Delhi H.C : Where during the course of the appeal proceedings, the entire assessment has been set aside and the AO is required to frame an altogether fresh assessment order, can the declarant make disclosure of income for the concerned assessment year ?

High Court Of Delhi

Nabha Investments (P) Ltd. vs. Union Of India & Ors.

Section 263, FA 68

Asst. Year 1987-88, 1989-90, 1991-92, 1992-93, 1993-94, 1994-95

Arun Kumar & D.K. Jain, JJ.

Civil Writ Petn. No. 2873 of 1999

24th July, 2000

Decision in favour of Assessee

Counsel Appeared

M.S. Syali with Manoj Sharma, for the Petitioner : R.D. Jolly with Ms. Prem Lata Bansal, for the Respondent

JUDGMENT

D.K. JAIN, J. :

By this petition under Arts. 226 and 227 of the Constitution of India, the petitioner, a private limited investment company, impugned the legality and validity of the notice dt. 7th April, 1999, issued by the CIT, Delhi IV, respondent No. 2 herein, in exercise of the powers conferred on him by s. 263 of the IT Act, 1961 (for short the Act), to show-cause as to why the assessments made by the Jt. CIT (Asst.), Special Range-VIII, on 24th Feb., 1998, for the asst. yrs. 1987-88, 1989-90, 1991-92, 1992-93, 1993-94 and 1994-95 be not set aside and suitable directions for redoing the same as per law be not issued to the AO as in his opinion the said assessment orders are erroneous insofar as they are prejudicial to the interests of the Revenue.

2. Shorn of unnecessary details, the facts material for the purposes of this petition are : The petitioner deals in shares, stocks and securities. In its returns of income for the relevant assessment years the petitioner computed income on sale of certain shares under the head “income from capital gains” on the plea that these shares were not acquired for the purposes of business of the company but as an investment by the company. The AO did not agree with the petitioner treated the receipts from sale of such shares as profits from business and accordingly taxed the same under the head “profits and gains of business”. The petitioner challenged the said orders. It appears that in the first instance the Tribunal set aside the assessments in respect of some of the years and restored back the same to the AO for fresh assessments in accordance with its directions. Subsequently, assessments in respect of other years were also set aside by the CIT (A) with a direction to the AO to redo the same as per the directions of the Tribunal. While reassessment proceedings were pending, in the year 1997, the Government of India, respondent No. 1 herein, announced a Voluntary Disclosure of Income Scheme, 1997 (hereinafter referred to as the VDIS). It was clarified by the CBDT that where an assessment order had been set aside, an assessee could make a declaration under the VDIS. It is averred that in order to be absolutely certain about its status, the petitioner, through its chartered accountants, sought certain clarifications from the CIT-I, convener of the VDIS. The CIT, vide his letter dt. 30th Dec., 1997, issued the following clarifications : “The committee understands that the assessees wants clarifications on the following points : (i) Whether in case the assessments pending before the CIT(A) are set aside, the refund could be raised and whether the said refunds would be paid by the Department on behalf of the assessee to VDIS account with regarding to the taxes payable under VDIS. In nutshell the set aside assessments are likely to give rise to refunds and the assessee for these set aside assessments only wants to VDIS declaration and use refunds for the part-payment of the VDIS. Whether it is possible ? (ii) The balance amount of VDIS could be paid by the assessee, i.e., the amount not covered by the refunds shall be paid by the assessee ? The committee has considered the above two questions and agrees that the refunds can be paid by the Department on behalf of the assessee to RBI account VDIS, account assessee. However, before this, the assessee shall have to file an affidavit that the refunds arising out of set aside assessments shall go towards VDIS. In case, the Department is not able to determine the expected amount of refund and is not able to pay the expected amount of refund to RBI towards VDIS, the assessee shall have to pay balance within the stipulated period with interest, failing which the amount paid shall stand forfeited and declaration made would stand rejected.” It is claimed that in the light of the said clarification, the petitioner filed its declaration under VDIS on 31st Dec., 1997, in respect of the aforenoted assessment years, declaring an additional income of Rs. 4,31,50,728 representing the difference between the income by way of treatment of sale of shares as business income (as computed by the AO) andincome on account of the same being treated as capital gains (as computed by the petitioner). It appears that in order to determine as to what amount will become refundable to the petitioner, which could be deposited by the Department on petitioner’s account against the tax payable under VDIS, on 24th Feb., 1998, respondent No. 2 completed reassessments in respect of the said assessment years, by taking into consideration the declaration made by the petitioner under the VDIS. The declaration made by the petitioner is said to have been accepted by the Department inasmuch as a certificate under s. 68(2) of the VDIS was issued to the petitioner on 7th April,1998. As a result of the orders dt. 24th Feb., 1998, substantial refunds (Rs. 1,58,73,268) became due to the petitioner. However, since interest, which, according to the petitioner works out to Rs. 77,48,750, had not been granted on the refunds determined to be due to the petitioner by virtue of orders passed on 24th Feb., 1998, the petitioner moved an application, dt. 26th Feb., 1998, under s. 154 of the Act, praying for grant of refund on account of interest under ss. 244 and 244A of the Act. Since nothing was heard from the Department, the petitioner filed a representation before the Chief CIT on 5th Aug., 1998, seeking a direction to the jurisdictional CIT to allow refund in accordance with law. However, having failed to get any response to the said representation, the petitioner filed a writ petition (No. 958/99) seeking a direction to the respondents to decide their representation, dt. 5th Aug., 1998, as also the application, dt. 26th Feb., 1998, filed under s. 154 of the Act. The said writ petition was disposed of vide order, dt. 9th April, 1999, with a direction to the respondents to decide the application filed under s. 154 of the Act within two weeks.

