Revision u/s.264 — Additional Evidence

1.2 The issue has come up before the Courts as to whether,
while considering an application for revision, the Commissioner can take into
account any material or evidence which was not placed before the Assessing
Officer or lower authority passing the order, or events subsequent to the order
sought to be revised.

1.3 While the Calcutta and Gujarat High Courts have taken the
view that the Commissioner can take into account such evidence, the Andhra
Pradesh High Court has taken a contrary view that the Commissioner can consider
only such evidence as was before the subordinate authority who has passed the
order sought to be revised.

2. Phool Lata Somani’s case :

2.1 The issue had arisen before the Calcutta High Court in
the case of Smt. Phool Lata Somani v. CIT, 276 ITR 216.

2.2 In this case, the assessee had made certain investments
in respect of which proof of investment had not been filed before the Assessing
Officer, not even during assessment proceedings. No deduction had therefore been
allowed by the Assessing Officer in respect of such investments.

2.3 The assessee filed a revision application to the
Commissioner u/s.264, claiming deduction in respect of such investment, and
furnished the particulars of investment along with the application for revision.
The Commissioner declined to entertain the revision application on the ground
that the assessee failed to produce the evidence relating to the investment made
by her before the Assessing Officer, despite an opportunity being given to do
so.

2.4 The assessee filed a writ petition before the High Court
challenging such rejection of her revision application. Before the High Court,
on behalf of the assessee it was claimed that the order of the Commissioner was
bad in law as the Commissioner failed to consider the scope and purview of S.
264, which is wider than the power vested u/s.263. It was claimed that the
Commissioner ought to have inquired into the matter as to whether the assessee
failed to produce evidence or furnish particulars. It was further pointed out
that the assessee produced copies of the document showing investments which are
required to be exempted and therefore all required particulars were furnished
with the application for revision. Though it was true that at the time of
assessment the assessee could not produce the document for a variety of reasons,
it was urged that in exercise of his plenary jurisdiction, the Commissioner
should have done justice by allowing the assessee to furnish the document so as
to get the exemption. According to the assessee, the term ‘records’ meant such
records as are available at the time of the decision of the Commissioner, not
limited to the records at the time of passing order by the Assessing Officer.

2.5 On behalf of the Revenue, it was argued before the Court
that the power u/s.264 was absolutely a discretionary power, and the
Commissioner, after having perused records and report furnished by the Assessing
Officer, thought it fit not to interfere with the order passed by the Assessing
Officer. According to the Revenue, the Commissioner in lawful exercise of
jurisdiction had found that the assessee was always a defaulter, and in spite of
opportunity being given, the documents of investment and particulars thereof
were not shown. As such, the Commissioner did not give a premium to the lapses
or laches of the assessee.

2.6 The Court noted the difference between the powers u/s.263
and those u/s.264, particularly the fact that while the power u/s.263 could not
be applied at the instance of the assessee or even at the instance of the
Revenue, but only by the Commissioner himself, the power u/s.264 could be
exercised by the Commissioner, either of his own motion or on an application by
the assessee. It noted that in the case before it, the assessee had made the
application. It was the duty coupled with the power of the Commissioner to make
an inquiry or call for records for inquiry.

2.7 According to the Calcutta High Court, this provision
could be invoked on the application of the assessee for his benefit or for
prejudice. Upon inquiry if it was found that the assessee had been prejudiced by
any order of the Assessing Officer, the Commissioner could undo such wrong with
this power by adopting appropriate, just and lawful measure. The Calcutta High
Court noted that the Kerala High Court had examined the scope of the power
u/s.264 in the case of Parekh Brothers v. CIT, 150 ITR 105. It had taken
the view that the regional power conferred on the Commissioner u/s.264 was very
wide, and that he had the discretion to grant or refuse relief and the power to
pass such order in revision as he thought fit. The discretion, which the
Commissioner had to exercise, was undoubtedly to be exercised judicially, not
arbitrarily according to his fancy.

