Judgment:
A.K. Mathur, Actg. C.J.
1. This is a reference at the instance of the Revenue. The following question of law has been referred by the Income-tax Appellate Tribunal for answer by this court :
'Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in cancelling the order dated August 19, 1983, passed by the Commissioner of Income-tax under Section 263 of the Income-tax Act, 1961 ?'
The facts giving rise to this reference are that the assessee is a partnership firm which was being assessed as a registered-firm under the Income-tax Act. During the assessment year 1978-79, it filed a declaration under Section 184(7) of the Income-tax Act in Form No. 12 on June 29, 1978, and continuation of registration was granted to the assessee-firm by the Income-tax Officer by his order dated August 25, 1981. Subsequently, the Commissioner of Income-tax made certain enquiries and vide his order dated August 19, 1983, under Section 263 of the Act set aside the order of the Income-tax Officer and directed the Income-tax Officer to make a fresh determination of the status of the assessee. The assessee filed an appeal against the above order before the Tribunal. The Tribunal, after making detailed enquiry, held that the order of the Commissioner of Income-tax was not sustainable and cancelled the same. Hence, the Revenue approached the Tribunal to state the case before the High Court, and in these circumstances, the aforesaid question of law has been referred by the Tribunal for answer by this court.
2. Under Section 263 of the Income-tax Act, the Commissioner has the revisional jurisdiction to call for and examine the records of any proceeding under the 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 enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including the order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
3. So far as the jurisdiction of the Commissioner is concerned, the Commissioner has the jurisdiction to revise by calling for and examining any record of proceeding under the Act. Though earlier there was a dispute in what case the Commissioner can call for the record, but that controversy has been resolved by inserting Clause (b) in the Explanation whereby the 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. Therefore, the power of the Commissioner has been extended and it has been made retrospective also that any record under the Act can be called for by the Commissioner for satisfying himself whether the order is prejudicial to the interests of the Revenue or not. Therefore, we do not need to dilate on this aspect. Suffice it to say, the Commissioner had the jurisdiction to call for any record under the Act to examine whether it is prejudicial to the interests of the Revenue or not.
4. In the present case, after perusing the record, the Commissioner set aside the order passed by the Income-tax Officer in favour of the assessee. The Tribunal after examination of the matter found that the Commissioner did not examine the matter objectively and found that there is a serious breach of principles of natural justice. The Commissioner found that the signature of one of the partners had been forged and a report of the expert was obtained that the signature of one of the partners was forged. But the fact remains whether the report of that expert was given to the assessee or not and the assessee was properly heard in the matter or not. According to the findings of the Tribunal, it appears that the assessee had made a grievance that a copy of the report of the expert was not supplied to him. The said report is said to have stated that the signature of one of the partners was forged. The assessee was entitled to this report and it was not furnished. It was also pointed out that so much so the Commissioner had not recorded as to whose signature was forged.
5. It is true that so far as the competence of the Commissioner for revising the order passed under the Act is concerned, there cannot be dispute of any kind. But at the same time, while revising the order, the Commissioner cannot give a complete go-by to the principles of natural justice. As a matter of fact, when the Income-tax Officer has granted continuation of registration and assessed the liability of the assessee and the Commissioner found that the order of the Income-tax Officer is erroneous, then, he was under ah obligation to hear the assessee and give sufficient opportunity to the assessee for supporting the order of assessment passed by the Income-tax Officer. In the present case, as found from the record by the Tribunal, a copy of the report of the expert was not given to the assessee and the Tribunal found that it is a serious breach of principles of natural justice. The Tribunal in its order has recorded that :
'In the present case before us, the report of the handwriting expert was obtained after the assessment had already been completed. The learned Departmental Representative, however, contended that on a mere look at Form No. 12, the Commissioner would have had an impression that the signatures of one of the partners were forged and, therefore, he could initiate action under Section 263 and procure the report as a supporting material. That the Commissioner can place reliance on supporting material was approved by the Supreme Court in Rampyari Devi Saraogi v. CIT : [1968]67ITR84(SC) . A perusal of the order of the Commissioner would show that he has nowhere observed that on a mere visual observation of Form No. 12, he had the impression that the signatures of a particular partner were forged. It is evident that he has placed reliance on some report of a handwriting expert. According to the Calcutta ruling, he could not place reliance on materials subsequently obtained and, therefore, we agree with learned counsel that the learned Commissioner had no material before him to initiate action under Section 263 of the Income-tax Act, 1961.'
It was further observed :
'Even after having the expert's report, the learned Commissioner has not recorded any finding that the signatures of any of the partners were forged. He has, as a matter of fact, avoided giving such a finding without which, in our view, he could have no jurisdiction to act under Section 263. Whether the signatures are forged or not, has been left for inquiry by the Income-tax Officer. This could not be done. The Commissioner has to effectively hold that the order is erroneous and this could not be held so without holding that the signatures of any one of the partners were forged. By leaving the matter for inquiry to the Income-taxOfficer, he has virtually conferred a power of review on the Income-tax Officer which in law he does not have. On this view of the matter also, the order under appeal has to fail.'
It was further observed by the Tribunal that the assessee was not given a proper opportunity of hearing. It was observed :
'We have noticed that the order was passed by the Income-tax Officer on August 25, 1981, and, therefore, limitation would have expired for action under Section 263 or about the 25th August, 1983. The Commissioner issued a notice to the assessee as late as August 1, 1983, and had not sent the copy of the handwriting expert's report to the assessee along with the notice nor did he mention the name of the partner whose signatures were suspected to be forged. The assessee raised a specific point about these matters in reply dated August 11, 1983, but even then the Commissioner did not mend his ways and passed the impugned order on August 19, 1983, without meeting the assessee's objections that the copy of the expert's report was not supplied and the name of the partner was not disclosed.'
These glaring facts speak volumes about the way in which the order had been passed by the Commissioner. It is no doubt true that the Commissioner has a power to revise the order passed under the Act, but none the less he cannot decide the matter without affording proper opportunity to the affected parties. It may be possible that the Commissioner might have been impressed by the order of the Income-tax Officer but when it is suspected that the signatures are forged and the report of the expert was sought, then at least a copy of the report should have been given to the assessee. Although the expert's report is not conclusive evidence of the forgery but it is a rebuttable assumption and the assessee has a right to justify that the report is not correct and still it can lead evidence to prove to the contrary. The way the Commissioner has proceeded in revising the order shows that the act of the Commissioner was in total derogation of the principles of natural justice and such an act cannot be countenanced.
6. We, therefore, answer the reference against the Revenue and in favour of the assessee and hold that the order passed by the Tribunal in the present case is fully justified.