It is alleged that instead of deciding the said application, on or about 12th April, 1999, the petitioner received the impugned notice seeking to reopen all the assessments completed on 24th Feb., 1998. For the sake of ready reference, relevant portion of the impugned notice is extracted below : “The declaration under VDIS was filed by you on 31st Dec., 1997, and tax payable under the scheme in respect of the voluntarily disclosed income was not paid on or before the date of declaration and, therefore, the declaration was not accompanied by proof of payment of such tax as required under s. 66 of the scheme. Before filing the declaration you had made a petition, dt. 29th Dec., 1997, before the CIT, Delhi-I, who was appointed as convener of VDIS 1997 which was an ad hoc committee formed by the Chief CIT, Delhi seeking clarification as to whether the refund of some tax that might arise on account of your proposed VDIS declaration could be paid by the Department to meet your tax liability arising from your proposed declaration. The committee acting through CIT, Delhi-I, issued clarification that, if set aside assessments are likely to give rise to refunds and the assessee for these set aside assessments only wants to file VDIS declaration and use refunds for the part-payment for the VDIS, it would be possible for the Department to make payment of the refunds on behalf of the assessee to the RBI in VDIS account of the assessee. This clarification did not entitle you to a refund as such, as legally understood under s. 240 of the IT Act, 1961, inasmuch as refund becomes legally due when the assessment is set aside only on making fresh assessment as per law. In your case, it was the duty of the AO to merely quantify the amount of tax that would be refunded to you in the event of final acceptance of the VDIS declaration and after such quantification, pay the amount as quantified to the RBI on your behalf to meet your VDIS liability as per your own request. Instead of following the aforesaid line as indicated above, the AO passed the assessment orders under s 143(3) r/w s. 250 or 254, as the case may be, for different assessment years on 24th Feb., 1998, giving you credit for the income declared under VDIS for different years thereby reducing the income originally assessed so as to determine as total income the income as returned by you. The refund of tax already paid by you or collected after the original assessment from you was treated by the AO by virtue of these assessment orders, as regular refunds giving an impression that interest under ss. 244(1A) and 244A, as the case may be, would be payable to you for different assessment years on account of delayed refunds of tax with reference to the dates of payments thereof earlier.

