Understanding Section 263 of the Income Tax Act, 1961 in context of Non-Discussion of an Issue in the Assessment Order
Section 263 of the Income Tax Act, 1961, gives power to the Commissioner of Income Tax (CIT) to revise an assessment order if it is both erroneous and prejudicial to the interests of revenue. Non-discussion of an issue in the assessment order does not, by itself, makes the order erroneous and prejudicial. This principle recognizes that CIT cannot revise an assessment order under section 263 merely because of non-mention of an issue in the assessment order as it not possible for Assessing Officer (AO) to document every aspect of their enquiry or decision-making process in the assessment order itself. Given below are the case-laws which upheld this principle and the relevant paragraph of the judgement.
Judicial Precedents:
CIT v. Usha International Ltd. [2012] 348 ITR 485 (Delhi)/[2012] 253 CTR 113 (Delhi)
R.V. Easwar, J.-
“5. I have searched in vain the provisions of the Act to find out if there is any provision therein laying guidelines as to how an assessment order shall be drafted. However, considering the onerous duty placed on the assessee as outlined above, one would expect the assessment order to be drafted in sufficient detail, where at least the basic features of the assessment are brought out. But due to several constraints – it is beyond the scope of this opinion to discuss them – it has been observed, and it has also been the general experience, that assessment orders are so drafted that they contain a discussion, briefly or in detail, only on points on which there is a difference of opinion between the assessee and the assessing authority. Where the contention or claim of the assessee is accepted, seldom do we find any discussion in the assessment order as to why it is being accepted. This has prompted the Commissioner of Income Tax in several cases to invoke the provisions of section 263 on the footing that the assessment so completed is erroneous and prejudicial to the interest of the revenue. It is significant to note that the CIT under section 263 is empowered to call for the record of the proceedings before making up his mind as to the justification for the revision. The reason is not far to seek: the question whether the AO had applied his mind to a particular claim made by the assessee and had accepted it rightly can be judged only on the basis of what material or evidence was led before him, and not on the basis of what was written in the assessment order. This is an implicit recognition in the Act that the emphasis is on the furnishing of full and true particulars and primary facts by the assessee, rather than on the manner in which the AO deals with them in the assessment order. Moreover, the assessee, as it was urged, has no say or control over the manner in which the assessment order is drafted.”
JCIT v. Cognizant Technology Solutions India (P.) Ltd, (2023) 452 ITR 224 (SC)
“2. In view of the findings recorded by the High Court in re questions raised and answers given, before, the assessment order under section 143(3) of the Income-tax Act, 1961 was passed, we are not inclined to issue notice in the present special leave petition. The assessee has no role to play and is not the author of the assessment order and hence the manner and contents of the assessment order as framed is not determinative whether or not it is a case of change of opinion.
3. Recording the aforesaid, the special leave petition is dismissed.”
ITO v. TechSpan India (P.) Ltd. [2018] 404 ITR 10 (SC)
“12. Before interfering with the proposed re-opening of the assessment on the ground that the same is based only on a change in opinion, the court ought to verify whether the assessment earlier made has either expressly or by necessary implication expressed an opinion on a matter which is the basis of the alleged escapement of income that was taxable. If the assessment order is non-speaking, cryptic or perfunctory in nature, it may be difficult to attribute to the assessing officer any opinion on the questions that are raised in the proposed re-assessment proceedings. Every attempt to bring to tax, income that has escaped assessment, cannot be absorbed by judicial intervention on an assumed change of opinion even in cases where the order of assessment does not address itself to a given aspect sought to be examined in the re- assessment proceedings.
13. The fact in controversy in this case is with regard to the deduction under Section 10A of the IT Act which was allegedly allowed in excess. The show cause notice dated 10.02.2005 reflects the ground for re-assessment in the present case, that is, the deduction allowed in excess under Section 10A and, therefore, the income has escaped assessment to the tune of Rs. 57,36,811. In the order in question dated 17.08.2005, the reason purportedly given for rejecting the objections was that the assessee was not maintaining any separate books of accounts for the two categories, i.e., software development and human resource development, on which it has declared income separately. However, a bare perusal of notice dated 09.03.2004 which was issued in the original assessment proceedings under Section 143 makes it clear that the point on which the re-assessment proceedings were initiated, was well considered in the original proceedings. In fact, the very basis of issuing the show cause notice dated 09.03.2004 was that the assessee was not maintaining any separate books of account for the said two categories and the details filed do not reveal proportional allocation of common expenses be made to these categories. Even the said show cause notice suggested how proportional allocation should be done. All these things leads to an unavoidable conclusion that the question as to how and to what extent deduction should be allowed under Section 10A of the IT Act was well considered in the original assessment proceedings itself. Hence, initiation of the re-assessment proceedings under Section 147 by issuing a notice under Section 148 merely because of the fact that now the Assessing Officer is of the view that the deduction under Section 10A was allowed in excess, was based on nothing but a change of opinion on the same facts and circumstances which were already in his knowledge even during the original assessment proceedings.”
