[Opinion] Section 264 = “Power to do Complete Justice”

Dr (CA) Hemant O Sharma, Gopal C Mehta, Hardayal Singh (retd) & CA (Prof) Pradeep Kamthekar – [2024] 159 taxmann.com 630 (Article)

Introduction

The Income-tax Act 1961 is replete with provisions consciously incorporated to safeguard – some may say even overprotect – the interests of Revenue.

The design and depth of provisions available to Revenue to counter conscious tax-evasion are vast and lethal such that assessees shall be wiser and be at peace only when they remain completely tax-compliant.

We tax-practitioners now dread the law more than ever before, because of the draconian powers bestowed on Revenue, which find unduly strict enforcement. Very respectfully, we are reminded of Soli Dastur’s analogy with respect to one such provision — GAAR places a knife in the fickle hands of a monkey, the consequences of which will ensue sooner or later.

In this overall scenario, section 264 provides some relief. Although not the only provision of its kind, it is an equitable provision to safeguard the beleaguered assessee and demonstrates the legislative intent to empower the PCCIT/others (senior officers for short), “to do ‘complete justice’ between the parties where the law may not provide a remedy” in the circumstances, much like article 142 of the Constitution – to help reduce litigation.

The original intention behind this provision was to vest power in the hands of mature, experienced and wise tax administrators to correct any wrong suffered by a taxpayer. They would, the legislators felt, maintain the balance between the legitimate interests of the Revenue and those of the taxpayer and ensure that the system functioned equitably and fairly.

Regrettably, this hope remained a dead letter from the word go. In more than 125 years of total practice of your authors, we fail to recall a single instance where section 264 was invoked by senior officers, despite the fact that they are fully empowered toinitiate revision proceedings suo motu. The CBDT really needs to resurrect it.

It is equally true that we practitioners hardly take refuge in section 264, as it spells the end of the appellate road, though writ jurisdiction is still available.

It needs a mention that the same senior officers demonstrate undying enthusiasm, especially when instigated by audit observations, to invoke section 263, making it one of the most litigated sections of the Act.

The authors are left speculating whether absence of suo motu revision under section 264, is also the failure of audit. The senior officers are not entitled or empowered to remain ignorant or completely disregard orders, passed under their watch, that cause prejudice to assessees. It is more so as it is not the objective of audit to only flag orders prejudicial to interests of revenue. Correcting orders prejudicial to assessee is equally an audit imperative. Absent such audit, the fate of section 263 is left to imagination of the reader.

In the interest of justice, the senior officer should be required to explain under what legal interpretation of the merits of the order passed by AO, did he deem it fit to ignore his power, to revise “of his own motion”, and “pass such order…..not being an order prejudicial to the assessee, as he thinks fit.”

It is submitted that his performance evaluation be premised on his passing “of his own motion”, “such order…..not being an order prejudicial to the assessee, as he thinks fit”, that contributes not only to reducing litigation but ensuring fair play and justice and inspiring confidence in the department.

In our humble view, within the time allowed to file an appeal before CIT (A), he is not constrained from preemptively exercising revision “of his own motion”. It shall be a proactively responsible measure on the part of Revenue to correct its own wrongs.

Section 264 – salutary and celebratory provision

The section reads as follows:

Revision of other orders.

264. (1) In the case of any order other than an order to which section 263 applies passed by an authority subordinate to him, the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may, either of his own motion or on an application by the assessee for revision, call for the record of any proceeding under this Act in which any such order has been passed and may make such inquiry or cause such inquiry to be made and, subject to the provisions of this Act, may pass such order thereon, not being an order prejudicial to the assessee, as he thinks fit.

(2) The Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner shall not of his own motion reviseany order under this section if the order has been made more than one year previously.

(3)…….

(4) The Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner shall not revise any order under this section in the following cases—

(a) …

(b) …

(c) …

(5) … (6) … (7) …

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