1. This is an appeal by the assessee from the order of the Commissioner passed under Section 263 of the Income-tax Act, 1961 ('the Act').
2. The assessee is a registered firm. The regular assessment for 1979-80 had been completed under Section 143(3), read with Section 144B of the Act on 1-6-1982. This assessment appeared to the Commissioner as erroneous and prejudicial to the interests of the revenue. The facts are like this.
3. The assessee is carrying on business as commission agents in textiles. On 19-1-1978, it had declared 202 high denomination notes under the High Denomination Notes (Demonetisation) Ordinance, 1978. It had been stated in the said declaration that the money had been received in the usual course of its business as commission agents. At the time of assessment, it had been submitted before the ITO that the High denomination notes formed part of its cash balance on the relevant date 19-1-1978 which was Rs. 2,19,852. It may be mentioned here that the decision of the Supreme Court in the case of Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288 had been relied upon. The ITO was not inclined to accept the explanation of the assessee and by the draft assessment he proposed to add Rs. 2,02,000 as unexplained investment.
The assessee objected to this. It was the stand of the assessee that it had borrowed heavy amount from Vrajlal Karsondas (HUF). Besides, a sum of Rs. 70,000 said to have been withdrawn from Canara Bank one month earlier was available as on the date of the declaration, namely 19-1-1978. In Section 144B proceeding, the IAC was convinced that the amount withdrawn from the bank consisted of a different series of high denomination notes and that the declared high denomination notes were entirely different. It appears to us that this point was not purused by the assessee. However, by a letter dated 24-6-1982, the assessee agreed to an addition of Rs. 80,000 'to avoid litigation'. The IAC gave directions to cause an addition of Rs. 80,000 as unexplained cash in the hands of the assessee which was treated as income of this year.
Accordingly, the regular assessment was passed by the ITO in accordance with the directions given by the IAC. According to the Commissioner, the explanation given by the assessee, that it had borrowed amounts from parties, was totally unacceptable for various reasons, facts and circumstances and that the IAC was in error in accepting the suggestion of the assessee by letter dated 24-6-1982 for addition of Rs. 80,000.
He issued a notice to which the assessee recorded its objections.
Before the Ccmmissioner there was a two-fold contention, One was that the Commissioner lacked jurisdiction inasmuch as this was an assessment passed in accordance with the directions given by the IAC under Section 144B and that such an assessment is not revisable under Section 263.
The other was that the explanation was eminently acceptable. The assessee was heard and on the question of jurisdiction the Commissioner held that the provisions of Section 144B were procedural in nature and that the directions of the IAC are only guidance to the ITO and that the final assessment made by the ITO is the proper order and that the assessment was, therefore, revisable under Section 263. With regard to the explanation of the assessee, the Commissioner was of the view that the assessing officer should re-examine the matter taking note of the various facts and circumstances shown in the order passed by him. The assessment passed by the ITO was set aside with a direction to make a fresh one in accordance with the law. The assessee has come up in appeal challenging the order passed by the Commissioner under Section 4. It was contended by Shri Y.P. Trivedi, the learned counsel for the assessee, that the Commissioner had no jurisdiction to proceed under Section 263 inasmuch as the assessment had been passed in accordance with the directions given by the IAC under Section 144B and he heavily relied upon the decision of the Special Bench of the Tribunal in the case of East Coast Marine Products (P.) Ltd. v. ITO [1983] 4 ITD 73 (Hyd.). He also brought to our notice the decision of the Tribunal, Bombay Bench in the case of Madanlal Chaganlal (P.) Ltd. [IT (Appeal No. 6245 (Bom.) of 1983]. Another contention of Shri Trivedi was that the assessment passed was an 'agreed assessment' made on the basis of the letter dated 24-6-1982 consenting to an addition of Rs. 80,000 'to avoid litigation' and that the revenue cannot now go back by resorting to the powers under Section 263. So far as the validity of the explanation is concerned, the learned counsel relied upon the reasons given by the IAC in his Section 144B order.
