Section 263 Of The Income-tax Act, 1961 – Revision Of Orders Prejudicial To Revenue – Case Laws And Comments

Advocate Arjun Gupta has explained the entire law relating to revision of assessments by the CIT under section 263 of the Income-tax Act, 1961. The ld. author has clearly delineated the extent of the power of the CIT and its limitations. The implications of Explanation 2 to section 263, which was inserted by the Finance Act, 2015, have also been explained in a succinct manner. All the important judgements on the subject have been referred to

The basic features of Section 263 are that the Principal Commissioner or  Commissioner may revise any order of assessment provided it is erroneous and prejudicial to the interests of the revenue,that the revisional order can bepassed  within two years from the end of the financial year in which the order sought to be revised was passed,and that the assessee must be given an opportunity of being heard before any proceedings under the Section are taken. For the purposes of revising the assessment, the Commissioner may make such inquiries as are necessary for the revision of the order of assessment.

Explanation 2 has been inserted by the Finance Act, 2015 w.e.f 1-6-2015. The explanation sets out what orders passed by the Assessing Officer(the “AO”) constitute orders which are erroneous in so far as they are prejudicial to the interests of the Revenue. The Memorandum of Objects and Reasons to the Finance Bill, 2015 (2015) 371 ITR 233 (St) specifies that the issue of what constitutes orders erroneous and prejudicial to the Revenue is a contentious one. In view of such ambiguity, the Explanation was introduced to clarify what constitutes an erroneous order prejudicial to the Revenue. Whether the explanation is prospective or retrospective and relevant case-laws have been examined in detail below.

In Court, or at the Appellate Tribunal, the stance of the assessee is most peculiar where for the first time he is seen defending the order of an Assessing Officer! but only because there looms a greater peril in the form of an order of the Commissioner under Section 263 of the Act.

Discussion

• Twin Conditions to be satisfied for the exercise of power u/s 263 of the Act/Basic Principles

In the case of Malabar Industrial Co. Ltd. vs. CIT[2000] 243 ITR 83(SC), the Supreme Court held that there must be two conditions namely that the order of assessment is erroneous and that the order is prejudicial to the interests of the Revenue which must be satisfied before the Commissioner may invoke his powers under Section 263 of the Act. The Court held that every loss of tax cannot be said to be prejudicial to the interests of the Revenue. If two views are possible, and the AO has adopted one of those views, the order of assessment cannot be prejudicial to the interests of the Revenue. However, when the Assessing Officer does not apply his mind to the issue at hand or violates any of the principles of natural justice, the order shall be prejudicial to the interests of the Revenue. Also, an incorrect assumption of facts or incorrect application of law by the AO would make the order of aasessment erroneous and prejudicial to the interests of the Revenue.

The facts of the case are that the assessee entered into an agreement with another company for sale of its estate of rubber plantation, the consideration to be paid in instalments. However, the purchaser could not adhere to its payment obligations and eventually paid the assessee compensation towards loss of agricultural revenue. The AO accepted the claim of the assessee as agricultural income. However, the Commissioner invoked his powers under Section 263 of the Act and held that the income was unconnected to agricultural activity and treated the receipt as income from other sources. The Apex Court held that the AO had not applied his mind to the issue and had accepted the claim of the assessee by simply looking at the statement of account without any other material for example the Board Resolution noting the said loss, and the AO did not note that the Company had stopped agricultural operations years ago, and that there was no income from agricultural operations. Thus, the Apex Court concluded that the receipt was rightfully taxed under the head income from other sources and that the Commissioner had rightly invoked his powers.

In the case of CIT vs. Max India Ltd. [2007] 295 ITR 282(SC), the Supreme Court observed that an amendment even if retrospective would not change the fact that the AO’s view was a possible view, if at the time of making the order of assessment, two views were possible. What has to be actually taken into account is the view taken by the AO at the time of making the order of assessment and if the view is a possible one, there can be no doubt that the order cannot be prejudicial to the interests of the Revenue. The judgment was rendered in the context of Section 80HHC which had been amended eleven times. At that time two views existed over the term ‘profits’ and also at the time, there was much confusion over its interpretation, therefore, in the circumstances of the case the Court held that the AO’s view was certainly a possible view.

• Issues not subject matter of appeal: Whether revision is permissible or not

In the case of CIT vs. Shri Arbuda Mills Ltd. [1998] 231 ITR50(SC), the AO passed an assessment order accepting the assessee’s claim on three items. The three items of claim were not the subject matter of the appeals filed by the assessee against the assessment order and naturally so, since the claims had already been accepted by the AO. The Commissioner sought to revise the assessment order with respect to these three items. In a reference to the Supreme Court by the ITAT the Supreme Court after adverting to Explanation 1(c) of Section 263 held that the power of the Commissioner would extend to such matters that have not been considered and decided in appeal. In the circumstances of the case, the issues/items were not the subject matter of appeal before the Commissioner(Appeals) and therefore the Commissioner had the power to revise the assessment order over the said three items.

This decision was followed in CIT vs. Jaykumar B. Patil [1999] 236 ITR 469(SC).

A situation may arise when a particular issue with respect to a sub-section of the main section is decided in appeal, and then it can be argued that since the rest of the section was not the subject matter of appeal, the Revision is maintainable. In my view, the language of Explanation 1(c) is very clear, that those issues which were not the subject matter of appeal may be revised. The emphasis is on the term ‘matters’ or ‘issues’ which in my opinion are, for the purposes of this section, synonymous. However, only if the particular part of the section i.e. the sub-section gives rise to any distinct matter or issue, and the same is part of the assessment order, and is not the subject matter of the appeal, may be revised. Therefore, there are preconditions which must be satisfied before the revisional power can be exercised in such a situation.

• Only opportunity of hearing required to be given under Section 263 & Expenditure claimed and withdrawn could be prejudicial to interests of Revenue if AO drops proceedings

In the case of CIT vs. Amitabh Bachchan [2016] 384 ITR 200 (SC), the Court held that what Section 263 prescribes is an opportunity of hearing to the assessee, and not a notice to show cause. The two are distinct since in a show cause notice, the grounds on which the AO is to proceed are disclosed in the notice while an opportunity of hearing is done before taking a decision in the matter. That a formal show-cause notice is not necessary for invocation of jurisdiction under section 263 of the Act. In the instant case, a show cause notice was issued to the assessee by the Commissioner on three grounds but while passing the revisional order, the Commissioner went beyond the show cause notice and infact on as many as seven issues in the show-cause notice no findings were given in the revisional order. The Court held that since the Commissioner proceeded on the basis of the record of the assessment proceedings which was available to the assessee, and that at each stage of the revisional enquiry the AR of the assessee was present, it was difficult as to how an opportunity of hearing was denied to the assessee when it had sufficient opportunity to counter the issues the Commissioner was proceeding with/had proceeded with.

