{"id":1465,"date":"2013-06-23T13:46:42","date_gmt":"2013-06-23T08:16:42","guid":{"rendered":"http:\/\/www.itatonline.org\/articles_new\/?p=1465"},"modified":"2013-07-14T15:18:49","modified_gmt":"2013-07-14T09:48:49","slug":"s-263-guide-to-the-law-on-revision-of-assessments","status":"publish","type":"post","link":"https:\/\/itatonline.org\/articles_new\/s-263-guide-to-the-law-on-revision-of-assessments\/","title":{"rendered":"S. 263: Guide To The Law On Revision Of Assessments"},"content":{"rendered":"
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\"CA<\/div>\n

S. 263: Guide To The Law On Revision Of Assessments<\/p>\n

CA Rahul Sarda
\nSection 263 of the Income-tax Act, 1961 confers wide powers on the Commissioner to revise any assessment which is “erroneous and prejudicial to the interests of the revenue”. While the section is widely worded, Courts have read in a number of checks and balances to ensure that the said power is not abused by the Commissioner. The author has carefully analyzed the entire law on the subject and identified all the core legal principles\n<\/div>\n

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Link to download this article in pdf format is at the bottom<\/a><\/span><\/div>\n<\/p>\n

Section 263 of the Income-tax Act, 1961 (the “Act”) confers the power upon the Commissioner to call for and examine the records of a proceeding under the Act and revise any order if he considers the same to be erroneous and prejudicial to the interests of the revenue. These are wide powers and have been subject to reasonable checks and balances to prevent their arbitrary use. For example, requirement of notice, opportunity of hearing etc. Section 263 of the current Act corresponds to section 33B of the Income-tax Act, 1922 and has been on the statute book since 1961, albeit with certain modifications. The law of section 263 has been comprehensively laid down by the judicial authorities in a number of decisions. The following paragraphs contain a gist of the law on the subject.<\/p>\n<\/p>\n<\/div>\n

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When the Assessing Officer takes one of the two views permissible in law and which the Commissioner does not agree with and which results in a loss of revenue, it cannot be treated as erroneous order prejudicial to the interest of revenue, unless the view taken by the Assessing Officer is completely unsustainable in law<\/p><\/div>\n

1. Pre-conditions for invoking Section 263<\/h2>\n<\/p>\n

1.1 Twin conditions<\/h2>\n<\/p>\n

Recourse to Section 263(1) cannot be taken if the impugned order is erroneous but not prejudicial to the interest of the revenue; or if it is prejudicial to the interest of the revenue but not erroneous.<\/p>\n<\/p>\n

Malabar Industrial Co. Limited v. CIT [2000] 243 ITR 83 (SC), CIT v.Vikash Polymers [2010] 194 Taxman 57 (<\/em>Delhi<\/em>) (HC)<\/em><\/p>\n<\/p>\n

The Commissioner gets power of revision under Section 263 where the assessment order is erroneous and prejudicial to the interest of revenue. The twin conditions are required to be satisfied simultaneously.<\/p>\n<\/p>\n

S. Murugan<\/em> v. ITO [2012]135 ITD 527 (Chennai) (Trib.), J. K. Construction Co. v. ITO [2007]162 Taxman 46 (<\/em>Jodhpur<\/em>) (Trib)<\/em> <\/p>\n<\/p>\n

1.2 Meaning of the term “erroneous”<\/h2>\n<\/p>\n

Non application of mind to relevant material or an incorrect assumption of facts or an incorrect application of law will satisfy the requirement of order being erroneous.<\/p>\n<\/p>\n

CIT v. Jawahar Bhattacharjee [2012] 341 ITR 434 (Gauhati) (HC) (FB)<\/em> <\/p>\n<\/p>\n

1.3 Meaning of the term “prejudicial to the interest of the revenue”<\/h2>\n<\/p>\n

The term “prejudice” contemplated under section 263 is prejudice to the income-tax administration as a whole.<\/p>\n<\/p>\n

Pratap Footwear v. ACIT [2003] SOT 638 (<\/em>Jabalpur<\/em>) (Trib.)<\/em>.In the case of CIT v. Bhagwan Das [2005] 272 ITR 367 (All.)(HC),<\/em> the High Court held that non-application of mind by the Assessing Officer was prejudicial to the interest of the revenue.<\/p>\n<\/p>\n

Every loss of revenue as a consequence of the order of the Assessing Officer cannot be treated as prejudicial to the interest of revenue.<\/p>\n<\/p>\n

Hero Briggs & Stratton Auto Ltd. v. CIT [2007] 161 Taxman 127 (<\/em>Delhi<\/em>) (Trib.)<\/em><\/p>\n<\/p>\n

1.4  Tax effect<\/h2>\n<\/p>\n

In absence of any finding that there is loss of revenue, interference under section 263 is not justified.<\/p>\n<\/p>\n

CIT v. G. R. Thangamaligai [2003] 259 ITR 129 (<\/em>Mad.<\/em>) (HC)<\/em> <\/p>\n<\/p>\n

Where the tax effect because of an order passed by the Assessing Officer is NIL, such order even if erroneous being prejudicial to the interest of the revenue, is not open to revision under Section 263 of the Act.<\/p>\n<\/p>\n

Punjab<\/em> Wool Syndicate v. ITO [2012] 17 ITR 439 (<\/em>Chandigarh<\/em>) (Trib.)<\/em> <\/p>\n<\/p>\n

2. Scope of revision under Section 263<\/h2>\n<\/p>\n

The Assessing Officer was held entitled to consider only those grounds which were considered by the Commissioner and not any other items to make fresh assessment.<\/p>\n<\/p>\n

