No mandatory show cause notice requirement us 263. Only reasonable opportunity of hearing to be afforded to the assessee-Supreme Court

No mandatory show cause notice requirement us 263-SC. Only reasonable opportunity of hearing to be afforded to the assessee

The Supreme Court in its latest judgment delivered in the case of legendary Indian Movie actor Amitabh Bachchan (Big-B) has upheld and restored the CIT revisionary order u/s 263 which was previously set aside by ITAT and upheld by Bombay High Court.

Case Law Details:
Civil Appeal No. 5009 OF 2016 with CA 5010 of 2016
Commissioner of Income Tax (Appellant)  vs. Amitabh Bachchan (Respondent)
Date of Judgment: 11-05-2016
Coram: Jusrice Ranjan Gogoi and Prafulla C Pant

Important Judgments Cited:
Gita Devi Aggarwal vs. Commissioner of Income Tax, West Bengal and others
The C.I.T., West Bengal, II, Calcutta vs. M/s Electro House
Malabar Industrial Co. Ltd. vs. CIT
Commissioner of Income-tax vs. Max India Ltd

Brief Facts of the Case:
This appeal was filed by the Revenue challenging the High Court order which affirmed ITAT order for AY 2001-02 quashing revision done by CIT u/s 263 of the Income Tax Act, 1961.

In the above case, after the completion of the assessment, CIT issued a notice u/s 263 detailing eleven issues/grounds on which the assessment order was proposed to be revised. The CIT on consideration of the facts of the case and records of the proceedings came to the conclusion that in the course of the assessment proceedings despite several opportunities the assessee did not submit the requisite books of account and documents and deliberately dragged the matter leading to perpetual adjournments . Eventually, the Assessing Officer, to avoid the bar of limitation, had no option but to “hurriedly” finalize the assessment proceedings without making necessary enquiries. Thus CIT coming to the conclusion that the assessment order was erroneous and prejudicial to the interests of the Revenue, set aside by directing a fresh assessment to be made by order dated 20th March, 2006.

Aggrieved, the challenged the revision order before the Tribunal which was allowed on the ground that the CIT exceeded his jurisdiction going beyond the terms of the notice u/s 263.

Against the Tribunal order, the Revenue filed an appeal under Section 260A of the Act before the Bombay High Court who dismissed the order u/s 263 holding that CIT had gone beyond the scope of the show cause notice and had dealt with the issues not covered/mentioned in the said notice in violation of the principles of natural justice. Regarding the question as to whether the Assessing Officer had made sufficient enquiries about the assessee’s claim of expenses made in the re-revised return of income the High Court took the view that the said question raised pure questions of fact and, therefore, can not to be examined under Section 260A of the Act.

Aggrieved with the order of High Court, the Revenue had filed this appeal upon grant of leave under Article 136 of the Constitution of India.

The Supreme Court observed that with respect to about seven/eight issues mentioned in the show cause notice the CIT did not record any finding whereas conclusions adverse to the assessee were recorded on issues not specifically mentioned in the said notice. However, three were three issues common both in the show cause notice as well as the revisional order passed.

Issues not appearing in Notice u/s 263

The Apex Court dispelled the doubts by clarifying that under section 263, there is no requirement of a notice but what is contemplated by the section is an opportunity of hearing to be afforded to the assessee. The Court observed that in most of revisionary cases, it is customary to issue a notice. But there is nothing in the section 263 making it mandatory affecting the legality of the initiation of the revisionary powers or to require the CIT to confine to the terms of the notice itself.

The Supreme Court held that the order of the ITAT was contrary to the settled legal position to the extent it held that CIT order was violative of principles of natural justice for being beyond the terms of the notice. The Court further observed that at each stage of the revisional proceeding, the authorized representative of the assessee had appeared and had full opportunity to contest the matter.  This, in the opinion of the Court, satisfied the requirement of giving of a reasonable opportunity of being heard as contemplated by Section 263.

