38. Revision – Scope of power of Commissioner – Section 264 1 – A. Y. 2006-07 – Record includes all records relating to any proceedings – Not confined to return of income and assessment order in case of assessee – Order passed on other party treating lease rent received by it from assessee as its income – Application by assessee for revision on basis of order – Order can be considered and applied to allow deduction in assessee’s hands – Remedy u/s. 264 appropriate

Selvamuthukumar vs. CIT; 394 ITR 247 (Mad):

The petitioner had entered into an agreement with S for the
purchase of its hostel buildings. The hostels were being managed by the
petitioner pending finalisation of sale and depreciation claimed thereupon in
respect of A. Ys. 2003-04 to 2005-06. The transaction could not be completed
and upon cancellation of the agreement the hostels reverted back to S in
December 2005. The petitioner received back only a sum of Rs. 8,63,70,652 as
against the consideration of Rs. 9,79,44,847 paid by it originally.
Accordingly, no depreciation was claimed in the A. Y. 2006-07. For the purpose
of taxability on the transaction, an order u/s. 144A of the Act, 1961 was
passed to the effect that the transaction was one of lease. The Assessing
Officer of S was directed to bring to tax the difference between the amount of
the original sale consideration received and the amount returned by it to the
assessee pursuant to the cancellation of the sale agreement, considering it as
lease rent to be spread over four years pro rata. The order u/s. 144A had
attained finality. Consequently, the assessee claimed the lease rentals paid by
it over the period of the four A. Ys. 2003-04 to 2006-07, as business
expenditure u/s. 37. Notices u/s. 148 were issued to the assessee for
reassessment in respect of the A. Ys. 2003-04 to 2005-06 and the claims for
depreciation and the claim of lease rentals as business expenditure were allowed
in the reassessment. The assessee filed revision petition u/s. 264 before the
Commissioner for deduction of lease rentals for the A. Y. 2006-07. The
Commissioner rejected the application on the ground, that, (a) the order u/s.
144A was passed in the case of S and as such was not relevant in the case of
any other assessee and, (b) the power to revise u/s. 264 was specific to
consideration of any issue discussed or decided in an order of assessment which
was not the case of the assessee. He was of the view that the contention raised
by the assessee did not emanate from either the return filed by him or the
order of assessment and therefore, jurisdiction u/s. 264 could not be invoked.

The Division Bench of the Madras High Court allowed the writ
petition filed by the assessee and held as under:

“i)  The embargo placed on an Assessing Officer in
considering a new claim would not impinge on the power of the appellate
authority or revisional authority.

ii)  Section 264 of the Act has been inserted as a
parallel and alternate remedy and relief available to an assessee. It provides
powers to the Commissioner to make or cause such enquiry to be made as he
thinks fit in dealing with an application for revision. The power u/s. 264 is
wide and extends to passing any order as the Principal Commissioner or
Commissioner may think fit after making an inquiry and subject to the
provisions of the Act, suo moto or on an application by the assessee.

iii)  The order passed u/s. 144A of the Act in the
case of S had relevance in the assessment of the assessee for the reason that
the transaction dealt with in that order was one between S and the assessee.
Effect had been given to the directions in the order u/s. 144A in the
assessment of S as well as in the assessment of the assessee for the A. Ys.
2003-04 to 2005-06. There was no reason why a different conclusion was taken
for the A. Y. 2006-07, when the transaction, the facts, the circumstances and
the law remained identical and unchanged throughout. Even applying the
principle of consistency, the treatment accorded to an issue that arose in a
continuing transaction should be consistent for the entire period.

iv) Section 264 provides powers to the Commissioner
to make or cause such inquiry to be made as he thought fit while deciding an
application for revision which included taking into consideration, the relevant
material that had a bearing on the issue under consideration, which in the
assessee’s case, include the order issued to S u/s. 144A. The order u/s. 144A
ought to have been taken into consideration and applied.

v)  The order u/s. 264 was appropriate and ought
to have been exercised in favour of the assessee by the Commissioner.”