CIT v. D. <\/em>N. Dosani<\/em> [2006] 280 ITR 275 (Guj.)(HC)<\/em> <\/p>\n<\/p>\n

Revision is not like reopening of assessment, entire assessment is not opened before the Assessing Officer.<\/p>\n<\/p>\n

Geometric Software Solutions Co. Ltd. v. ACIT [2009] 32 SOT 428 (Mum.)(Trib.)<\/em> <\/p>\n<\/p>\n

The error envisaged by Section 263 is not one that depends on possibility or guess work, but it should actually be an error either of fact or of law.<\/p>\n<\/p>\n

ACIT v. Technip <\/em>Italy<\/em> Spa [2006] 150 Taxman 13 (<\/em>Delhi<\/em>) (Trib.), Pratap Footwear v. ACIT [2003] SOT 638 (<\/em>Jabalpur<\/em>) (Trib.)<\/em> <\/p>\n<\/p>\n

2.1 Orders that can be revised<\/h2>\n<\/p>\n

Section 263 is not limited to exercising revisional powers qua order of assessment only; it would take within its sweep even orders wherein either the proceedings are dropped or proceedings are filed.<\/p>\n<\/p>\n

New Jagat Textile Mills (P.) Ltd. v. CIT [2006] 282 ITR 399 (Guj)(HC)<\/em> <\/p>\n<\/p>\n

Income-escaping assessment order passed under section143(3), r.w.s. 147, is an assessment order passed by Assessing Officer and therefore, any issue, which Commissioner thinks that Assessing Officer has not considered in the said assessment, can be brought to life by Commissioner in exercise of his powers under section 263.<\/p>\n<\/p>\n

Spencer & Co. Ltd. v. ACIT [2012] 137 ITD 141 (Chennai) (Trib) (TM)<\/em><\/p>\n<\/p>\n

Any communication by the Assessing Officer under Section 195(2) that disposes of application made under section 195(1) and determines liability towards tax to be deducted at source in accordance with provisions of section 195(2), is an order for purposes of section 263.<\/p>\n<\/p>\n

Board of Control for Cricket in India v. DIT (Exemption) [2005] 96 ITD 263 (Mum.)(Trib.)<\/em><\/p>\n<\/p>\n

The order passed by the authority, which is subordinate to the Commissioner, to give effect to the orders of the Tribunal is covered under the phrase “any order”. Thus, invoking of power of revision under Section 263 by the Commissioner is within the permissible limits of the law. <\/p>\n<\/p>\n

Pentamedia Graphics Ltd. v. ACIT [2012] 17 ITR 302 (Chennai) (Trib.)<\/em><\/p>\n<\/p>\n

2.2 Can intimation under Section 143(1) be revised<\/h2>\n<\/p>\n

The Commissioner can exercise jurisdiction under section 263 in respect of assessment under section 143(1) as applicable after 1-4-1989.<\/p>\n

CIT v. Anderson Marine & Sons (P.) Ltd [2004] 266 ITR 694 (Bom.)(HC)<\/em><\/p>\n<\/p>\n

2.3 Non-initiation of penalty by the Assessing Officer<\/h2>\n<\/p>\n

Non-initiation of penalty proceedings by the Assessing Officer was held to be not good ground to invoke Section 263.<\/p>\n<\/p>\n

Master Vijay R Oswal v. ITO [2003] 87 ITD 98 (Rajkot)(Trib.)<\/em><\/p>\n<\/p>\n

On facts of the case, based on an understanding between the Department and the assessee, the Assessing Officer had acted to honour assurance given to assessee to not levy penalty, and thereby to safeguard fair name of the Department and, hence, his action could not be condoned as prejudicial to interest of revenue. It was held that the Commissioner could not direct Assessing Officer to initiate penalty proceedings.<\/p>\n<\/p>\n

Ambica Chemical Products (Regd.) v. ACIT [2003]86 ITD 1 (Visakhapatnam) (Trib.)<\/em><\/p>\n<\/p>\n

Contrary view<\/h2>\n<\/p>\n

However, in these cases, it was held by the High Court that the Commissioner can revise the order of the Assessing Officer dropping penalty proceedings.<\/p>\n<\/p>\n

R.A. Himmatsingka and Co. v. CIT [2012] 340 ITR 253 (Patna) (HC), CIT v. BrajBhushan Cold Storage [2005] 275 ITR 360 (All.) (HC)<\/em><\/p>\n<\/p>\n

2.4 Substitution of judgement of the Commissioner<\/h2>\n<\/p>\n

Section 263 does not visualize a case of substitution of judgment of Commissioner for that of the Assessing Officer, unless the decision is held to be erroneous.<\/p>\n<\/p>\n

Antala Sanjaykumar Ravjibhai v. CIT [2012] 135 ITD 506 (Rajkot) (Trib.), Manish Kumar v. CIT [2012] 134 ITD 27 (Indore) (Trib.)<\/em><\/p>\n<\/p>\n

Order passed by Assessing Officer in accordance with law, judicial pronouncements and after considering relevant replies duly supported by evidence cannot be branded as erroneous, merely because Commissioner is of other view or in his opinion order passed is weak and not a detailed order.<\/p>\n<\/p>\n

Allied Engineers v. CIT [2009] 180 Taxman 70 (Mag.) (Delhi) (Trib.)<\/em><\/p>\n<\/p>\n

2.5 Can the assessee make a new claim<\/h2>\n<\/p>\n

Assessee is not eligible to claim any new benefit in assessment proceedings pursuant to section 263.<\/p>\n<\/p>\n