The orders passed by the AO in this manner is considered to be erroneous in so far as it is prejudicial to the interests of Revenue. It is erroneous because no such order under s. 143(3) could have been passed by the AO, to allow deduction of income declared under VDIS, 1997 without payment of taxes on the declared income as required under ss. 66 and 67 of VDIS 1997 and without issue of final certificate by the CIT as required under sub- ss. (1) and (2) of s. 68 of the Scheme. The taxes on the amount declared by you were paid only on 20th March, 1998 and 30th March, 1998—the refund of tax as per the order of the AO was paid to the RBI on your behalf and the balance amount was paid by you directly. Certificate under s. 68(2) was issued by the CIT only on 7th April,

1998. The orders are prejudicial to the interest of the Revenue because, on the strength of these illegal orders in which deduction was allowed to you in respect of voluntarily disclosed income, you have claimed interest under ss. 244A and 244(1A) of the IT Act of a very substantial amount. The AO ought not to have passed the assessment orders in a hurry in the manner as he did specially when the same had already been set aside and the VDIS declaration as made by you had not been finally accepted by the CIT and the conditions precedent for such acceptance relating to payment of tax, etc. had not been fulfilled.” [Emphasis, italicised in print, supplied by us] The action of respondent No. 2 in issuing the notice under s. 263 of the Act is challenged mainly on the grounds that : (i) it is without jurisdiction in as much as the conditions precedent for exercise of powers under s. 263(1) of the Act, namely, the assessment orders passed by the AO on 24th Feb., 1998, which were erroneous and prejudicial to the interests of the Revenue, are missing: (ii) the entire premise of the impugned notice, namely, that instead of completing the assessments the AO should have only estimated the amount refundable, is illogical and misconceived because even assuming it was so, this order would have still amounted to “any proceeding under the Act” of the tax due, the refund of the amount would have to be granted in view of s. 237 of the Act and consequently, interest under ss. 244 and 244A of the Act would have become payable and, therefore, no prejudice was caused to the Revenue by the assessment orders passed by the AO on 24th Feb., 1998.

In the common affidavit-in-opposition filed on behalf of respondent Nos. 2 and 3, the petition is resisted, inter alia, on the grounds that : (i) as per s. 68 of the VDIS the amount of voluntarily disclosed income is not to be included in the total income of the declarant is an assessment year provided the income-tax in respect of voluntarily disclosed income is paid by the declarant within the time specified in s. 65 or 66 of the VDIS, whereas in the instant case the petitioner did not pay the tax as required under s. 66 along with the declaration form; (ii) after the clarification to the effect that refund due to the petitioner could be paid by the Department to the Reserve Bank of India in VDIS account was issued by the CIT, the AO was required to merely quantify the amount of tax that may be refunded to the petitioner in the event of final acceptance of VDIS but the AO erroneously passed assessment orders on 24th Feb., 1998, giving credit for the amount of income declared under the VDIS when the necessary certificate under VDIS, accepting the declaration of the petitioner, had not been issued; and (iii) if the taxable income of the petitioner was not reduced by the amount of income declared under VDIS, as done by the AO, then the petitioner would have been assessed at a higher figure and would not have been entitled to any refund let alone any interest as claimed by the petitioner. It is, thus, asserted that since instead of merely quantifying the amount which could have become refundable to the petitioner in the event of final acceptance of VDIS declaration, the AO had erroneously excluded from the total income of the petitioner the income disclosed under the VDIS while passing the assessment orders on 24th Feb., 1998, enabling the petitioner to claim interest as payable on regular refunds, the said orders were erroneous in so far as they were prejudicial to the interest of Revenue. We have heard Mr. M.S. Syali, learned senior counsel for the petitioner, and Mr. R.D. Jolly, learned senior standing counsel for the respondents. It is contended by Mr. Syali that the assessment orders passed by the AO on 24th Feb., 1998, excluding from the total income the amount declared under the VDIS, in terms of s. 68 of the VDIS, could not be said to be erroneous and prejudicial to the interests of the Revenue because the payment of income-tax along with interest under s. 67 of the VDIS relates back to the date of declaration and, therefore, ultimately on the issue of certificate of declaration on 7th April, 1998, the AO was duty-bound to pass the same orders and in that event the refund due would have attracted interest under s. 244(1A) for a longer period. Further, if the petitioner had made payment of tax under the VDIS from its own pocket instead of the payment being made by the Department, on acceptance of declaration, he would have become entitled to same amount of refund on final adjudication under s. 68 of the VDIS and, therefore, the source of payment has no bearing on the question of grant of interest under s. 244(1A) of the Act. It is also emphasised that if the present stand of the respondents that the amount of Rs. 1,58,73,268 was not a refund within the meaning of s. 237 was correct then the Department could not have made an adjustment of Rs. 94,33,615 out of the said amount against the outstanding demands against the petitioner in respect of the other years. It is urged that the Department cannot be permitted to change its stand according to its own convenience.