The Supreme Court also considered an interesting point namely if the assessee claims expenses and then withdraws the same, and consequently the AO drops the Section 69-C notice(Section 69-C deals with unexplained expenditure), whether the order accepting the withdrawal of the claim would be erroneous and prejudicial to the interests of the Revenue? The Court answered in the affirmative and upheld the order of the Commissioner since the withdrawal of the claim cannot ipso facto lead to dropping of proceedings. It is settled law that what is prejudicial to the interests of the Revenue is not confined to a loss of tax only. It was open to the Assessing Officer to make an enquiry into the nature of expenses and source thereof and if the same was found to be illegitimate, the same could have been added back to the total income of the assessee. Thus, the Supreme Court has also indirectly expounded on Section 69-C to hold that even if expenditure is not claimed in the return, it may still be added to the total income and taxed if it is unexplained, i.e if the source is not found to be satisfactory to the Assessing Officer.

The Supreme Court also noted that in the meantime an order had already been passed by the Assessing Officer pursuant to the revisional order of the Commissioner which was carried upto the High Court but not contested on merits, therefore, in view of its findings, the assessee was free to contest the same on merits if it was so advised.

• Valuation of closing stock and revision

In CIT vs. Kwality Steel Suppliers Complex [2017] 395 ITR 1 (SC), the assessee a partnership firm consisting of mother and son was engaged in the business of sale of scrap ship materials. The firm was dissolved on 1.2.1993 on account of the death of one of the partners. On dissolution, the firm valued the stock at cost price which was accepted by the Assessing Officer. However, the Commissioner, relying upon the case of A.L.A. Firms of the Supreme Court sought to revise the order and directed the Assessing Officer to value the stock at market price and to add the difference in profit/income to the total income of the assessee.

The Supreme Court held that the business was a continuing one as although the partnership had been dissolved, the business was survived by the other partner. Referring to the decision in the case of Sampatram vs. CIT [1953] 24 ITR 481(SC) , the Court held that the purpose of crediting the unsold stock is to show the true profits after the stock purchased and shown on the debit side is cancelled against the same stock shown as unsold stock on the credit side. The objective of valuing the unsold/closing stock is to value it at cost or market price, whichever is lower. This for the reason that no prudent trader would show excessive profit when the same has not been realised by valuing the stock at market price when it is higher than cost price giving rise to unrealised profits. On the other hand, if the market price is lower than the cost price and the same is valued at market price, then in the following year the price of the goods may increase resulting in a better profit margin. Thus, the goods as a matter of practice are valued at the lower of the cost price or market price but not at market price if it is more than cost price and results in unrealised profits.

Applying these principles to the case at hand, the Court held that since the business was continuing with one of the partners, the valuation was rightly carried out at cost price and no interference in the order of assessment was necessary.

It is settled law that when a firm is dissolved the valuation is done at market price to assessee the true value of the assets of the business as stated in the judgment itself. In my view, the real question was whether the business was a continuing one in the first place so as to warrant the valuation at cost price?  Upon dissolution and taking up of accounts, the share of the deceased partner would vest in the other but there would be no assessee, the assessee being the firm and a firm is treated as a separate assessee in the eyes of law. Therefore, for the purpose of assessing the stock of the dissolved firm, the valuation would necessarily have had to be undertaken at market value. It is immaterial if the other partner carries on the business as an individual or other entity but for an assessee liable to tax, the valuation must be in accordance with law. If this view is not correct, perhaps the Court could have expounded upon the issue it being important to the case at hand.

• Revisional order devoid of reasons& View of AO in conformity with HC would bar revision by Commissioner

In CIT vs. G.M. Mittal Stainless Steel (P) Ltd.[2003] 263 ITR 255(SC), the court held that if the revisional order of the Commissioner does not contain any reasons, that by itself would render the order of the Commissioner liable to be quashed. Further, if the AO had taken a view while passing the assessment order which was in conformity with the judgment of the jurisdictional High Court, then that would be a relevant circumstance and such an order then cannot be said to be prejudicial to the interests of the Revenue. Though the decision of the jurisdictional High Court was reversed in appeal, the AO as well as the CIT at the time of passing the order was bound by the jurisdictional High Court decision, therefore there can be no prejudice to the Revenue.

However, in my view, if that decision had been reversed before the AO passed the order of assessment, the order of the AO would be prejudicial to the interests of the Revenue.

2. CIT can validly exercise his powers if the order of the AO is in conformity with the view of the jurisdictional High Court but only if the judgment of the High Court is in appeal to Supreme Court.

In the case of Hindustan Tin Works Ltd. vs. D.C. of Income Tax [2005 ]92 ITD 101 (Delhi)(Trib),the assessee claimed deduction under Section 80HHC of the Act without first applying the business losses to the profits thus resulting in excess carry forward of losses. This was accepted by the AO even when the assessee did not file a revised return and had claimed no deduction under Section 80HHC of the Act in the original return but had applied the business losses to the profits. The CIT sought to revise the order of assessment on the ground that the gross total income has to be determined first, by applying the business losses to the profits before computation of the deduction, which would then be NIL. The assessee relied upon a judgment of the A.P High Court which had allowed the deduction but the same was pending before the Supreme Court.

The Tribunal held that if the AO takes a view in conformity with the decision of a High Court or even the jurisdictional high court, if an appeal has been preferred to the Supreme Court against that decision, then the revision is still maintainable.

In my view, only if the appeal had been filed to the Supreme Court before the AO passed the order of assessment, is the revision maintainable. The reason is obvious. If the AO has applied the ratio of the jurisdictional High Court in his assessment order, then no revision is maintainable as held in GM Stainless Steel. Thus, only if the appeal is preferred before the AO passes the order of assessment can the CIT revise the order of assessment. But it can still be said that unless leave is granted by the Supreme Court, there is no merger of the High Court decision and that the decision of the High Court is still law as held in the decision of the Supreme Court in Kunhayammed and Ors. vs. State of Kerala and Ors. [2000] 245 ITR 360(SC),

4. In spite of a petition for special leave to appeal having been filed, the judgment, decree or order against which leave to appeal has been sought for, continues to be final, effective and binding as between the parties. Once leave to appeal has been granted, the finality of the judgment, decree or order appealed against is put in jeopardy though it continues to be binding and effective between the parties unless it is a nullity or unless the Court may pass a specific order staying or suspending the operation or execution of the judgment, decree or order under challenge. Dismissal at stage of special leave – without reasons – no resjudicata, no merger.

