Commissioner's Power to Revise: Limits on Self-Revision Under Wealth Tax Act

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Case Name:

Principal Commissioner of Income Tax Vs Shatrushlyasinhi D Jadeja (High Commissioner of Gujarat)

Tax Appeal No. 587 & 597 of 2016

Date: 19th August 2016

Key Takeaways:

1. The Commissioner has wide powers of revision under Section 25(2) of the Wealth Tax Act.

2. However, these powers do not extend to revising the Commissioner's own orders passed under Section 25(1).

3. The court emphasized the importance of distinguishing between the spheres of operation of Section 25(1) and 25(2).

Issue:

Can the Commissioner of Wealth Tax revise, under Section 25(2) of the Wealth Tax Act, an order of the Assessing Officer that was issued based on the Commissioner's own directions given under Section 25(1)?

Facts: 

So, we've got this person, Shatrushlyasinji D Jadeja, who owns some land in Jamnagar. The tax folks were trying to figure out how much wealth tax he should pay on this land for the years 1999-2000 to 2009-10.

Initially, the Assessing Officer valued the land at Rs. 594.22 per square meter. Jadeja wasn't happy with this, so he went to the Commissioner under Section 25(1) of the Wealth Tax Act. The Commissioner told the Assessing Officer to recalculate based on some earlier directions.

But guess what? The Assessing Officer came back with the same value! So Jadeja went to the Commissioner again. This time, the Commissioner said, "Okay, use the valuation from Jadeja's 1992-93 assessment year." Following this, the Assessing Officer set the value at Rs. 24.57 per square meter.

Now, here's where it gets interesting. The Commissioner decided to review this new assessment under Section 25(2) of the Act. They thought the value was too low and ordered a fresh assessment. Jadeja wasn't happy about this and took the matter to the Tribunal, which sided with him. That's when the tax department decided to appeal to the High Court.

Arguments:

The tax department argued that:

1. The Commissioner has the power to revise orders under Section 25(2), even if they've previously acted under Section 25(1).

2. The basis for the current revision was different from earlier proceedings, so it wasn't a case of changing opinion.

3. The valuation of Rs. 24.57 per square meter was unreasonably low for prime land in Jamnagar.

Jadeja's side contended that:

1. Once the Commissioner had exercised powers under Section 25(1), they couldn't use Section 25(2) to essentially reverse their own order.

2. The Commissioner was trying to revise their own directions, which isn't allowed under the Act.

Key Legal Precedents:

Interestingly, the judgment doesn't cite specific case laws. Instead, it focuses on interpreting Section 25 of the Wealth Tax Act, 1957.

Judgement:

Alright, so here's what the court decided. They said, "Look, the Commissioner does have pretty broad powers under Section 25(2) to revise orders. This power exists alongside the power under Section 25(1), not instead of it."

But - and this is a big but - the court also said that in this specific case, the Commissioner went too far. Why? Because they were essentially trying to undo their own earlier directions given under Section 25(1). The court was clear: Section 25(2) doesn't give the Commissioner the power to revise their own orders made under Section 25(1).

So, in the end, the court dismissed the tax department's appeals. They said the Commissioner couldn't use Section 25(2) to revise an order that was based on their own earlier directions under Section 25(1).

FAQs:

1. Q: What's the difference between Section 25(1) and 25(2) of the Wealth Tax Act?

  A: Section 25(1) allows the Commissioner to revise orders, but not in a way that's harmful to the taxpayer. Section 25(2) gives broader powers, including the ability to increase assessments, but it can't be used to revise the Commissioner's own orders under 25(1).

2. Q: Can the Commissioner never use Section 25(2) after using Section 25(1)?

  A: That's not quite right. The Commissioner can still use 25(2) in many cases, but they can't use it to revise their own orders made under 25(1).

3. Q: Why did the court dismiss the tax department's appeals?

  A: The court felt that in this specific case, the Commissioner was trying to use Section 25(2) to undo their own earlier directions given under Section 25(1), which isn't allowed.

4. Q: Does this judgment limit the Commissioner's powers?

  A: It clarifies the limits of these powers rather than limiting them. It emphasizes that while the Commissioner has broad revision powers, they can't use these powers to revise their own previous orders.