CIT v. Vikas Polymers. [2012] 341 ITR 537 (Delhi)
“This is for the reason that if a query is raised during the course of scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and revision.”
CIT v. Reliance Communications Ltd. (2017) 396 ITR 217 (Bom.)
“The mere fact that the Assessing Officer did not make any reference to these three issues in the assessment order cannot make the order erroneous when the issues were indeed looked into. The entire details were filed and the order itself indicates that it can be inferred that the Assessing Officer not only made enquiries, but satisfied himself with the assessee’s replies furnished from time to time in support of its stand. When the Tribunal concludes in this manner and finally in paragraph 16 holds that the Assessing Officer took a perfectly correct or a possible view, then, the order passed by him cannot be termed as erroneous insofar as it is prejudicial to the interest of the Revenue. The Commissioner of Income Tax was not, therefore, justified in invoking section 263 of the Act.”
CIT v. Anil Kumar Sharma – [2011] 335 ITR 83 (Delhi)
“7. In view of the above discussion, it is apparent that the Tribunal arrived at a conclusive finding that, though the assessment order does not patently indicate that the issue in question had been considered by the Assessing Officer, the record showed that the Assessing Officer had applied his mind. Once such application of mind is discernible from the record, the proceedings under section 263 would fell into the area of the Commissioner having a different opinion. We are of the view that the findings of facts arrived at by the Tribunal do not warrant interference of this Court. That being the position, the present case would not be one of ‘lack of inquiry’ and, even if the inquiry was termed as inadequate, following the decision in Sunbeam Auto Ltd.’s case (supra), “that would not by itself give occasion to the Commissioner to pass orders under section 263 of the said Act, merely because he has a different opinion in the matter”. No substantial question of law arises for our consideration. Consequently, the appeal is dismissed.”
CIT v. Krishna Capbox (P.) Ltd. – [2015] 372 ITR 310 (All)
“2.The following substantial question of law has arisen in this matter, which need adjudication: Whether it is necessary for the assessing authority to mention in the assessment order regarding inquiry made by him, reply received from the assessee thereon or material supplied by the Department and discussion thereon and demonstrate from the order that he has made inquiry in the matter and has been satisfied with the reply of the assessee or mere inquiry is sufficient to pass an order of assessment and to exclude application of section 263 of the Income-tax Act, 1961, in such a case.
3. The Tribunal further considered the question whether discussion of queries and reply received from the assessee, in the assessment order, is necessary or not. Relying on the two judgments of the Delhi High Court in CIT v. Vikas Polymers [2012] 341 ITR 537/[2010] 194 Taxman 57 and CIT v. Vodafone Essar South Ltd. [2012] 28 taxmann.com 273/[2013] 212 Taxman 184 (Delhi), it held that once inquiry was made, a mere non-discussion or non-mention thereof in the assessment order cannot lead to assumption that the Assessing Officer did not apply his mind or that he has not made inquiry on the subject and this would not justify interference by the Commissioner by issuing notice under section 263 of the Act.
4. We are not persuaded by placing any other authority or by any substantial argument so as to take a different view to what has been taken in the decisions, as noticed above. We also find that the learned counsel for the Department though sought to re-argue before this court that no inquiry has been made by the Assessing Officer with respect to the queries set up in paragraph 3(a) to (f) of the notice issued under section 263 of the Act but when his attention was drawn to the order passed by the Tribunal recording otherwise findings, he could not place anything to show that the aforesaid findings recorded by the Tribunal are perverse or contrary to record.
5. In view thereof the aforesaid question is answered against the Department-appellant and in favour of the assessee.”
DCW Ltd v. ACIT, Bombay High Court, WP(C) No. 1250 of 2022 dated 10.11.2023
“11. In the order disposing the objections, there is no denial of the fact that these materials were made available or these details were called for during the assessment proceedings. The only explanation is that these have not been discussed in the assessment order. In Aroni Commercials Ltd. v Deputy Commissioner of Income Tax 2(1), Mumbai & Anr. this Court has held that once a query is raised during the assessment proceedings and assessee has replied to it, it follows that the query raised was the subject of consideration of the Assessing Officer while completing the assessment. It is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised.”
CIT v. Gabriel India Ltd. [1993] 71 Taxman 585/203 ITR 108 (Bombay)
“the decision of the Income-tax Officer cannot be held to be erroneous simply because in his order he did not made an elaborate discussion in this regard …….”
Conclusion:
This principle makes it clear that lack of discussion about an issue in the assessment order does not render it wrong and prejudicial to revenue under Section 263. It is only on when the AO has not applied his mind and attention is required to be given which could be seen from the records of proceedings and not as to whether it was drafted poorly or inadequately. The Judicial precedents have upheld that for Section 263, the CIT had to show that there is some error in the AO’s reasoning or process before resorting to such a proceeding.
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