Therefore, it can be argued that the view of the AO was in accordance with the jurisdictional High Court judgment which is still in force.

• Record includes the record relating to the proceeding

In the case of CIT vs. Shree Manjunatheaware Packing Products & Camphor Works [1998] 231ITR 53(SC), the facts of the case(as quoted from the Supreme Court judgment) are:

The respondent-firm, during the previous year relevant to the assessment year 1977-78, had constructed a cinema theatre and in the return filed by it had shown the cost of construction at Rs. 20,28,498 (Rs. 23,78,242 less Rs. 3,49,644 being electric portion). The Income-Tax Officer on 02.02.1980 wrote to the Departmental Valuation Officer to ascertain and report correct cost of construction of the theatre. The Valuation Officer expressed his inability to give his valuation report by 31.03.1980 by which date the assessment was to be completed. The Income-Tax Officer, therefore, without waiting for his report, passed an order of assessment accepting the valuation mentioned by the assessee in its return. The Valuation Officer submitted his report on 16.12.1980. He determined the cost of construction at Rs. 34,58,600 as against Rs. 20,28,498 stated by the assessee. Therefore, the Commissioner of Income-Tax issued a notice Under Section 263(1) of the Income-Tax Act to the assessee on the ground that investment not accounted for by the assessee-firm should have been brought to tax and the Income-Tax Officer having not done so, his order was erroneous and prejudicial to the interest of the Revenue. Before the Commissioner, it was contended by the assessee that as the Valuation Report was not available to the Income-Tax Officer at the time of passing the assessment order and did not form part of the record of the proceeding, it could not be a valid basis for initiating an action Under Section 263 of the Act and, therefore, the proceeding deserved to be dropped. The decision of the Calcutta High Court in Ganga Properties v. I.T.O. [1979]118ITR447(Cal)(HC)  was relied upon in support of that contention. The Commissioner rejected it on the ground that the term ‘record’ would include all records available at the time of examination by him, set aside the assessment made by the Income-Tax Officer and directed him to pass a fresh assessment order in light of the observations made by him.

The Supreme Court held that the power of the Commissioner to revise an order of assessment is of a wide amplitude. The Court held that:

Obviously, as a result of the enquiry he may come in possession of new material and he would be entitled to take that new material into account. If the material, which was not available to the Income-Tax Officer when he made the assessment could thus be taken into consideration by the Commissioner after holding an enquiry, there is no reason why the material which had already come on record though subsequently to the making of the assessment cannot be taken into consideration by him. Moreover, in view of the clear words used in Clause (b) of the explanation to Section 263(1), it has to be held that while calling for and examining the record of any proceeding Under Section 263(1) it is and it was open to the Commissioner not only to consider the record of that proceeding but also the record relating to that proceeding available to him at the time of examination.

It could have been argued by the learned counsel for the assessee that the record only emanates from a proceeding under the Act as clearly stated in Section 263 and the Valuation report to be submitted to the Income Tax Officer for him to make the order of assessment was not part of any proceeding under the Act. However, the Supreme Court upon interpreting Explanation 1(b) held that the record may relate to any proceeding under the Act and therefore, even if the information(Valuation Report) is available only subsequent to the order of assessment it would make no difference and it would form part of a record relating to any proceeding under the Act.

• Limitation to apply whether from date of order of assessment or reassessment to be adjudged in facts and circumstances after applying the doctrine of merger

In the case of CIT vs, Alagendran Finance Ltd.[2007] 293 ITR 1(SC), the question before the Apex Court was whether the limitation period of two years stipulated under Section 263(2) of the Act would apply from the date of the order of assessment or the order of reassessment? The facts of the case are that the assessee, a company, filed its returns under the Act for the assessment years 1994-95, 1995-96 and 1996-97 on 23.11.1994, 27.11.1995 and 26.11.1997 respectively. The assessment for the year 1994-95 was completed on 27.02.1997 and those of the Assessment Years 1995-96 and 1996-97 were completed on 12.05.1997 and 30.03.1998 respectively. The returns under the head lease equalisation fund were accepted by the AO, and in reassessment proceedings under section 147, three other issues were raised having no relation with the issue of lease equalisation fund. The reassessment orders were passed on 28.03.2002. Subsequently, an order under section 263 of the Act was passed on 29.3.2004 proposing to revise the assessment on the question of lease equalisation. The question was whether the order under Section 263 is within the period of limitation of two years prescribed under the Act, i.e whether the order of assessment has merged with the order of reassessment to compute the limitation.

The Supreme Court held that since the issue of lease equalisation did not form part of the reassessment proceedings, the order of assessment did not merge with the order of reassessment. Further, after examining various other decisions, the Court held that when an assessment is reopened, only that part concerning the escapement of tax would form part of the reassessment proceedings, and that issues which have attained finality in assessment proceedings cannot be reopened in reassessment proceedings. Thus, if an assessee does not file an appeal against the order of assessment, he cannot state his case and take any benefit under reassessment proceedings. On this basis, since the reassessment could not have in any case touched upon an issue which had attained finality in assessment proceedings(equalisation levy), the order of reassessment was wholly independent of the order of assessment and did not merge with the order of assessment. Thus, the limitation period to issue an order under Section 263 of the Act would begin to run from the order of assessment and not reassessment and therefore the revisional order under Section 263 of the Act was beyond limitation.

3. Revision not permissible if order of AO consequent to direction of CIT to revise the assessment is beyond limitation; Order of AO does not merge with order of CIT for purposes of computing limitation period.

In the case of V. Narayanan vs. DCIT 2010 (3) ITR (Trib) 446 (Chennai), the Tribunal held that if the Commissioner gives a direction to the Assessing Officer to frame an order of assessment pursuant to the revision, then the order of assessment has to be within the period of limitation under Section 153(1)(a)(iii). That it would be a different matter if the order under Section 143(3) had been passed but since in the instant case no 143(2) notice had been issued, the order of assessment cannot be passed since the notice is beyond limitation. That it would lead to multiplicity of proceedings. That it would amount to flouting the period of limitation since the AO can then pass order of assessment beyond the period of limitation prescribed. The Tribunal relied upon the case of B.C. Nawn and Bros P. Ltd. vs. CIT [1977] 109 ITR 632 (Cal)(HC) and held that the order of assessment does not merge with the order of the CIT. In Nawn it was held that all that has to be looked at is whether the order of the CIT is within the period of limitation prescribed. In my view, this statement of the Hon’ble Court would resolve all doubts and ambiguities and if the order of the CIT has been passed within the period prescribed, there can be no question of holding the consequential order of assessment under Section 143(3) void since the power is expressly given to the CIT to revise the order of assessment himself, or direct the AO based on his directions to do so. The Court in Nawn has rightly held that the limitation under Section 153(1)(a) and Section 263 are distinct.

