Whether a writ against the section 263 revision power can be maintained while an appeal is pending before the CIT(A)
Fact and issue of the case
The writ petition is filed to quash Ext P5 order passed by the Principal Commissioner of Income Tax – the first respondent.
The brief relevant facts for the determination of the writ petition are:
(i) The petitioner is a partnership firm doing business in PVC pipes. It is an assessee under the Income Tax Act, 1961 (for brevity, ‘Act’).
(ii) The petitioner had filed its return of income for the assessment year 2017- 2018 declaring a total income of Rs. 65,12,480/-.
(iii) The return was taken up for scrutiny and the assessment was completed on 16.12.2019, by Ext P1 order, under Sec. 143(3) of the Act.
(iv) Aggrieved by Ext P1 Assessment Order (A.O), the petitioner has preferred a statutory appeal before the Commissioner of Income Tax (Appeals) (for brevity, ‘CIT(Appeals)’) and the matter is sub-judice. Ext P2 is the acknowledgment slip.
(v) While so, the petitioner was served with Ext P3 notice by the first respondent stating that he was proposing to reopen Ext P1 A.O under Sec. 263 of the Act. The petitioner had submitted Ext P4 reply to Ext P3 notice, inter alia, contending that the subject-matter in the proposed revision is sub-judice in the appeal before the CIT(Appeals). Therefore, the first respondent may not invoke his jurisdiction under Sec. 263 of the Act, especially in view of the express prohibition under Explanation I (c) of sub-sec. (1) of Sec. 263 of the Act.
(vi) Even though the petitioner was heard, the first respondent has passed Ext P5 order.
(vii) Ext P5 order is patently illegal, arbitrary and unauthorised in law. Hence the writ petition.
The learned Standing Counsel appearing for the respondents has filed a statement refuting the allegations in the writ petition and, inter alia, contending that the assertion in the writ petition that clause (c) of Explanation I of Sec. 263 (1) of the Act ousts the revisional power of the first respondent, while an appeal is pending, is untenable. In the case on hand, as the appeal is pending consideration, the above provision cannot be pressed into service. The said provision is based on the principle of doctrine of Where an issue in the assessment order is neither agitated before the CIT(Appeals) nor has been considered by him, that portion of the assessment order will not merge with the order of CIT(Appeals). The first respondent has rightly and judicially exercised his powers, under Sec. 263 of the Act, to correct an error committed by the Assessing Officer in applying the correct rate of tax applicable to the additions by way of income made in the assessment. The petitioner has challenged only the additions made to the total income in the A.O. Therefore, the jurisdiction exercised by the first respondent is in consonance with the provisions of Sec. 263 of the Act. The writ petition is devoid of any merits and is liable to be dismissed.
The petitioner has filed a reply affidavit denying the assertions in the statement. It is asserted that Explanation I (c) of sub-sec.(1) of Sec. 263 of the Act has two limbs. The first limb deals with while the matter is sub-judice before the First Appellate Authority and the second one deals with when the matter has been decided in the Hence, in those matters decided in the appeal, the doctrine of merger applies. The subject matter in dispute in the appeal and the revision is one and the same, and is hence statutorily barred. In the instant case, the assessing authority, after conducting a detailed inquiry, has held that the income is from other sources. It is this turnover which is made the subject-matter of revision, on the premise that it is to be assessed at higher rate of tax under Section 115 BBE as unexplained credit. Therefore, the revisional authority ought not to have exercised its jurisdiction under Sec. 263 of the Act. Hence, the writ petition may be allowed.
Heard; Sri. Anil D. Nair, the learned Counsel appearing for the petitioner and Sri. Christopher Abraham, the learned Standing Counsel appearing for the respondents.
Sri. Anil D. Nair reiterated the contentions in the writ petition and in the reply affidavit. He argued that the action of the first respondent in initiating a suo-motu revision and passing Ext P5 order, during the pendency of the appeal, is illegal and has caused substantial prejudice to the petitioner. In fact, Ext P5 order has rendered the appeal otiose and leaving the petitioner high and dry. He placed reliance on the decisions of the Madras High Court in Commissioner of Income Tax vs Vam Resorts and Hotels Pvt. Ltd [(2018) 409 ITR 567] and the Allahabad High Court in CIT v. Vam Resorts and Hotels P. Ltd [(2019) 418 ITR 723] to fortify his contentions.
Sri. Christopher Abraham strenuously defended Ext P5 order and argued that the first respondent has unbridled powers to revise an order passed by the assessing authority, during the pendency of an appeal under Sec. 263 of the Act, when it is noticed that the Assessing Officer has committed a patent illegality. He argued that as the assessing authority had applied the wrong rate of tax, it is well within the domain and powers of the first respondent to exercise his revisional powers. He submitted that the petitioner has an alternative and efficacious statutory remedy. Hence, no prejudice will be caused to the petitioner. He placed emphasis on the decisions of the Honourable Supreme Court in Commissioner of Income Tax vs. Shri.Arbuda Mills Ltd. [(1998) 231 ITR 50 (SC)], Commissioner of Income Tax vs. Jayakumar B. Patil [(1999) 236 ITR 469 (SC)] and EIMCO K. C.P Ltd vs. Commissioner of Income Tax [(2000) 242 ITR 659 (SC)] and the decision of this Court in Kelpunj Enterprises vs. Commissioner of Income Tax , Kerala [ (1977) 108 ITR 294 (Ker)] to buttress his contentions. He prayed that the writ petition may be dismissed.
Observation of the court
In view of the categoric declaration of law in the afore-cited decisions, I am unable to accept the contention of the petitioner that the first respondent does not have the power to pass Ext P5 order because the appeal is pending consideration before the CIT(Appeals). Going by the law referred to above, the first respondent has the revisional power to interfere with assessment order as provided under Sec. 263 of the Act, till the disposal of the appeal. Furthermore, I do not find any prejudice being caused to the petitioner because, if at all the petitioner is aggrieved by the order that is to be passed by the Assessing Officer, in compliance with the direction in Ext P5 order, the petitioner can very well challenge the said order also in an appeal, notwithstanding the pendency of the appeal filed against Ext P1 order. Resultantly, I dismiss the writ petition, reserving the right of the petitioner to challenge the order, if so advised, proposed to be passed by Assessing Officer pursuant to Ext P5 order, in accordance with law, notwithstanding the challenge against Ext P1 order
In the result, appeal of the assessee is allowed and ruled in favour of the assessee
Read the full order from herePrestige-Marketing-Vs-PCIT-Kerala-High-Court-2