Section 263 of
the Act confers the power upon the Principal
Commissioner or Commissioner to call for and
examine the records of a proceeding under the Act and revise any order if he
considers the same to be erroneous and prejudicial to the interests of the
revenue.
Analysis of the provision
Sub-Section
(1) to Section 263 starts with the words “the Principal Commissioner or
Commissioner may call for any record and examine the record of any proceeding”.
There are 3 essential ingredients of this part.
Firstly, that “the Principal
Commissioner or Commissioner may call for”. Therefore it is the absolute
discretion of the Principal Commissioner or Commissioner to revise an order
passed by the Assessing Officer. He need not take the permission of any
authority/court for exercising his powers. The condition precedent is that he
has to apply his own mind and come to a definite conclusion, which has to be an
independent act and not act on the directions of the CBDT or any other
authority. – [See Sirpur Paper Mill Ltd.
v CWT (77 ITR 6) (SC) and CIT, Shimla v. Green
world Corporation (2009) 314 ITR 81 : 7 SCC 69 (SC)]
Secondly, “record” has been given
a wide connotation to mean not only the record before the Assessing Officer
during scrutiny proceedings, but also any such material/information coming into
the possession of the CIT even after the passing of the Assessing Officer’s
order, if such record/information conclusively proves the Assessing Officer’s
order is erroneous in so far as prejudicial to the interest of the revenue.
Thirdly, he can exercise such
discretion in relation to “any order” passed by the Assessing Officer. Such
order has been construed as not necessarily an order passed under section 143(3).
Example an order rejecting the registration of a firm or; dropping the
assessment proceedings even though a return has not been filed. Once an order
passed by the Assessing Officer has attained finality meaning thereby it
affects the rights of an assessee, the Principal Commissioner or Commissioner has
the authority to revise any such order.
Requirement for
assuming revisional jurisdiction under section 263
The
Principal Commissioner or Commissioner can exercise power of revision under
section 263 if the following factors are present :
(1) there are any proceedings under the Act,
(2) the assessing officer has passed an order
in such proceedings, and
(3) the
Principal Commissioner or Commissioner is of the opinion that such order is
erroneous and
prejudicial to the interest of the
revenue.
There must exist an written
order, which is sought to be revised by the Commissioner.
[1] There
are any proceedings under the Act
The Principal Commissioner or
Commissioner may call for and examine the record of any proceeding under this
Act, and if he considers that any order passed therein by the Assessing
Officer is erroneous in so far as it is prejudicial to the interests of the
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 the assessment and
directing a fresh assessment.
Any
issue, which Assessing Officer has not considered in the assessment under
section 143 (3) r.w.s. 147, can be brought to life by Commissioner in exercise
of his powers under section 263. – [Spencer
& Co. Ltd. v. ACIT (2012) 137 ITD 141 (ITAT Chennai)]
[2] The assessing officer has passed an order
in such proceedings
Section 263 is not limited to
exercising revisional powers qua order of assessment only; it would take within
its sweep even orders wherein either proceedings are dropped or proceedings are
filed
Gujarat High Court in case of New Jagat Textile Mills (P) Ltd. v. CIT,
held as under:
(a) Section 263 of the Income-tax Act, 1961, empowers the Commissioner to
take up for consideration 'any order passed' in any proceedings under the Act.
In these circumstances, it is not possible to read the provisions as being
limited to exercising revisional powers qua order of assessment only. It would
take within its sweep even the orders wherein either the proceedings are
dropped or the proceedings are filed.
(b) Therefore, once the twin conditions for exercise of jurisdiction
under section 263 of the Act were shown to be fulfilled, the Commissioner was
perfectly justified in taking action under the said provisions and exercising
his revisional powers." – [New Jagat
Textile Mills (P) Ltd. v. CIT (2006) 282 ITR 399 (Guj)]
Words
'any order’ under section 154 vs. 'the order’ under section 263
The words 'any order' in section
154(1)(a) would mean even the reassessment order under section 147. It cannot
be stated that both the expressions, 'any order' and 'the order', as occur in
sections 154 and 263 respectively, would have the same meaning. The word 'the'
clearly denotes the specific order, while the word 'any' would mean any order
passed by the Income-tax Authority. – [Rastriya
Ispat Nigam Ltd. v. ACIT (2015) 377 ITR 420 (AP)]
The
order passed by the authority, which is subordinate to the Commissioner, to
give effect to the orders of the Tribunal is covered under the phrase “any
order”. Thus, invoking of power of revision under Section 263 by the
Commissioner is within the permissible limits of the law. – [Pentamedia
Graphics Ltd. v. ACIT (2012) 17 ITR 302 (ITAT Chennai)]
The word 'order' mentioned in
section 263 which can be the subject-matter of revision by the Commissioner
would mean an order determining the rights and liabilities of the assessee
under the Act. – [Smt. Bhartiben M.
