2005 (10) TMI 35 - HC - Income Tax

Court Limits ITO's Jurisdiction to CIT's Order | Fair Opportunity for Assessee

The court held that the Income-tax Officer (ITO) could only consider items specified by the Commissioner of Income-tax (CIT) in a section 263 order for ... Whether,Tribunal was right in law in holding that in the fresh assessment order passed in pursuance of an order of the learned Commissioner under section 263 of the Income-tax Act, 1961, the Income-tax Officer was entitled to consider only those two items which were considered by the learned Commissioner and was not entitled to consider afresh any other item for making addition? Tribunal was right in law in holding that, in the fresh assessment orders passed in pursuance of the consolidated order under section 263 of the Act, the Assessing Officer was entitled to consider only those two items which had been considered by the Commissioner of Income-tax and was not entitled to consider any other item afresh for making additions. The question referred at the instance of the Commissioner is, therefore, answered in the affirmative, i.e., in favour of the assessee and against the Revenue Issues Involved:1. Scope of the Assessing Officer's jurisdiction in fresh assessments following a section 263 order.2. Entitlement of the assessee to deduct the entire cost of films in the year of payment.Issue-Wise Detailed Analysis:1. Scope of the Assessing Officer's Jurisdiction in Fresh Assessments Following a Section 263 Order:The primary issue was whether the Income-tax Officer (ITO) could consider items beyond those specified by the Commissioner of Income-tax (CIT) in a section 263 order when making fresh assessments. The Tribunal held that the ITO was limited to the two items identified by the CIT and could not consider any additional items for making additions. The CIT had issued a show-cause notice focusing on two specific issues: the total investment in films and the erroneous write-off of film costs. The Tribunal emphasized that the CIT's order must be read as a whole, including the show-cause notice, which only addressed these two points. Therefore, the ITO's jurisdiction was confined to these aspects, and any additions beyond these were beyond his authority. The court supported this view, stating that allowing the ITO to consider additional items would negate the statutory requirement of giving the assessee an opportunity to be heard, as mandated by section 263. The court concluded that the ITO could not expand the scope of the assessment beyond the points raised in the section 263 proceedings.2. Entitlement of the Assessee to Deduct the Entire Cost of Films in the Year of Payment:The second issue was whether the assessee was entitled to deduct the entire cost of films in the year of payment. This question was raised for the assessment year 1983-84. However, the court did not address this issue due to the absence of the assessee at the hearing. Consequently, the question remained unanswered for want of prosecution.Conclusion:The court concluded that the Tribunal was correct in holding that the ITO could only consider the two items identified by the CIT in the section 263 order and could not make any additional additions. The question referred by the Commissioner was answered in favor of the assessee and against the Revenue. The question raised by the assessee was left unanswered due to their absence at the hearing. The reference was disposed of accordingly, with no order as to costs.