BSES Rajdhani Power Ltd vs. Pr CIT (Delhi High Court)

The High Court had to consider the following questions of law:

(a) Whether on facts and in the circumstances of the case, the Tribunal erred in law in not holding that order dated 31.03.2016 passed under section 263 of the Act was without jurisdiction, illegal and bad in law?

(b) Whether on facts and in the circumstances of the case, the Tribunal erred in law in not quashing order passed under section 263 of the Act, considering that the assessing officer had raised specific queries and applied his mind to the concerned issues while framing original assessment?

(c) Whether on facts and in the circumstances of the case, the Tribunal erred in law in not quashing the order passed under section 263 of the Act in respect of issues pertaining to alleged violation in deduction of tax at source and related party transactions, which did not either form part of the show cause notice or confronted to the Appellant, instead in setting aside the same for de novo adjudication by the CIT?

HELD by the High Court:

(i) As far as the first aspect with respect to exercise of power under Section 263 is concerned, the issue stands concluded, in the light of the amendment with effect from 1989, by insertion of Explanation (c) to Section 263 (1). The non-consideration of the larger claim for Rs 298.93 crores as depreciation and the consideration of only a part of it (Rs 644,81,091) by the assessing officer, who did not go into the issue with respect to the whole amount, was an error, that could be corrected under Section 263. Commissioner of Income Tax v Aruba Mills 1998 (231) ITR 50 (SC) is decisive, in that the provision of Section 263 (1) Explanation (c) was introduced to cater to precisely this kind of mischief.

(ii) On the aspect of show cause notice, i.e., the second and third questions framed, the court is of the opinion that the ruling in Commissioner of Income tax v Amitabh Bacchan 2016 SCC Online SC 484 is decisive; it upholds the power of the Commissioner to consider all aspects which were the subject matter of the AO’s order, if in his opinion, they are erroneous, despite the assessee’s appeal on that or some other aspect. The Court held that:

“Reverting to the specific provisions of Section 263 of the Act what has to be seen is that a satisfaction that an order passed by the Authority under the Act is erroneous and prejudicial to the interest of the Revenue is the basic pre-condition for exercise of jurisdiction under Section 263 of the Act. Both are twin conditions that have to be conjointly present. Once such satisfaction is reached, jurisdiction to exercise the power would be available subject to observance of the principles of natural justice which is implicit in the requirement cast by the Section to give the assessee an opportunity of being heard.

It is in the context of the above position that this Court has repeatedly held that unlike the power of reopening an assessment under Section 147 of the Act, the power of revision under Section 263 is not contingent on the giving of a notice to show cause. In fact, Section 263 has been understood not to require any specific show cause notice to be served on the assessee. Rather, what is required under the said provision is an opportunity of hearing to the assessee. The two requirements are different; the first would comprehend a prior notice detailing the specific grounds on which revision of the assessment order is tentatively being proposed.

Such a notice is not required. What is contemplated by Section 263, is an opportunity of hearing to be afforded to the assessee. Failure to give such an opportunity would render the revisional order legally fragile not on the ground of lack of jurisdiction but on the ground of violation of principles of natural justice. Reference in this regard may be illustratively made to the decisions of this Court in Gita Devi Aggarwal vs. Commissioner of Income Tax, West Bengal and others[1] and in The C.I.T., West Bengal, II, Calcutta vs. M/s Electro House[2]. Paragraph 4 of the decision in The C.I.T., West Bengal, II, Calcutta vs. M/s Electro House (supra) being illumination of the issue indicated above may be usefully reproduced hereunder: “This section unlike Section 34 does not prescribe any notice to be given. It only requires the Commissioner to give an opportunity to the assessee of being heard. The section does not speak of any notice.”

(iii) This Court is of the opinion that the revisional order, to the extent that it did not provide any pre-decisional opportunity to address the issues it dealt with, could not be sustained; the ITAT has granted relief of a limited nature on that score. However, we do not agree that those issues were incapable of consideration as they were gone into by the AO. Accordingly, the CIT, in exercise of his power under Section 263 will proceed to consider the assessee’s submissions only on those two aspects, before making his order.

(iv) All questions framed are, therefore, answered in the negative, against the assessee.

Cases considered:

Malabar Industrial Co. Ltd. vs Commissioner of Income Tax 243 ITR 83 (SC), Commissioner of Income Tax vs Max India Ltd 295 ITR 282 (SC) Commissioner of Income Tax v Sunbeam Auto Ltd 332 ITR 167 (Del), Commissioner of Income Tax v DLF Ltd 350 ITR 555 (Del.); Commissioner of Income Tax v. International Travel House Ltd. 344 ITR 554 (Del.) Commissioner of Income Tax v. Leisurewear Exports 341 ITR 166 (Del.) Commissioner of Income Tax v. Hero Auto Ltd. 343 ITR 342 (Del.), Commissioner of Income Tax v. Vikas Polymers 341 ITR 537 (Del), Commissioner Of Income Tax vs Printers House(1998) 233 ITR 666