Kelawala v. CIT (2011) 128 ITD 4 (ITAT Ahmedabad)]
There
cannot be revision of a non-existing order and where there is no order either
for levy or waiver of interest under section 158BFA(I) or section 234A, 234B or
234C of Act in existence, Commissioner can have no jurisdiction to invoke
provisions of section 263 for directing Assessing Officer to charge interest
under section 158BFA(1) – [Anand Kumar Agarwal (HUF) v. ACIT
(2005) 92 TTJ 81 (ITAT Agra)]
[3] Provisions of section 263 can be invoked only
when the twin conditions are satisfied i.e. order should be both erroneous
and prejudicial to the interest of the Revenue
It is a well settled law that to invoke the provisions
of section 263 both the conditions that the order must be erroneous and
prejudicial to the interest of Revenue must be satisfied.
Provisions of section 263 reads –
“(1) The Principal
Commissioner or Commissioner may call for and examine the record of any
proceeding under this Act, and if he considers that any order passed therein by
the Assessing Officer is erroneous in so far as it is prejudicial to the interests of
the revenue.
Twin conditions
The
Commissioner gets power of revision under Section 263 where the assessment order
is erroneous and prejudicial to the interest of revenue. The twin conditions
are required to be satisfied simultaneously. – [S. Murugan v. ITO (2012)
135 ITD 527 (ITAT Chennai), J. K. Construction Co. v. ITO (2007) 162 Taxman 46
(ITAT Jodhpur)]
It was held that the Commissioner
would assume jurisdiction under section 263 only when both the conditions,
namely, the order passed by the assessing officer was erroneous and the same
was prejudicial to the interest of the revenue were fulfilled and if the order
was not prejudicial, the powers under section 263 could not be invoked. – [Surender Kumar Madan, Prop. Diamond Service
Station v. ITO (2004) 179 Taxation 19 (ITAT Jabalpur)]
Commissioner required to decide the
issue before determining the assessment order as erroneous and unsustainable in
law – Order of Commissioner set aside
Commissioner
invoked revisionary jurisdiction under Section 263 of the Act setting aside the
assessment and directed Assessing Officer to make a fresh assessment as he did
not make an enquiry about the AIR information received regarding cash deposits
made in the bank account of the assessee. Tribunal found that Commissioner had
not concluded on the issue of inadequacy of cash in hand but required the
Assessing Officer to do so. Tribunal held that Commissioner required to decide
the aspect one way or the other before he could determine that the assessment
order was erroneous. The initiation of proceedings under Section 263 of the Act
were inconsistent with the requirement of Section 263(1) of the Act and
therefore set aside by the Tribunal. (Related Assessment year : 2009-10) – [Adishwar K. Jain v. CIT (2019) 201 TTJ 77 :
181 DTR 29 : 52 CCH 606 (ITAT Mumbai)]
Conditions
precedent - Where order under section 263 passed by CIT suffers from one of
twin conditions, that order was prejudicial but not erroneous, the same could
not give CIT power to invoke jurisdiction under section 263 as order of
Assessing Officer must be prejudicial as well as erroneous both
Assessment of
assessee was completed under section 143(3) where under total income of
assessee was determined. CIT on examining relevant record opined that
assessment made by Assessing Officer was erroneous and prejudicial to the
interests of Revenue. CIT felt that Assessing Officer did not scrutinize
reasons for reduction of assessee's income which got down by 50 per cent,
compared to immediately preceding assessment year and did not examine
arrangement of leasing out of godowns to two trusts. Tribunal held that CIT
failed to bring out specifically any material into record disclosing any error
in assessment order of Assessing Officer prejudicial to interests of revenue.
Held: While exercising jurisdiction suo motu under section 263 CIT had to be
satisfied with two conditions, namely, (i) that order of Assessing Officer
sought to be revised was (i) erroneous; and (ii) it was also prejudicial to the
interest of revenue. Foremost requirement that order must be erroneous for
invoking revisional jurisdiction under section 263 by CIT, had not been
satisfied in the instant case. Once order was not found erroneous, CIT was
denuded of his power to invoke section 263 to revise assessment order. – [CIT v. V. Dhana Reddy & Co. (2018) 407
ITR 96 (AP)]
The ITAT in the case of Khatiza S. Oomerbhoy v. ITO,
analysed in details various authoritative pronouncements including the decision
of the hon'ble Supreme Court in the case of Malabar Industries Co. Ltd.
v. CIT (2000) 243 ITR 83 (SC) and propounded the following broader tests :
(i) The
Commissioner of Income-tax must record satisfaction that the order of the
Assessing Officer is erroneous and prejudicial to the interest of the Revenue.
