The scheme of the Act has provided different powers to different authorities and these are required to be exercised after satisfying the pre-requisite conditions and jurisdictional facts. The Assessing Officer can disturb/reopen a finalised assessment by invoking his powers either under section 154 or under section 147 provided he can show that the necessary requirements are fulfilled. If, what the revenue contends is accepted, these and other such provisions which empower different authorities to exercise jurisdiction at different points of time in distinct settings would be rendered otiose and that can never be the legislative intent. Therefore, in proceedings to give effect to an order under section 263 the Assessing Officer cannot be permitted to undertake an exercise not warranted by the legislative scheme. The operative part of the order under section 263 had to be read in the context of what had preceded, namely, the discussion in the revision order, and both the notice and the order under section 263 had to be read as a whole.
Only in cases where assessment order is erroneous
and prejudicial to interests of revenue and not prejudicial to interest of
assessee, assessment can be reopened under section 263 and, thus, assessee is
not eligible to claim any new benefit in assessment proceedings pursuant to
section 263
The assessee, a public
limited company, filed its return admitting an income of Rs. 1.04 crore and the
same was processed under section 143(1). The assessee had also filed revised
return of income admitting an additional income of Rs. 2.54 crore. Subsequently,
the case was selected for scrutiny and the assessment was completed under
section 143(3) determining the total income at Rs. 1.28 crore as per the normal
provisions of the Act and book profits at Rs. 1.74 crore under section 115JA.
After perusing the assessment order passed under section 143(3), the
Commissioner issued a show-cause notice under section 263 to the assessee as he
was of the opinion that the order passed under section 143(3) was erroneous and
prejudicial to the interest of the revenue on several grounds. After verifying
the submissions made by the assessee, the Commissioner set aside the assessment
order passed under section 143(3), with a direction to the Assessing Officer to
redo the assessment after re-examining the issues involved and taking into
account all the facts on record. Consequent to the order of the Commissioner
under section 263, the Assessing Officer passed the assessment order under
section 143(3), read with section 263 making an addition of Rs. 6,61,951 as
long-term capital gain. Against said order, the assessee filed an appeal before
the Commissioner (Appeals). During the appellate proceedings, the assessee
raised an additional ground stating that while computing the book profit under
section 115JA, the net profit should have been reduced by the amounts credited
to the profit and loss account on account of withdrawal from the provisions
made, which had not been allowed in the earlier years. The aforesaid additional ground of appeal was forwarded to the
Assessing Officer for his examination and comments. The Assessing Officer vide his
remand report submitted that additional ground raised by the assessee could be
admitted and the claim was allowable in view of the provisions of section
115JA. On the basis of the remand report from the Assessing Officer, the
additional ground was admitted by the Commissioner (Appeals) and the claim of
the assessee was also allowed with a direction to the Assessing Officer to
recompute the book profit as per the revised claim of the assessee. On
revenue’s appeal :
It was undisputed fact that the assessee
filed additional ground of appeal before the Commissioner (Appeals), stating
that while calculating book profit under section 115JA, the net profit should
be reduced by the amount of provision for doubtful debts and withdrawal from
provision for doubtful advances, which had not been allowed in the earlier
years. The assessee did not claim the said deduction while calculating the book
profit under section 115JA in the return of income filed originally and also in
the revised return of income filed. It was evident from the assessment records
that the original assessment was set aside under section 263 by the
Commissioner for verification of specific issues which were stated to have been
prejudicial to the interest of the revenue and the assessment was set aside for
examination of those specific points. Hence, the claim of the assessee stating
that while computing the book profit under section 115JA, the net profit ought
to have been reduced by the amount which was credited to the profit & loss
account on account of withdrawals from the provisions made, could not be
entertained at the stage of assessment proceedings pursuant to the order under section 263. In the
assessment proceedings pursuant to the order under section 263, the assessee
cannot seek to show that there was some other benefit in favour of the revenue
which was prejudicial to the interest of the assessee. The words ‘erroneous
insofar as they are prejudicial to the interests of the revenue’ have to be
taken together and are required to be widely construed. The power of the
Commissioner under section 263 is restricted only to the errors so far as they
are prejudicial to the interest of the revenue and if there is any other error,
it is for the assessee to take up the issue in other appropriate proceedings.
