Punjab & Haryana H.C : The CIT assumed jurisdiction under s. 263 of the IT Act, without showing in his order the existence of jurisdictional facts

GOKAL CHAND MITAL J. :

The assessee filed a return for the asst. yr. 1973-74 declaring an income of Rs. 37,310. By order dated March 30, 1976, the ITO determined the income of the assessee at Rs. 1,42,670. When the aforesaid order came to the notice of the CIT, he issued a notice under s. 263 of the IT Act, 1961 (for short “the Act”), to the assessee indicating that since the ITO has made an addition of more than Rs. one lakh to the declared income, he had to send the draft assessment order to the assessee inviting objections, if any, to the proposed addition as required under s. 144B of the Act and since he did not comply with the aforesaid prov sion, the order was erroneous and prejudicial to the interests of the Revenue. The assessee appeared before the CIT and pleaded that the provisions of s. 263 of the Act could be invoked only where a valid assessment order had been passed and when it was shown to be erroneous and prejudicial to the interests of the Revenue, and since the order was wit out jurisdiction, the CIT could not invoke the jurisdiction under s. 263 of the Act. The CIT was also informed by the asses see that it had filed an appeal against the order of the ITO. The Commissioner proceeded to decide the matter after rejecting the arguments raised on behalf of the assessee. He came to the conclusion that the ITO did not comply with the provisions of s. 144B of the Act and thus the order was erroneous and prejudicial to the interests of the Revenue.

As a result, the order of the ITO was set aside and the matter was remanded to him to make fresh assessment in accordance with the provisions of the Act. Since the order of the ITO was set aside, the appeal filed by the assessee against the order of the ITO was dismissed as the order of the ITO was no longer in existence.

Against the aforesaid order, the assessee took the matter in appeal before the Tribunal and by order dated April 30, 1979, the appeal was allowed with the following observations:

“Since he has not shown what prejudice was caused or was likely to be caused to the Revenue by the ITO’s order if allowed to stand, we must strike down the CIT’s order as bad in law.”

The Tribunal was of the view that in order to acquire jurisdiction under s. 263 of the Act to revise, it must be shown that the order of the ITO was erroneous and prejudicial to the interests of the Revenue but no finding was recorded that the order was prejudicial to the interests of the Revenue.

4. On these facts, the following question of law has been referred for the opinion of this Court:

“Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that the CIT assumed jurisdiction under s. 263 of the IT Act, without showing in his order the existence of jurisdictional facts ?”

5. We have gone through the order of the CIT passed under s. 263 of the Act and from the following observations made by him in his order, we are of the opinion that he was alive to the point that he will have jurisdiction only if the order of the ITO is erroneous and prejudicial to the interests of the Revenue. “The order was made without complying with the provisions of s. 144B of the IT Act and, therefore, the said order was erroneous in so far as it was prejudicial to the interests of the Revenue. The facts of the case are that while computing the income in respect of the asst. yr. 1973-74, the ITO made an addition of more than rupees one lakh to the income disclosed in the return, but he did not send the draft assessment order to the assessees inviting his objections, if any, to the proposed addition as required under s. 144B and passed the assessment order. Since the ITO did not comply with the provisions of s. 144B of the IT Act, 1961, the order was erroneous and as such prejudicial to the interests of the Revenue. In his reply, the assessee has stated that s. 263 could be invoked in a case where a valid order has been passed by the ITO which is prejudicial to the interests of the Revenue…. Before the appellate authority decides upon the validity or invalidity of the order, the order is a valid order and the CIT has every right to review it under s. 263 if he thinks that it is prejudicial to the interests of the Revenue.” He was clearly of the opinion that it was prejudicial to the interests of the Revenue, and prejudice on the given facts was not only evident and apparent on the face of the record but was clearly writ large by the unenforceability of the erroneous order passed by the ITO without following the procedure laid down under s. 144B of the Act.

We had occasion to deal with a somewhat similar case in IT. Ref. No. 4 of 1980, CIT vs. Des Raj Kul Bhushan (1989) 178 ITR 686 (P & H), and by order dated November 22, 1988, we had concluded that the prerequi sites for a valid order by the CIT under s. 263 of the Act were present in that case and the Tribunal was in error in coming to the conclusion that the CIT had wrongly assumed jurisdiction.

In view of the above, we answer the referred question in favour of the Revenue, that is, in the affirmative, to the effect that the Tribunal erred in holding that the CIT assumed jurisdiction under s. 263 of the Act without showing in his order the existence of juris dictional facts. To our mind, the CIT passed a valid order. Since none has appeared on behalf of the assessee, we make no order as to costs.

[Citation : 179 ITR 51]