On the other hand, while supporting the action initiated by respondent No. 2, Mr. Jolly has submitted that since the income assessed after the set aside was the same as in the original assessment, s. 237 of the Act was not applicable as it was not a case of excess tax paid. It is contended that it was merely a case of adjustment under s. 68 of the VDIS, which cannot be termed as excess chargeable tax. Thus, the entire emphasis of Mr. Jolly is that no interest is payable to the petitioner on the refund which had become due by virtue of their declaration under the VDIS. We have given thoughtful consideration to the entire matter. Sec. 263(1) of the Act clothes the CIT with the suo motu supervisory jurisdiction to call for and examine the records of any proceeding under the Act and after making such enquiry as he deems necessary, if he considers that any order passed therein by the AO is erroneous insofar as it is prejudicial to the interests of the Revenue, he may pass such orders thereon as the circumstances of the case may justify, which may include an order enhancing, modifying or cancelling the assessment and direction to make a fresh assessment. Though, undoubtedly, revisional powers conferred on the CIT under the section are of wide amplitude but a bare reading of the section makes it clear that the prerequisite to the exercise of jurisdiction by the CIT under the said provision is : (i) that the order passed by the AO is erroneous and (ii) that it is prejudicial to the interests of the Revenue. If either of the conditions is missing i.e., if the order of the AO is erroneous but is not prejudicial to the interests of the Revenue or if it is not erroneous but is prejudicial to the interests of the Revenue, recourse cannot be had to the provisions contained in s. 263(1) of the Act. It is not that every order which is erroneous is also prejudicial to the interests of the Revenue. Neither the expression “erroneous” nor the phrase “prejudicial to the interests of the Revenue” have been defined in the Act. In Black’s Law Dictionary (7th Edition), the terms “erroneous”, “erroneous assessment” and “erroneous judgment” have been respectively defined as : “involving error: deviating from the law” : an assessment that deviates from the law and creates a jurisdictional defect, and that is, therefore, invalid: a judgment issued by a Court with jurisdiction to issue it, but containing an improper application of law.” In this connection, we may refer to a recent decision of the Supreme Court in Malabar Industrial Company vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC), wherein it has been observed that s. 263(1) “cannot be invoked to correct each and every type of mistake or error committed by the AO, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or, an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category falls the orders passed without applying the principle of natural justice or without application of mind”.