Issues appearing in Notice u/s 263

The three issues which were present in the notice are reproduced as under:

  • Assessee maintaining 5 bank accounts and AO not examining the 5th bank account, books of account and any other bank account where receipts related to KBC were banked.
  • Regarding claim of deposits of Rs.52.06 lakhs in Special Bench A/c No.11155 under the head “Receipts on behalf of Mrs. Jaya Bachchan and
  • Regarding the claim of additional expenses in the re-revised return.

All the above three issues were dealt by the ITAT in detail for not accepting them. However, the Supreme Court observed that the issues no. (iii) regarding claim of additional expenses in re-revised return which was subsequently withdrawn required detailed attention.

The assessee had re-revised its return claiming of additional expenses of 30% of the gross professional receipts (Rs.3.17 crores). On enquiry, it was submitted that the expenses were incurred for security purposes by employing certain Agencies, guards etc. for the personal safety of Amitabh Bachchan to protect him from various life threats and to avoid extortion of money from gangsters. The names of such Agencies could not be disclosed/divulged as there might be leakage of such sensitive information. Later, the assessee informed the CIT it would not be feasible to substantiate the claim and therefore the re-revised return of income may be taken to the withdrawn. Thereafter the AO issued a show cause notice proposing invocation of Section 69C treated the expenses claimed as unexplained expenditure. However, the AO accepted the submissions of the assessee in this regard and the matter was not pursued any further.

However CIT held that the AO should not have abandoned enquiries regarding sources for incurring expenses and should have proceeded to examine the matter further to arrive at a definite finding whether assessee incurred expenses or not and in case, actually incurred, then what were sources for incurring these expenses.

The assessee argued that non-investigation of the claim by the AO was a possible view and when two views are possible on an issue, exercise of revisional power under Section 263 would not be justified. However, the Supreme Court held that the notice issued under Section 69-C of the Act could not have been simply dropped on the ground that the claim has been withdrawn.

Important Excerpts from Supreme Court Judgment:

…….. 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. 

It may be that in a given case and in most cases it is so done a notice proposing the revisional exercise is given to the assessee indicating therein broadly or even specifically the grounds on which the exercise is felt necessary. But there is nothing in the section (Section 263) to raise the said notice to the status of a mandatory show cause notice affecting the initiation of the exercise in the absence thereof or to require the C.I.T. to confine himself to the terms of the notice and foreclosing consideration of any other issue or question of fact. This is not the purport of Section 263. Of course, there can be no dispute that while the C.I.T. is free to exercise his jurisdiction on consideration of all relevant facts, a full opportunity to controvert the same and to explain the circumstances surrounding such facts, as may be considered relevant by the assessee, must be afforded to him by the C.I.T. prior to the finalization of the decision. 

The learned Tribunal in its order dated 28th August, 2007 had not recorded any finding that in course of the suo motu revisional proceedings, hearing of which was spread over many days and attended to by the authorized representative of the assessee, opportunity of hearing was not afforded to the assessee and that the assessee was denied an opportunity to contest the facts on the basis of which the learned C.I.T. had come to his conclusions as recorded in the order dated 20th March, 2006. 

If the revisional authority had come to its conclusions in the matter on the basis of the record of the assessment proceedings which was open for scrutiny by the assessee and available to his authorized representative at all times it is difficult to see as to how the requirement of giving of a reasonable opportunity of being heard as contemplated by Section 263 of the Act had been breached in the present case. 

There can be no doubt that so long as the view taken by the Assessing Officer is a possible view the same ought not to be interfered with by the Commissioner under Section 263 of the Act merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional authority. This is a course of action that must be desisted from. However, the above is not the situation in the present case in view of the reasons stated by the learned C.I.T. on the basis of which the said authority felt that the matter needed further investigation, a view with which we wholly agree. Making a claim which would prima facie disclose that the expenses in respect of which deduction has been claimed has been incurred and thereafter abandoning/withdrawing the same gives rise to the necessity of further enquiry in the interest of the Revenue. The notice issued under Section 69-C of the Act could not have been simply dropped on the ground that the claim has been withdrawn. We, therefore, are of the opinion that the learned C.I.T. was perfectly justified in coming to his conclusions insofar as the issue No.(iii) is concerned and in passing the impugned order on that basis.

No mandatory show cause notice requirement us 263-SC

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