Show-cause notice u/s263 quashed where assessment followed binding precedent, despite appeal pending against that decision

HC quashed the Commissioner's show-cause notice issued u/s 263 seeking revision of the assessment. The Assessing Officer had followed an earlier HC ruling in the same assessee's case, holding that only one-third of the partnership share income was assessable in the assessee's hands and the remaining two-thirds in the hands of spouse and minor son. HC held that an assessment order made in conformity with a binding HC decision cannot be termed "erroneous" under s.263, even if that decision is under appeal before SC. Since the first statutory condition (erroneous order) failed, exercise of revisional jurisdiction u/s 263 was held unsustainable.

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Issues Involved:
The judgment involves a show-cause notice issued by the Commissioner of Income-tax u/s 263 of the Income-tax Act, 1961, challenging the assessment order for the assessment year 1975-76, regarding the distribution of income from a partnership firm among the petitioner, his wife, and minor son.

Details of the Judgment:

Issue 1 - Challenge to Show-Cause Notice:
The petitioner contested the show-cause notice, arguing that previous court decisions supported the distribution of income from the partnership firm among the petitioner, his wife, and minor son. The petitioner claimed that the notice was without jurisdiction and amounted to harassment. The Revenue opposed, stating that the matter was subject to appeal and the petitioner should have submitted an explanation before challenging the notice.

Issue 2 - Validity of Assessment Order:
The court considered whether the assessment order was erroneous u/s 263, as the Commissioner sought to revise it. The court noted that the Income-tax Officer had followed previous court decisions in assessing the income distribution from the partnership firm. It was emphasized that the Officer's adherence to court decisions did not render the assessment order erroneous.

Issue 3 - Commissioner's Revising Power:
A critical aspect was the Commissioner's power u/s 263 to revise orders pending higher court decisions. The court deliberated on whether the Commissioner could keep disputes alive awaiting higher court decisions to protect Revenue interests. It was concluded that the assessing authority's order was not erroneous if based on higher court decisions, promoting judicial discipline.

Precedents and Conclusion:
The judgment cited precedents where courts upheld assessing officers' decisions following appellate authorities' rulings. The court allowed the writ petition, quashing the show-cause notice, emphasizing that following court decisions did not render the assessment order erroneous. Another similar case was dismissed, directing the petitioner to provide an explanation for further consideration by the Commissioner.

In conclusion, the court allowed the writ petition, quashing the show-cause notice, and dismissed the second petition with directions for further verification. The judgment highlighted the importance of adherence to court decisions by assessing authorities and the limitations on the Commissioner's revising power pending higher court decisions.

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