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CASE NO.: Appeal (civil)  10 of 2007

PETITIONER: Commissioner of Income Tax, Bhopal

RESPONDENT: Ralson Industries Ltd

DATE OF JUDGMENT: 04/01/2007

BENCH: S.B. Sinha & Markandey Katju

JUDGMENT: J U D G M E N T [Arising out of SLP (CIVIL) NO. 17352 OF 2004]

S.B. SINHA, J.

       Leave granted.         Interpretation of the provisions of Section 154 vis-‘-vis 263 of the  Income Tax Act calls for consideration in this Appeal which arises out of a  Judgment and Order dated 15th December, 2003 passed by the High Court of  Madhya Pradesh at Jabalpur in ITR No.19/1999. The fact of the matter is not  much in dispute. The Respondent is an assessee under the Income Tax Act.  It filed its return for the assessment year 1992-93 declaring its income at  Rs.26,66,355/-. The order of assessment was completed on or about  10.3.1995 under Section 143(3) of the Act opining that the assessable  income as against the assessee was Rs.35,40,414/-. The Commissioner of  Income Tax invoked its jurisdiction under Section 263 of the Act by setting  aside the order of assessment excluding certain amounts towards transport  receipts to the extent of a sum of Rs.2762982/- and interest amounting to  Rs.141878/- from the assessee’s total income in the light of the provisions of  Section 80HHC and Section 80-I of the Act. The Assessing Officer was  directed to make a fresh order of assessment.

       Appeal was preferred thereagainst by the assessee before the Income  Tax Appellate Tribunal. It was, inter alia, contended that after the order of  assessment under Section 143 (3) of the Act was passed, a Notice of  Rectification of the Order of Assessment under Section 154 thereof having     been issued by the Assessing Officer on 26.10.1995, wherein no  modification/amendment was made in regard to the purported exclusion of  income under Sections 80HH and 80-I of the Act on account of non- inclusion of transport receipts and interest on the total income and, thus, the   Commissioner of Income Tax has no authority to initiate any proceedings  under Section 263 thereof or otherwise.  

       The said contention of the assessee was upheld by the Tribunal, inter  alia, relying on or on the basis of a decision of the Madhya Pradesh High  Court in Commissioner of Income-tax v. Vippy Solvex Products Pvt. Ltd.  reported in (1997) 228 ITR 587. The Tribunal was furthermore of the  opinion that the Order passed under Section 154 of the Act having been  made upon due consideration of the explanation of the assessee for the  proposed rectification on the point of excess deduction under Section 80HH  and 80-I, the Commissioner lacked jurisdiction to make may order under  Section 263 thereof.  

       An application in the aforementioned premise was filed before the  High Court for a direction upon the Tribunal for reference of the following  questions to it for its opinion: -

"1.     Whether on the facts and in the circumstance of          the case, the Hon’ble ITAT was justified in law

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       in holding that the CIT lacked jurisdiction to revise          the order of assessment u/s 263 of the I.T. Act?  2.     Whether on the facts and in the circumstances of          the case, the Hon’ble ITAT was Justified in          holding that the issue of excess deduction u/s          80HH & 80 I contained in the order u/s 143 (3)          was merged with the order u/s 154 particularly          when no rectification u/s 154 was made in       this          regard. 3.      Whether the view taken by the Hon’ble ITAT that          the AO did not consider the issue of excess          deductions u/s 80HH and 80 I for rectification in          his order u/s 154 after due application of his mind,          could in law justify its conclusion that there was          no jurisdiction u/s     263 in respect of the said issue          in terms of the assessment order dated 10-03-95."

       Relying on a decision of the High Court in Chunnilal Onkarmal Pvt.  Ltd. v. Commissioner of Income Tax reported in 1997 ITR (224) 233, the  High Court opined that no substantial question of law arises for directing  Tribunal to refer any question to the said Court.

       Sub-sections (1) and (6) of Section 154 and Sub-section (1) of Section  263 of the Act reads as under: - "154. (1) With a view to rectifying any mistake apparent  from the record an income-tax authority referred to in  section 116 may,- (a) amend any order passed by it under the  provisions of this Act; (b) amend any intimation or deemed intimation  under sub-section (1) of section 143. ***                     ***                     ***  (6) Where any such amendment has the effect of  enhancing the assessment or reducing a refund already  made, the Assessing Officer shall serve on the assessee a  notice of demand in the prescribed form specifying the  sum payable, and such notice of demand shall be deemed  to be issued under section 156 and the provisions of this  Act shall apply accordingly.

"263. (1) The Commissioner may call for and examine  the record of any proceeding under this Act, and if he  considers that any order passed therein by the Assessing  Officer is erroneous in so far as it is prejudicial to the  interests of the revenue, he may, after giving the assessee  an opportunity of being heard and after making or  causing to be made such inquiry as he deems necessary,  pass such order thereon as the circumstances of the case  justify, including an order enhancing or modifying the  assessment, or cancelling the assessment and directing a  fresh assessment\005"

       The scope and ambit of a proceeding for rectification of an order  under Section 154 and a proceeding for revision under Section 263 are  distinct and different. Order of rectification can be passed on certain  contingencies.  It does not confer a power of review.  If an order of  assessment is rectified by Assessing Officer in terms of Section 154 of the  Act, the same itself may be a subject matter of a proceeding under Section  263 of the Act. The power of revision under Section 263 is exercised by a  higher authority.  It is a special provision. The revisional jurisdiction is  vested in the Commissioner.  An order thereunder can be passed if it is  found that the order of assessment is prejudicial to the Revenue.  In such a  proceeding, he may not only pass an appropriate order in exercise of the said  jurisdiction but in order to enable him to do it, he may make such inquiry as  he deems necessary in this behalf.

