The opening of assessment by
Commissioner of Income tax by invoking power of section 263 may have adverse
impact on the taxpayer & hence it is very important for tax professional to
have more information in this respect.
Revision of orders prejudicial to revenue.
263. (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, 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.
26[Explanation.—For the removal of doubts, it is hereby
declared that, for the purposes of this sub-section,—
(a) an
order passed 27[on or before or after the 1st day of June, 1988] by the
Assessing Officer shall include—
(i) an
order of assessment made by the Assistant Commissioner 28[or Deputy Commissioner] or the Income-tax Officer on the basis
of the directions issued by the 29[Joint] Commissioner under section
144A;
(ii) an
order made by the 29[Joint] Commissioner in exercise of the powers or in the
performance of the functions of an Assessing Officer conferred on, or assigned
to, him under the orders or directions issued by the Board or by the 29a[Principal
Chief Commissioner or] Chief Commissioner or 29a[Principal
Director General or] Director General or 29a[Principal
Commissioner or] Commissioner authorised by the Board in this behalf under section
120;
(b)
"record" 30[shall include and shall be deemed always to have included] all
records relating to any proceeding under this Act available at the time of
examination by the 29a[Principal
Commissioner or] Commissioner;
(c)
where any order referred to in this sub-section and passed by the Assessing
Officer had been the subject matter of any appeal 31[filed on or before or after the 1st day of June, 1988], the
powers of the 31a[Principal
Commissioner or] Commissioner under this sub-section shall extend 31[and shall be deemed always to have extended] to such matters as
had not been considered and decided in such appeal.]
32[(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the
financial year in which the order sought to be revised was passed.]
(3) Notwithstanding
anything contained in sub-section (2), an order in revision under this section
may be passed at any time in the case of an order which has been passed in
consequence of, or to give effect to, any finding or direction contained in an
order of the Appellate Tribunal, 33[National Tax Tribunal,] the High Court or the Supreme Court.
Explanation.—In computing the period of limitation for the purposes of
sub-section (2), the time taken in giving an opportunity to the assessee to be
reheard under the proviso to section
129 and any period during which any proceeding under this section
is stayed by an order or injunction of any court shall be excluded.
Thus,
the important finding of the above section
is that CIT must record the
reason that the order passed by AO is erroneous in so far as it is prejudicial to the interests of the
revenue.
Now
lets read the section 264.
Revision of other orders.
34264.
(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
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 35a[Principal Commissioner or] Commissioner shall
not of his own motion revise any order under this section if the order has been
made more than one year previously.
(3) In the case of an application for revision under this
section by the assessee, the application must be made within one year from the
date on which the order in question was communicated to him or the date on
which he otherwise came to know of it, whichever is earlier :
Provided that the 35a[Principal
Commissioner or] Commissioner may, if he is satisfied that the assessee was
prevented by sufficient cause36 from making the
application within that period, admit an application made after the expiry of
that period.
(4) The 36a[Principal
Commissioner or] Commissioner shall not revise any order under this section in
the following cases—
(a) where an appeal against the order lies37 to the 38[Deputy Commissioner
(Appeals)] 39[or to the
Commissioner (Appeals)] or to the Appellate Tribunal but has not been made and
the time within which such appeal may be made has not expired, or, in the case
of an appeal 40[to the Commissioner
(Appeals) or] to the Appellate Tribunal, the assessee has not waived his right
of appeal; or
(c) where the order42 has been made the 42subject of an appeal 40[to the Commissioner
(Appeals) or] to the Appellate Tribunal.
(5) Every application by an assessee for revision under this
section shall be accompanied by a fee of 43[five hundred] rupees.
44[(6) On every
application by an assessee for revision under this sub-section, made on or
after the 1st day of October, 1998, an order shall be passed within one year
from the end of the financial year in which such application is made by the
assessee for revision.
Explanation.—In computing the period of limitation for the purposes of this
sub-section, the time taken in giving an opportunity to the assessee to be
re-heard under the proviso to section 129 and any period during
which any proceeding under this section is stayed by an order or injunction of
any court shall be excluded.
(7) Notwithstanding anything contained in sub-section (6), an
order in revision under sub-section (6) may be passed at any time in
consequence of or to give effect to any finding or direction contained in an
order of the Appellate Tribunal, 45[National Tax
Tribunal,] the High Court or the Supreme Court.]
Explanation 1.—An order by the 45a[Principal
Commissioner or] Commissioner declining to interfere shall, for the purposes of
this section, be deemed not to be an order prejudicial to the assessee.