5. Q: What's the main takeaway for taxpayers from this case?

  A: If the Commissioner has given directions in your favor under Section 25(1), they can't later use Section 25(2) to revise those same directions. This provides some protection against repeated revisions of the same issue.

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1. These tax appeals have been filed by the Revenue challenging the judgement of the Income Tax Appellate Tribunal. Following questions have been presented for our consideration:

“(a) Whether in the facts of the case and in law, the Hon'ble Income Tax Appellate Tribunal is justified in allowing the quantum appeal of the assessee and thereby quashing the order of the Commissioner of Wealth Tax passed u/s. 25(2) of the Wealth Tax Act, 1957?

(b) Whether, in the facts of the case and in law, the Hon'ble Income Tax Appellate Tribunal is justified in holding that the Commissioner of Wealth Tax by way of impugned order has sought to revise his own order passed u/s. 25(1) of the Wealth Tax Act, 1957, particularly when the Commissioner of Wealth Tax has sought to revise the order of the AO passed u/s. 16(3) r.w.s. 17 r.w.s. 25(1) of the Wealth Tax Act, 1957 and not that passed under section 16(3) r.w.s. 17 r.w.s. 25(2) of the Act.

(c) Whether, in the facts of the case and in law, the Hon'ble Income Tax Appellate Tribunal is justified in holding that the Commissioner of Wealth Tax has no power to revise u/s. 25(2) of the Act, his own directions given u/s. 25(1) of the Wealth Tax Act, 1957, particularly when the Commissioner of Wealth Tax has revised u/s. 25(2) of the Act, the order of the AO passed in consequence of the setting aside of the original order by the Commissioner of Wealth Tax u/s. 25(1) of the Act [and not u/s 25(2)] and whether on the basis of the facts of the case, it cannot be said that the Commissioner of Wealth Tax has revised his own directions.

(d) Whether, in the facts of the case and in law, the action of the Commissioner of Wealth Tax in revising the order of the AO can be held as revising his own order passed u/s. 25(1) of the Wealth Tax Act, 1957 and whether the order passed by the Hon'ble Income Tax Appellate Tribunal is a perverse finding of fact.

(e) Whether in the facts of the case and in law, the order passed by the AO was erroneous and prejudicial to the interests of the revenue in view of the errors pointed out by the Commissioner of Wealth Tax in the order passed by the Assessing Officer, and was thus liable to be revised u/s. 25(2) of the Wealth Tax Act, 1957 and as such the Commissioner of Wealth Tax has correctly exercised his jurisdiction u/s. 25(2) of the Wealth Tax Act, 1957.”

2. Briefly stated, the facts are that the respondent-assessee was subjected to wealth tax in relation to certain immovable properties in the nature of lands. For the assessment years 1999- 2000 to 2009-10, the assessee had not filed wealth tax returns.

The Assessing Officer carried out assessment ex parte by adopting valuation of open plots of land in Jamnagar belonging to the assessee at the rate of Rs. 594.22 per sq.mtr. Against such order, the assessee filed a petition under Section 25(1) of the Wealth Tax Act ['the Act' for short] before the Commissioner of Wealth Tax, who directed the Assessing Officer to recompute the wealth of the assessee on the basis of directions given by the Appellate Commissioner in the assessee's own case for the assessment year 1992-93. Even on re-computation, the Assessing Officer adopted the same value of Rs.594.22 per sq.mtr. The assessee, thereupon, again filed application under Section 25(1) of the Wealth Tax Act. The Commissioner, Jamnagar, again directed him to recompute the wealth tax on the basis of directions given by CWT(Appeals) in assessee's own case for the assessment year 1992-93. Consequent to this order, the Assessing Officer completed the assessment by adopting value of the land at the rate of Rs. 24.57 per sq.mtr.