4. Order of AO in compliance with directions of DRP does not merge with order of DRP; Order of AO in conformity with directions of DRP is revisable

In Philips India Limited vs. PCIT (2019) 199 TTJ (Kol)(Trib) the Tribunal held that when the AO passes the order in conformity with the directions of the DRP, the AO being a lower authority, the order of the DRP does not merge with the order of the AO and vice-versa. The assessee argued that the order passed by the AO under Section 143(3) r.w.s 144C of the Act is not revisable since it is simply an order passed in conformity with the directions issued by the DRP and therefore, there is complete merger with the AO’s order with that of the DRP. Thus, no revision is permissible of an order of the DRP, also the DRP consists of a panel of PCIT’s and the CIT cannot revise the order of such a panel of equal rank. The Tribunal held that with respect to those issues which are not considered by the DRP, there can be no merger. It held relying upon the case of Trustees of Parsi Panchayat Funds & Properties vs. Director of Income-tax[1996] 57 ITD 328 (Mum) (Trib), that the DRP performs identical functions like the AO, and that the DRP proceedings are a stage of the assessment proceedings. Therefore, the order of the AO in conformity with that of the DRP is revisable. On the ground that the CIT cannot revise the order of the DRP being a panel of equal rank, the Tribunal held that the case law cited by the assessee was entirely distinguishable as in that case the AO had adopted section 154 proceedings in view of the CBDT Circular. That in the present case the CIT is not revising his own order. That since the DRP and the AO have not applied their mind on issues, the question of revising one’s own order does not arise. On the alternative contention of the assessee that in case there is no merger, the revision is beyond limitation since the AO’s draft order is beyond limitation, the Tribunal held that what was being revised is the order under section 143(3)r.w.s. 144C which is clearly within limitation.

• Computation of limitation under sub-section 2 pursuant to direction of Appellate Authority

In CIT vs. National Taj Traders [1980] 121 ITR 535(SC), the question before the Supreme Court was whether sub-section 2 to Section 263 would apply when at the time of issuing a direction by the ITAT directing the Commissioner(who had passed a revisional order u/s 263 of the Act) to give an opportunity of being heard to the assessee, the two year period of limitation had already expired? The Supreme Court held that even though the limitation period had expired when the ITAT directed to pass the revisional order afresh after giving the assessee an opportunity of being heard, a literal construction in the facts and circumstances ought to be avoided since it would produce a manifestly absurd/anomalous result. The Court held that the ITAT surely could not tie its hands and not adjudicate the matter, if it cancelled/set aside the Commissioners order that would amount to accepting the ITO’s order and if it accepted the Commissioners order, that would be perpetuating the erroneous order of the Commissioner, without giving any opportunity of being heard to the assessee.Also, that the legislature was fully aware that the time taken in pursuing the appeal before the ITAT and the consequential order thereon would be beyond a period of two years, and the Commissioner’s powers cannot be curtailed or attenuated based on this circumstance. Thus, the Court held that the Commissioner could exercise its powers under Section 263 notwithstanding the limitation period since sub-section 2 applies only to suo motu orders of the Commissioner and not to orders passed subsequent to a direction issued by any appellate authority.

The judgment pertains to the 1922 Act which had to be applied and which contained no corresponding provision though at the time the 1961 Act with sub-section 3 was already in force.

• Revision may be exercised even though rectification order u/s 154 is passed

In CIT vs. Ralson Industries Ltd. [2007] 288 ITR 322(SC), the Supreme Court held that simply because a rectification order is passed under Section 154 rectifying the order of assessment, it would not denude the Commissioner from exercising his revisional powers under Section 263 of the Act. The Court held that proceedings under Section 154 of the Act are distinct and power thereunder may be invoked in certain contingencies. It also held that the power of review is not exercisable in Section 154 proceedings and under Section 263 the Commissioner may also not pass an order but may make such enquiry as he thinks fit.

• Section 80HHCformula to be applied in the case of a composite business and if the ITO has applied the formula then the revision is not maintainable

In the case of Mysodet (P.) Ltd. vs. CIT [2008] 305 ITR 276(SC), the assessee purchased 105 computers at Rs. 90,91,063/- and the export sales stood at Rs. 90,91,063/-, thus there were no profits on the export sales. The ITO computed the export profits under Section 80HHC of the Act by applying the formula under Section 80HHC(3)(b) for Assessment Year 1990-1991. The Commissioner sought to revise the order of assessment since according to him, if there are no profits during the year from export, no deduction can be claimed under Section 80HHC.

The Supreme Court came to the conclusion that the ITO had correctly applied the formula since the assessee was engaged in a composite business of export and domestic sales. Thus, the exports profits would have to be determined to ascertain the true value of profits derived from export as distinguished from domestic profits by applying the formula under Section 80HHC(3)(b) i.e.

Deduction under S. 80HHC(Export Profits) =

Profits of business X Export Turnover
Total Turnover
The Court also held that the formula has to be applied irrespective of the actual amount received from export of goods out of India. In my opinion, the reason why the Court upheld the calculation of the ITO by applying the forumla even though it was manifest that there were no profits from the export sales during the year was because the objective behind Section 80HHC is to encourage exports and if some export sales have been carried out by an assessee, then some deduction is allowable even though there is, in reality, no profit accruing from the export sales. Thus, the formula is treated as an incentive to the assessee’s and if there is income exclusively from export turnover the profits of the business will be the deduction allowable whereas if there is income from a composite business, the formula will be applied to ascertain export profits even if there is actually no profit from export sales.

Thus, the order of assessment of the ITO was sustained.

• Revision not maintainable if the ITO has correctly assessed the amount of sale proceeds of foreign exchange already converted into rupees

In CIT vs. Chowgule & Co. Ltd. [1996] 218 ITR 384(SC), the assessee exported iron ore to persons in Japan and the purchasers opened Letters of Credit with the Indian Bank wherefrom the assessee received payment. The payment was agreed to be made in foreign currency and the Indian Bank converted the foreign currency into Indian rupees during the course of the accounting year which the assessee would duly account and offer as income. The Commissioner sought to revise the assessment and it was argued that Rule 115 of the Income Tax Rules, 1962 mandated conversion of all foreign currency received as well as receivable on the last day of the accounting year at the telegraphic transfer buying rate as per the said Rule. The Supreme Court held that if the foreign currency was already received by the Bank and converted into Indian rupees by the Bank during the course of the accounting year, then Rule 115 would have no application since the Rule states that only the amounts outstanding/receivable on the last day of the accounting period would be subject to the telegraphic transfer buying rate of such currency. Sub-clause 2 to Rule 115 which stated precisely that amounts received before the last day were not amenable to Rule 115, was held to be clarificatory.

