Revisional order u/s 263 quashed following rule of consistency

Revisional order u/s 263 quashed following rule of consistency, Revenue argued that the principle of res judicata has no application in tax law

ABCAUS Case Law Citation:
ABCAUS 2881 (2019) (04) HC

Important Case Laws Cited/relied upon by the parties
Income Tax Officer v. DG Housing Projects Limited (2012) 343 ITR 329 (Del)
Globus Infocom Ltd. v. CIT [2014] 369 ITR 14 (Del)
CIT vs. NTPC Ltd. (2017) 392 ITR 426 (SC)

The Revenue had challenged, under Section 260-A of the Income tax Act, 1961 (Act), the order passed by the Income Tax Appellate Tribunal (ITAT) for three assessement year

In the instant case, the Commissioner of Income Tax (the CIT) had invoked the revisional jurisdiction under Section 263 of the Act and issued a show cause notice (SCN) for three assessment years. Subsequently, rejecting the explanation of the assessee, the CIT directed the Assessing Officer (AO) to examine various issues and if considered necessary, invoke the provisions of section 142(2A) of the Act.

The order of the CIT was challenged by the Assessee by filing appeals before the ITAT. It was inter alia contended by the Assessee before the ITAT that the CIT had erred on facts and law in assuming that the AO had not made proper quantitative analysis or conducted necessary examination.

The ITAT held that the order of the AO cannot be held to be erroneous.

The Revenue agitated the matter before the Hon’ble High Court.

The Hon’ble High Court observed that according to the ITAT the AO had examined the concerned records and Books of Accounts and gave a specific finding that the nature of business continued as in the past.

The Hon’ble High Court opined that it could not therefore be said that this was a case of ‘no inquiry’ by the AO. In fact, the CIT had himself not undertaken any independent inquiry to contradict the conclusions reached by the AO and to demonstrate that the order of the AO was erroneous and prejudicial to the interest of the revenue.

The Court noted that interestingly, the CIT, while giving a direction to the AO to make an inquiry, indicated that AO shall make inquiries in respect of the issue of possible suppression of sales by the assessee. Whereas the use of the word “possible” had been held to be indicating that there was no finding and adjudication by the Commissioner and his observations were based on mere suspicion and certainly uncertain.

The assessee pointed out that an identical issue had been adjudicated by the High Court, in the case of the very assessee on the same issue in favour of the Assessee. No Special Leave Petition was preferred against the said judgment which thus attained finality.

It was further pointed out by the assessee that in in the previous and subsequent years no addition had been made on account of issues under current appeal (discrepancy in closing stock).

The Hon’ble High Court found merit in the contention of the Assessee that since the issue in the previous and subsequent years stands adjudicated in its favour by the ITAT and the High Court, it would be futile to reopen the issue only for three AYs in between since it was no longer a ‘live issue’.

The Revenue sought to contend that each AY is a separate year and that the principle of res judicata has no application in tax law. It was contended that the mere fact that the issues stands decided in favour of the Assessee for the earlier and subsequent AYs should not matter.

However, the Hon’ble High Court opined that the Court could not be unmindful of the fact that for eighteen AYs, barring the three AYs in question, the issues had been decided ultimately in favour of the Assessee. In each of these AYs it was a scrutiny assessment under Section 143 (3) of the Act.

The Hon’ble High Court held that the rule of consistency would apply in such a scenario. Accordingly, the Court rejected the reason why only for the three AYs in question, the matter should be reopened.

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