Failure to issue notice on any particular issue does not vitiate the exercise of power under Section 263 as long as the assessee is heard and given opportunity
Section 263 of the Income Tax Act, 1961 [‘the Act’ for short] deals with the revision of orders prejudicial to revenue.
Recently, in BSES Rajdhani Power Ltd. vs. Pr. CIT [ITA 387/2017, decided on 8.11.2017], the following questions of law arose for consideration:
(a) Whether on facts and in the circumstances of the case, the Tribunal erred in law in not holding that order dated 31.03.2016 passed under section 263 of the Act was without jurisdiction, illegal and bad in law?
(b) Whether on facts and in the circumstances of the case, the Tribunal erred in law in not quashing order passed under section 263 of the Act, considering that the assessing officer had raised specific queries and applied his mind to the concerned issues while framing original assessment?
(c) Whether on facts and in the circumstances of the case, the Tribunal erred in law in not quashing the order passed under section 263 of the Act in respect of issues pertaining to alleged violation in deduction of tax at source and related party transactions, which did not either form part of the show cause notice or confronted to the Appellant, instead in setting aside the same for de novo adjudication by the CIT?
It was submitted before the Delhi High Court by the Revenue that the lack of opportunity at the revisional stage under Section 263 of the Act does not vitiate the entire order, or the proceedings rather it is a curable defect.
Briefly, the Delhi High Court held that as far as the first aspect with respect to exercise of power under Section 263 is concerned, the issue stands concluded, in the light of the amendment with effect from 1989, by insertion of Explanation (c) to Section 263 (1).
On the aspect of show cause notice, i.e., the second and third questions framed, the court was of the opinion that the ruling in CIT vs. Amitabh Bachchan (2016 SCC Online SC 484) is decisive; it upholds the power of the Commissioner to consider all aspects which were the subject matter of the AO’s order, if in his opinion, they are erroneous, despite the assessee’s appeal on that or some other aspect. The Supreme Court held that:
“Reverting to the specific provisions of Section 263 of the Act what has to be seen is that a satisfaction that an order passed by the Authority under the Act is erroneous and prejudicial to the interest of the Revenue is the basic pre-condition for exercise of jurisdiction under Section 263 of the Act. Both are twin conditions that have to be conjointly present. Once such satisfaction is reached, jurisdiction to exercise the power would be available subject to observance of the principles of natural justice which is implicit in the requirement cast by the Section to give the assessee an opportunity of being heard.
It is in the context of the above position that this Court has repeatedly held that unlike the power of reopening an assessment under Section 147 of the Act, the power of revision under Section 263 is not contingent on the giving of a notice to show cause. In fact, Section 263 has been understood not to require any specific show cause notice to be served on the assessee. Rather, what is required under the said provision is an opportunity of hearing to the assessee. The two requirements are different; the first would comprehend a prior notice detailing the specific grounds on which revision of the assessment order is tentatively being proposed.
Such a notice is not required. What is contemplated by Section 263, is an opportunity of hearing to be afforded to the assessee. Failure to give such an opportunity would render the revisional order legally fragile not on the ground of lack of jurisdiction but on the ground of violation of principles of natural justice. Reference in this regard may be illustratively made to the decisions of this Court in Gita Devi Aggarwal vs. Commissioner of Income Tax, West Bengal and others and in The C.I.T., West Bengal, II, Calcutta vs. M/s Electro House. Paragraph 4 of the decision in The C.I.T., West Bengal, II, Calcutta vs. M/s Electro House(supra) being illumination of the issue indicated above may be usefully reproduced hereunder: “This section unlike Section 34 does not prescribe any notice to be given. It only requires the Commissioner to give an opportunity to the assessee of being heard. The section does not speak of any notice.”