• Revision partially allowed and matter remanded to AO to ascertain whether assessee entitled to deduction u/s 80HH and 80I

In the case of CIT vs. Bongaigaon Refinery and Petrochemical Limited [2012] 349 ITR 352(SC), the Supreme Court remanded the matter to the AO to decide on whether the assessee is entitled to the deduction under Section 80HH and Section 80I with respect to its petrochemical unit. The facts of the case are that the assessee BRPL had three units but did not maintain separate accounts for each unit. The AO allowed the deduction for Assessment Year 1992-1993 when income of the assessee-BRPL first came into existence with respect to its petrochemical unit. However, the Commissioner issued a show cause notice stating that since the accounts were not maintained unit wise, excess deduction was granted by the AO since the net profit(unit wise) under consolidated accounts could not be worked out and could be worked out only on the basis of total turnover. That this resulted in excess deduction to the assessee, since the net profit on which deduction is claimed, and on account of being calculated on total turnover had been inflated. The Supreme Court held that in order to avoid litigation between the parties, it was desirable that the unit wise accounts are prepared and culled out from the consolidated accounts by the Auditors, and placed before the AO for him to determine whether the net profits have been properly worked out for the deduction to be granted under Section 80HH and Section 80I of the Act.

• Revision permissible only when Commissioner is specific and is not permissible when inquiries on the issue have already been made by the AO before passing the order of assessment.

In the case of CIT vs. Gabriel India Ltd. [1993] 203 ITR 108(Bom)(HC), the Court held that what constitutes an erroneous order is one which is not in accordance with law or one which is carried out in undue haste. That there are two twin conditions to be satisfied before the power of revision can be exercised. The facts are that on account of merger of two plants, there was a relay out where the facilities were relocated and expenditure was incurred on that behalf. These were described by the assessee as ‘plant-relayout expenses’ and claimed as a revenue expenditure. The Commissioner did not agree and sought to revise the order of assessment passed by the ITO accepting the claim of the assessee of the expenses as revenue expenditure.

The Court held that the Commissioner himself did not state that the expenditure incurred was capital expenditure but simply directed the AO to recompute the allowability of the claim, which is impermissible. The Court held that the AO had made sufficient enquiries and the assessee had replied to the same and simply because the AO did not elaborately discuss the same in the assessment order that could not be ground for revising the order. That the Commissioner cannot substitute his opinion for that of the AO. That the order needs to be erroneous for the Commissioner to exercise his power under Section 263 of the Act. On these grounds the Court found favour with the assessee and dismissed the appeal.

• Revision not permissible if the AO has taken a possible view with respect to gifts received from abroad, AO not expected to enquire into the source of the source of donor, order of assessment even if silent would not make AO’s order erroneous, AO cannot be expected to enquire if order is erroneous/re-examine the matter.

In the case of CIT vs. Nirav Modi [2017] 390 ITR 292(Bom) (HC), the assessee had received gifts from donors located abroad. The gifts were received in previous years relevant to Assessment Years 2007-2008 and 2008-2009. The AO on enquiry as to the identity and creditworthiness of the donor accepted the claim of the assessee and did not note any details with respect to the gifts in the order of assessment. The Commissioner sought to revise the order of assessment by directing the AO to rexamine the claim of the assessee. The Revenue argued that in the absence of any detail in the order of assessment, no enquiry was made, and that the AO had not examined the donors. Therefore, that the order was rightly revised by the Commissioner. The Court held that enquiries were made by the AO and such enquiries need not reflect in the order of assessment especially if the AO has accepted the claim, for if the issues which have attained finality are discussed in the  the order of assessment, it would become an epitome and not a judicial order. That the order of assessment simply records the dissatisfaction of the AO with respect to amounts claimed or where tax has escaped assessment. Also, that neither is the AO expected to enquire into the source of the source of the alleged funds as that is not mandated by law. Also, that the Commissioner simply directed the AO to re-examine the claim and that was not permissible. The Commissioner had to be specific and must arrive at findings as to how the order in question is erroneous. That duty cannot be cast on the AO by directing him to examine if his own order is erroneous. Lastly, that the view taken by the AO was certainly a possible view. In the facts and circumstances, the appeal was dismissed.

• Revision not permissible when in the facts and circumstances a possible view exists as to the cessation of liability

In Grasim Industries Ltd vs. CIT [2010] 321 ITR 92(Bom)(HC), the Court held in a reference from the ITAT that when a possible view was taken by the AO that the liability of the assessee had not ceased thus not warranting the addition of the amounts claimed as deduction in earlier years, there was no reason for the Commissioner to revise the order of assessment. The facts in a nutshell are that the assessee was obligated to purchase timber at the price stipulated as per notifications under the Kerala Forest Produce (Fixation of Selling Price) Act, 1978. Thus, the assessee incurred a liability of Rs. 1.75 Crores for Assessment Years 1980-81, 1981-1982 and 1982-1983 and claimed a deduction for the payments made to the Government as revenue expenditure. The notifications were challenged by the assessee before the Kerela High Court and the assessee was successful there. Thus, the Commissioner sought to revise the order of assessment on the ground that since the Kerela High Court had quashed the notifications, the liability had ceased but the amounts were not written back to the P&L A/c. Thereafter, an Expert Committee was constituted under the Act and the Committee recommended the price to be fixed between 324/- to 384/- metric per ton between 1978-1981. Thereafter, the State Government issued fresh notifications under the Act and these were challenged by the assessee by writ petitions before the Kerela High Court. The assessee was successful once more. The government then approached the Supreme Court and the Court directed the assessee to pay 60% of the price stated in the notification, less the price already paid. The matter was ultimately settled. In these circumstances, the Bombay High Court held that the circumstances such as (i) the report of the expert committee, (ii) the issuance of fresh notifications, (iii) the challenge to the notifications, (iv) the judgment of the Kerela High Court stating that no amount was payable, (v) the appeal to the SC where the SC decided as above, and ultimately the settlement between the parties all would show that the AO was possibly correct in holding that the liability had not ceased. Thus, the reference was answered in favour of the assessee.