Explanation 2.—For the purposes of this section, the 46[Deputy Commissioner
(Appeals)] shall be deemed to be an authority subordinate to the 45a[Principal
Commissioner or] Commissioner.
The important finding
of the above section is that tax payer here time to file the appeal before CIT
is one year from the date of receipt of assessment order whereas in case
of CIT(A) u/s 246 is only one month.
Hence in case taxpayer not able to file appeal within time u/s 246 then he can
go for revision u/s 263.
Given below the latest
judicial decisions of various courts in respect of section 263 & 264 of the
act.
·
Errors
done by AO : In the case of
CIT .v. Goetze (India) Ltd., 361 ITR 505, it was held that Revision order was
held justified as the AO made error in computing income u/s.115JA and also
failed to apply s. 14A.
Assessee
filed several replies, as well as details, evidences before the AO.AO passed
order u/s. 143(3). Tribunal held that
the order of AO could not be said to be erroneous insofar prejudicial to
interest of revenue. When all
discrepancies were pointed out in rectification application u/s. 154,
Commissioner should have verified all
facts and should not have forwarded rectification application to A. O. for verifying discrepancies pointed out by
assesse. Commissioner was not justified in revising assessment order in
proceedings u/s. 263. Refer, PyareLalJaiswal .v. CIT, 146 ITD 555
CIT
issued notice u/s.263 proposing to revise the assessment order but in the said
notice it was mentioned that the
assessment order was set-aside. However, the assessee was given a number of
opportunities of being heard. Revision
order was held to be valid. Refer, Ashutosh Bandopadhyay .v. CIT, 363
ITR 168.
Housing
project deduction u/s 80IB(10) was
allowed without application of mind by Assessing Officer and Revision was held to be valid. Refer, CIT .v.
Abad Constructions (P.) Ltd, 363 ITR 372 .
It
was held that Deduction u/s. 80I having wrongly been allowed in respect of
interest on short term deposit and
transportation charges, as they are not derived from industrial undertaking,
CIT was justified in exercising
jurisdiction under s. 263. Refer, Krishak Bharati Co-op Ltd .v. CIT, 101 DTR
345.
.
In
the case of Popular Mini Finance v. CIT, 97 DTR 407, it had been held that Reasonableness
of the income offered has not been
properly examined by the AO while making assessment and hence revision of order was up held by the Tribunal-No
substantial question of law.
The
Commissioner has to be satisfied of twin conditions viz., (i) the order sought
to be revised is erroneous; and (ii) it
is prejudicial to the interests of the Revenue.The phrase "prejudicial to
the interests of the Revenue" should be understood in ordinary meaning, it is of wide import and it is not confined to
laws of tax. Since while passing the order, the AO had not applied correct
provisions as they stood during the relevant time and ha d just accepted what
the assessee wanted him to accept without discussing the allowability or
disallowance of these deductions, Commissioner’s jurisdiction was
justified. Refer, Leo Meridian Infrastructure Projects
and Hotels Ltd. v. DCIT, 24 ITR 123(Hyd.) (Trib.)
In
the return of income assessee claimed deduction of expenditure incurred on
repairs of a portion of damaged building
and plant and machinery. Assessing Officer accepted the assessee's claim. CIT
set aside the order and held that
replacement or repairs of building and plant and machinery on destruction of same by fire cannot be considered as current
repairs or revenue expenditure because said replacement results in to brining
in to a new asset giving enduring benefit to assessee. On appeal the Tribunal
held that revision order was justified. Tribunal also held that prior period
expenses which was wrongly allowed ,revision order was held to be justified.
Refer, 35
taxmann.com 50 (Hyd.)(Trib.)Navabharat Ventures Ltd. v. CIT.
No
specific error in assessment order
revision was not valid. Refer, CIT v. Land T Infrastructure Development
Projects Ltd, 357 ITR 763.
·
Erroneous
order : In the case of CIT
v. Kailash Chand MethI., 366 ITR 333, the AO passed the order u/s 143(3), &
later there is CBDT circular by which there is
case of loss for revenue. Since, the order passed by AO was erroneous at
that time & hence the revision by CIT u/s 263 is not valid.
Reliance
to be places in the case of Gopal Narayan Singh v. Deputy CIT, VOL 34 PG 461,
where it had been decided that there
cannot be any revision due to improper or incorrect opinion framed by CIT.
Further
reliance to be placed in the case of CIT .v. New Delhi Television Ltd, 220
Taxman 43, where it had been held that
when AO examined the matter in details during assessment proceedings, then
opening of case u/s 263 is not valid.
