2020 (10) TMI 520 - HC - Income Tax

High Court Upholds Tribunal's Decision: 360-Day Delay Justified, Section 263 Misinterpretation Rejected.

The HC dismissed the revenue's appeal, ruling in favor of the assessee. The court upheld the Tribunal's decision to condone a 360-day delay, finding it ... Revision u/s 263 - HELD THAT:- From close scrutiny of Section 263 it is evident that twin conditions are required to be satisfied for exercise of revisional jurisdiction u/s 263 firstly, the order of the AO is erroneous and secondly, that it is prejudicial to the interest of the revenue on account of error in the order of assessment. The aforesaid provision was considered in MALABAR INDUSTRIAL CO. LTD [2000 (2) TMI 10 - SUPREME COURT] and held that the phrase ‘prejudicial to the interests of the revenue’ has to be read in conjunction with an erroneous order passed by the AO and every loss of revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of revenue. Where two views are possible and ITO has taken one view with which the Commissioner does not agree, the order passed by the AO cannot be treated as erroneous order prejudicial to the interest of the revenue. Tribunal has held that the CIT while exercising powers u/s 263 of the Act had relied on an order passed under Section 263 of the Act in respect of Assessment Year 2007-08. The aforesaid order has been quashed by the Tribunal [2011 (12) TMI 590 - ITAT, BANGALORE]. It has further been held that the AO after due application of mind and on proper consideration of the material available on record has allowed the claim for depreciation on lease hold rights. The order passed by the AO can neither said to be erroneous nor prejudicial to the interest of the revenue. Tribunal has rightly quashed the order passed by the Commissioner of Income Tax. Decided in favour of assessee. Issues:1. Delay condonation by the Tribunal2. Justification of the Tribunal's decision3. Power of the Commissioner to revise assessment4. Interpretation of Section 263 of the Income Tax ActDelay Condonation by the Tribunal:The appeal under Section 260A of the Income Tax Act, 1961 was filed by the revenue regarding the Assessment Year 2007-08. The Tribunal was questioned on whether it was justified in condoning a delay of 360 days. The Tribunal relied on previous cases and the Supreme Court's decision in MST Katiji's case. The Tribunal's decision was challenged based on the circumstances of the delay condonation in the present case compared to the cases cited. The Tribunal's reasoning for condoning the delay was a key issue under consideration.Justification of the Tribunal's Decision:The Commissioner of Income Tax initiated proceedings under Section 263 of the Act due to a Revenue Audit Objection regarding depreciation of leasehold land as an intangible asset. The Tribunal found that the Assessing Officer had properly considered all materials and allowed depreciation on leasehold rights. Consequently, the Tribunal held that the Assessing Officer's order was neither erroneous nor prejudicial to the revenue's interest. The Tribunal's decision to quash the Commissioner's order under Section 263 was challenged, leading to a detailed analysis of the facts and legal principles involved.Power of the Commissioner to Revise Assessment:The Tribunal's decision raised the issue of whether the Commissioner of Income Tax has the power to revise assessments based on inadequacy of inquiries by the Assessing Officer or insufficiency of material on record. The Tribunal's ruling that the Commissioner cannot revise assessments solely on these grounds was a significant aspect of the judgment. The Tribunal's interpretation of the Commissioner's powers under Section 263 was a crucial point of contention in the case.Interpretation of Section 263 of the Income Tax Act:The judgment extensively analyzed Section 263 of the Income Tax Act, which allows the Commissioner to revise orders prejudicial to revenue. The court emphasized that for revisional jurisdiction under this section, two conditions must be met: the order must be erroneous and prejudicial to the revenue's interest. The court referred to the Supreme Court's decision in Malabar Industrial Co. Ltd. case to interpret the phrase 'prejudicial to the interests of the revenue' in conjunction with an erroneous order. The legal principles established in various cases were cited to support the interpretation of Section 263.In conclusion, the High Court dismissed the appeal, answering the substantial questions of law against the revenue and in favor of the assessee. The judgment provided a detailed analysis of the issues surrounding delay condonation, the Tribunal's decision justification, the Commissioner's power to revise assessments, and the interpretation of Section 263 of the Income Tax Act based on legal principles and factual considerations.