1994 (8) TMI 6 - HC - Income Tax

No question of law; Commissioner validly invoked s.263 for omission of inquiries into interest transactions and diversion

HC held that no question of law arose and upheld the Tribunal's approach that the Commissioner validly invoked s.263. The Commissioner was entitled to ... Undisclosed Sources - potential discrepancy in the assessee's interest expenses and raised concerns about diversion of funds for non-business purposes - Whether, the Tribunal was right in upholding the action of the Commissioner of Income-tax in invoking the provisions of section 263 of the Income-tax Act, 1961, and in sustaining the order passed by him under that section ? - HELD THAT:- We do not think that a question of law arises from the order of the Appellate Tribunal on the facts of this case. The Commissioner was perfectly competent to exercise his powers under section 263 whenever he found, prima facie, that there was need to enquire if the interest of the Revenue had suffered by an order of assessment. He has given certain reasons. The basis for the order of the Commissioner is a question of fact and whether it is correct or not shall have to be found out after enquiry by the Income-tax Officer. The Commissioner has found that the Income-tax Officer has omitted to enquire into this question found by the Commissioner implicit in the manner in which the amounts were borrowed and advanced by the assessee-company. It is incumbent on the Income-tax Officer to further investigate the facts stated in the return, when circumstances would make such an inquiry prudent and the word ' erroneous ' in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. Issues involved: Interpretation of section 263 of the Income-tax Act, 1961 regarding the Commissioner's powers to review and revise orders of assessment.Summary:The High Court of Delhi considered a case where the Income-tax Appellate Tribunal referred a question under section 256(1) of the Income-tax Act, 1961, regarding the Commissioner's action under section 263. The Commissioner had noted a potential discrepancy in the assessee's interest expenses and raised concerns about diversion of funds for non-business purposes. The Tribunal upheld the Commissioner's order, emphasizing the need for further scrutiny by the Income-tax Officer. The Court held that the Commissioner was justified in invoking section 263 based on prima facie evidence of potential revenue loss. Referring to the Gee Vee Enterprises case, the Court reiterated the duty of the Income-tax Officer to investigate when circumstances warrant, and deemed the Commissioner's order as correct. Ultimately, the Court answered the question in favor of the Revenue, affirming the Commissioner's powers under section 263.This judgment underscores the importance of thorough examination by tax authorities to ensure compliance with tax laws and prevent revenue leakage. The Court's decision reaffirms the Commissioner's authority to review and revise assessments under section 263, particularly in cases where discrepancies or potential revenue loss are identified. The ruling serves as a reminder to taxpayers and tax professionals to maintain transparency and accuracy in financial transactions to avoid scrutiny and potential adverse consequences.