Court upholds Commissioner's jurisdiction to revise assessment order under Income-tax Act

The High Court of Madhya Pradesh held that the Commissioner of Income-tax had jurisdiction to revise an assessment order passed by the Income-tax Officer in compliance with directions from the Inspecting Assistant Commissioner under section 144B of the Income-tax Act, 1961. The Court ruled that the Commissioner could revise the order even if based on directions from the Inspecting Assistant Commissioner, as clarified by the Explanation to section 263(1) of the Act. The decision favored the Revenue's position, and each party was directed to bear their own costs in the reference.

---

---

Issues involved: The jurisdiction of the Commissioner of Income-tax to revise an assessment order passed by the Income-tax Officer in compliance with directions from the Inspecting Assistant Commissioner under section 144B of the Income-tax Act, 1961.

Summary:
The High Court of Madhya Pradesh considered a reference under section 256(1) of the Income-tax Act, 1961, regarding the jurisdiction of the Commissioner of Income-tax to revise an assessment order. The case involved the Income-tax Officer proposing additions to the declared income of the assessee, including an amount related to high denomination notes. The Inspecting Assistant Commissioner directed the Income-tax Officer under section 144B not to make the proposed addition. The Commissioner of Income-tax later set aside the assessment order, deeming it prejudicial to Revenue, and directed a fresh assessment. The Tribunal held that the Commissioner had no jurisdiction to revise the order. The issue was whether the order passed by the Income-tax Officer, following the directions of the Inspecting Assistant Commissioner, was subject to revision by the Commissioner under section 263 of the Act.

The Revenue contended that the Commissioner could revise the order if found erroneous and prejudicial to Revenue, even if based on directions from the Inspecting Assistant Commissioner. The assessee argued that since the order was essentially that of the Inspecting Assistant Commissioner, it could not be revised by the Commissioner. Reference was made to section 264 of the Act, highlighting the distinction between orders passed by different authorities.

The Court analyzed section 263(1) of the Act, emphasizing the Commissioner's power to revise orders deemed prejudicial to Revenue. The Explanation to the section clarified that orders based on directions from the Inspecting Assistant Commissioner were included for revision. The Court held that the Explanation, though effective from 1984, was retrospective in nature, following legal precedents on declaratory Acts. It was concluded that the Commissioner had jurisdiction to revise the assessment order passed by the Income-tax Officer in accordance with the directions of the Inspecting Assistant Commissioner.

In the final decision, the Court answered the question in the negative, favoring the Revenue's position. Each party was directed to bear their own costs in the reference.

---