Delhi H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is legally correct in holding that the CIT had no jurisdiction under s. 263 to cancel the ITO’s order dt. 28th Feb., 1977 passed under s. 154 ?

High Court Of Delhi

CIT vs. K.L. Ahuja

Section 263

Arijit Pasayat, C.J. & D.K. Jain, J.

IT Ref. No. 72 of 1981

19th December, 2000

Counsel AppearedR.C. Pandey with Ms. Prem Lata Bansal & Ajay Jha, for the Applicant : None, for the Respondent



At the instance of Revenue, the Income-tax Appellate Tribunal, Delhi Bench D has referred the following question under s. 256(1) of the IT Act, 1961 (‘the Act’) for opinion of this Court :

“Whether, on the facts and in the circumstances of the case, the Tribunal is legally correct in holding that the CIT had no jurisdiction under s. 263 to cancel the ITO’s order dt. 28th Feb., 1977 passed under s. 154 ?”

2. Brief reference to factual aspects would suffice. The assessee, who was an employee of the Central Government, joined the Indian Oil Corporation Ltd. (‘IOC’), a public sector undertaking, where he was permanently absorbed. On his retirement from Central Government service, he received a sum of Rs. 9,714 towards commuted value of 1/3rd of the pension due to him plus a sum of Rs. 19,429 as terminal benefit calculated at twice the amount of the commuted value of pension. Accounts officer while paying terminal benefits deducted tax at appropriate rate out of it. The assessee filed his return and was assessed treating terminal benefits as taxable. However, relief under s. 89 of the Act was allowed. Assessment was completed on 18th Oct., 1975. On 31st Dec., 1976, the assessee approached the ITO for rectification of the order under s. 154 of the Act taking the plea that terminal benefits were entirely exempted from tax in view of the decision of the Bombay Bench of the Tribunal in the case of one P. Muralidharan. Accepting the said contention, the ITO passed an order on 28th Feb.,1977. As a result of the aforesaid exercise, entire amount of terminal benefits was taken to be non-taxable and a refund order was issued. The CIT after going through the order passed by the ITO, was of the opinion that the said order under s. 154 was erroneous and prejudicial to the interests of Revenue. He, therefore, issued notice under s.263 of the Act and passed an order cancelling the order passed under s. 154 of the Act. The assessee assailed the said order before the Tribunal. When the matter was heard, the assessee placed reliance on a Circular No. CIT/CT/M-1(69)/7677/27141, dt. 10th Sept., 1976, issued by the CIT. Accordingly to the said circular, the Central Board of Direct Taxes (in short ‘the Board’) had in their letter No. 173/126-76-II(AI), dt. 30th May, 1976, accepted the decision of the Bombay Bench as laying down the correct position in law. The CIT had, therefore, directed that whenever an assessee applied under s. 154 pointing out the mistake in its assessment, same should be rectified following the instructions of the Board. Obviously the ITO followed the circular. Though there was no reference to the circular in the order under s. 154, obvious reference therein was to the decision in P. Muralidharan’s case. It was observed by the Tribunal that the ITO was more of less copying the words in the circular of the Board which had been taken note of the circular issued by the CIT(A). The Tribunal was of the view that it was a case where an order under s. 154 was passed by the ITO under the directions of the CIT and, therefore, s. 263 of the Act will not be applicable. The Tribunal, inter alia, observed as follows : “When the ITO passes an order in his own discretion and that order is found to be erroneous or prejudicial to the interests of the Revenue under s. 263 it is the power to the CIT to rectify it but when an ITO passes an order not in his own discretion or wisdom but following the directions of the CIT who follows in turn the direction of the CBDT, to whom both of them are subordinate, the CIT who succeeds the CIT who had issued the impugned instructions in a circular letter to the IAC cannot treat the order of ITO as erroneous or prejudicial to the interests of Revenue because it would in fact amount to reviewing his predecessor’s order which is not permissible under s. 263. We accordingly hold that the impugned order passed by the learned CIT was without jurisdiction. Under the circumstances, we cancel the said order”.

3. On being moved for reference the question as aforesaid has been referred for opinion of this Court. We have heard the learned counsel for the Revenue. There is no appearance on behalf of the assessee in spite of service of notice.

4. In view of the factual position highlighted by the Tribunal, the relevant portion of which has been quoted above, decision of this Court in C.K. Karunakaran vs. Union of India (1981) 127 ITR 136 (Del) : TC 32R.546 applies to the facts of the case. On merits also the assessee has to succeed. The question referred is, therefore, of academic interest and we decline to answer the same.

The reference stands disposed of.

[Citation : 250 ITR 763]

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