1994 (4) TMI 39 - HC - Income Tax

Order under s.263 set aside for denying opportunity to meet new allegation about hire charge escapement; remitted for fresh assessment

HC upheld the Tribunal's finding that the Commissioner's order under s.263 was erroneous and prejudicial because the final order addressed escapement of ... Correctness of quashing an order u/s 263 - final order made under section 263 related to the inference of 'escapement of hire charges' - erroneous and prejudicial to the interests of the Revenue - No opportunity of being heard - HELD THAT:- Accordingly, the Commissioner held that completion of the assessment overlooking this point was erroneous and prejudicial to the interests of the Revenue. He, therefore, set aside the assessment order and directed the Income-tax Officer to redo the assessment after giving adequate opportunity to the assessee. The assessee carried the matter in appeal to the Appellate Tribunal. The Tribunal found that while the notice under section 263 related to the assessment of capital gains, the final order made under section 263 related to the inference of 'escapement of hire charges' which was quite different and since no specific opportunity was given to the assessee in respect of the 'error' subsequently discovered by the Commissioner, the order under section 263 was vitiated in law and had to be cancelled. Accordingly, the Tribunal set aside the order of the Commissioner of Income-tax. The Revenue sought a reference of the questions to this court as the Tribunal declined to refer the same to this court as they are only questions of fact. Issues Involved:The judgment involves the refusal by the Income-tax Appellate Tribunal to refer questions to the court, regarding the correctness of quashing an order u/s 263 of the Income-tax Act and the lack of initial jurisdiction u/s 263 by the Commissioner of Income-tax.Issue 1: Correctness of Quashing Order u/s 263:The assessee, a business entity, transferred its business to a private limited company, including gas-cylinders. The Income-tax Officer accepted the return showing profit under section 41(1) for the assessment year 1983-84. Subsequently, the Commissioner of Income-tax issued a show-cause notice u/s 263, questioning the capital gains from the transfer. The Commissioner inferred that the transaction involved 'hire charges' to be taxed. The Tribunal found that the final order under section 263 differed from the notice, leading to the cancellation of the Commissioner's order. The Revenue sought a reference to the court, which was declined by the Tribunal.Issue 2: Lack of Initial Jurisdiction u/s 263:The Commissioner set aside the assessment order u/s 263, directing a reassessment with an opportunity for the assessee to be heard. The Revenue argued that the issue of 'escapement of hire charges' arose after the assessee's reply to the show-cause notice, providing an opportunity for further hearing. Citing precedent, the Revenue contended that the assessee was not denied an opportunity. However, the court held that the assessee must be given an opportunity to address the specific error being revised u/s 263, which was not done in this case. The court dismissed the reference, upholding the Tribunal's finding that the assessee was not afforded a proper opportunity to be heard.In conclusion, the court dismissed the reference, emphasizing that the assessee must be given a meaningful opportunity to address the specific errors being revised u/s 263, which was lacking in this case. The court upheld the Tribunal's decision that the assessee was not provided with a proper opportunity to be heard, leading to the dismissal of the reference sought by the Revenue.