In my view, since the date of the order of the AO has not been provided, it would be difficult to know which events had or had not transpired when the view was taken. If the view was taken immediately after the Kerela High Court quashed the notifications, the view could not be a possible view for then in the absence of an appeal, the AO ought to have treated the amount of 1.75 crores as an addition to total income. But it seems logical that the AO had taken a view after the ultimate settlement between the parties, in view of and with respect to the findings/analysis of the Hon’ble Court.

• Revision permissible if AO has not applied his mind in allocating costs to eligible units of assessee while computing deduction under Section 80HH, Section 80-I and Section 80-IA of the Act; Not permissible if ITO records that interest expense is not borne by the units; Not permissible if agency commission has already been allocated to the units; Not permissible if cess on green tea leaf is allowable as a deduction and has been allowed

In CIT vs. Hindustan Lever Ltd. [2012] 343 ITR 161 (Bom) (HC) , the Court held that the research and development expenditure incurred by the assessee was rightly treated by the Commissioner to be a common expenditure attributable to three units of the assessee and therefore, the expenditure must have been necessarily allocated amongst the units. The ITO allowed the deduction of the R&D expenditure as revenue expenditure to compute the income under the head profits and gains of business and profession. The Commissioner therefore stated that as a logical corollary, the expenditure must be allocated amongst the units for computing the profits for the purpose of the deduction under Section 80HH, Section 80I and Section 80IA of the Act. In my view, this was permissible since under these sections, the deduction is allowed on the net income/net profits, with respect to the assessment year in questioni.e 1998-1999. Thus, the net profits have to be first computed and the deduction is allowable only on the net profits warranting the expenditure to be allocated amongst the units especially if the expenditure is a common expenditure incurred by the units. This was confirmed by the Bombay High Court as being a common expenditure to be allocated amongst the units. The two explanations offered by the assessee were also held to be not acceptable and at variance to conclude that the AO had not applied his mind to the issue. Thus, the order of the Commissioner on this ground was upheld. With respect to the agency commission, the assessee pointed out that the expenses were already allocated to the units and thus no interference was warranted. This averment was accepted by the Bombay High Court. As regards interest expenditure, the Bombay High Court held that the units had sufficient funds/accruals and the balance sheet itself revealed investment of own funds and not borrowed funds and therefore, this expenditure could not be allocated to the units to compute the profits subject to deduction. As regards the deduction of cess payable on green tea leaf it was held that 40% of agricultural income from manufacturing is to be income liable to tax and the deduction therefrom is permissible. Thus, the Commissioners order was upheld albeit on the ground of the R&D expenditure.

• Revision not permissible if AO has applied his mind while deciding on the proportion of capital expenditure disallowable under the Act

In the case of CIT vs. Fine Jewellery (India) Ltd. [2015] 372 ITR 303(Bom) (HC) , the  court has held that if the AO has applied his mind while deciding upon the proportion of disallowable capital expenditure, then the Commissioner is not justified in altering that position and revising the order of assessment. The facts of the case are that for AY 2006-2007, the assessee had incurred miscellaneous expenses in the nature of legal expenses, training expenses, advertisement expenses, for setting up a brand ‘Nirvana’ to the tune of Rs. 2.94 Crores. Certain amount was also treated as deferred revenue expenditure and written off over a period of three years i.e 2006-2007, 2007-2008, 2008-2009. The Commissioner sought to treat the entire amount of expenditure of Rs. 2.94 Crores as capital expenditure. The Court noted that the AO had made sufficient enquiries which were replied to by the assessee and simply because there was no discussion in the order of assessment on the same, that would not tantamount to the AO not applying his mind on the issue on hand, and even otherwise the amount could be claimed as revenue expenditure as the view taken by the AO was certainly a possible a view.

In my opinion, on the latter part of the judgment, either the expenditure is revenue or capital so the principle of taking a possible view cannot arise. It is either the AO has wrongly allowed the claim or rightly allowed it. As stated in Malabar Industrial by the Supreme Court, an incorrect application of law could amount to the order of assessment being erroneous and prejudicial to the interests of the Revenue. Thus, the vital question before the Court was whether the AO had rightly allowed the claim or wrongly allowed it and it would be irrelevant if enquiries are made by the AO and responded to by the assessee if ultimately the order allowing the claim is erroneous and prejudicial to the interests of the Revenue. Therefore, in my opinion, the law must be stretched and it cannot be confined to the view of the AO, after discussion with the assessee. This would mean that in every case, where the AO makes an enquiry and that is replied to by the assessee, the view taken by the AO would be a correct view no matter howsoever erroneous the view is. This cannot be countenanced. Thus, the application of law by the AO to the issue at hand must be enquired into and if it is a possible view then there can be no reason to hold that the order of assessment is erroneous and prejudicial to the interests of the Revenue. Also, the Commissioner must test the result of the inquiry failing which the order of the AO cannot be revised(see DG Housing Projects Ltd. below)

• Revision impermissible if Commissioner does not provide adequate reasons in support of his revisional order, impermissible if AO has made necessary inquiries but those have not been reflected in the assessment order

In the case of CITvs. Vikas Polymers [2012] 341 ITR 537(Delhi)(HC), the Commissioner sought to revise the order of assessment for AY 1998-1999 on the ground that the capital investments of the partners of the firm, the unsecured loan received from a chit fund, and the manufacturing account of the assessee were not examined. The assessee offered an explanation that the amounts invested were withdrawn from the Bank account and the details of the source were provided, the amount under the chit fund represented money withdrawn from the chit fund pursuant to an auction. The Commissioner in reply stated that no details/documents were called for by the AO with respect to the capital investment and with respect to the manufacturing account, the current years’ results were not compared to the previous years’ results, even in respect of expenses. That the purchases were not examined for their genuineness. Therefore, no inquiry has been made by the AO of the manufacturing account.

The Court held that if the AO has made inquiries and replied to by the assessee, then exercise of revisional powers are not warranted. Also, want of evidence cannot be a ground to disturb the findings of the AO or to state that the AO has shirked his responsibility. That the Commissioner should have provided reasons in support of revising the assessment order. That the orders of assessment of the chit fund company and the partners duly reflect the amounts in issue.

In my view, the order of the Commissioner invoking his revisional powers could have been upheld on atleast the issue of the non-examination of the manufacturing account by the AO. In the notice as well as in the reply, the Commissioner has made it clear that the AO has not examined the manufacturing account and has not compared the current year results to that of the previous year, even in respect of expenses, also that the genuineness of the purchases has not been examined. These grounds most certainly make out a prime facie case in favour of the Commissioner, as the AO has not applied his mind to the issue nor has he enquired into the issue properly. The order of the Commissioner on these grounds are not even dealt with by the High Court in the judgment. Even on merits, the manufacturing account if not in conformity with the previous years’ results (even with respect to expenses) would warrant an inquiry. Further, if the amounts in issue have been subject matter of assessment of the chit fund company and the partners, that would itself indicate that the amounts were treated as taxable in the assessment orders.