ACIT v. ITW India (P) Ltd. [2010] 40 SOT 348 (Hyd.) (Trib.)<\/em><\/p>\n<\/p>\n

Where assessee did not prefer any appeal against a revision order of the Commissioner, no ground relating to revision order could be taken in appeal against fresh assessment order passed giving effect to revision order.<\/p>\n<\/p>\n

Crew B.O.S. Products Ltd v. ACIT [2012] 135 ITD 542 (Delhi) (Trib.)<\/em><\/p>\n<\/p>\n

3. Principles of natural justice<\/h2>\n<\/p>\n

The notice must mention how the impugned order is prejudicial to the interests of the Revenue.<\/p>\n<\/p>\n

Brahma Builders v. DCIT [2012] 77 DTR 249 (Pune) (Trib.)<\/em><\/p>\n<\/p>\n

The show-cause issued must indicate the material and the reasons; and the order under Section 263 should not be contrary to the existing material and reasons for revision.<\/p>\n<\/p>\n

ShyamBiri Works (P) Ltd. v. ACIT [2003] 84 ITD 124 (All.)(Trib.)<\/em><\/p>\n<\/p>\n

Before exercising revisional powers, the assessee must be called, his explanation sought for and examined by Commissioner, and thereafter, if Commissioner is of the view that order is erroneous and prejudicial to interest of revenue, Commissioner may pass revisional orders.<\/p>\n<\/p>\n

CIT v. Vikash Polymers [2010] 194 Taxman 57 (Delhi) (HC)<\/em><\/p>\n<\/p>\n

The Commissioner must pass a speaking order.<\/p>\n<\/p>\n

Jewel of India v. ACIT [2003] 87 ITD 527 (Mum.)(Trib.)<\/em><\/p>\n<\/p>\n

Granting an opportunity to comply with a query raised in a proceeding under Section 263 within less than a day, could not be held to be a reasonable opportunity of hearing.<\/p>\n<\/p>\n

Peerless General Finance & Investment Co. Ltd. v. ACIT [2005] 5 SOT 17 (Kol.)(Trib.)<\/em><\/p>\n<\/p>\n

Revision order passed by the Commissioner under Section 263 of the Act on a ground in addition to the grounds mentioned in his show cause notice issued cannot be sustained.<\/p>\n<\/p>\n

CIT v. Ashish Rajpal [2009] 320 ITR 674 (Delhi) (HC), CIT v. Contimeters Electricals (P) Ltd. [2009] 317 ITR 249 (Delhi) (HC), CIT v. D. N. Dosani [2006] 280 ITR 275 (Guj.) (HC)<\/em><\/p>\n<\/p>\n

As the Commissioner did not consider the merits of the objections raised by the assessee to the show cause notice, the matter was remanded to CIT for adjudication and to record his findings on the objections of the assessee.<\/p>\n<\/p>\n

Religare Finvest Ltd. v. CIT [2013] 152 TTJ 647 (Delhi) (Trib.)<\/em><\/p>\n<\/p>\n

When the Assessing Officer has specifically mentioned in the order that books of accounts along with purchase \/ sales, invoices, ledgers, bank accounts were examined, verified and test checked, setting aside by Commissioner, in absence of any finding that Assessing Officer’s order is factually incorrect, and not justified.<\/p>\n<\/p>\n

Vijay Kumar Megotia v. CIT [2010] 3 ITR (T) 760 (Pat.)(Trib.)<\/em><\/p>\n<\/p>\n

4. Change of opinion<\/h2>\n<\/p>\n

4.1 Two views are possible- Revision is not valid<\/h2>\n<\/p>\n

When the Assessing Officer takes one of the two views permissible in law and which the Commissioner does not agree with and which results in a loss of revenue, it cannot be treated as erroneous order prejudicial to the interest of revenue, unless the view taken by the Assessing Officer is completely unsustainable in law.<\/p>\n<\/p>\n

CIT v. Max India Limited [2007] 295 ITR 282 (SC)
\n Malbar Industries Co Ltd v. CIT [2000] 243 ITR 83 (SC)<\/em><\/p>\n<\/p>\n

This decision of the SC has been followed by the Bombay, Delhi, Madras, Punjab & Haryana, Gujarat High Courts and a number of Tribunals in the country.<\/p>\n<\/p>\n

In one case, where the view of the Assessing Officer had also been expressed by the Special Bench of the Tribunal, revision under Section 263 was held to be invalid.<\/p>\n<\/p>\n

Anik Development Corporation v. ACIT [2011] 44 SOT 100 (UO) (Mum.)(Trib.)<\/em><\/p>\n<\/p>\n

Even an audit objection and a possibility of a second view was held to be reason good enough for not invoking Section 263.<\/p>\n<\/p>\n

CIT v. Sohana Woollen Mills [2007] 296 ITR 238 (P&H) (HC)<\/em><\/p>\n<\/p>\n

4.2 Can the Revenue change its earlier view<\/h2>\n<\/p>\n

The department is not entitled to reopen an assessment based on a fresh inference of transactions accepted by the revenue for several preceding years on the pretext of dubbing them as erroneous.<\/p>\n<\/p>\n

CIT v. Escorts Ltd. [2011] 338 ITR 435 (Delhi) (HC)<\/em><\/p>\n<\/p>\n

5. Revision on the basis of retrospective amendment<\/h2>\n<\/p>\n

An order which became erroneous due to retrospective amendment in the law would be amenable to revision under section 263.<\/p>\n<\/p>\n

CIT v. Vincast Engineering [2006] 280 ITR 385(All)(HC)<\/em><\/p>\n<\/p>\n

6. Revision on the basis of High Court judgement<\/h2>\n<\/p>\n

The Commissioner has no jurisdiction to revise an order on the ground that the order which based on a decision of the jurisdictional High Court, was prejudicial to revenue, even if the High Court decision relied upon is set aside by the Supreme Court, subsequently.<\/p>\n<\/p>\n

