REVISION UNDER INCOME TAX ACT, 1961 PROTECTING THE INTERESTS OF REVENUE

Section 263 of the Income Tax Act, 1961 (‘Act’ for short) provides for revision of the orders passed by the lower authorities to protect the interests of the Revenue.  Section 263(1) of the Act provides that the Principal Commissioner, Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act.  If he considers that any order passed by the Assessing Officer or the Transfer Pricing Officer, as the case may be is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including,-

• an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or
• an order modifying the order under section 92CA (reference to Transfer Pricing Officer); or
• an order cancelling the order under section 92CA and directing a fresh order under the said section.

An order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, -

• the order is passed without making inquiries or verification which should have been made;
•  the order is passed allowing any relief without inquiring into the claim;
• the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or
• the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.

No order shall be made after the expiry of 2 years from the end of the financial year in which the order sought to be revised was passed.    An order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, the High Court or the Supreme Court.

In computing the period of limitation, the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and the period commencing on the date on which stay on any proceeding under this section was granted by an order or injunction of any court and ending on the date on which certified copy of the order vacating the stay was received by the jurisdictional Principal Commissioner or Commissionershall be excluded.

InThe Commissioner of Income Tax3 Versus ICICI Bank Ltd. - 2012 (2) TMI 308 - BOMBAY HIGH COURT the Commissioner of Income Tax passed a revision order under section 263 of the Act.  The said order set aside the re-assessment order passed by the Assessing Officer on 26.03.2002 under section 143 read with section 147 of the Act.  The said order disallowed the foreign exchange rate differences under section 36(1) (vii) and (via).  The High Court observed that the original order was passed by the Assessing Officer on 10.03.1999 under Section 143(3) allowing such expenses.  The said issues were not raised and decided either in the first reassessment dated 22.02.2000 or in the second reassessment dated 26.03.2002. The jurisdiction under section 263(1) is sought to be exercised with reference to an issue which is covered by the original order of assessment under section 143(3) and which does not form the subject matter of the reassessment.   Therefore, invocation of the jurisdiction under section  263 held to be barred by limitation by Tribunal under section 263(2) is upheld.

In Commissioner of Income Tax, Coimbatore Versus M/s. Ganga Textiles Ltd. - 2025 (7) TMI 453 - MADRAS HIGH COURT, assessee, Ganga Textiles Limited filed return of income for Assessment Year 2004 – 2005 admitting a loss of Rs. 11,81,35,170/-.   The case was selected for scrutiny. The Assessing Officer passed an order on 31.08.2006 under Section 143(3) of the Act disallowing certain deductions claimed by the assessee, including a portion of a deduction claimed under Section 43B of the Act. Assessee accepted the said assessment.

The assessment was reopened for computation of capital gains regarding assessee's sale of its land and building.  The assessment order was completed under Section 143(3) read with Section 147 of the Act on 30.12.2009.  The assessee, being aggrieved against the order of the reassessment order filed an appeal before the Commissioner of Income Tax (Appeals – I), Coimbatore.  The said appeal was allowed.  The said order was not challenged by the Department and the assessee. 

The Revenue, under Section 263 of the Act, revised the assessment order passed under Section 143(3) read with Section 147 of the Act for the said Assessment Year.  The assessee challenged the said order on the ground that it was barred by limitation before the Income Tax Appellate Tribunal.  The Income Tax Appellate Tribunal allowed the appeal filed by the assessee and set aside the order passed under Section 263 of the Act.  Therefore, the Revenue filed the present appeal before the High Court.

The Revenue contended that the order passed by the appellant is within the statutory period of two years, as the said period has to be reckoned from the date of the reassessment order passed under Section 143(3) read with Section 147 of the Act, i.e. 30.12.2009 and not from the date of the original assessment order, i.e., 31.08.2006.

The respondent assessee submitted the following before the High Court-

• The Revenue had sought to revise the assessment order by holding that the deduction under Section 43B of the Act can be allowed only under the head ‘Business’ and since there was no business activity, the same could not have been allowed.
• The said revision in effect is to the original order of assessment dated 31.08.2006.
• Since the jurisdiction under Section 263(1) of the Act was exercised with reference to the findings in the original order of the assessment, the date of the original assessment order has to be reckoned for considering the statutory period of two years.
• The Tribunal was right in holding that the order under section 263 (1) is barred by limitation.

The High Court considered the submissions of both the revenue appellant and the respondent assessee.  The High Court observed that the original assessment order was passed on 31.08.2006, which considered the issue under Section 43B of the Act.  The said order was reopened by the Assessing Officer only with regard to the computation of long- and short-term capital gains pertaining to assessee's sale deed executed qua the land and building, but not on the claims of deduction under section 43B of the Act.  The revisional order passed the Revenue is with reference to an issue which is covered by the original assessment order and not with regard to the issue in the reassessment.  The High Court was of the view that the order of the appellant/Revenue dated 30.03.2012 under Section 263 of the Act is time barred and therefore was rightly set aside by the Tribunal.  Therefore, the High Court dismissed the appeal filed by the Revenue.