As to what is meant by the phrase “prejudicial to the interests of the Revenue”, in Malabar Industrial Company’s case (supra) their Lordships have observed that it is not an expression of art and understood in its ordinary meaning it is of wide import and is not confined to loss of tax. Referring to the decisions of the Calcutta High Court in Dawjee Dadabhoy & Co. vs. S.P. Jain (1957) 31 ITR 872 (Cal) : TC 57R.129. Karnataka High Court in CIT vs. T. Narayana Pai (1975) 98 ITR 422 (Kar) : TC 57R.185, Bombay High Court in CIT vs. Gabriel India Ltd. (1993) 114 CTR (Bom) 81 : (1993) 203 ITR 108 (Bom) : TC 57R.213 and Gujarat High Court in CIT vs. Smt. Minalben S. Parikh (1995) 127 CTR (Guj) 333 : (1995) 215 ITR 81 (Guj) : TC 57R.312, wherein loss of tax was treated as prejudicial to the interests of the Revenue, the Supreme Court observed as follows : “The phrase “prejudicial to the interests of the Revenue” has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue. For example, when an ITO adopted one of the course permissible in law and it had resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the ITO is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the AO accepting the same as such will be erroneous and prejudicial to the interests of the Revenue.” From the aboveextracted observations, what emerges is that it is not necessary that every order passed by the AO, which may result in loss of revenue, is to be treated as an erroneous order inasmuch as it is prejudicial to the interests of the Revenue. An order is erroneous if the view taken by the AO is not in accordance with law. If an order is in accordance with law, the decision of the ITO cannot be regarded as erroneous merely because in the opinion of the CIT it should have been made or written in a different manner. The section does not visualise change of opinion or substitution of judgment of the CIT for that of the ITO. It is axiomatic that if the order is not erroneous, it will not vest the CIT with the power to invoke s. 263(1) of the Act, even if he is of the opinion that the order in question is prejudicial to the interests of the Revenue. Therefore, the first question that arises for consideration is whether the assessment orders passed by the AO on 24th Feb., 1998, can be said to be unsustainable in law and thus, erroneous within the meaning of s. 263(1) of the Act ? To answer the question, reference to some of the provisions of the VDIS would be necessary.

12. As noted above, VDIS, introduced vide Finance Act, 1997, is contained in ss. 62 to 78, forming part of Chapter-IV. It was introduced to grant an opportunity to those who had not disclosed their income earlier and had made themselves liable for levy of interest, penalty and prosecution under the Act to declare their income by paying tax at the concessional rate prescribed in the scheme. It remained operative from 1st July, 1997 to 31st Dec., 1997. Sub-s. (1) of s. 64 of the Finance Act provides that subject to the provisions of the scheme, where any person makes, on or after the date of commencement of the scheme, but on or before December, 1997, a declaration in accordance with the provisions of s. 65 in respect of any income chargeable to tax under the Act for any assessment year (a) for which he has failed to furnish a return under s. 139 of the Act; (b) which he has failed to disclose in a return of income furnished by him under the Act before the date of commencement of the scheme; (c) which has escaped assessment by reason of omission or failure on the part of the said person to make a return under the Act or to disclose fully and truly all materials facts necessary for his assessment or otherwise, then, notwithstanding anything contained in the Act or any other Finance Act, income-tax shall be charged in respect of the income so declared at the rates specified in the said provision. Sub-s. (2) of s. 64, however, makes sub-s. (1) of the said section inapplicable under the two conditions, enumerated in cls. (i) and (ii) of sub-s. (2) but, in thepresent case, we are not concerned with these clauses. The effect of the provision is that if a person declares income, identified in sub-cls. (a) to (c) of sub-s. (1) of s. 64, and which has escaped assessment, that income will be charged to tax at a concessional rate. Sec. 65 prescribes the manner in which the declaration is to be made. Sec.