CIT v. G. M. Mittal Stainless Steel (P.) Ltd. [2003] 263 ITR 255 (SC)<\/em><\/p>\n<\/p>\n

Contrary view<\/h2>\n<\/p>\n

Even though the view of the Assessing Officer is in conformity with decision of jurisdictional High Court or any other High Court, the Commissioner is entitled to invoke jurisdiction under section 263 subject to condition that view of jurisdictional High Court is subject matter of an appeal before the Supreme Court.<\/p>\n<\/p>\n

Hindustan Tin Works Ltd. v. DCIT [2005] 92 ITD 101 (Del.) (Trib)<\/em><\/p>\n<\/p>\n

7. Application of mind by the Assessing Officer<\/h2>\n<\/p>\n

In these cases, since the Assessing Officer made proper enquiry and examined accounts, it could not be said that there was non-application of mind by him. Hence, the action under Section 263 was held invalid.<\/p>\n<\/p>\n

Antala Sanjaykumar Ravjibhai v. CIT [2012] 135 ITD 506 (Rajkot) (Trib.), Roshan Lal Vegetable Products (P) Ltd. v. ITO [2012] 51 SOT 1 (URO) (Asr.)(Trib.), Fine Jewellery (India) Ltd. v. ACIT [2012] 19 ITR 746 (Mum.)(Trib.)<\/em><\/p>\n<\/p>\n

When the order of the Assessing Officer was silent on the claim made by assessee, and allowed such claim, without any discussion, it was held that such an order was erroneous and prejudicial to the interest of revenue.<\/p>\n<\/p>\n

Bharat Overseas Bank Ltd. v. CIT [2013] 152 TTJ 546 (Chennai) (Trib.)<\/em><\/p>\n<\/p>\n

Areas where Assessing Officer had applied mind – Section263 proceedings not valid, areas where he didn’t apply mind – Section 263 proceedings valid.<\/p>\n<\/p>\n

CIT v. Hindustan Lever Ltd [2012] 343 ITR 161 (Bom.) (HC)<\/em><\/p>\n<\/p>\n

7.1 Requirement to pass a detailed order<\/h2>\n<\/p>\n

In one case, where the High Court found that the Assessing Officer examined all the details with respect to assessee’s claim of deduction, the order could not be said to be erroneous or was passed without application of mind merely because the same was not elaborate order.<\/p>\n<\/p>\n

CIT v. Design & Automation Engineers (Bombay) (P) Ltd. [2008] 323 ITR 632 (Bom.)(HC), Manish Kumar v. CIT [2012] 134 ITD 27 (Indore) (Trib.)<\/em><\/p>\n<\/p>\n

The Tribunal held that the order may be brief or cryptic but that by itself is not sufficient to brand assessment order as erroneous or prejudicial to interest of revenue.<\/p>\n<\/p>\n

Maithan International v. ACIT [2012] 134 ITD 393 (Kol.)(Trib.)<\/em><\/p>\n<\/p>\n

8. Enquiry by the Assessing Officer<\/h2>\n<\/p>\n

If it could not be said that it was “lack of enquiry” and therefore, the assessment order passed by the Assessing Officer cannot be revised under section 263.<\/p>\n<\/p>\n

CIT v. Sunbeam Auto Ltd. [2009] 289 Taxman 436 (Delhi) (HC), Vodafone Essar South Ltd. v. CIT [2011] 141 TTJ 84 (Delhi) (Trib.)<\/em><\/p>\n<\/p>\n

Mere lack of inquiry by Assessing Officer is not sufficient for revision under section 263.<\/p>\n<\/p>\n

CIT v. Vikas Polymers [2010] 194 Taxman 57 (Delhi) (HC)<\/em><\/p>\n<\/p>\n

Non-Examination of issue by Assessing Officer does not, per se, make the assessment order prejudicial to interest of revenue for revision under section 263.<\/p>\n<\/p>\n

Institute of Chartered Accountants of India v. DIT [2011] 136 TTJ 548 (Delhi) (Trib.)<\/em><\/p>\n<\/p>\n

Contrary view<\/h2>\n<\/p>\n

However, in the case of Anil Kumar v. ACIT [2005] 147 Taxman 5 (Mag.) (Delhi) (Trib.)<\/em>, it was held that since the onus lay on the assessee to establish the identity of the person making gift and his capacity to make a gift and that it has been actually received as a gift from donor was not satisfactorily discharged by assessee, the Assessing Officer was not justified in accepting said gifts without making further enquiry about creditworthiness of donors as well as source of funds. In this case the revision under Section 263 was held to be valid.<\/p>\n<\/p>\n

In another case, when the assessee claimed the advances to be trading advances but no material was available on record to suggest that persons to whom advances were made had any trading activity with assessee, the Assessing Officer ought to have conducted further enquiry before accepting assessee’s claim. In these circumstances, revision under Section 263 was held to be valid.<\/p>\n<\/p>\n

Super Cloth v. ACIT [2006] 99 ITD 300 (Chennai) (Trib.)<\/em><\/p>\n<\/p>\n

8.1    Possibility of further enquiry<\/h2>\n<\/p>\n

Merely because from a perfectionist point of view, it is felt that some more enquiries and verifications could have been made by Assessing Officer while making assessment\/assessment order cannot be declared to be erroneous and prejudicial to interest of revenue.<\/p>\n<\/p>\n

Salora International Ltd. v. Addl. CIT [2005] 2 SOT 705 (Delhi) (Trib.)<\/em><\/p>\n<\/p>\n

