Invocation of Section 263 on mere DCIT Suggestion invalid

CA Suraj R. Agrawal

Brief of the Case:-

For invoking revisionary powers the Commissioner of Income Tax has to exercise his own discretion and judgment. Here the Commissioner of Income Tax has invoked the provisions of section 263 at the mere suggestion of the Dy. Commissioner of Income Tax, without exercising his own discretion and judgment. In view of the fact that the Commissioner of Income Tax has invoked the provisions of section 263 without applying his own independent judgment and merely at the behest of proposal forwarded by the Dy. Commissioner of Income Tax is against the spirit of Act. Thus, the impugned order is liable to be set aside.

Case Summary:-

Facts of the case:

1. The assessee is a company and is engaged in the business of trading, indenting agent and export of goods.
2. The assessee filed its return of income for the assessment year 2008-09 on 26-09-2008 declaring income of Rs.4,39,86,108/-.
3. During the course of scrutiny assessment, the Assessing Officer made certain additions/disallowances and assessed the total income of the assessee at Rs.4,84,82,800/- vide order dated 30-12-2010.
4. The Commissioner of Income Tax passed the impugned order setting aside the assessment order dated 30-12-2010 and directed the Assessing Officer to pass fresh assessment order.
5. Aggrieved by the order of Commissioner of Income Tax passed u/s. 263, the assessee is in appeal before the Tribunal.

Contentions of Appellant:

1. The Commissioner of Income Tax has erred in invoking the jurisdiction u/s. 263 without any substance and material.
2. A perusal of show-cause notice which is at pages 83 to 85 of the paper book would show that the only reason for initiating proceedings u/s. 263 by the Commissioner of Income Tax is that the assessment order has been passed without making proper enquiry.
3. The ld. AR also referred to the official notings recorded by the Assessing Officer (pages 135 to 137 of paper book) and at the time of assessment and submitted that a perusal of the noting sheets would show that the Assessing Officer had raised queries in respect of all the issues which have been mentioned by the Commissioner of Income Tax in revision proceedings u/s. 263 of the Act.
4. The ld. AR further submitted that the Commissioner of Income Tax has erred in holding that the Assessing Officer has not applied his mind and the matter requires re-examination without giving any finding on the merits.
5. The ld. AR submitted that the Commissioner of Income Tax has not pointed out any error in the assessment order allegedly prejudicial to the interest of Revenue.
6. The Commissioner of Income Tax has merely reproduced the alleged shortcoming pointed out by Dy. Commissioner of Income Tax. As per the provisions of section 263 the Commissioner of Income Tax has to form independent opinion that the order passed by the Assessing Officer is erroneous as well prejudicial to the interest of the Revenue.

Contention by Revenue:

1. The Assessing Officer has simply collected the information and thereafter has not applied his mind thereon. There is no discussion by the Assessing Officer in the order with regard to issues highlighted by the Commissioner of Income Tax.
2. This clearly shows that the Assessing Officer has not applied his mind on the issues raised by the Commissioner of Income Tax in revision proceedings. The Commissioner of Income Tax is justified in invoking the provisions of section 263 of the Act, as the order of Assessing Officer is erroneous as well as prejudicial to the interest of revenue.

Ruling of Honorable ITAT/Court:

1. A perusal of the show because notice shows that the Commissioner of Income Tax has invoked the provisions of section 263 on the proposal submitted by the Dy. Commissioner of Income Tax and deficiencies in the assessment order pointed out by the Dy. Commissioner of Income Tax.
2. As per the provisions of section 263 it is the Commissioner of Income Tax who has to examine the records and thereafter form an independent opinion that the order passed by the Assessing Officer is erroneous in so far as it prejudicial to the interest of revenue.
3. In the present case ITAT find that the Commissioner of Income Tax has not exercised his independent judgment for invoking revisional powers.
4. For assuming the revisional jurisdiction, the Commissioner of Income Tax first has to call for the records of any proceedings under the Act and examine the same. After examining the records, if the Commissioner of Income Tax considers that the order passed by Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, he may issue show cause notice to the assessee.
5. After giving an opportunity of hearing to the assessee and conducting enquiry as may be necessary, the Commissioner of Income Tax shall pass order as the case may be including enhancing or modifying the assessment or cancelling the assessment. The Commissioner of Income Tax has to pass a speaking order highlighting deficiencies in the assessment order with reasons.
6. A perusal of the impugned order shows, that the Commissioner of Income Tax in the instant case has merely reproduced the deficiencies pointed out by the Dy. Commissioner of Income Tax in the assessment order.
7. The Commissioner of Income Tax has not given the reasons as to how the findings of the Assessing Officer are erroneous in so far as prejudicial to the interest of revenue.
8. The order of the Assessing Officer may be brief and cryptic but that by itself is not sufficient reason to hold that the assessment order is erroneous and prejudicial to the interest of revenue. It is for the Commissioner to point out as to what error was committed by the Assessing Officer in taking a particular view.
9. In view of the fact that the Commissioner of Income Tax has invoked the provisions of section 263 without applying his own independent judgment and merely at the behest of proposal forwarded by the Dy. Commissioner of Income Tax is against the spirit of Act. Thus, the impugned order is liable to be set aside.
10. In the result, the impugned order is set aside and the appeal of the assessee is allowed.