3. This order of the Assessing Officer was taken in revision by the Commissioner in exercise of powers under Section 25(2) of the Act. The assessee, upon notice, contended inter alia that once the powers under Section 25(1) of the Act were already exercised, the Commissioner, thereafter, could not exercise power under Section 25(2) of the Act. The Commissioner ignored such pleas and passed an order dated 20.03.2014 and directed the Assessing Officer to carry out fresh valuation by making following observations:

“1. The revision sought to be made u/s. 25(2) of the W.T.Act is on the basis of difference in the value of land adopted while finalizing the wealth tax assessment for A.Y. 1999-2000 to 2009-2010 and the value of land as adopted while finalizing the income tax assessment for the A.Y. 1989-90. In the earlier instances when the CWT, Jamnagar directed the AO to reassess the wealth of the assessee in accordance with direction of the CWT(A) for A.Y. 1992-93, the AO had assessed the wealth by taking the average rate of realization on auction of land carried out during A.Y. 1989-90 and 1991-92 in the assessee's own case. Thus the basis of initiation of current proceedings u/s. 25(2) of the W.T.Act are different from the basis of initiation of proceedings u/s. 25(2) of the W.T. Act earlier. It cannot therefore be said that there is a charge of opinion by the CWT since the basis for the earlier proceedings and basis for the present proceedings are different and hence not comparable.

2. As per section 50C(1) of the I.T.Act where the consideration received or accruing as result of the transfer by assessee of a capital asset being land or building or both, is less than the value adopted or assessed by the stamp valuation authority for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall for the purpose of section 48 being to be the full value of the consideration received or accruing as a result of such transfer. Although this section is relevant to cases of property that are actually sold by a person. It can still be a guiding factor to evaluate the actual market value of a property in any locality. The property of the assessee is in a prime location in Jamnagar and the rate of Rs. 24.57 per sq.meter as adopted by the AO is by no stretch of imagination the correct rate of valuation.

3. Uniform value has been adopted by the AO for all the ten assessment years which is not adequate. The valuation should have been done separately for every assessment year and separate valuation rate should have been adopted for each assessment year as on the last date of each assessment year. It is no secret knowledge that land rates have steadily but steeply risen all over the country during the period 2001-2007. It is not acceptable that the value of the land remained constant through all these years.

4. The AO should have referred valuation of the land to the valuation cell for valuation of the land distinctly and separately for each assessment year. The valuation by the Valuation Officer which is advisory in nature should have been judged in proper perspective taken into account any other relevant aspect in the facts and circumstances of the case in order to reach at the correct and practically acceptable price of the land.

5. The AO should have gathered information from the stamp valuation authority, the prices at which properties in identical type of location in Jamnagar have been sold during the relevant periods to have an idea of the actual existing market prices in Jamnagar for such property and after taking into account other relevant aspects in the distinctive facts of the case should have arrived at an acceptable conclusion regarding the correctness of the market price of the land.

It is clearly apparent that there should have been better application of mind during the assessment proceedings. In the light of the above observation it is clear that the assessment order passed by the AO is erroneous and prejudicial to the interests of the revenue as the property of the assessee is in a prime location is Jamnagar and the rate of Rs. 24.57 per sq.mtr as adopted by the AO is by no stretch of imagination the correct rate of valuation.

In view of the above facts, the assessment made in respect ofthe AYs. 1999-2000 to 2009-10 are hereby cancelled and the AO is directed to make fresh assessment in the cases of these assessment years in accordance with the above discussions.”

4. This order of the Commissioner gave rise to the assessee filing appeals before the Tribunal. The Tribunal, by the impugned judgement, allowed the appeals primarily on the ground that any order that the Commissioner may pass under sub section (2) of Section 25 of the Act cannot have the effect of reversing the order passed under Section 25(1) of the Act. Some of the observations of the Tribunal would suggest that according to the Tribunal, once the order is passed by the Commissioner under Section 25(1) of the Act, his jurisdiction to pass any further order under sub section (2) would virtually come to an end.

5. Relevant portion of Section 25 of the Act reads as under: 25 Powers of Commissioner to revise orders of subordinate authorities.

