Brief of the Case
The Hon’ble High Court in this case held that whenever, the Commissioner is satisfied that order of AO is erroneous as well as prejudicial to the interests of Revenue, then the Commissioner could invoke Revisionary Powers u/s 263.
Facts of the Case
The assessee is a Proprietor of a Rice Mill, and he completed the construction of rice mill by March 1999. He filed return of income for the assessment year 1999-2000 declaring the income of Rs.4,60,960/-. It was processed under Section 143(1) of the Act. The assessee was connected to a Sri Venkata Santhamani, Modern Rice, Groundnut Oil Mill, in respect of which a survey under Section 133A of the Act was conducted and the case of the assessee was also taken up for scrutiny by the A.O. The assessee and his AR and filed return of income by admitting income and paid the taxes as agreed at the time of survey.
Held by CIT(A)
The Ld. CIT(A) on the basis of the verification of the material available in the assessment records found that the order of assessment was erroneous in so far as it was prejudicial to the interests of revenue on the ground that there was some discrepancy in the stock due to which proper returns were not filed and accordingly the Ld. CIT(A) proceeded u/s 263 where a show cause notice was issued to the assessee requiring him to submit clarification or explanation to the above issue and also to show cause why the assessment made under Section 143(3) of the Act dated 15.03.2000 should not be set aside.
Held by the Tribunal
The Hon’ble Tribunal held that powers u/s 263 are supervisory in nature and not like that of an appellate authority. The intention of the Legislature has to be properly understood and the supervisory power of the CIT should not be misused simply because the order passed by the AO was a cryptic one as has been in the impugned case. Also, it was further observed that the issue raised by the CIT in the show cause notice by invoking of Section 263 was in no way fatal to the interest of the Revenue when the assessee has already disclosed income at the time of survey u/s.133A amounting to Rs.3,60,000/- and has accepted the same after due discussions with his authorized representative before the AO at the time of assessment proceedings which means sticking to his disclosure at the time of survey, in all fairness there does not remain any scope for the CIT to invoke Section 263 and assume his revisional jurisdiction.
Accordingly, the order of CIT was set aside.
Contention of the Revenue
The ld. Counsel for the Revenue contended that order of AO was prejudicial to the interests of the Revenue.
Contention of the Assessee
Learned Counsel for the assessee, submitted that since the Assessing Officer discussed about the case with the assessee and filed the return of income admitting the income, paid taxes as agreed at the time of survey and the assessment was completed by accepting the return of income, the Commissioner cannot issue the order for de novo enquiry in exercise of his powers under Section 263 of the Act.
Held by the Hon’ble High Court
The Hon’ble High Court discusses the Judgement of Rampyari Devi Saraogi v CIT, where the appellant, who was an assessee, was sent a notice by the under Section 33B of the Income Tax Act, 1922, proposing to pass an order under Section 33B of the said Act and, accordingly, giving an opportunity to her. The assessee appeared before the Commissioner, and the Commissioner passed an order on the same day cancelling the assessments made in favour of the assessee and directing the Income Tax Officer to do fresh assessments. The same was challenged before the High Court of Calcutta under Article 226 of the Constitution of India, and the Division Bench of the High Court dismissed the Writ Petition. While upholding the order of the Division Bench of the High Court, the Hon’ble Supreme Court held that it is not necessary to further detail the reasons given by the Commissioner because on the face of the record the orders were prejudicial to the interest of the revenue, and even if the facts which the Commissioner introduced regarding the enquiries made by him had been indicated to the assessee, the result would have been the same.
Moreover, the assessee will have full opportunity of showing to the Income Tax officer whether he had jurisdiction or not and whether the income assessed in the assessment orders which were originally passed was correct or not.
While discussing the Revisional powers of CIT(A) u/s 263 it was held that the Commissioner has to be satisfied of twin conditions, namely, i) the order is erroneous; and ii) it is prejudicial to the interests of the revenue. If one of them is absent, it was also held that recourse cannot be had to Section 263(1) of the Act. It was also held that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. It was also held that the order passed without applying the principles of natural justice or without application of mind fall under the said category.
The phrase prejudicial to the interests of the Revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer.
In the instant case, 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. 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.
Accordingly, the appeal of the Revenue was allowed.