5. The Commissioner refers to the decision of the Special Bench of the Tribunal in the case of Rex Cinema Co-owners v. Sixth ITO [1983] 3 ITD 633 (Bom.) and another Bombay Bench decision in the case of Jethwani to say that provisions of Section 144B are procedural in nature. There is no doubt that the directions under Section 144B are binding on the ITO and the latter has to complete the assessment in terms of the instructions so given. But the point is whether an assessment so completed is still an assessment made by the ITO for the sake of Section 263. The Special Bench decision in the case of East Coast Marine Products (P.) Ltd. (supra) is in support of the argument put up by Shri Trivedi. But, Shri Subramanian, arguing for the revenue, invited our attention to the Explanation added to Section 263 by the Taxation Laws (Amendment) Act, 1984 which reads as follows : Explanation : For the removal of doubts, it is hereby declared that, for the purposes of this Sub-section, an order passed by the Income-tax Officer shall include- (a) an order of assessment made on the basis of directions issued by the Inspecting Assistant Commissioner under Section 144A and Section 144B ; and (b) an order made by the Inspecting Assistant Commissioner in exercise of the powers or in performance of the functions of an Income-tax Officer conferred on, or assigned to him under Clause (a) of Sub-section (1) of Section 125 or under Sub-section (1) of Section 125A.It was also stated that the Explanation is only a declaration of the preexisting position in law and that the same must be deemed to have existed from the very inception of the clause. The authority relied upon was the decision of the Kerala High Court in the case of CIT v.K.A. Vamana Pai [1986] 158 ITR 211. The rejoinder of Shri Trivedi was that the introduction of this Explanation has no retrospective effect inasmuch as the amending statute says that it was effective from 1-10-1984. He also invited our attention to the Special Bench decision of the Tribunal in the case of Schrader-Scovill Duncan Ltd. [IT Appeal Nos. 2463 (Cal.) of 1981 and 47 (Cal.) of 1982] where the applicability of Section 37(5) of the Act introduced by the Finance Act, 1983 was interpreted. Section 37(5) also reads that 'for the removal of doubts' the meaning of 'guest house' was declared and the said provision was not held to be retrospective in effect except from the day with which the said Clause was made effective. Merely because the words 'for the removal of doubts' are found in the Explanation, it cannot be straightaway inferred that the Explanation was clarificatory in nature.
This is not an Explanation given in relation to a provision pertaining to procedural law. Further, Section 263(1) deals with the powers of the Commissioner and it affect the rights of the parties whose assessments have been concluded by the assessing authority. In East Coast Marine Products (P.) Ltd.'s case (supra) the jurisdiction of the Commissioner to revise the ITO's order giving effect to the directions given by the IAC under Section 144B has been specially considered. Once again, the Tribunal has in the case of Madanlal Chaganlal (P.) Ltd. (supra) examined the same legal position particularly in the light of the decision of the Bombay High Court in the case of CIT v. Tejaji Farasram Kharawala [1953] 23 ITR 412. The Explanation cannot be retrospective in effect if it really enlarges the scope of Section 263(1). As we have already said, Section 263 deals with the powers of the Commissioner in the matter of revising a completed assessment of a party and it is in relation to substantive law. Taking all the facts into consideration, we are of the view that the Explanation cannot be retrospective in nature when the amending statute itself says that it is effective from 1-10-1984. Following the decisions of the Tribunal in East Coast Marine Products (P.) Ltd.'s case (supra) and Madanlal Chaganlal (P.) Ltd.'s case (supra), we hold that the Commissioner had no jurisdiction to act under Section 263 and the impugned order passed by him is required to be set aside.
6. In view of our conclusion on the point of jurisdiction, it will be sheer academic to consider the other submissions of Shri Trivedi and in the circumstances, we do not wish to take them up for consideration.
7. In the result, the appeal is allowed. The impugned order passed by the Commissioner under Section 263 is set aside.