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       When an order is passed by a higher authority, the lower authority is  bound thereby keeping in view the principles of judicial discipline. This  aspect of the matter has been highlighted by this Court in Bhopal Sugar  Industries v. Income Tax Officer, Bhopal [AIR 1961 SC 182] in the  following terms:

"\005If a subordinate tribunal refuses to carry out  directions given to it by a superior tribunal in the  exercise of its appellate powers, the result will be  chaos in the administration of justice and we have  indeed found it very difficult to appreciate the  process of reasoning by which the learned Judicial  Commissioner while roundly condemning the  respondent for refusing to carry out the directions  of the superior tribunal, yet held that no manifest  injustice resulted from such refusal.  It must be remembered that the order of the  Tribunal dated April 22, 1954, was not under  challenge before the Judicial Commissioner. That  order had become final and binding on the parties,  and the respondent could not question it in any  way. As a matter of fact the Commissioner of  Income-tax had made an application for a  reference, which application was subsequently  withdrawn. The Judicial Commissioner was not  sitting in appeal over the Tribunal and we do not  think that, in the circumstances of this case, it was  open to him to say that the order of the Tribunal  was wrong and, therefore there was no injustice in  disregarding that order. As we have said earlier  such a view is destructive of one of the basic  principles of the administration of justice."

       This principle has been laid down also in  Dharam Chand Jain v. The  State of Bihar [AIR 1976 SC 1433] stating :

"\005The State Government, being a subordinate  authority in the matter of grant of mining lease,  was obligated under the law to carry out the orders  of the Central Government as indicated above. But  the State Government declined to do so on the  ground that it had laid down a policy that the  mining leases in respect of the area should be  given only to those who were prepared to set up a  cement factory. It was clearly not open to the State  Government to decline to carry out the orders of  the Central Government on this ground,  particularly because the Central Government was a  tribunal superior to the State Government..."

       In Morgan Securities and Credit Pvt. Ltd. v. Modi Rubber Ltd. [2006  (14) SCALE 267], this Court opined:

"While exercising its power under sub-section (3)  of Section 22, the Board cannot ignore an order  passed by a superior court.  It may be bound by the  doctrine of judicial discipline."            

       When different jurisdictions are conferred upon different authorities to  be exercised on different conditions, both may not be held to be overlapping  with each other.  Jurisdiction under Section 154 of the Act is only to be  exercised by him when there is an error apparent on the face of the record.  It

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does not confer any power of review.  An order of assessment may or may  not be rectified. If an order of rectification is passed by the Assessing  Authority, the rectified order shall be given effect to.  However, only  because an order of assessment has undergone rectification at the hands of  the Assessing Officer, in our opinion, the same would not mean that  revisional authority shall be denuded of exercising its revisional jurisdiction.  Such an interpretation, in our opinion, would run counter to the scheme of  the Act.

       The Tribunal relied on Vippy Solvex Products Pvt. Ltd. (supra).   Therein the question was determined in the light of the decision of this court  in S.R.Venkataraman v. Union of India  [AIR 1979 SC 49].  Ratio of the  said decision was not at all applicable.  The High court, thus, committed a  manifest error in relying on the said decision.  In S.R. Venkataraman (supra)  this court was concerned with an administrative order passed by a statutory  authority.  It is trite that when an authority having discretionary power  exercises the same for unauthorized purpose or on consideration of  irrelevant facts, the same must be held to be bad in law, but the said  principle of judicial review could not have been applied.  Such a principle  cannot be applied in a case of this nature where an authority exercises  judicial or quasi-judicial function.  It is a statutory power.  Power of review  and/or rectification is not akin to an administrative power.  An  administrative function and judicial function operate in two different places.   Whereas a judicial function must be exercised by the authority invested  therewith in terms of the provisions of the statute and on the basis of the  materials on record; an administrative order may although inter alia  have to  be passed by a statutory authority but the same must be confirmed within the  four corners of the statute.  There may, however, have an element of  discretion.  Order by a judicial functionary is subject to appeal or revision.   An administrative order may or may not be.

       An order of assessment is subject to exercise of an order of a  revisional jurisdiction under Section 263 of the Act.  Doctrine of Merger in  such a case will have no application.

       The decision of the Madhya Pradesh High Court in Chunnilal  Onkarmal (supra) is also not apposite.  Initiation of a proceeding under  Section 263 of the Act cannot be held to have become bad in law only  because an order of rectification was passed.  No such hard and fast rule   can, in our opinion, be laid down.  Each case is required to be considered on  its own facts.  In a given situation, the High Court may be held to be entitled  to set aside both orders and remit the matter for consideration of the matter  afresh.  But in our opinion, it would not be correct to contend that only  because a proceeding for rectification was initiated subsequently, the  revisional jurisdiction could not have been invoked under any circumstances  whatsoever.  If such a proceeding was initiated, in our opinion, the  contesting parties could bring the same to the notice of the Commissioner so  as to enable him to take into consideration the subsequent events also.  It  goes without saying that if and when the Commissioner of Income Tax takes  up for consideration a subsequent event, the assessee would be entitled to  make its submission also in regard thereto.            For the reasons aforementioned, the impugned judgment cannot be  sustained. It is set aside accordingly. Our attention has been drawn to the  fact that Assessing Officer had allegedly taken into consideration the  application of Sections 80 HHC and 80-I of the Act.  In our opinion,  therefore, interest of justice would be met if the Commissioner of Income  Tax is directed to have a fresh look  at the matter in the light of the order of  rectification passed by the assessing authority.

       This appeal is allowed with the aforementioned direction.  In view of  the facts and circumstances of this case, there shall be no order as to costs.