In the following cases, it was held that assessment framed under section 143(3) cannot be revised on ground that desired inquiry was not made.<\/p>\n<\/p>\n

Amrik Singh v. ITO [2003] 127 Taxman 87 (Mag.) (Chd.) (Trib.), Baljees v. ACIT [2003] 127 Taxman 150 (Mag.) (Chd.) (Trib.)<\/em><\/p>\n<\/p>\n

8.2 Where the Assessing Officer makes enquiry but does not mention the same in the assessment order<\/h2>\n<\/p>\n

Where the assessing officer during the scrutiny assessment proceeding raised a query which was answered by the assessee to the satisfaction of the assessing officer but the same was not reflected in the assessment order by him, a conclusion cannot be drawn by the Commissioner that no proper enquiry with respect to the issue was made by the assessing officer, and enable him to assume jurisdiction under section 263 of the Act.<\/p>\n<\/p>\n

CIT v. Ashish Rajpal [2009] 320 ITR 674 (Delhi) (HC), CIT v. Vikash Polymers [2010] 194 Taxman 57 (Delhi) (HC)<\/em><\/p>\n<\/p>\n

If the Assessing Officer allows the claim, on being satisfied with the explanation of assessee, on an enquiry made during the course of Assessment Proceedings, the decision of Assessing Officer cannot be held to be erroneous, on ground that there is no elaborate discussion in that regard in the order. It is the practice that whenever any claim of the assessee is accepted, Assessing Officer may not discuss the same in his order.<\/p>\n<\/p>\n

Anil Shah v. ACIT [2007] 162 Taxman 39 (Mum.)(Trib.)<\/em><\/p>\n<\/p>\n

9. Doctrine of merger – Orders subject matter of appeal<\/h2>\n<\/p>\n

Once the issue was considered and decided by the COMMISSIONER (APPEALS), revision under section 263 cannot be done.<\/p>\n<\/p>\n

RankaJewellers v. Addl. CIT [2010] 328 ITR 148 (Bom.)(HC)<\/em><\/p>\n<\/p>\n

Matter not considered and decided in appeal can be subjected to revision.<\/p>\n

\n CIT v. Ram Kishore Raj Kishore [2004] 135 Taxman 511 (All.) (HC)<\/em><\/p>\n<\/p>\n

The doctrine of merger applies only in respect of such items which were the subject matter of appeal and not in respect of those which were not.<\/p>\n<\/p>\n

CIT v. Alagendian Finance Ltd [2012] 293 ITR 1 (SC), CIT v. Ram Kishore Raj Kishore [2004] 135 Taxman 511 (All.)(HC)<\/em><\/p>\n<\/p>\n

The proceedings under section 263 were held to be invalid during the pendency of an appeal, even though the issues in revision are different from those in appeal.<\/p>\n<\/p>\n

Aerens Infrastructure & Technology Ltd. v. CIT [2004] 271 ITR 15 (Delhi) (HC)<\/em><\/p>\n<\/p>\n

Despite fact that Commissioner under section 263 has set aside the whole assessment, it cannot be considered that Commissioner has also set aside that part of order which is not erroneous and prejudicial to interest of revenue or has also set aside those additions which have attained finality.<\/p>\n<\/p>\n

ITO v. Uma Kant Newatia [2005] 97 ITD 414 (Kol.)(Trib.)<\/em><\/p>\n<\/p>\n

Even though view of Assessing Officer is in conformity with decision of jurisdictional High Court or any other High Court, Commissioner is entitled to invoke jurisdiction under section 263 subject to condition that view of jurisdictional High Court is subject-matter of an appeal before Supreme Court.<\/p>\n<\/p>\n

Hindustan Tin Works Ltd. v. DCIT [2005] 92 ITD 101 (Delhi) (Trib.)<\/em><\/p>\n<\/p>\n

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The CIT cannot remand the matter to the Assessing Officer for further enquiries or to decide whether the findings recorded are erroneous without a finding that the order is erroneous and how that is so. A mere remand to the Assessing Officer implies that the CIT has not decided whether the order is erroneous but has directed the Assessing Officer to decide the aspect which is not permissible<\/p>\n<\/div>\n

9.1 Partial or complete merger of order of the Assessing Officer with that of the Commissioner (Appeals)<\/h2>\n<\/p>\n

In this case, the ITO allowed deduction under section 35B on an amount lower than that claimed by the assessee. On appeal, the issue was decided by the Commissioner (Appeals) against the assessee. Thereafter, the CIT invoked section 263 and set aside the assessment order on the ground that the deduction was allowed without going into the details. The assessee argued that section 263 could not have been invoked as the impugned assessment order was subject matter of appeal before the COMMISSIONER (APPEALS) and had merged with the order of the COMMISSIONER (APPEALS). The HC held that deduction under section 35B, in so far as it pertained to the amount allowed by the Assessing Officer, was not the subject matter of appeal before the COMMISSIONER (APPEALS) and hence the doctrine of merger did not apply in this case. Hence, the revision under section 263 was held to be valid.<\/p>\n<\/p>\n

CIT v. Ratilal Bacharilal & Sons [2006] 282 ITR 457 (Bom.) (HC)<\/em><\/p>\n<\/p>\n

Only that part of the order of the Assessing Officer merges with that of the Commissioner (Appeals) which has been considered and decided upon by the latter. If the Commissioner (Appeals) does not apply his mind on a particular aspect, the jurisdiction of the Commissioner under section 263 cannot be ousted. In this case, the Commissioner (Appeals) considered only the question of eligibility of deduction under section 80-IB(10) and not the computation part. It was held that the aspect of computation of deduction was open to revision by the Commissioner under section 263.<\/p>\n<\/p>\n