(1) The Commissioner may, either of his own motion or on application made by an assessee in this behalf, call for the record of any proceeding under this Act in which an order has been passed by any authority subordinate to him, and may make such inquiry, or cause such inquiry to be made, and, subject to the provisions of this Act, pass such order thereon, not being an order prejudicial to the assessee, as the Commissioner thinks fit: Provided that the Commissioner shall not revise any order under this sub-section in any case-

(a) where an appeal against the order lies to the [Deputy Commissioner (Appeals)] [or to the Commissioner (Appeals)] or to the Appellate Tribunal, the time within which such appeal can be made has not expired or in the case of an appeal [to the Commissioner (Appeals) or] to the Appellate Tribunal the assessee has not waived his right of appeal;

(b) where the order is the subject of an appeal before the [Deputy Commissioner (Appeals)] [or the Commissioner (Appeals)] or the Appellate Tribunal;

(c) where the application is made by the assessee for such revision, unless-

(i) the application is accompanied by a fee of twenty-five rupees; and

(ii) the application is made within one year from the date of the order sought to be revised or within such further period as the Commissioner may think fit to allow on being satisfied that the assessee was prevented by sufficient cause from making the application within that period; and

(d) where the order is sought to be revised by the Commissioner of his own motion, if such order is made more than one year previously. Explanation. For the purpose of this sub-section,

Expalanation:- For the purpose of this sub section-

(a) the [Deputy Commissioner (Appeals)] shall be deemed to be an authority subordinate to the Commissioner; and

(b) an order by the Commissioner declining to interfere shall be deemed not to be an order prejudicial to the assessee.

(2) Without prejudice to the provisions contained in sub- section (1), the Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by [an Assessing Officer] is erroneous insofar as it is prejudicial to the interests of revenue, he may, after giving the assessee an opportunity of being heard, and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment or cancelling it and directing a fresh assessment.

6. Upon perusal of the said provision, it can be seen that under sub section (1) of Section 25, the Commissioner has the power either of his own motion or on application made by the assessee to call for record of any proceeding of any order passed by the authority subordinate to him and after carrying out such inquiry, as may be necessary, pass such order as he thinks fit, not being an order prejudicial to the assessee. Thus, under sub section (1) of section 25, the Commissioner has revisional powers with limitation that any order that he may pass in exercise of such powers, would not be prejudicial to the assessee. On the other hand, under sub section (2) of Section 25, the Commissioner has the power to call for and examine record of any proceeding and after carrying out such inquiry, has found necessary to pass such order as the circumstance may justify included an order enhancing or modifying the assessment or cancelling it and directing a fresh assessment if he considers that the order passed by the Assessing Officer is erroneous, insofar as it is prejudicial to the interest of the Revenue. Sub section (2) of Section 25 starts with the expression “without prejudice to the provisions contained in sub section (1)”. Thus, the sphere of operation of sub section(1) and sub section (2) of Section 25 are entirely different. Under sub section (1), the Commissioner has power to revise the order either of his own motion or at the instance of the assessee but the same would not be prejudicial to the interest of the assessee. Under sub section (2) of Section 25, subject to fulfillment of the requirements of the order being erroneous insofar as it is prejudicial to the interest of the Revenue, the Commissioner has wide power of revision which would include setting aside the order, directing fresh assessment or enhancing or modifying the assessment. Therefore, it would be incorrect to suggest as a blanket proposition that the moment the Commissioner exercises his powers under sub section (1) of Section 25, his authority, to act under sub section (2) comes to an end. Any such view would completely ignore expression “without prejudice to the provisions contained in sub section (1)” used in sub section (2) of Section 25. To that extent, we may not be able to accept the view of the Tribunal.

7. In the present case, however, facts are such as would dissuade us from entertaining the tax appeals. As noted, in earlier rounds twice at the instance of the assessee, Commissioner, in exercise of powers under sub section (1) of Section 25, had directed the Assessing Officer to carry out fresh valuation of the lands of the petitioner on the basis of the directions given by CWT (Appeals) in case of the assessee himself for the assessment year 1992-93. It was pursuant to such directions that the Assessing Officer had carried out fresh valuation. This order, the Commissioner desired to take in revision under sub section (2) of Section 25. Essentially therefore, his exercise of such powers would encroach on the earlier directions given by the Commissioner while disposing of assessee's revision petitions under sub section (1) of Section 25. Surely sub section (2) of Section 25 does not envisage any authority in the Commissioner to revise his own order passed under sub section (1) of Section 25.

8. For such reasons, tax appeals are dismissed.

(AKIL KURESHI, J.)

(A.J. SHASTRI, J.)