In
the case of CIT .v. Anand Food Products, 220 Taxman 40, it had been held that Assessment Order cannot
be said to be prejudicial to interest of revenue merely because discussion not
made.
Further
in the case of CIT .v. Galileo India (P.) Ltd, 220 Taxman 115, it had been held
that since CIT not able to satisfy that order passed by was erroneous &
hence revision u/s 263 was held invalid.
AO
examined eligibility of assessee to claim deduction and held that assessee had
fulfilled all conditions as prescribed
under section 80-IA but he allowed part deduction to assessee as deduction in
respect of profit earned by assessee from a contract with a builder and
interest income on FDRs was
inadmissible. Commissioner invoked its power u/s 263 on the ground that
as per Explanation to section 80-IA,
assessee was not eligible for deduction under section 80-IA and, thus,
Assessing Officer did not carry out
proper enquiries. Facts revealed that Assessing Officer after examination
of records and recording clear facts had
allowed part deduction to assessee. Therefore, the order passed by AO was in accordance with law and could
not be said to be erroneous and liable for Revision u/s 263 of the Act. Refer, Shree Narayan Built Up
(I) (P) Ltd. v. CIT, 61 SOT 79.
The
assessee was engaged in the business of manufacturing and export of jewellery.
During the course of assessment proceedings, while examining the details of
expenses relating to the head ‘miscellaneous expenditure’ , the AO took the view
that expenses on account of repairs and maintenance were capital expenditure
and disallowed them, also AO made disallowance u/s 40(a)(ia). This order was
revised and cancelled by CIT u/s 263. It was held that there was a complete
application of mind by the AO while examining the expenditure under the brand
promotion and brand building. Thus, the view taken by the AO was prima facie
correct and therefore, there was no reason to hold that such an order was
erroneous or prejudicial to the interest of revenue. Refer, Fine Jewellery
(India) Ltd. v. ACIT, 19 ITR 746.
In
the case of Aditya Builders v. CIT (Admn.) (Mumbai) , VOL 25 PG 77, it had been
decided that no finding that assessment order erroneous and prejudicial to
interests of Revenue and Assessee consistently following one method of
computing income hence Commissioner cannot assume jurisdiction and thrust his
method on assesse.
The
assessee had placed on record confirmations in assessment proceedings before
the Assessing Officer. The Assessing Officer did not make any enquiry and
accepted the fact on its face value. This was to be termed as a case of only
half-hearted enquiry as no definite conclusion could be arrived at merely on
the filing of confirmation before the Assessing Officer. In the present case,
the Commissioner had given a direction to decide afresh. Such a direction did
not cause prejudice to the assessee. Therefore, the Commissioner was justified
in setting aside the order of the Assessing Officer as erroneous and
prejudicial to the interests of the Revenue.
As regards the issue of reconciliation of tax deducted at source and
trading account in various agricultural items, the Assessing Officer had not made
due and proper enquiry and the Commissioner gave direction to decide afresh,
which caused no prejudice to the assesse. Refer, Krishan Gopal (HUF) v. CIT, 25
ITR 69 (JP)(Trib.).
The
assessee declared the income from short term capital gains from investments in
mutual funds, securities. The Income was
accepted under section 143(3) by making some inquiries. The Commissioner under section 263 set aside the
assessment to do the reassessment by proper inquiry. On appeal by revenue the Court held that
without arriving at a definite finding that the order is erroneous the CIT cannot simply remand the
matter to the AO for reconsideration. In adequate inquiry, by itself ,will not make the order
‘erroneous’. Accordingly the Court held that the jurisdiction under section 263 was wrongly invoked. Refer,
CIT v. Gupta Spg. Mills Ltd, The Chamber’s Journal –October –P. 82 (Delhi)(HC).
Commissioner
validly assumed jurisdiction u/s 263 on
the basis that AO had allowed depreciation on goodwill without assigning any reasons. Refer, Fibres & Fabrics
International v. CIT, 217 Taxman 352 (Karn.)(HC).
Where
Assessing Officer allowed assessee's claim for set off of unabsorbed
depreciation without examining material
available on record. Order passed by him was erroneous and prejudicial to
interest of revenue and, thus
Commissioner was justified in setting aside same in exercise of his revisional
power. Refer, Dharti Dredging & Infrastructure Ltd. v. Addl. CIT, 35
Taxmann.com 563.
When
the revising authority feels that the inquiry was inadequate, it must make
enquiry and show that assessment order
was erroneous. It has no power to remand and direct AO to conduct enquiry.
