Principles of law/legal position regd. exercise of revisionary powers u/s 263 as laid down by SC/HC

Principles of law and legal position regarding exercise of revisionary powers u/s 263. ITAT explains the twin conditions as laid down by Supreme Court/ High Courts

ABCAUS Case Law Citation:
ABCAUS 3141 (2019) (09) ITAT

Important case law relied upon by the parties:
Malabar Industrial Co. Ltd. vs. CIT, 243 ITR 83 (SC)
CIT vs. Max India Limited, 295 ITR 282
Cairn India Ltd. Vs. DIT, 87 Taxmann.com 310 (Mad)
CIT Vs. Amitabh Bachhan, 69 Taxmann.com 170 (SC)
Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC)
Smt. Tara Devi Aggarwal v. CIT, [1973] 88 ITR 323 (SC).
Commissioner of Income Tax, Meerut Vs. Vam Resorts & Hotels Pvt. Ltd.

In the instant case, the assessee had challenged the exercise of the revisionary powers u/s 263 of the the Income Tax Act, 1961 (the Act) by the Commissioner of Income Tax (CIT). One of the ground taken by the assessee was that the CIT had failed to notice the twin conditions as laid down by Hon’ble Supreme Court.

In the instant case the appellant company had claimed TDS deducted both in the name of the company and its directors as well. The Assessing Officer (AO) had has allowed the credit of TDS reflected in Form 26AS in the account of the said director subject to verification that the credit of TDS had not been claimed by the director.

However, the Principal CIT had invoked the jurisdiction u/s. 263, as the PCIT was of the opinion that the assessee did not fall within any categories mentioned in Rule 37BA read with section 199(3) of the Act.

Principles of law / legal position regarding exercise of revisionary powers u/s 263 

The Tribunal observed that the Hon’ble High Court summarised the broad principles of law, which are required to be kept in mind by the Commissioner, while exercising his power under Section 263 of the Act as under:

(i) The power is supervisory in nature, whereby the Commissioner can call for and examine the assessment records.

(ii) The Commissioner can revise the assessment order if the twin conditions provided in the Act are fulfilled, that is, that the assessment order is not only erroneous but is also prejudicial to the interest of the Revenue. The fulfilment of both the conditions is an essential prerequisite. [Malabar Industrial Co. Ltd.]

(iii) An order is erroneous when it is contrary to law or proceeds on an incorrect assumption of facts or is in breach of principles of natural justice or is passed without application of mind, that is, is stereotyped, in as much as, the Assessing Officer, accepts what is stated in the return of the assessee without making any enquiry called for in the circumstances of the case, that is, proceeds with undue haste”. [Gee Vee Enterprises v. Asstt. CIT [1975] 99 ITR 375 (Delhi)]

(iv) The expression “prejudicial to the interest of the Revenue” while not to be confused with the loss of tax will certainly include an erroneous order which results in a person not paying tax which is lawfully payable to the Revenue. [Malabar Industrial Co. Ltd.].

(v) Every loss of tax to the Revenue cannot be treated as being “prejudicial to the interest of the Revenue”. For example, when the Assessing Officer takes recourse to one of the two legally viable courses or where there are two views possible and the Commissioner does not agree with the view taken by the Assessing Officer which has resulted in a loss. [CIT v. Max India Ltd. [2007] 295 ITR 282/[2008] 166 Taxman 188 (SC)]

(vi) There is no requirement of issuance of a notice before commencing proceedings under Section 263 of the Act. What is required is adherence to the principles of natural justice by granting to the assessee an opportunity of being heard before passing an order under Section 263. [CIT v. Electro House [1971] 82 ITR 824 (SC)].

(vii) If the Assessing Officer acts in accordance with law his order cannot be termed as erroneous by the Commissioner, simply because according to him, the order should have been written more elaborately”. Recourse cannot be taken to Section 263 to substitute the view of the Assessing Officer with that of the Commissioner. [Gabriel India Ltd.]

(viii) The exercise of statutory power under Section 263 of the Act is dependent on existence of objective facts ascertained from prima facie material on record. The evaluation of such material should show that tax which was lawfully exigible was not imposed. [Gabriel India Ltd.].

Further the Tribunal noted that the Hon’ble Supreme Court in a recent judgment had held that permitting exercise of revisional power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional authority. However making a claim prima facie indicating that the expenses in respect of which deduction has been claimed has been incurred and thereafter withdrawing the same gives rise to the necessity of further enquiry in the interest of the Revenue. Therefore, it was a fit case for exercise of the suo motu revisional powers of the C.I.T. under Section 263 of the Act.

The Tribunal also observed that the Hon’ble Supreme Court had held that there can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.

The Court had held that the scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the ITO, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue.

Accordingly, in view of the legal position, the Tribunal held that the opinion formed by the PCIT that the order passed by the Assessing Officer was erroneous and prejudicial to the interest of revenue could not be faulted.

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