2.8 Therefore, according to the Calcutta High Court, there
was nothing in S. 264 which placed a restriction on the Commissioner’s
revisional power to give relief to the assessee in a case where the assessee
detected mistakes after the assessment was completed, on account of which he was
over assessed. According to the Court, it was open to the Commissioner to
entertain even a new ground not urged before the lower authorities while
exercising revisional powers.

2.9 According to the Court, the Commissioner, instead of relying solely on the reports of the records of the case, should have made inquiry considering the documents placed before him by the assessee. At least this should have been reflected in the order that he had taken note on the date of making application of the revision, of the tax exempt investment. The Court was of the view that there could have been a variety of reasons for not producing evidence at the time of the assessment; this did not mean that the assessee was precluded from produc-ing evidence of contemporaneous nature at a later stage by filing an application for revision.

2.10 According to the Calcutta High Court, the power of the Commissioner u/ s.264 was to do justice, to prevent miscarriage of justice being rendered. From the records, it appeared that the assessee produced unimpeachable documents showing investment which was otherwise eligible to be taken note of for grant of deduction, and if it had been allowed by the Commissioner, then the assessee would not have suffered over-assessment.

2.11 The Calcutta High Court was therefore of the view that the Commissioner had unjustly refused to entertain the assessee’s application, and therefore the Court set aside the order of the Commissioner and remitted the matter back to the Commissioner for deciding the matter afresh on merits.

2.12 A similar view was taken by the Gujarat High Court in the case of Ramdev Exports v. CIT, 251 ITR 873. In this case, the assessee had not claimed deduction u/s.80HHC at the time when the returns were filed. The income returned by the assessee had been accepted by the Assessing Officer u/s.143(3), and therefore the Commissioner rejected the revision application without going into the merits of the deduction claimed. The Gujarat High Court set aside the order of the Commissioner, directing the Commissioner to reconsider the application on merits.

3. M. S. Raju’s  case:

3.1 The issue again came up recently for consideration before the Andhra Pradesh High Court in the case of M. S. Raju v. Dy. CIT, 216 CTR (AP) 203.

3.2 In this case, the assessee was a film producer, and certain damages of Rs 30 lakhs were claimed from him for late release of the film. These damages pertained to incomes which were offered to tax in AY. 2001-02, though the dispute arose after the end of the previous year and the amount was ultimately settled and paid after the end of the previous year.

3.3 The liability was not recorded in the accounts relating to AY. 2001-02, nor was there any reference to such amount in the audit report. The assessee however claimed deduction of such amount from its taxable income, which claim was rejected by the Assessing Officer.

3.4 The Commissioner (Appeals) upheld the dis-allowance on the ground that the dispute continued till October 2001. The Tribunal held that the liability did not accrue during the relevant previous year, and therefore could not be allowed as a deduction.

3.5 For the A.Y. 2002-03, the assessee filed its return of income without claiming deduction of such damages. The assessment order was completed u/s.143(3) without any claim for such deduction. The assessee filed a revision application u/ s.264 before the Commissioner, requesting him to direct the Assessing Officer to allow deduction of Rs.30 lakhs paid as damages.

3.6 The Commissioner rejected the assessee’s revision application holding that the assessment order for A.Y. 2002-03 made no reference to any claim for deduction of Rs.30 lakhs having been made by the assessee, and that since no such issue arose in the assessment proceedings, the subject matter of the petition had no bearing on the assessment made for A.Y. 2002-03.

3.7 Before the Andhra Pradesh High Court, it was argued on behalf of the assessee that the Commis-sioner had refused to exercise jurisdiction merely on a technical ground, which had resulted in denial of a genuine deduction available to the assessee. It was further argued that the Assessing Officer, in his assessment order for A.Y. 2001-02, had accepted that the liability for compensation had arisen during the previous year relevant to A.Y. 2002-03, and that the Revenue could not now be permitted to totally deny the relief.

3.8 The Andhra  Pradesh High Court examined the provisions of S. 264 for the purpose of ascertaining whether the Commissioner was entitled to examine the question raised for the  first  time  before  him which did not form part of the record before the Assessing Officer or even part of the order of assessment. The Court noted the explanation to S. 263(1) substituted by the. Finance Act, 1988 with effect from 1st June 1988, which defined the word ‘record’ to include all records relating to any proceedings under the Act available at the time of examination by the Commissioner, and the absence of similar provision u/ s.264.