Refer, DIT v. Jyoti Foundation, 357 ITR 388.
The
Tribunal while analysing the issue confirmed that there was no application of
mind while considering assessment under
s. 143. The procedure adopted would have implication on tax computation. Held,
original assessment order was not only erroneous but also prejudicial to
interests of Revenue, and hence, s. 263 was rightly invoked by the
Commissioner. Refer, Appollo Tyres Ltd. .v. DCIT, 360 ITR 36.
·
Time
Limit : Order
passed after lapse of time limit is erroneous. Refer, CIT v. J. L. Morrison
(India) Ltd, 366 ITR 593.
·
Two
View : Karnataka High court decided that wne TPO’s acceptance of ALP shows two views are possible & CIT
has no jurisdiction to revise assessment. Refer, CIT v. SAP labs Pvt.
Ltd. Chennai ITAT confirmed the same in the case of Shriram Investments Limited v
.Addl. CIT, 51 SOT 5(URO)
Again
in the case of CIT v. Hari Singh & Associates, 102 DTR 306, it was held
that merely because CIT held a different opinion holding that addition ought to
be treated as undisclosed income and accordingly revision was held to be invalid.
The
assessee was allowed investment allowance by the income tax officer. The
Commissioner, in revision u/s. 263 of the I.T Act, 1961, withdrew it on the
ground that the assessee manufactured rectified spirit and denatured spirit and
sold arrack after diluting the rectified spirit. Held that item 1 of the
Eleventh Schedule reads “Beer, wine, and other alcoholic spirits”. The words
“other alcoholic spirits” are grouped with the words “beer” and “wine”. “Beer” and
“wine” are alcoholic spirits which are fit for human consumption. They are in
other words postable alcoholic spirits. That is not the case with rectified
spirit or industrial alcohol. Industrial alcohol or rectified spirit was not
intended to be included within “other alcoholic spirits.” The revision held to
be not valid and assessee could not be denied investment allowance. Refer, CIT
v. O.R. Distilleries Ltd, 349 ITR 215.
Assessing
Officer in assessment order is not required to give detailed reasons and once
it is clear that there was application
of mind by an enquiry, Commissioner, merely because he entertains a
different opinion in matter, cannot
invoke his powers under section 263. Refer, Spectra Shares & Scrips (P.)
Ltd. v. CIT, 91 DTR 289 (AP)(HC).
·
Other
: When
tax payer is entitled to 80-IA benefit for ten consecutive assessment years
then benefit cannot be denied benefit on ground it ceased to be a small scale
undertaking & hence revision not justified. Refer, ACE Multi Axes Systems
Ltd. v. Deputy CIT, 367 ITR 266.
In case of a charitable trust, it is
only income from investment or deposit which has been made in violation of section 11(5) that is liable to
be taxed and that violation under section 13(1)(d) does not tantamount to denial of exemption under
section 11 on total income of assessee-trust. Revisional order held to be not valid. Refer, CIT .v. Fr. Mullers
Charitable Institutions, 363 ITR 230
In
the absence of recording an opinion over why orders of assessment under
s.143(3) required initiation of revisionary proceeding, mere expression that
certain items of expenses, etc. were required to be examined, did not satisfy
requirement of issue of show-cause, notice under s. 263. Refer, IBM India (P.) Ltd, 216 Taxman 170
(Mag.) (Karn)(HC).
Since
the Assessing Officer, on basis of detailed inquiry found that 'SG' had
rendered services in his individual
capacity, order of Commissioner under s. 263 on ground that no services for
procuring order were rendered at all was to be set aside. Refer,
CIT v. Amar Kant Gupta (Dr.), 216 Taxman 149 (Mag.) (All)(HC).
The
transport subsidy is aimed at reducing the cost of production of the industrial
undertakings covered by the transport
subsidy scheme and, thus, there is a first degree nexus between the
transport subsidy, on the one hand, and
the cost of production, on the other and when the cost is reduced it naturally helps in earning of profit and at
times higher profits and such profits and gains ought to be treated to be profits and gains derived from,
or derived by, the industrial undertaking.
Held allowing the appeal, that the assessee was entitled to claim
deduction under section 80-IA in
respect of the amount which had been received by it in the form of
transport subsidy, and revision u/s 263
was not justified. Refer, Patkai Coal Products Pvt. Ltd. v. CIT, 356 ITR 528
(Gauhati) (HC)
Assessee
being a foreign company, for many years,
computed income at 10% of “gross receipts” and subtracted accepted expenditure therefrom, as per DTAA between
its country and India . Method unknown to law of India, it could be corrected
in reversionary proceedings. Refer, DIT
v. Hyundai Heavy Industries Co. Ltd, 217 Taxman 134 (Utt.)(HC).