66 stipulates time for payment of tax and provides that tax payable under the scheme in respect of voluntarily disclosed income shall be paid by the declarant and the declaration shall be accompanied by proof of payment of such tax. Sec. 67, however, permits a declarant to file a declaration without paying tax but in that event the tax has to be paid within three months from the date of filing of the declaration along with simple interest at theprescribed rate and proof of such payment has to be filed within the said period of three months. Sub-s. (2) of s. 67 also provides that if the declarant fails to pay the tax in respect of the voluntarily disclosed income before the expiry of three months from the date of filing of the declaration, the declaration filed shall be deemed never to have been made under the VDIS. Since a lot of emphasis is laid by the learned counsel for the petitioner on the provisions of law contained in s. 68, for the sake of ready reference, the section is reproduced below : “68. Voluntarily disclosed income not to be included in the total income : (1) The amount of the voluntarily disclosed income shall not be included in the total income of the declarant for any assessment year under the IT Act, if the following conditions are fulfilled, namely : (i) the declarant credits such amount in the books of account, if any, maintained by him for any source of income or in any other record, and intimates the credit so made to the AO; and (ii) The income-tax in respect of the voluntarily disclosed income is paid by the declarant within the time specified in s. 65 or s. 66. (2) The CIT shall, on an application made by the declarant, grant a certificate to him setting forth the particulars of the voluntarily disclosed income and the amount of income-tax paid in respect of the same.” Sec. 68 provides that the amount of voluntarily disclosed income shall not be included in the total income of the declarant for any assessment year under the Act, if the declarant credits the amount in the books of account and intimates the credit to the AO and pays income-tax within the specified time-frame. Sub-s. (2) requires the CIT to grant a certificate to the declarant setting forth the particulars of the voluntarily disclosed income and the amount of income-tax paid in respect of the same. Sec. 70 declares that any amount of tax paid in pursuance of the declaration made under sub- s. (1) of s. 64, shall not be refundable under any circumstances.

13. After the introduction of the VDIS, a large number of queries were received by the CBDT from the public and in response thereto the CBDT issued various circulars in the form of questions and answers to clarify the doubts raised. One of the clarifications so issued and recorded in the minutes of meeting held between the ASSOCHAM and the CBDT on 23rd July, 1997, reads as follows : “Q. Where during the course of the appeal proceedings, the entire assessment has been set aside and the AO is required to frame an altogether fresh assessment order, can the declarant make disclosure of income for the concerned assessment year ? A. If on the date of declaration, there is no surviving assessment, there should not be any difficulty for the declarant to make any disclosure for the concerned assessment year.” The said clarification left no scope for doubt that the petitioner was entitled to file declaration under the VDIS. As per s. 66 the petitioner was required to pay the tax before making the declaration because the proof of payment of tax was to accompany the declaration, Sec. 67 gave an option to the petitioner to pay the tax within three months from the date of filing of the declaration along with interest at the specified rate. It, however, appears that the petitioner did not have sufficient funds to make the payment for the income which it was proposing to declare under the scheme and, therefore, in this context, that the afore extracted clarification, dt. 30th Dec., 1997, agreeing to pay on behalf of the assessee the refund due to it was issued by the CIT acting as the convener of the scheme. Therefore, there is no controvesy with regard to the time of payment because the certificate, dt. 7th April, 1998, issued under sub-s. (2) of s. 68 clearly records the dates of payment of tax as 20th March, 1998, and 30th March 1998. Similarly, there is no dispute that in terms of s. 68 the income, subject-matter of declaration filed by the petitioner, was not to be included in the total income of the petitioner for any of the assessment years in respect whereof declaration was made. As highlighted above, the main issue is whether the AO was justified in passing the assessment orders in respect of years covered under the declaration on 24th Feb., 1998, giving credit for the income disclosed without waiting for the payment of the tax in terms of s. 67 of the Act and issue of certificate under s. 68(2) of the Finance Act or he should have merely quantified and paid on behalf of the petitioner to the RBI the amount of tax that would have been refundable to the petitioner in the event of final acceptance of its declaration, as is suggested by the CIT in the impugned notice. According to the petitioner against the total tax payable on the income declared under the VDIS, a sum of Rs. 64,39,653 was paid by the Department in the VDIS account on 20th March, 1998, and the balance amount of Rs. 95,69,300 was paid by the petitioner directly on 30th March, 1998. It is, thus, evident that as on 24th Feb., 1998, when the AO passed assessment orders, giving credit for the income declared under the VDIS, tax in terms of s. 67 had not been paid. Though a bare perusal of the aforenoted provisions of law does not leave any scope for doubt that on payment of tax with interest within the extended period of three months, the declaration relates back to the date of its filing but strictly speaking, giving effect to the declaration in terms of s. 68 before the tax under the scheme was paid and a certificate under the section had been issued, in our view, was not in accordance with the provisions of the VDIS. We, therefore, feel that the assessment orders passed by the AO on 24th Feb., 1998, were erroneous.

