The assessment order cannot be said to be prejudicial to the interests of revenue merely because the Assessing Officer has made it in accordance with one of two legally permissible methods when the adoption of the other method might have resulted in collection of larger revenue. The Explanation to section 263(1) defines record to include all records relating to any proceeding under this Act available at the time of examination by the Commissioner. Courts have taken the view that the word record has far reaching implications and it cannot be confined to the record of the assessees case but would include records relating to any proceeding under the Act. In CIT v Vallabhdas Vithaldas ((2002) 123 Taxman 110), the facts were that before completion of assessments in respect of the assessees (husband and wife), a search operation under section 132 had been carried out at the residential premises of G, son of the assessees. During the search operation, cash, gold ornaments and jewellery were found. Some of the seized assets were claimed to be belonging to the assessees. After completion of the assessment in case of the assessees, the Commissioner noticed that the Assessing Officer had not taken into consideration the statements of G and other persons recorded at the time of search. The Commissioner set aside the assessment order and directed the Assessing Officer to make fresh assessment in accordance with law after giving reasonable opportunity of being heard to the assessees.
On appeal, the Tribunal held that the statements in question did not form part of the records of the assessees and, therefore, the Commissioner could not have invoked the power of revision under section 263. It observed that the word therein was an obvious reference to the record of the proceedings. Therefore, it was necessary that the basis of intervention by the Commissioner should be part of the records in the assessment proceedings of the assessees. On a reference, the Gujarat High Court held that the legislative amendments to section 263, particularly by way of Explanation as inserted by the Finance Act, 1988, and the further amendment therein by the Finance Act, 1989, have put the controversy beyond any doubt. Upset by the narrow judicial interpretation of the word record in section 263(1), the Legislature stepped in to eliminate litigation and to clarify the legislative intent in respect of the provisions in the three Direct Tax Acts. In the statement of objects and reasons to the Finance Act, 1988, it was stated that the proposed amendments were intended to make it clear that record would include all records relating to any proceedings under the concerned direct tax laws available at the time of examination by the Commissioner. Even, thereafter, a doubt was raised and some of the appellate authorities took the view that the Explanation inserted by the Finance Act, 1988, was applicable to the orders which were passed by the Commissioner after 1st June, 1988, when the Finance Act, 1988, came into force. The Legislature again stepped in through the Finance Act, 1989, so as to clarify that the provisions of the Explanation to section 263(1) should be deemed to have always been in existence.
The High Court relied on the decision of the Supreme Court in CIT v Shree Manjunathesware Packing Products & Camphor Works (231 ITR 53) in which it was held that the revisional power conferred on the Commissioner under section 263 is of wide amplitude. It enables the Commissioner to call for and examine the record of any proceeding under the Act. It empowers the Commissioner to make or cause to be made such enquiry as he deems necessary in order to find out if any order passed by the Assessing Officer 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 enquiry, if he considers the order to be erroneous, then he can pass the order thereon as the circumstances of the case justify. As a result of the enquiry, he may come into possession of new material and he would be entitled to take that new material into account. If the material, which was not available to the Assessing Officer when he made the assessment could thus be taken into consideration by the Commissioner after holding an enquiry, there is no reason why the material which had already come on record, though subsequent to the making of the assessment, cannot be taken into consideration by him.
The Gujarat High Court held that the aforesaid ratio laid down by the apex Court gave the widest meaning to the word record. It is also pertinent to note that while section 263(1) uses the word record, the Explanation goes further and states that the record includes all records relating to any proceeding under this Act. The use of the plural records and relating to any proceeding under this Act does not permit any limitation being placed on the power of the Commissioner that the power under section 263(1) can be exercised only on the basis of the statements which are recorded in the course of search and seizure operations in respect of the very assessee and not in respect of any other person. According to the Court, the exercise of power by the Commissioner under section 263(1) is obviously in respect of the assessees case, but, for the purpose of exercising that power, the examination by the Commissioner is not required to be confined to the record of that assessees case, as such record could be any record relating to any proceeding under the Act. There is nothing in the provisions of section 263(1) to take a narrow view of the powers of the Commissioner.