2023 (1) TMI 178 - HC - Income Tax

High Court upholds CIT's jurisdiction under Section 263 for revising assessment orders.

Commissioner of Income Tax Central II, Chennai. Versus N. Sasikala

The High Court held that the Commissioner of Income Tax (CIT) had the jurisdiction under Section 263 of the Income Tax Act, 1961 to revise the assessment. ... Revision u/s 263 - Whether Tribunal was right in holding that the Commissioner of Income Tax did not have the power to revise the de novo order of the assessing officer, as there was no specific direction of the first appellate authority on the issue, even though the entire assessment had been set aside to be redone after making enquiries? - HELD THAT:- As the remand order of the Commissioner of Income Tax (Appeals) was not binding on the Appellate Tribunal in the appeal filed before it. The Appellate Tribunal was free to arrive at its own decision on the question of liability of the respondents. Impugned order of the Tribunal allowing the appeal of the respondent, in our view, is therefore unsustainable. The orders passed by the Assistant Commissioner both on 27.03.1997 before remand and after remand on 28.03.2000 pursuant to the remand order dated 26.03.1998 of the Commissioner of Income Tax (Appeals) have not only resulted in an order which is prejudicial to the interest of the revenue but also in an erroneous order. As an Appellate Commissioner, it was incumbent on the part of the Appellate Commissioner to have taken note of the latches and mistakes committed by the AO while passing the assessment order dated 27.03.1997 before remanding the case for passing a fresh assessment order. Equally, the Appellate Tribunal was at fault while passing the impugned order. It ought to have seen the mistakes committed by the Assessing Officer which resulted in an erroneous order being passed in favour of the respondent which was prejudicial to the interest of the revenue. In our view, the power was rightly exercised by the Commissioner of Income Tax while invoking Section 263 - Therefore, the Tribunal erred in allowing the respondent assessee's appeal. Allow this appeal and answer the substantial questions of law in favour of the appellant revenue. Issues Involved:1. Jurisdiction of the Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act, 1961.2. Consideration of the DVAC report by the CIT for revising the assessment.3. Scope of 'records relating to any proceedings under this Act' in Section 263 of the Income Tax Act, 1961.4. Applicability of CBDT Circulars and monetary limits for filing appeals.Issue-wise Detailed Analysis:1. Jurisdiction of the Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act, 1961:The Tribunal held that the CIT did not have the power to revise the de novo order of the Assessing Officer (AO) as there was no specific direction from the first appellate authority on the issue. The Tribunal referenced the decision in Sri Gajalakshmi Ginning Factor Ltd. vs. CIT, noting that the AO's jurisdiction is limited to the issues that were the subject matter of the appeal. The Tribunal concluded that the AO had carried out the directions given by the Commissioner (A) and did not commit any mistake by not considering the DVAC report.2. Consideration of the DVAC report by the CIT for revising the assessment:The Tribunal held that the DVAC report dated 07.12.1996 was not a record for the purpose of Section 263 of the Income Tax Act, 1961. The Tribunal emphasized that the DVAC report could be considered for reopening the assessment but not for invoking the provisions under Section 263. The Tribunal also noted that the revision order passed on 14.03.2002 was time-barred for considering the revision of the original assessment order dated 27.03.1997.3. Scope of 'records relating to any proceedings under this Act' in Section 263 of the Income Tax Act, 1961:The Tribunal relied on the judgment of the Supreme Court in CIT vs. Alagendran Finance Ltd., which clarified that the doctrine of merger applies only to items that were the subject matter of appeal. The Tribunal concluded that the AO was not expected to consider fresh issues while passing the giving effect order and that the DVAC report was outside the AO's jurisdiction in this context.4. Applicability of CBDT Circulars and monetary limits for filing appeals:A preliminary objection was raised by the respondent's counsel, citing CBDT Circulars and the monetary policy, arguing that the appeal should be withdrawn as the disputed tax amount was below Rs.1 Crore. The appellant's counsel countered that the case fell within the exceptions provided in Circular No.03/2018, as amended, specifically Paragraph 10(e) & (f), which mandates contesting adverse judgments on merits regardless of the tax amount involved. The court overruled the preliminary objection, allowing the appeal to proceed.Conclusion:The court concluded that the Tribunal's impugned order was unsustainable and allowed the appeal in favor of the appellant revenue. The court determined that the orders passed by the AO both before and after remand resulted in an erroneous order prejudicial to the interests of the revenue. The power was rightly exercised by the CIT under Section 263 of the Income Tax Act, 1961. The substantial questions of law were answered in favor of the appellant revenue, and the appeal was allowed with no cost.