CIT vs. Goyal M.G. Gases Pvt Ltd (Delhi High Court)

S. 263 order becomes “infructuous” if effect order not passed in “reasonable time”

The CIT passed a revision order u/s 263 directing the AO to assess the interest income on mercantile basis within a period of three months. In the appeal filed by the assessee against the s. 263 order, the Tribunal held that as the AO had not yet passed the consequential order though 4 years had passed, the s. 263 order was could not now be given effect to and was therefore “infructuous“. The Tribunal’s order was upheld by the High Court (attached) on the ground that apart from the fact that the CIT had jurisdiction to specify the 3 month period, even if no period of limitation was prescribed, a reasonable period of limitation had to be adopted and the non-specification of a period of limitation did not mean that the AO could wait for an infinite period before passing the consequential order. After the passing of the Tribunal’s order but before passing of the High Court’s order, the AO passed the consequential order. The CIT(A) and Tribunal held that the AO had no jurisdiction to pass the consequential order in view of the s. 263 order having been held to be infructuous. On appeal by the department to the High Court, HELD dismissing the appeal:

This Court categorically held (in the earlier judgement – attached) that even if there is no period of limitation prescribed u/s153 (3)(ii) to give effect to s. 263 orders, the AO is required to pass the order within a “reasonable period”. Non-specification of period of limitation does not mean that the AO can wait for indefinite period before passing the consequential order. On facts, the period of 3 years & 8 months that had elapsed since the passing of the s. 263 order was “certainly much beyond the reasonable period that can be allowed to the AO to pass the consequential order“. As the s. 263 order was rightly held to be infructuous, the effect order passed thereafter is not valid.