Both conditions must be fulfilled.
(ii) Section 263 cannot be invoked to correct
each and every type of mistake or error committed by the Assessing Officer and
it was only when an order is erroneous that the section will be attracted.
(iii) An incorrect assumption of facts or an
incorrect application of law will suffice the requirement of order being
erroneous.
(iv) If the order is passed without application
of mind, such order will fall under the category of erroneous order.
(v) Every loss of revenue cannot be treated as
prejudicial to the interests of the Revenue and if the Assessing Officer has
adopted one of the courses permissible under law or where two views are possible
and the Assessing Officer has taken one view with which the Commissioner of
Income-tax does not agree. It cannot be treated as an erroneous order, unless
the view taken by the Assessing Officer is unsustainable under law.
(vi) If while making the assessment, the
Assessing Officer examines the accounts, makes enquiries, applies his mind to
the facts and circumstances of the case and determine the income, the
Commissioner of Income-tax, while exercising his power under section 263 is not
permitted to substitute his estimate of income in place of the income estimated
by the Assessing Officer.
(vii) The Assessing Officer exercises quasi
judicial power vested in his and if he exercises such power in accordance with
law and arrive at a conclusion, such conclusion cannot be termed to be
erroneous simply because the Commissioner of Income-tax does not fee stratified
with the conclusion.
(viii) The Commissioner of
Income-tax, before exercising his jurisdiction under section 263 must have
material on record to arrive at a satisfaction.
(ix) If the Assessing Officer has made enquiries
during the course of assessment proceedings on the relevant issues and the
assessee has given detailed explanation by a letter in writing and the
Assessing Officer allows the claim on being satisfied with the explanation of
the assessee, the decision of the Assessing Officer cannot be held to be
erroneous simply because in his order he does not make an elaborate discussion
in that regard. – [Khatiza S. Oomerbhoy v. ITO (2006)
100 ITD 173 (ITAT Mumbai)]
Section 263 CIT must show that view taken by Assessing
Officer is wholly unsustainable in law
Revisional
Commissioner is expected show that the view taken by the Assessing Officer is
wholly unsustainable in law before embarking upon exercise of revisionary
powers. The revisional powers cannot be exercised for directing a fuller
inquiry to merely find out if the earlier view taken is erroneous
particularly when a view was already taken after inquiry.
If such course of action as interpreted
by the Revisional Commissioner in the light of the Explanation 2 is permitted,
Revisional Commissioner can possibly find fault with each and every assessment
order without himself making any inquiry or verification and without
establishing that assessment order is not sustainable in law.
This would inevitably mean that
every order of the lower authority would thus become susceptible to Section 263
of the Act and, in turn, will cause serious unintended hardship to the tax
payer concerned for no fault on his part. Apparently, this is not intended by
the Explanation.
Howsoever wide the scope of
Explanation 2(a) may be, its limits are implicit in it. It is only in a very
gross case of inadequacy in inquiry or where inquiry is per se mandated
on the basis of record available before the Assessing Officer and such inquiry
was not conducted, the revisional power so conferred can be exercised to
invalidate the action of Assessing Officer. The Assessing Officer in the
present case has not accepted the submissions of the assessee on various issues
summarily but has shown appetite for inquiry and verifications.
The Assessing Officer has passed the
order in great detail after making several allowances and disallowances on the
issues involved impliedly after due application of mind. Therefore, the
Explanation 2 to Section 263 of the Act do not, in our view, thwart the
assessment process in the facts and the context of the case. Consequently, we
find that the foundation for exercise of revisional jurisdiction is sorely
missing in the present case.