• Revision not permissible if AO has passed valid order giving effect to order of Commissioner(Appeals); impermissible if assessment order is finalised on a particular issue and Section 153A proceedings are invoked having no bearing on such an issue;

In the case of CIT vs. Murli Agro Products Ltd.(Income Tax Appeal No. 36 of 2009) dt 29.10.2010, the Bombay High Court has held that pursuant to Section 153A proceedings adopted by the Revenue, only those assessments which have not been finalised, abate, but in respect of those assessments which have been finalised and an appeal, revision, or rectification proceeding is pending, the assessment does not abate. Similarly, on annulment of the Section 153A orderof assessment, the pending assessments which earlier abated stand revived.

The Commissioner sought to revise the order giving effect to the direction of the Commissioner(Appeals) deleting the addition made under Section 153A by the AO. The Commissioner sought to revise the order on the ground of the Section 80HHC deduction when this was not an issue before the Assessing Officer while passing the Section 153A order. Therefore, the Court held that when the original assessment had attained finality, that could not be disturbed by the Section 153A order unless the order records that pursuant to the search, material was unearthed which had a bearing on the deduction under section 80HHC. The Commissioner also sought to revise the order on the ground that by the order of the Commissioner(Appeals), the total income was 30% lesser than the book profit and therefore, Section 115JA ought to have been invoked. The Court refuted this contention on the ground that the AO was bound to follow the direction of the Commissioner(Appeals) especially when no direction was made to compute the book profit.

In my opinion, it seems practically difficult to ignore a provision when the computation is in the face of the provision in question. If the total income was indeed 30% lesser than the book profit consequent to the direction of the Commissioner(Appeals), Section 115JA could not be ignored and 30% of such book profit ought to be allowed to be computed by the AO on passing of the order giving effect. Atleast if this is not permissible, some reasons must have been provided by the Court why the revision on this ground was impermissible.

• Revision impermissible if AO has dealt with the assessee’s submission and has applied his mind while computing deduction under Section 80HHC of the Act.

In the case of CIT vs. Design and Automation Engineers (Bombay) Pvt. Ltd. [2010] 323 ITR632 (Bom)(HC), the AO had issued called for the details of expenses of the assessee before passing the order under Section 143(3) of the Act. In the order of assessment, the AO allowed the 80HHC deduction on the identifiable export profits. The Revenue admitted that the AO’s view was a possible view, but stated that the AO had not applied his mind in computing the deduction. The Bombay High Court held that it cannot be said that the AO had not applied his mind while allowing the deduction only because there was no mention of details in the assessment order. The queries had been made by the ITO and replied to by the assessee with full details and explanations, and that would suffice. Thus, the order cannot be said to be erroneous or prejudicial to the interests of the Revenue.

In my view, there was no judgment mentioned of any jurisdictional high court which covered the present case and therefore, the Court could have inquired whether the AO had proceeded on an incorrect application of the law. The case of Mysodet of the Supreme Court (discussed above) was available before the judgment pronounced in this case. The AO in allowing the export profits on the ground that they were identifiable and nothing more is necessary, has committed a serious mistake. The formula has to be applied in the case of a business with both export and domestic sales and in the absence of applying the formula, the deduction under section 80HHC has been allowed to a much larger extent.

• Revision not permissible if inquiries had been made by AO and CIT does not contest the result of such inquiries on merits; CIT cannot have doubts while passing the order under Section 263 and cannot direct the AO to check whether the order is erroneous and prejudicial to the interests of the Revenue

In the case of ITO vs. DG Housing Projects Ltd[2012] 343 ITR 329(Delhi)(HC) , the  Court has held that there are two situations which may arise, that either the inquiries have not been made by the AO, then the revision is possible, or the inquiries have been made by the AO then it is difficult to uphold the validity of the revision and the CIT must then contest the result of such inquiry on the merits.

The assessee had sold a property and after indexation declared a capital loss. The said property was purchased by the respondent-assessee in 1997 for Rs. 69.63 lacs and was sold in 2003 for Rs. 70 lacs. The property was yielding monthly rent of Rs. 2.05 lacs per month and was sold to the tenant in occupation. The AO accepted the computation but made an addition of Rs. 7500/-. The CIT sought to revise the order and stated inter alia that an asset of such high yielding value could not be disposed of at such a low rate. Thus, the order was erroneous and prejudicial to the interests of the Revenue.

The Court held that in cases where inquiries have been made by the AO, the CIT must himself make inquiries and come to the conclusion that the order is errorneous, that the order has to be on merits of the result of the inquiry, that the AO acts as an investigator and an adjudicator, that the CIT cannot direct the AO to see if the order is erroneous or reconsider the order, that nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous.

The Court held that the CIT had reservations about the AO’s conclusion but that would not be enough, unless the CIT had himself examined the aspect of the matter on merits and come to the conclusion that the transaction was not a bona fide transaction on merits. The Court held as follows:

As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not.

• Explanation 2 inserted with effect from 1-6-2015 to apply only in the circumstances set out in the Explanation and is a deeming provision and is prospective in nature

In the case of Mahesh Kumar &Ors. vs. CIT (I.T.A. Nos. 1303, 1307, 1309, 1310, 1312, 1313 and 1316/Kol/2019) dt 29.11.2019, the Kolkata Bench of the ITAT has referred to the decision of Bodhisattva Chattopadhyay Vs. CIT (ITA No. 1314/Kol/2019)dt15.11.2019, which has expounded on Section 263 in great detail. The Hon’ble Bench in Bodhisattva held that the Explanation is a deeming provision and that it is settled law that a deeming provision is to be construed strictly. That the explanation can come to the rescue of the CIT or PrCIT only when one of the four conditions mentioned in the Explanation are satisfied or else it cannot be deemed that the order is erroneous or prejudicial to the interests of the Revenue. As regards the opinion of the CIT to revise the order, and the scope of the Explanation, it was also held as follows:

