The Hon’ble Apex Court in Commissioner of Income Tax, Mumbai vs. Amitabh Bachchan being Civil Appeal No.5009 of 2016 which arose out of S.L.P. (C) No.11621 of 2009 and Civil Appeal No.5010 of 2016 that arose out of S.L.P. (C) No.861 of 2013 has held that Commissioner should not go beyond the issues of the show cause notice.
That said judgment was passed by J. Ranjan Gogoi and J. Prafulla C. Pant on 11.5.2016.
Can Commissioner of Income Tax Go beyond issues of Show Cause Notice- Held No , a Commissioner should not go beyond the issues of the show cause notice
Backgrounds of the appeal:
The appellant – Revenue challenged the order of the High Court dated 7.8. 2008 dismissing the appeal preferred by it under Section 260A of the Income Tax Act, 1961 and affirming the order of the Income Tax Appellate Tribunal, Mumbai on 28.8.2007 whereby the order dated 20.3.2006 passed by the Commissioner of Income Tax-1,Mumbai under Section 263 of the Income Tax Act was set aside.
The relevant assessment year was 2001-2002 and the assessment order was passed on 30.3. 2004.
After the assessment was done, a show cause notice under Section 263 of the Act was issued on 7.11.2005 by the learned C.I.T. detailing eleven grounds on which the assessment order was sought to be revised under Section 263 of the Act.
The respondent – assessee replied to the said show cause notice considering which by order dated 20.3.2006 the learned C.I.T. set aside the order of assessment made on 30.3.2004 and directed to make a fresh assessment.
Aggrieved by the said order, the assessee challenged the same before the learned Tribunal which was allowed by an order passed on 28.8.2007.
Aggrieved by the order of the learned Tribunal, the Revenue preferred an appeal under Section 260A of the Act before the Hon’ble High Court of Bombay.
The said appeal being ITA No.293 of 2008 was dismissed by the High Court by the impugned order dated 7.8.2008 wherein it was held by the Hon’ble High Court that as the C.I.T. went beyond the scope of the show cause notice dated 7.11.2005 and had considered the issues that were not covered in the said notice and the order dated 20.3.2006 was not in accordance with the principles of natural justice.
So whether the Assessing Officer had made proper inquiries about the claim made by the assessee regarding expenses made in the re-revised return of income, which was raised for the consideration of the Hon’ble High Court, it was answered that the said question was a pure question of fact and should not to be examined under Section 260A of the Act.
The appeal of the Revenue was as a result dismissed. Aggrieved by the said order, the instant appeal was filed upon grant of leave by the Apex Court as per Article 136 of the Constitution of India.
Can Commissioner Go beyond issues of Show Cause Notice- Observations of the Apex Court:
Shri Ranjit Kumar, learned Solicitor General appearing for the appellant Revenue and Shri Shyam Divan, learned Senior Counsel appearing for the respondent – assessee was both heard at length.
The assessment that was set aside by the learned C.I.T. by the order dated 20.3.2006 on the ground that requisite and due inquiries were not made by the Assessing Officer prior to finalization of the assessment by order dated 30.3.2004.
In connection with this, the learned C.I.T. on consideration of the facts of the case and the record of the proceedings concluded that during the assessment proceedings despite many opportunities the assessee did not furnish the requisite books of account and documents before the department and willfully dragged the issue resulting in one adjournment after the other.
Assessing Officer finalized Order in hurry- This is no reason for Commissioner to go beyond issues in Show Cause Notice
The Assessing Officer, to avoid the limitation issue, had to finalize the assessment proceedings in a hurry which on proper scrutiny disclosed that the inquiries that were needed were not made.
On the said basis the learned C.I.T. concluded that the assessment order was erroneous and prejudicial to the interests of the Revenue warranting application of jurisdiction under Section 263 of the Act.
Consequently, the assessment was set aside and a fresh assessment was directed. It was noticed that in the order the learned C.I.T. arrived at findings regarding issues which were not categorically stated in the show cause notice.
In fact in connection with seven or eight issues mentioned in the said notice the learned C.I.T. failed to record any finding but conclusions against the assessee were recorded to hold that the assessment required to be set aside.
However, three issues were common to the show cause notice and the revisional order of the learned C.I.T.
In the appeal, the learned Tribunal held that the learned C.I.T. while exercising powers under Section 263 of the Act should not have gone beyond the issues of the show cause notice dated.
The learned Tribunal held that regarding the issues not mentioned in the show cause notice the findings should be understood to be against the principles of natural justice.
The learned Tribunal also considered the common issues and arrived at the conclusion that the reasons cited by the learned C.I.T. in the order for cancelling the assessment are not tenable.
As a result, the learned Tribunal allowed the appeal of the assessee and reversed the order of the revision. The provisions of Section 263 of the Act were also referred which deals with the revision of orders prejudicial to revenue.
Provisions of Section 263 of the Income Tax Act:
Section 263 of the Income Tax Act states that the Principal Commissioner or Commissioner may ask for and examine the records of a proceeding under the Act, and if he thinks that any order passed by the Assessing Officer is erroneous and against the interests of the revenue, he may, after giving the assessee an opportunity of hearing and after making or causing to be made such inquiry as he thinks fit, pass such order, including an order enhancing or altering the assessment, or cancelling the assessment and directing a fresh one.
Reference was made to the decisions of the Hon’ble Court in Gita Devi Agawal vs. Commissioner of Income Tax, West Bengal and other (1970) 76 ITR 49610 and The C.I.T., West Bengal, II, Calcutta vs. M/s Electro House.
It was admitted that the issues not mentioned in the show cause notice were adjudicated by the ld. C.I.T. and the C.I.T. should have confined himself to the terms of the notice.
In the light of the above it was held that the present case was fit case for exercise of the revisional powers of the learned C.I.T. under Section 263 of the Act. The order of the learned C.I.T. was restored and those of the learned Tribunal and the High Court were set aside. The appeal of the Revenue was allowed.