Resultantly, the order of the PCIT
passed under section 263 of the Act is set aside and cancelled and the order of
the Assessing Officer under 143(3) is restored. (Related Assessment Year :
2014-15) - [Torrent Pharmaceuticals Ltd v. DCIT - Date of Judgement :
08.08.2018 (ITAT Ahmedabad)]
Before
taking any action under section 263, Commissioner must record his satisfaction;
issuance of notice on basis of proposal made by ITO is void ab-initio
It was held that The CIT had not
applied his mind but the matter was referred by the Assessing Officer for
initiating the proceeding under section 263 of the Act. It is noticed that the notice under section
263 of the Act was issued only on receipt of the proposal under section 263 of
the Act from the ITO. and the assessee explained, vide written submission which
has been reproduced. It is well-settled that the learned CIT while exercising
the revisionary powers under section 263 of the Act may call for and examine
the records of any proceedings and thereafter if he considers that any order
passed therein is erroneous insofar as it is prejudicial to the interest of the
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. Therefore, before
taking any action, learned CIT himself shall apply his mind after examining the
record of any proceedings and his satisfaction is must. However, the
satisfaction was of the Assessing Officer who proposed action under section 263
of the Act, but not of the learned CIT. Therefore, issuance of notice under
section 263 of the Act on the basis of the proposal made by the ITO was void ab
initio; therefore, the matter was set aside. (Related Assessment year 2008 09)
– [Dharmendra Kumar Bansal v. CIT (2014)
161 TTJ 801 : (2015) 152 ITD 406 : 48
taxmann.com 53 (ITAT Jaipur)]
Revision
of orders prejudicial to revenue – Restricted to directions given – Assessing
Officer cannot go beyond the direction
Commissioner exercised its
revisional jurisdiction and directed Assessing Officer to determine income from
one of assessee’s business. Held, since revision order was confined to one of
the businesses of the assessee and bereft of any discussion regarding the other
business, the Assessing Officer was not justified in conducting enquires about
such other business. On writ the court held that Assessing Officer annot go
beyond the direction. (Related Assessment year : 2006-07) – [Shobha Govil (Smt.) v. Addl. CIT (2013) 354
ITR 668 : 218 Taxman 30 (Mag.)(All)]
Commissioner cannot simply remand
the matter back to the Assessing Officer
The CIT cannot remand the matter to
the Assessing Officer for further enquiries or to decide whether the findings
recorded are erroneous without a finding that the order is erroneous and how
that is so. A mere remand to the Assessing Officer implies that the CIT has not
decided whether the order is erroneous but has directed the Assessing Officer
to decide the aspect which is not permissible. – [ITO v. DG Housing Projects (2012) 343
ITR 329 (Del)]
In absence of any
finding that there is loss of revenue, interference under section 263 is not
justified
The
finding of the Commissioner that the deductions were required to be given on
account of the impurities and change of fashion, it is clear that even he did
not regard the market rate as one that was required to be adopted. He has not
found that the rate actually adopted is less than the one that should have been
adopted. In the absence of any finding that there is loss of revenue,
interference under Section 263 of the Act was not justified. – [CIT v. G. R.
Thangamaligai (2003) 259 ITR 129 : 185 CTR 560 (Mad)]
Order for which
revision is taken up should be in existence and served
An
order passed by the Assessing Officer must be in existence. The Commissioner is
not empowered under section 263 to direct the Assessing Officer to pass an
order. – [P.P. Dinwala v. CIT (1995) 78
Taxman 421 (Cal.)]
The assessee, M/s. Kashi Nath
& Co., is a partnership firm. The firm was doing sarafa and pawning
business. For the assessment year 1975-76, the Income-tax Officer determined
its income at Rs. 77,599, There was no appeal to the Appellate Assistant
Commissioner but the Commissioner of Income-tax in exercise of his power under
Section 263 of the Income-tax Act set aside the assessment order and directed
the . Income-tax Officer to redo the assessment. But the appeal against the
said order of the Commissioner has been allowed by the Tribunal. The Tribunal
has observed that the Commissioner has not given his reasons for his conclusion
that the order of assessment was prejudicial to the interests of the Revenue.
In our opinion, the conclusion of the Tribunal is unassailable.
It will be seen from the above
order that the Commissioner did not examine the various cash credits said to be
appearing in the names of different ladies which were said to have escaped the
attention of the Income-tax Officer. He only complained of the order of the
Income-tax Officer for not examining the details of the credits appearing in
various names. What those details required to be examined were have not been
set out. There is thus absolutely no reason in support of the conclusion of the
Commissioner that the assessment order was erroneous and prejudicial to the
interests of the Revenue.
The
power of the Commissioner under Section 263 is quasi-judicial in character. He
must give reasons in support of his conclusion that the assessment order is
erroneous in so far as it is prejudicial to the interests of the Revenue. If he
does not give reasons, the order would be vitiated. This was the view taken by
this court in the case of J. P. Srivastava & Sons Ltd. v. CIT (1978) 111 ITR
326 (All) and CIT v. Sunder Lal (1974) 96 ITR 310 (All). In the instant case,
since the Commissioner has not applied his mind to the relevant material on
record and has not given reasons for his conclusions that the assessment order
was prejudicial to the interest of the Revenue, the Tribunal was justified in
reversing that order. (Related Assessment year : 1975-76) – [CIT v. Kashi Nath & Co. (1988) 170 ITR
28 (1987) 64 CTR 177 : 33 TAXMAN 577 (All)]
Order
could not be said to exist unless communicated to the party
An
order passed by the Assessing Officer is not effective till it is served on the
assessee. Therefore, where the assessment order was passed but was not served
it could not be made the subject of proceedings under section 263. – [Smt. Jijeebai Shinde v. Commissioner of
Gift-Tax (1986) 157 ITR 122 (MP)]
No comments:
Post a Comment