal is filed against the judgment of the learned single Judge who upheld the suo motu orders issued by the Commissioner directing revision of appellant's income tax assessment for the year 1992-93 to determine taxable income, consistent with the decision of the Supreme Court in UNION OF INDIA V. A. SANYASI RAO, 219 ITR 330 (SC). 2. The appellant-assessee was engaged in arrack business during the previous year relevant for the assessment year 1992-93. Even though Profit and Loss account filed along with the income tax returns showed net income of Rs. 10,53,607/- the assessee returned income from arrack business only at Rs. 5,25,645/-, which was income assessable under Section 44AC of the I.T. Act. The assessment was completed ignoring the higher income shown in the P & L account as 2 income from arrack business, but by accepting the income under Section 44AC of the Act. The original assessment was completed on 7.2.1995. The assessee filed appeal against the assessment before the CIT (Appeals) on some other issues pertaining to addition made of the amount shown in the capital account of other partners. The CIT (Appeals) by order dated 13.12.1995 set aside the assessment and remanded the case back to the assessing officer for the purpose of reconsidering the additions contested by the assessee in appeal. It is thereafter that the Supreme Court pronounced the judgment in SANYASI RAO's case referred above on 13.2.1996 holding that income from liquor business also should be computed in accordance with Sections 28 to 43C like any other business income and the provisions of Sections 44AC and 206 are only machinery provisions. Therefore it was the duty of the assessing officer to have noticed the judgment of the Supreme Court and made assessment in respect of income from arrack business based on P & L account filed by the assessee. However, while revising the assessment based on the orders in appeal, the assessing officer did not consider the decision of the Supreme Court above referred, but retained the income assessed in 3 respect of arrack business under Section 44AC in the revised assessment completed on 6.3.1998. The Commissioner of Income tax on noticing the irregularity committed by the assessing officer, leading to evasion of tax, initiated suo motu revision proceedings under Section 263 of the Act and passed orders on 30.3.2000 directing revision of assessment on income from arrack business based on income disclosed in P & L account and in terms of declaration of law by the Supreme Court in SANYASI RAO's case above referred. Even though statutory appeal was available against Section 263 order, the assessee approached this Court in writ proceedings contending that the order is without jurisdiction mainly because it is time-barred. The learned single Judge upheld the order both on merit as well as on the question of limitation raised by the appellant. This Appeal is against the said judgment and we have heard Sri. P. Balakrishnan, counsel appearing for the appellant and standing counsel appearing for the respondent. 3. The first question raised is against the finding of the learned single Judge that the order passed by the Commissioner under Section 263 of the IT Act is within time. The case of the appellant-assessee is that the issue decided by the Officer and which was subject matter of 4 revision by the Commissioner under the impugned order issued under Section 263 is with regard to computation of business income from arrack under Section 44AC in the original assessment, which should have been made based on P & L account filed by the assessee, which showed higher income from business than the income assessable under Section 44AC. Even though appeal was filed against original assessment completed on 7.2.1995, this was not the subject matter of appeal and therefore it was open to the Commissioner to revise the original assessment on this issue within two years from the date of original order which was not done in this case. According to counsel since the issue was not subject matter of appeal, the Commissioner should have revised the assessment even during the pendency of appeal before the first appellate authority or after the first appellate authority disposed of the appeal. The specific case of the assessee therefore is that suo motu revisional order issued on 30.3.2000 is time barred because limitation with regard to suo motu revision power under Section 263 has to be considered with reference to original assessment completed on 7.2.1995. On the other hand, standing counsel appearing for the respondent contended that suo motu revision power under 5 Section 263 should be considered with reference to revised order issued based on orders in appeal, if the issue raised by the Commissioner under Section 263 was not raised or considered by the appellate authority. In this particular case, the specific case of the department is that the Commissioner (Appeals) had in fact set aside the original assessment in appeal and so much so, there was no order available to the Commissioner for revision under Section 263 until the Officer revised the assessment. According to standing counsel, revised assessment was issued by the assessing officer on 6.3.1998 without considering the law declared by the Supreme Court in SANYASI RAO's case and therefore the order prejudicial to the interest of revenue is revised order issued on 6.3.1998 by the assessing officer ignoring the judgment of the Supreme Court above referred and so much so limitation available for revision of order under sub-section (2) of Section 263 is upto two years from the end of the financial year in which revised order is passed.. 