Heritage Housing Development v. Addl. CIT – ITA No. 6484\/M\/2009 decided by Third Member on 1st June, 2012, ITAT Mumbai – “H” Bench<\/em><\/p>\n<\/p>\n

Contrary view<\/h2>\n<\/p>\n

In this case, the assessee claimed investment allowance under section 32A of Rs. 5,35,424\/- on certain fixed assets. However, the Assessing Officer allowed the claim only in respect of certain fixed assets. On appeal before the COMMISSIONER (APPEALS), the issue was decided in favour of the assessee. Thereafter, the Commissioner invoked the provisions of section 263 on the ground that the action of the Assessing Officer in granting deduction under section 32A on certain fixed assets was erroneous. The HC held that once the COMMISSIONER (APPEALS) allowed the assessee’s claim on certain fixed assets, the order of the Assessing Officer stood merged with that of the COMMISSIONER (APPEALS) and hence, no part of the order of the Assessing Officer could have been revised by the Commissioner under section 263.<\/p>\n<\/p>\n

CIT v. Shashi Theatre Pvt Ltd [2001] 248 ITR 126 (Guj.) (HC)<\/em><\/p>\n<\/p>\n

10. Other issues<\/h2>\n<\/p>\n

10.1 Void orders – Whether revision possible<\/h2>\n<\/p>\n

As the order of the Assessing Officer passed under section 147 \/ 143(3) was itself
\n void, the order of CIT passed under section 263 for quashing this order was without jurisdiction.<\/p>\n<\/p>\n

Inder Kumar Bachani (HUF) v. ITO [2006] 101 TTJ 450 (Lucknow) (Trib.)<\/em><\/p>\n<\/p>\n

Where order of Commissioner under section 263 cancelling original assessment was cancelled by the Tribunal and department’s reference application was pending before High Court, Assessing Officer had no jurisdiction to make second assessment in pursuance of a non-existing order under section 263.<\/p>\n<\/p>\n

ITO v. Garg Enterprises [2005] 142 Taxman 42 (Mag.) (Chd.) (Trib.)<\/em><\/p>\n<\/p>\n

It was held that the Commissioner cannot exercise his power of revision under section 263 in respect of original assessment order which already stood rectified under section 154.<\/p>\n<\/p>\n

CIT v. Kalyan Solvent Extraction Ltd. [2005] 276 ITR 154 (MP) (HC)<\/em><\/p>\n<\/p>\n

10.2  Incorrect finding by the Commissioner <\/h2>\n<\/p>\n

Where the finding of the CIT that the Assessing Officer had arrived at his findings without conducting an enquiry, was itself erroneous, the CIT wrongly exercised the powers by recourse to section 263.<\/p>\n<\/p>\n

CIT v. Development Credit Bank Ltd. [2010] 323 ITR 206 (Bom.) (HC)<\/em><\/p>\n<\/p>\n

The Commissioner exercising jurisdiction under section 263 of the Act on the ground that the order of the Assessing Officer was prejudicial to the interest of revenue on the ground that the assessee failed to produce the share-holders and the creditors before the Assessing Officer was held to be not justified.<\/p>\n<\/p>\n

CIT v. Unique Autofelts P. Ltd. [2009] 30 DTR 231 (P&H) (HC)<\/em><\/p>\n<\/p>\n

10.3  Can the Commissioner simply remand the matter back to the Assessing Officer<\/h2>\n<\/p>\n

The CIT cannot remand the matter to the Assessing Officer for further enquiries or to decide whether the findings recorded are erroneous without a finding that the order is erroneous and how that is so. A mere remand to the Assessing Officer implies that the CIT has not decided whether the order is erroneous but has directed the Assessing Officer to decide the aspect which is not permissible.<\/p>\n<\/p>\n

ITO v. DG Housing Projects [2012] 343 ITR 329 (Delhi) (HC)<\/em><\/p>\n<\/p>\n

10.4  Meaning of the term “record”<\/h2>\n<\/p>\n

“Record” does not mean only the record available with ITO at time of passing of assessment order. It would include the records available with the Commissioner at the time of passing of the order by the Commissioner.<\/p>\n<\/p>\n

CIT v. K. Ramachandran (Dr.) [2004] 139 Taxman 320 (Mad.) (HC)<\/em><\/p>\n<\/p>\n

10.5  Remedy against section 263 order<\/h2>\n<\/p>\n

The appropriate remedy against the order passed by the CIT in exercise of its revision jurisdiction under section 263 is to file appeal before the Tribunal<\/p>\n

\n John George Vettath v. CIT [2007] 162 Taxman 134 (Ker.) (HC)<\/em><\/p>\n<\/p>\n

10.6  Writ against section 263 proceedings<\/h2>\n<\/p>\n

If prima-facie opinion is recorded by commissioner that order sought to be revised is erroneous and prejudicial to revenue, Court in its writ jurisdiction cannot pre-empt proceedings under section 263.<\/p>\n<\/p>\n

Pankaj Goyal v. CIT [2004] 270 ITR 201 (HP) (HC)<\/em><\/p>\n<\/p>\n

In view of an alternate remedy, writ against an order under Section 263 was held to be invalid.<\/p>\n<\/p>\n

CIT v. B&A Plantation and Industries Ltd [2013] 212 Taxman 137(Mag.) (Gau.)(HC)<\/em><\/p>\n<\/p>\n

The proper course of action against an order passed under section 263 is to approach the Tribunal and not the High Court in writ.<\/p>\n<\/p>\n