Having held that the orders, dt. 24th Feb., 1998, are erroneous inasmuch as the provisions of the VDIS have not been correctly applied by the AO, the next question requiring consideration is whether these were prejudicial to the interests of the Revenue as well. It would appear from the afore-extracted portions of the impugned notice that according to the CIT the orders are prejudicial to the interests of the Revenue because on the strength of these illegal orders in which deduction was allowed to the petitioner in respect of voluntarily disclosed income, the petitioner had claimed interest under ss. 244A and 244(1A) of the Act of a very substantial amount. In our view the entire premise, namely, the interest under s. 244A or 244(1A) of the Act has become due to the petitioner on account of the said orders is not correct inasmuch as on payment of tax due under the VDIS and on issue of certificate for the declaration on 7th April, 1998, the amount(s) voluntarily disclosed has to be excluded from the total income of the petitioner and, therefore, the AO was obliged to give effect to the declaration on or after 7th April, 1998. The declaration under the VDIS has to be given full effect to irrespective of its consequence. In other words, the necessary credit for the income declared under the scheme and the consequent refund could not be denied to the petitioner after 7th April, 1998, and if, on account of this adjustment/credit, interest under the Act becomes payable to the petitioner, it cannot be said to be prejudicial to the interest of the Revenue. Needless to add that adjustment in the total income for the relevant assessment year for the income disclosed under the VDIS and tax paid thereon has to be in terms of s. 68 and credit for the tax paid on the other income has to be given under the provisions of the Act. In our view, therefore, petitioner’s declaration under the VDIS having been ultimately accepted, the mere fact that some interest may also become due to it, when the declaration is given effect to, it cannot be said that this order will be prejudicial to the interests of the Revenue. Once a certificate under s. 68(2) is issued, the provisions of the VDIS have to be applied in letter and spirit regardless of the result. For the foregoing reasons, we hold that even if it is held that the orders passed by the AO on 24th Feb., 1998, were erroneous, still resort to s. 263(1) of the Act cannot be had because the second condition precedent, namely, the orders were prejudicial to the interests of the Revenue, is utterly lacking in the present case, and, therefore, the show-cause notice was issued without jurisdiction. Accordingly, the writ petition is allowed; the impugned notice is quashed and the rule is made absolute. It is pointed out that the application filed by the petitioner under s. 154 of the Act, demanding interest on the refund granted to it, was dismissed by the AO on the ground that the assessment orders itself were under review by the CIT and the matter will be clear only after the CIT gives his final judgment in the proceedings initiated under s. 263 of the Act. Since the notice issued by the CIT under s. 263 of the Act has been quashed by us, the AO is directed to reconsider petitioner’s application, dt. 26th Feb., 1998, in accordance with law within six weeks from today. We, however, make it clear that we have not expressed any opinion on the merits of the petitioner’s claim for interest under s. 244(1A) and if otherwise permissible in law, this judgment will not preclude the respondents from taking any appropriate proceedings under the Act, if it is felt that pursuant to the passing of assessment orders on 24th Feb., 1998, credit for the tax paid is not in accordance with the provisions of the Act. In the circumstances of the case we leave the parties to bear their own costs.

[Citation : 246 ITR 41]

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