Understanding the scope of section 263 – Power of Commissioner to revise an assessment order being erroneous and prejudicial to the interest of the Revenue

The power of appeal and revision is contained in Chapter XX of the Income Tax Act, 1961 (“the Act”) which includes section 263 that confers suo motu power of revision in the Commissioner. The different shades of power conferred on different authorities under the Act has to be exercised within the areas specifically delineated by the Act and the exercise of power under one provision cannot trench upon the powers available under another provision of the Act.

In this regard, it must be specifically noticed that against an order of assessment, so far as the revenue is concerned, the power conferred under the Act is to reopen the concluded assessment under section 147 and/or to revise the assessment order under section 263. The scope of the power/jurisdiction under the different provisions of the Act would naturally be different. The power and jurisdiction of the revenue to deal with a concluded assessment, therefore, must be understood in the context of the provisions of the relevant sections. While doing so, it must also be borne in mind that the legislature had not vested in the revenue any specific power to question an order of assessment by means of an appeal.

Recent judgment in the matter of Sir Dorabji Tata Trust (ITA No. 3909 of 2019), the President Mr. Justice P.P. Bhatt and the Vice President Mr. Pramod Kumar (Mumbai Bench) of the Hon’ble Income Tax Appellate Tribunal has created curiosity amongst the Tax Practitioners and the Department by succinctly explaining the scope of revision proceedings under section 263 of the Act.

The power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under the Act, he considers that any order passed therein by the Assessing Officer is ‘erroneous insofar as it is prejudicial to the interests of the revenue’. Such power is not an arbitrary or unchartered power and can be exercised only on fulfilment of the requirements laid down in sub-section (1) to section 263 of the Act. The consideration of the Commissioner as to whether an order is erroneous insofar as it is prejudicial to the interests of the revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. (CIT v. Gabriel India Ltd [1993] 203 ITR 108 (Bombay)).

The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity (Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC)).

As observed in Sirpur Paper Mills Ltd. v. ITO [1978] 114 ITR 404 (AP), the Department cannot be permitted to begin fresh litigation because of new views they entertain on facts or new versions which they present as to what should be the inference or proper inference either of the facts disclosed or the weight of the circumstances. If this is permitted, litigation would have no end, ‘except when legal ingenuity is exhausted’.

The power of suo motu revision under sub-section (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub-section, viz., ( i) the order is erroneous; (ii) by virtue of the order being erroneous prejudice has been caused to the interests of the revenue. An order cannot be termed as erroneous unless it is not in accordance with law. If an Assessing Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the ITO, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where the Assessing Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner, he would have estimated the income at a figure higher than the one detemined by the Assessing Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure.

It is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the Court, it would be open to the Courts to examine whether the relevant objective factors were available from the records called for and examined by such authority. (Russell Properties (P.) Ltd. v. ACIT [1977] 109 ITR 229 (Cal.))

In conclusion, the view of the Commissioner cannot be based on whims or caprice, otherwise it will amount to giving unbridled and arbitrary power to the revising authority to initiate proceedings for revision in every case and start re-examination and fresh enquiries in matters which have already been concluded under the law.

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December 2023