In view of the above, since the present order was made consequent to the order
of the Commissioner passed under section 263 directing the Assessing Officer to
redo the assessment only for a specific issue involved therein, the assessment
made pursuant to section 263 was only for the benefit of the revenue and not
for the assessee. Only in the cases where the assessment order is erroneous and
prejudicial to the interests of the revenue and not prejudicial to the interest
of the assessee, assessment can be reopened under section 263 and the assessee
is not eligible to claim any new benefit in the assessment proceedings pursuant
to section 263. Hence, the Commissioner (Appeals) was not justified in allowing the aforesaid claim of the
assessee while computing the book profit under section 115JA. In the result,
the appeal filed by the revenue was to be allowed. [In favour of
revenue] (Related Assessment year : 2000-01) - [ACIT
v. ITW India (P) Ltd. (2010) 40 SOT 348 (ITAT Hyderabad)]
Unlike
re-assessment under section 148, in fresh assessment pursuance to 263 order
entire assessment is not opened before the Assessing Officer
Revision
under section 263 is not like reopening of assessment where once assessment is
reopened entire assessment is open before Assessing Officer to be reconsidered
in accordance with law. In revision proceedings, Commissioner cannot travel
beyond reasons given by him for revision in show-cause notice. (Related Assessment
year : 2003-04) - [Geometric Software
Solutions Co. Ltd. v. ACIT (2009) 32 SOT 428 (ITAT Mumbai)]
Assessing
Officer can consider only those grounds regarding which direction
was given by the Pr. CIT / CIT in 263 order and can make fresh assessment
on said grounds only
The assessee was carrying on the proprietary business of exhibition of 16 mm films on non-commercial basis and also business of manufacturing and sale of the projector spare parts. He filed return of income for the assessment years 1979-80 to 1983-84. The Assessing Officer completed the assessment of the assessee. Thereafter, the Commissioner issued a show-cause notice under section 263 on the ground that the total investment in the films including cost of extra prints was not considered properly by the Assessing Officer and that the write off of the cost of the films was wrongly allowed in the assessments. After hearing the assessee, the Commissioner passed an order under section 263 setting aside the assessment order with a direction to the Assessing Officer to look into the above-mentioned aspects and to redo the assessments as per law. The Assessing Officer framed fresh assessment and made additions and disallowances beyond the aforesaid two issues which were taken up in revisional proceedings by the Commissioner. On appeal, the Commissioner (Appeals) confirmed the assessment orders. On second appeal, the Tribunal held that in the fresh assessment order passed in pursuance of the order of the Commissioner under section 263, the ITO was entitled to consider only those two issues which were considered by the Commissioner and was not entitled to consider afresh any other item for making addition.
The
Tribunal was, therefore, right in holding that the
operative part of the order under section 263 had to be read in the context of
what had preceded, namely, the discussion in the revision order, and both the
notice and the order under section 263 had to be read as a whole. That the
direction to the Assessing Officer to redo the assessments was after looking
into the aspects discussed by the Commissioner in his order and the directions
made in the body of the order. The sentence recorded in the revisional order
could not be read in isolation, nor could it be read by omitting a certain
portion of the sentence so as to mean that the Assessing Officer was entitled
to process further items while giving effect to the order under section 263. Powers of revision can be exercised only by
Commissioner and, therefore, Assessing Officer cannot, under guise of framing
fresh assessment, exercise said powers in relation to other items forming part
of assessment record. Therefore, Assessing Officer while passing fresh
assessment order in pursuance of an order of Commissioner under section 263, is
entitled to consider only such items which had been considered by Commissioner,
and he cannot consider any other item afresh for making additions. The Tribunal was, therefore, justified in
holding that the Assessing Officer had travelled beyond his jurisdiction. [In
favour of revenue] (Related Assessment years : 1979-80
to 1983-84) - [CIT v.
D. N. Dosani (2006) 280 ITR 275 : 153 Taxman 13 (Guj.)]
In pursuance of Commissioner’s direction under section 263 to make a fresh assessment, Assessing Officer’s duty to make assessment does not begin and end with carrying out directions of commissioner but his duty is something more, that is to determine correct taxable income - Therefore, where assessee made claim for consideration of an item for deduction during course of assessment proceedings carried out in pursuance of Commissioner’s direction under section 263, it was duty of Assessing Officer to examine said claim on merits
In
the instant case, it was a stronger case for the assessee as the ITO was
directed to determine the correct total income of the assessee according to law
and during those proceedings when the assessee made a claim, the ITO was bound
to consider the claim of the assessee. While considering such a claim, the
question of fulfilment of the conditions for rectification was not a sine qua
non and even if the conditions to rectify the mistakes were not present, the
ITO, should examine the claim of the assessee on the merits of the case. The
power of the ITO to make the assessment is derived from the statutory
provisions of section 143(3). Therefore, the refusal of the ITO even to
consider the claim of the assessee was not justifiable and both the Commissioner
(Appeals ) and the Tribunal were right in directing the ITO to consider the
claim of the assessee on the merits of the matter. Though, Tribunal was not
right in holding that the entire assessment order was set aside by the
Commissioner still the power of the ITO to consider the claim of the assessee
was neither curtailed nor taken away by the order of the Commissioner. The ITO
was bound to consider the claim of the assessee under section 143(3) when he
was in the final process of assessment in the determination of the total income
of the assessee as the assessment pursuant to the directions of the
Commissioner had not reached the stage of finality. The Central Board is more
liberal in its approach and directed the ITO to consider the claim of the statutory
deduction even when the assessee has not made such a claim (vide: Circular No.
14(XL-35) of 1955 dated 11.04.1955 - Chokshi Metal Refinery v. CIT (1997)
107 ITR 63 (Guj.), such an attitude of the ITO would instil confidence in
the minds of the taxpayer that his income would be properly determined and he
is not required to pay the tax, neither one paise more nor one paise less than
what is correctly and rightly due in accordance with and under the provisions
of the statute, In this view of the matter, the order of the Tribunal was
sustainable in law, though for different reasons. [In favour of assessee]
(Related Assessment year : 1974-75) - [CIT v. Geo Industries &
Insecticides (I) (P) Ltd. (1998) 234 ITR 541 : 147 CTR 426 (Mad.)]
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