Coming to the expression in Explanation-2 "in the opinion of the Ld. CIT", it cannot be an arbitrary opinion bereft of facts or law by the Ld. CIT. It must be the considered opinion of the CIT which is based on the correct facts and in accordance to well established principles of law. The aforesaid clause only provides for situation where inquiries or verifications should be made by reasonable and prudent officer in the context of the case. Such clause cannot be read to authorize or give unfettered powers to the Commissioner to revise each and every assessment order. The applicability of the clause is thus essentially contextual. It has to be the opinion of a prudent person instructed in law.Moreover, it has to be kept in mind that an Explanation to substantive section should be read as to harmonize with and clear up any ambiguity in the main section and should not be so construed as to widen the ambit of the section as held by the Hon’ble Supreme Court in Bihta Cooperative Development Cane Marketing Union Ltd. Vs. Bank of Bihar, MANU/SC/0260/1966 : AIR 1967 SC 389 and M/s. Oblum Electrical Industries Pvt. Ltd., Hyderabad vs. Collector of Customs, Bombay – MANU/SC/0856/1997 : AIR 1997 SC 3467 at page 3471 and also see Justice G.P. Singh, Principal of Statutory Interpretation 234 Lexus 2016. It has to be kept in mind that while the Commissioner is exercising his revisional jurisdiction over the assessment order, he has to exercise his power in an objective manner and not arbitrarily or subjectively since he is discharging quasi-judicial powers vested in him while doing so. Thus according to us, Explanation (2) inserted by the Parliament u/s. 263 cannot override the main section i.e. sec. 263(1) of the Act.

In Shri Narayan Tatu Rane vs. ITO [2016] 70 taxmann.com 227(Mum)(Trib.) www.itatonline.org,it was held that whether the Explanation has prospective or retrospective application will not be relevant. The scope of the explanation was examined and it was held that it is not in every case that the Commissioner may revise the order, but it must be examined whether the AO has passed the order after making inquiries or verification which a prudent person would make.

In my view, Explanation 2 to Section 263 of the Act, must be interpreted to have prospective effect only. Firstly, the situations/conditions mentioned therein are exhaustive and if retrospective effect is given to the explanation, then the revision would not be permissible unless any of the four conditions are satisfied. Therefore, the insertion of the explanation is a material alteration of law and is more specific in nature, and not merely clarificatory or declaratory for it is obvious that in the past, orders of assessment of the AO have been revised even when one of the four conditions are not satisfied. Thus, to impose retrospective application on the Section would be stretching the law too far as in my opinion the explanation severely curtails the power of the Commissioner to revise orders of assessment. Take for example a case, when proper inquiries and verification have been made and the relief given is exorbitant on incorrect assumption of facts and law. If one takes the Explanation into consideration, no revision is permissible. Thus, to make the section have retrospective application is difficult. The principles of Malabar Industrial pronounced by the Supreme Court is already put into jeopardy where the Supreme Court held that if the AO proceeds on an incorrect assumption of facts or law, the order would be prejudicial to the interests of the Revenue and it is not that revision is confined to loss of tax only.

4. Explanation 2 although of wide amplitude has its limits and cannot be invoked by the CIT arbitrarily

In Torrent Pharmaceuticals Ltd. v.s. DCIT(2018) 173 ITD 130 (Ahd) (Trib)(ITA No. 165/Ahd/2018 dt 8.8.18), the Tribunal has held that although Section 263 is very wide, the revisional power cannot be exercised arbitrarily. That Section 263 has its limits and cannot apply to each and every inadequacy in inquiries or verification by the AO. The scope of CBDT Circular was explained in the order and the Circular notes that the issue of revision under Section 263 is a contentious one and that is why the explanation is introduced to deem certain order to be erroneous and prejudicial to the interests of the Revenue. That the object of insertion of the Explanation is probably to avoid the AO from passing orders of assessment without any inquiry in a routine manner or has not applied his mind on important aspects. That some inquiry is necessary to be done by the CIT before he proposes to revise the order of the AO. In a nutshell, that the inquiry or verification which is not made must have an important bearing on the issue involved in the order of assessment and if certain inquiries not being too relevant are not made that would not per se confer power on the Commissioner to revise the order.

• Revision by Commissioner can be challenged in writ jurisdiction but there must be material to come to the conclusion that the order of the Commissioner suffers from a jurisdictional error

In Indian Metals and Ferro Alloys Ltd. vs CIT [1993] 203 ITR 729(Orissa)(HC), the court has held that if the AO’s order is otherwise proper, then points to be raised by the assessee can be raised before the Commissioner and need not be entertained in writ jurisdiction. That such points can be raised by the assessee in the reply to the show cause notice and need not be entertained by the writ court. That when an indepth analysis of the materials are required, the writ petition may not be maintainable.

In S.R. Koshti vs. CIT[2005] 276 ITR 165 (Guj)(HC) , the  court entertained the Writ Petition filed by the Petitioner-assessee against the order passed by the Commissioner under Sections 263 and 264 of the Act and even directed payment of refund with interest to the assessee. The Court held that if the AO adopted Section 154 proceedings and himself gave relief to the assessee, and the Commissioner did not dispute the relief to be granted to the assessee in his revisional order/notice, then no revision is permissible and the Court quashed the proceedings initiated under Section 263 of the Act.

Thus, it is clear, that in appropriate facts and circumstances, even a writ petition will lie against an order passed under Section 263 of the Act.

• If an Appeal is not filed against the revisional order then no appeal can be filed against the order passed by the AO giving effect to the revisional order

In the case of Crew B.O.S. Products Ltd. vs. ACIT [2012] 135 ITD 542(Delhi) (Trib), the Tribunal held that if no appeal is preferred against the revisional order, then no appeal lies against the order giving effect to the revisional order. In my view, this seems to be a correct application of law by the Tribunal since if the revisional order itself is unchallenged, it would be futile in contesting the order of assessment passed by the AO. It could also spell out the mala fides of the assessee who would like to delay the proceedings and also try to take the benefit of the appeal to the CIT(A) instead of going straight to the Tribunal.

Conclusion

Upon reading even a few of the above judgments, one can easily notice the twin conditions necessary to sustain the order of the CIT and the dependence upon these conditions for the Revenue to succeed if the matter reaches Court/Appellate forum. Also, the assessee must always establish that these twin conditions are to be satisfied before the Commissioner’s order can be validly sustained. Thus, a possible view of the AO may result in quashing the CIT’s order. A possible view is one where even if the view results in loss of tax to the Revenue, the view is plausible and sustainable in the facts and circumstances of the case. In my opinion, a plausible and sustainable view is identified if the view is such that it can reasonably be stated to have been made, that it does not suffer from any error to the extent that it needs to be revised.

In cases where an inquiry is made by the AO, the Revenue is bound to test such inquiry on the merits. If it does not do so, then the inquiry of the AO and the order thereon is to be upheld. In cases where no inquiry is made by the AO and no details are present in the order of assessment, the revision is permissible. Therefore, whether or not the revision is permissible will depend each time on the facts and circumstances of the case in question.

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