S. 263 Only precondition for revising order of AO is that order of AO should be erroneous

CA Sandeep Kanoi

The phrase prejudicial to the interests of the Revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. (See Rampyari Devi Saraogi v. Commissioner of Income tax [(1968) 67 ITR 84 (SC)] and in Smt. Tara Devi Aggarwal v. Commissioner of Income-tax, West Bengal. [(1973)  88 ITR 323 : (1973) 3 SCC 482 : 1973 SCC (Tax) 318].

In the instant case, a perusal of the order of the Assessing Officer would show that the return of income filed by the assessee was accepted and the tax was finalized. From the order of the Assessing Officer, one cannot deduce whether the errors pointed out by the Commissioner of Income Tax were considered by the Assessing Officer or not. The Commissioner of Income Tax, not only pointed out the errors, but also had shown the effect of the same on the revenue. It is not known how the Tribunal has come to the conclusion that the errors have no effect on the revenue. The Tribunal ought not to have taken into consideration the explanation submitted by the assessee before the Commissioner for coming to the conclusion that the errors pointed out by the Commissioner have no effect on the revenue. Ultimately, it is for the Assessing Officer, at the time of de novo enquiry, to consider whether the explanation offered by the assessee to the points raised by the Commissioner is proper or not. When once the Commissioner   has got power to point out the errors which had the effect on the revenue, the Tribunal cannot sit as an appellate authority on the order of the Commissioner passed under Section 263 of the Act. If the power exists in the Commissioner and is exercised by him after satisfying himself on the facts of the case, it is not for the Tribunal to re-appreciate the said satisfaction of the Commissioner. It is only when the Commissioner does not exercise the power properly in satisfying the twin test contemplated under Section 263 of the Act, the order of the Commissioner can be held to be perverse, but not by re- appreciating the order of the Commissioner. A prima facie perusal of the order of the Commissioner shows that the Commissioner was satisfied that there were errors which had effect on the interests of the revenue and it needed a further probe by the Assessing Officer.

In the facts and circumstances of the case, we are satisfied that the order passed by the Commissioner is proper and validly exercised as per the powers conferred on him under Section 263 of the Act and we, accordingly, set aside the order of the Tribunal. Hence, we hold the substantial question of law in favour of the Revenue and against the assessee.