John George Vettath v. CIT [2007] 162 Taxman 134 (Ker.) (HC)<\/em><\/p>\n<\/p>\n

10.7  Revision and Transfer pricing<\/h2>\n<\/p>\n

There seems to be no clarity about the authority competent to modify the TPO’s order in case it is prejudicial to the interests of the revenue. In the case of Essar Steel Limited v. ACIT 55 SOT 1 (Mum.) (Trib.)<\/em>, it was held that the CIT has no administrative jurisdiction over the TPO, he could not have revised the order passed by the TPO under section 92CA(3).<\/p>\n<\/p>\n

The Assessing Officer’s omission to follow the binding Circular, which makes it mandatory for the Assessing Officer to make a reference to the TPO if the aggregate value of the international transaction exceeds Rs. 5 crores, amounted to making assessment without conducting proper inquiry and investigation and resulted in the order becoming “erroneous and prejudicial to the interest of the Revenue”.<\/p>\n<\/p>\n

Ranbaxy Laboratories Ltd. v. CIT [2012] 204 Taxman 294 (Delhi) (HC)<\/em><\/p>\n<\/p>\n

10.8  Change in law when the Commissioner invokes section 263<\/h2>\n<\/p>\n

It was held that legal decisions available at the point of time when Commissioner is examining the matter for exercise of powers under section 263 cannot be ignored. What is to be seen is the legal position prevailing as on the point of time when revision order is passed and not when the Assessing Officer passed the impugned order.<\/p>\n<\/p>\n

Star India Ltd. v. Addl. CIT [2012] 49 SOT 422 (Mum.)(Trib.)<\/em><\/p>\n<\/p>\n

10.9  Impact of subsequent events<\/h2>\n<\/p>\n

If, at that particular time, when the power under section 263 is exercised, a decision of the jurisdictional High Court was there, it would not be open to Commissioner to have proceeded on the basis that the Assessing Officer who had acted in terms of High Court’s decision had acted erroneously, when the decision had not been set aside by the SC or at least had not been appealed from.<\/p>\n<\/p>\n

CIT v. G. M. Stainless Steel (P) Limited [2003] 263 ITR 255 (SC)<\/em><\/p>\n<\/p>\n

Even though the view of the Assessing Officer was in conformity with decision of jurisdictional High Court, the Commissioner was held entitled to invoke jurisdiction under section 263 subject to condition that view of jurisdictional High Court is subject-matter of an appeal before the Supreme Court.<\/p>\n<\/p>\n

Hindustan Tin Works Ltd. v. DCIT [2005] 92 ITD 101 (Delhi)(Trib.)<\/em><\/p>\n<\/p>\n

Once the law on the subject has been declared by the High Court, the pronounced judgment dates back to the date of the enactment. Therefore, the order of Assessing Officer, though passed prior to such judgment, but contrary to law pronounced subsequently by High Court would be erroneous and prejudical to interests of revenue.<\/p>\n<\/p>\n

Intellinet Technologies India P. Ltd. v. ITO [2010] 134 TTJ 744 (Bang.)(Trib.)<\/em><\/p>\n<\/p>\n

10.10   Time limit to pass the revised order<\/h2>\n<\/p>\n

The period of limitation is to be reckoned from the date of the original assessment order under section 143(3) when the issues in respect of which the order was revised were decided in the original assessment order.<\/p>\n<\/p>\n

CIT v. ICICI Bank Ltd. [2012] 343 ITR 74(Bom.)(HC), Ashoka Buildcon Limited v. ACIT [2010] 325 ITR 574 (Bom.) (HC)<\/em><\/p>\n<\/p>\n

10.11 Can a revision order be partially valid?<\/h2>\n<\/p>\n

In this case, the Commissioner revised the order under section 263 on more than one ground. It was held that that the revision on certain grounds was valid while in case of certain other grounds, it was invalid.<\/p>\n<\/p>\n

Colorcraft Kashimira Ceramic Compound v. ITO [2007] 105 ITD 599 (Mum.) (Trib)<\/em><\/p>\n<\/p>\n

10.12   Kar Vivad Samadhaan Scheme<\/h2>\n<\/p>\n

Where there was no concealment of facts by the assessee in declaration under K.V.S.S. and the CIT had not cancelled the certificate issued under the scheme, it is not permissible for CIT to pass revision order under section 263 of the Act, as there was full and final settlement of demand under the K.V.S.S.<\/p>\n<\/p>\n

Siddhartha Tubes Limited v. CIT [2006] 292 ITR 533 (MP) (HC)<\/em><\/p>\n<\/p>\n

11. Instances when revision was held valid<\/h2>\n<\/p>\n

In the following instances, the revision under Section 263 was held to be valid:<\/p>\n<\/p>\n

– Where the Assessing Officer did not analyse as to whether payment received by assessee was in respect of services rendered or facilities provided in connection with prospecting for extraction or production of mineral oils or it was received only by way of sale price of goods\/materials sold by assessee, there was a failure on part of Assessing Officer to ascertain whether said revenue would or could come under provisions of section 44BB. Thus, the Commissioner rightly revised said order under section 263 – M-I Overseas Ltd. v. DIT (IT) [2013] 212 Taxman 190 (Uttarakhand) (HC)<\/em><\/p>\n<\/p>\n

– Under the Kar Vivad Samadhaan Scheme, finality is assigned only to the matters which are subject matter of declaration by the assessee in relation to the disputed income and, therefore, the jurisdiction of the Commissioner under section 263 is not ousted vis-à-vis the matters which are totally unconnected with the disputed income for which assessee opted for the Scheme – Bhilwara Spinners Ltd. v. CIT [2006] 102 TTJ 838 (Jodh.)(Trib.)<\/em><\/p>\n<\/p>\n