·
Rectification
order : An
order was passed under section 264 by the Commissioner against the order of
Assessing Officer under section 143 (3).Where in an amount of Rs 6.80 lakhs was
allowed and balance amount of Rs 31.25 lakhs was disallowed. The assessee moved
an application 154 before the Commissioner. The Commissioner declined to
entertain the application placing reliance on section 154(IA). On writ the
court held that the application was not made before the Assessing Officer who
passed the order which was the subject-matter of revision, but, the application
was made before the revisional authority himself for rectification. Such an
application was maintainable and was not barred by section 154(IA).Accordingly
the writ petition was allowed. Refer, Janata Co-Operative Bank Ltd v. CIT, 349
ITR 715.
·
Deductions
not claimed : The assessee filed the return of income
wherein he has shown dividend and long term capital gains as taxable and forgot
to claim the exemption .On receipt of intimation the assessee filed the revised
the return claiming the exemption. The Assessing Officer has not taken the
congnisance of revised return as the same was filed beyond time limit specified
under section 139(5).The Assessee filed the revision application under section
264 against the intimation under section 143(1).The Commissioner rejected the
application under section 264 . The Assessee also filed rectification
application before the Assessing Officer under section 154, which was pending.
The Honourable Court quashed the order passed under section 264 and directed
the Assessing Officer to dispose the application keeping in mind the object of
circular dated 11-4-2005.The Court also observed that in any civilized system,
the assessee is bound to pay the tax which he is liable under the law to the
Government .The Government on the other hand is obliged to collect only that
amount of tax which is legally payable by an assessee .The entire object of
administration of tax is to secure the revenue for the development of the
Country and not to charge assessee more than that which is due and payable by
the assesse. Refer, Sanchit Software & Solutions (P.) Ltd, 349 ITR 404.
·
Principal
of Natural justice: The
assessee was non-executive director of company. He resigned from the Board on
29th April 1994. On 27 the September , 2006 the assessee was issued notice to
recover the tax due of the company for the assessment years 1986-87 to 1993-94
under section 179 of the income tax Act. The assessee informed to the assessing
Officer that the Company is a partnership form having 80% share hence the
assessing Officer must proceed against the firm for recovery due s of the
Company. The Assessing Officer rejected the application of assessee. Assessee
moved petition under section 264 which was rejected by the Commissioner without
giving an opportunity of hearing. On writ petition the Court set aside the
order of Commissioner and Assessing Officer and directed the Assessing Officer
to pass an order after following principle of natural justice and including
granting a personal hearing . refer, Bhupatlal J.Shah v. ITO, 210 Taxman 481.
The
grant of an opportunity to the assessee is a necessary concomitant of the
enquiry. In this case, neither in the show-cause notice nor in the subsequent
show-cause notice nor even in any proceedings under section 263, had he
afforded an opportunity to the assessee on the issue of verification of the
genuineness of the outstanding creditors or debtors; the Commissioner travelled
beyond the issues contained in the notices and thus his order on that count was
not in accordance Revision jurisdiction cannot be invoked where issues
raised were subject matter of appeal (HUF) v. CIT, 25 ITR 69 (JP)(Trib.).
·
TPO
order : Mumbai ITAT in the case of Essar Steel Limited v. ACIT
held that order passed by TPO cannot be subject to revision.
·
CIT
(A) Order : On
appeal Commissioner (Appeals) deleted the penalty. Thereafter the Commissioner
passed the revision order on the ground that the quantification of penalty in
the original order was omitted .The Court held that once penalty itself had
been set aside by Commissioner (Appeals), provisions of section 263 could not
be invoked by revenue to impose penalty. Refer, CIT v Trident Ltd, 216 Taxman
64.
Revision jurisdiction cannot be invoked where issues
raised were subject matter of appeal. Refer, Parminder Singh v. ACIT, 81 DTR
321.
Where
order of revision passed by Commissioner under section 263 was set aside ,
assessment order passed by Commissioner
under section 143(3) in pursuance of such revision order automatically
became infructuous. Appeal of revenue
was dismissed. Refer, CIT .v. Aditi Developers, 223 Taxman 14.
·
Audit
Objection : Revision of orders prejudicial to
revenue-Revision proceedings on the
basis of audit objection is not tenable in law. Refer, Jaswinder Singh
v. CIT, 56 SOT 85.
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