3.9 According to the Andhra Pradesh High Court, the omission to insert a similar definition of the word ‘record’ in S. 264, while inserting this defini-tion in S. 263, was significant. The Andhra Pradesh High Court expressed its inability to agree with the opinion of the Gujarat High Court in the case of Ramdev Exports (supra), since the conscious omis-sion by Parliament to insert a provision in S. 264 similar to explanation (b) of S. 263(1) was not
noticed by the Gujarat High Court. It also did not agree with the opinion of the learned Single Judge of the Calcutta High Court in Smt. Phool Lata Somani’s case.

3.10 The Andhra Pradesh High Court therefore held that the term ‘record’ u/s.264 was only the record of proceedings before the assessing authority, and as the assessee had not claimed any such deduction in the return filed before the assessing authority, he was held not to be entitled to raise this question for the first time in revision proceedings u/ s.264. The Andhra Pradesh High Court therefore dismissed the assessee’s writ petition.

4. Observations:

4.1 In the case of CRT v. Shree Manjunathesware Packing Products & Camphor Works, 231 ITR 53, in the context of S. 263, the Supreme Court held as under:

“It, therefore, cannot be said, as contended by learned counsel for the respondent, that the correct and settled legal position, with respect to the meaning of the word ‘record’ till 1st June 1988 was that it meant the record which was available to the ITO at the time of passing of the assessment order. Further, we did not think that such a narrow interpretation of the word ‘record’ was justified in view of the object of the provision and the nature and scope of the powers conferred upon the CIT. The revisional power conferred on the CIT u/ s.263 is of wide amplitude. It enables the CIT to call for and examine the record of any proceeding under the Act. It empowers the CIT to make or cause to be made such enquiry as he deems necessary in order to find out if any order passed by the AO is erroneous insofar as it is prejudicial to the interests of the Revenue. After examining the record and after making or causing to be made an inquiry if he considers the order to be erroneous, then he can pass the order thereon as the circumstances of the case justify. Obviously, as a result of the inquiry, he may come in possession of new material and he would be entitled to take the new material into account. If the material, which was not available to the ITO at the time he made the assessment, could thus be taken into consideration by the CIT after holding an enquiry, there is no reason why the material which has already come on record, though subsequent to the making of the assessment, cannot be taken into consideration by him. Moreover, in view of the clear words used in clause (b) of the explanation to S. 263(1), it has to be held that while calling for and examining the record of any proceeding u/s.263(1), it is and it was open to the CIT, not only to consider the record of that proceeding but also the record relating to that proceeding available to him at the time  of examination…….”

4.2 From the above observations of the Supreme Court, it is clear that the term ‘record’ has been held to include subsequent records as well, not only on account of the explanation, but on account of the scheme and purpose of S. 263.

4.3 The reason for insertion of the explanation to S. 263(1) was to overcome the issue of different Court decisions. The mere fact that no similar amendment was carried out to S. 264 does not mean that the term ‘record’ for that-Section has a totally different meaning. In the context of S. 264, there was no such controversy till the amendment to S. 263, and therefore no reason for any such amendment.

4.4 As  rightly observed by  the Calcutta and Gujarat High Courts, the purpose of S. 264 is to do justice to the assessee. If a technical and narrow view is taken of the record permitted to be considered by the Commissioner, it will result in a mis-carriage of justice, and defeat the very purpose of that Section.

4.5 As noted by the Supreme Court in the context . of S. 263, the very fact that even u/ s.264, the Commissioner is permitted not only to examine the record, but also to make enquiries, which could throw up additional facts, clearly indicates that he can consider all facts which are before him, and not merely the facts which were before the Assessing Officer. No purpose would be served by the Commissioner making enquiries if he is not allowed to consider the facts arising out of the enquiries.

4.6 Therefore, the ratio of the decisions of the Calcutta and Gujarat High Courts seem to represent the better view of the matter, that the Commissioner can  examine all the  facts  and  record before  him while  passing an order u/ s.264.