– The assessee had claimed deduction under Section 80 HHC and 80-IA and the same was allowed. The Commissioner, while exercising his revisional powers, held that assessment is erroneous and prejudicial to the interest of the revenue, as the assessee while computing the deduction under section 80HHC, had not reduced the claim of deduction allowed under section 80-IA from the profits and gains from the business. In this case, the revision under section 263 was held to be valid – CIT v. Abhishek Industries Ltd. [2013] 255 CTR 504 (P&H) (HC)<\/em><\/p>\n<\/p>\n

– <\/em>As the Assessing Officer had not clearly indicated the computation with the relevant Articles of the DTAA and the basis, it could be construed as an order both erroneous and prejudicial to the interest of revenue, hence the revision order was justified – CIT v. Infosys Technologies Ltd. (No 2)[2012] 341 ITR 293 (Karn.)(HC)<\/em><\/p>\n<\/p>\n

– <\/em>Failure by the Assessing Officer to make enquiry in respect of payments liable to tax deduction at source was good enough to invoke revision under section 263 – Bharti Hexacom Ltd. v. CIT [2013] 21 ITR (T) 648 (Delhi) (Trib.)<\/em><\/p>\n<\/p>\n

12.   Instances when revision was held invalid<\/h2>\n<\/p>\n

In the following instances, the revision under Section 263 was held to be invalid:<\/p>\n<\/p>\n

– When neither section 80HH, nor section 80I statutorily obliged to maintain the accounts unit wise, the consolidated accounts held to be valid and revision was held to be not valid – CIT v. Bongaigaon Refinery & Petrochemical Ltd [2012] 349 ITR 352 (SC)<\/em><\/p>\n<\/p>\n

– There cannot be revision of a non-existing order and where there is no order either for levy or waiver of interest under section 158BFA(I) or section 234A, 234B or 234C of Act in existence, Commissioner can have no jurisdiction to invoke provisions of section 263 for directing Assessing Officer to charge interest under section 158BFA(1) – Anand Kumar Agarwal (HUF) v. ACIT[2005] 92 TTJ 81 (Agra)(Trib.)<\/em><\/p>\n<\/p>\n

– <\/em>Revision of order on the basis of a non-jurisdictional High Court which was not approved by the jurisdictional High Court is not valid – Hindustan Lever Ltd v. CIT[2012] 70 DTR 182 (<\/em>Cal.<\/em>)(HC)<\/em><\/p>\n<\/p>\n

– <\/em>Assessment order following binding precedent is not amenable to revision under Section 263. It was held that the AAR ruling was binding despite contrary rulings on the subject – Prudential Assurance Co. Limited v. DIT (IT) [2010] 324 ITR 381 (Bom.)(HC)<\/em><\/p>\n<\/p>\n

– <\/em>When the assessment for AY 1987-88 was completed under section 143(1)(a) and notice under section 143(2) had not been issued and time for completing asst. under section 143(3) had expired, the Commissioner could not direct assessment under section 143(3) by his revision order under section 263. On these facts, the order was held to be contrary to provisions of section 143(2), 143(3) and 153(1)(a) – V. Narayanan v. DCIT [2011] 127 ITD 133 (Chennai)(Trib.) (TM)<\/em><\/p>\n<\/p>\n

– <\/em>During the year under consideration, the assessee company had invested sums in its subsidiaries outside India. The Commissioner observed that the Assessing Officer had completed the assessment without examining\/referring these transactions to the Transfer Pricing Officer to determine whether these investments were made at arm’s length and invoked section 263. The Tribunal held that investment in share capital of the subsidiaries outside India is not in the nature of transactions referred to section 92B and hence, the order of the Commissioner under section 263 was set aside – Vijai Electricals Limited v. Addl. CIT– ITAT <\/em>Hyderabad<\/em> “A” Bench dated <\/em>31st May, 2013<\/em>, source: www.itatonline.org<\/em><\/p>\n<\/p>\n

– <\/em>If an existing circular is in conflict with the law of the land laid down by the High Courts or the Supreme Court, the Revenue authorities while acting quasi-judicially, should ignore such circulars in discharge of their quasi-judicial functions. The sole reason for invocation of section 263 was a Board circular. Since the outcome of the original order of assessment was in tune with the Division Bench decisions of the jurisdictional court, the order of revision was held invalid – Bhartia Industries Limited v. CIT [2013] 353 ITR 486 (Cal.) (HC)<\/em><\/p>\n<\/p>\n

Conclusion<\/h2>\n<\/p>\n

Thus, we can see that the abovementioned judicial precedents have greatly helped in shaping the law on the powers of the Commissioner under section 263 of the Act. We can see that not only orders of assessment can be revised under this section but also such orders where proceedings have been filed or dropped. Jurisdiction under section 263 can be assumed upon the fulfillment of the twin conditions viz. erroneous order and prejudice to the revenue. However, the judge laid law has ensured that in cases where two views are possible or where the issue is debatable, revision under section 263 cannot be done. Furthermore, the observance of the principles of natural justice in section 263 proceedings has gone a long way in ensuring that the taxpayers are not subject to avoidable harassment, without compromising the remedy available to the Income-tax authorities in genuine circumstances.\n<\/p>\n

\nReproduced with permission from the AIFTP Journal June 2013<\/div>\n\n\n
Disclaimer: <\/strong>The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author nor itatonline.org and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied (except for personal, non-commercial use) without express written permission of itatonline.org<\/td>\n<\/tr>\n<\/table>\n

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Section 263 of the Income-tax Act, 1961 confers wide powers on the Commissioner to revise any assessment which is “erroneous and prejudicial to the interests of the revenue”. While the section is widely worded, Courts have read in a number of checks and balances to ensure that the said power is not abused by the Commissioner. The author has carefully analyzed the entire law on the subject and identified all the core legal principles<\/p>\n

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