4. Learned counsel for the appellant-assessee has relied on the decision of the Supreme Court in CIT V. ALAGENDRAN FINANCE LTD., 293 I.T.R. 1 (SC), and contended that under explanation C to 6 Section 263(1) there is no merger of the assessment pertaining to income from arrack business in the appellate order and so much so, the Commissioner was free to revise the original assessment under section 263 on this issue even during the pendency of the first appeal before the first appellate authority. We are unable to accept this contention for more than one reason. In the first place, assessment on computation of income from arrack business originally made on 7.2.1992 became an order prejudicial to the interest of revenue by virtue of declaration of law by the Supreme Court vide judgment in SANYASI RAO's case dated 13.2.1996. Therefore Commissioner could not have been expected to pass orders under Section 263 until the Supreme Court pronounced the judgment. Further, if the assessing officer had taken note of the judgment of the Supreme Court he himself could have corrected the mistake in the revised assessment either by invoking the power under Section 154 or by resort to Section 147. Secondly the Commissioner in exercise of his jurisdiction under Section 263 can revise the assessment found to be prejudicial to the interest of the revenue within two years from the end of the financial year in which such order is passed. In this case, the order sought to be revised 7 was set aside in appeal; by the first appellate authority for redoing the assessment with specific reference to the issues raised in the appeal. In fact it is pertinent to note that under Section 251 (1)(a) Commissioner (Appeals) has authority even to enhance assessment which was the subject matter of appeal before him. The powers of Commissioner (Appeals) under Section 251(1)(a) are similar to the power of regular Commissioner who exercises supervisory jurisdiction over the assessing officers under Section 263 to correct orders prejudicial to the interest of the revenue. Therefore once the appeal is filed by the assessee on any ground, it was open to the Commissioner (Appeals) to consider whether the impugned assessment order is otherwise prejudicial to the interest of the revenue and to order revision of assessment to make up for the omissions made or to rectify the mistakes or to bring to tax the income that has escaped assessment which in other words means that orders prejudicial to the interest of the revenue should be ordered to be corrected by the first appellate authority as well. Therefore there is nothing wrong in the Commissioner, exercising supervisory powers over the assessing officers, to wait for the orders in appeal and then to revise the 8 assessment on matters which are not considered in appeal by the first appellate authority. If the result of appeal is setting aside the assessment though for limited purposes, still in our view no order survives to be revised by the Commissioner under Section 263 on any point originally decided. In fact, as already found by us, even after setting aside the assessment, the assessing officer has ample powers under Section 154 as well as under Section 147 to correct his own mistakes in the original assessment so that revised order issued by him consistent with the orders in appeal will be an order not prejudicial to the interest of the revenue. It is only when the first appellate authority omits to correct orders prejudicial to the interest of the revenue and only if the assessing officer also fails to correct his mistakes in the original assessment while issuing revised orders giving effect to the order in appeal, the Commissioner needs to exercise his supervisory jurisdiction under Section 263 of the Act and so much so the Commissioner has jurisdiction to revise the revised assessment on matters concluded by the assessing officer in the original assessment which are again incorporated in the revised order. We have in this case already found that limitation does not apply because in first 9 appeal, the first appellate authority set aside the assessment within the period of limitation available to the Commissioner for issuing orders under Section 263 and once assessment is set aside, revised order is a new proceeding against which also powers under Section 263 are available to the Commissioner. Admittedly impugned order of the Commissioner under Section 263 issued on 30.3.2000 is within two years from the end of the financial year in which the revised assessment is issued, that is on 6.3.1998. Therefore we confirm the order of the learned single Judge holding that the proceedings impugned in the WPC is within time. However, we make it clear that if the CIT (Appeals) had not set aside the original assessment in appeal, limitation for revision under Section 263 has to be worked out from the date of original assessment and in that event revisional order by the Commissioner would be time barred. In other words, limitation for revision under Section 263 on any matter concluded in the original assessment with reference to revised order issued after appeal arises only when the CIT (Appeals) sets aside the assessment in appeal within the period for revision available to the Commissioner for revision under Section 263 against original assessment. 10 5. So far as the challenge against merit of the impugned order is concerned, we find that the assessing officer passed the revised assessment after declaration of law by the Supreme Court in SANYASI RAO's case, but by ignoring it which led to escapement of assessment of substantial amount of income because income returned by the assessee in the arrack business in the P & L Account was almost double the income returned under Section 44AC and originally assessed by the assessing officer. In fact, if the assessing officer had noted the decision of the Supreme Court which was already published much before revision of assessment, he himself would have corrected the omission in the original assessment in the course of revision of assessment based on orders in appeal. Therefore there is no substance in the challenge against the merit of the impugned order as well. Consequently we dismiss the writ appeal. (C.N.RAMACHANDRAN NAIR) Judge. (V.K. MOHANAN) Judge. kk 11