Revision of order that is erroneous in so far as it is prejudicial to the interests of revenue

[Admin TMI]

Question - What are the proposed amendments in section 263 of the Income-tax Act ?

[Admin TMI]

Revision of order that is erroneous in so far as it is prejudicial to the interests of revenue

The existing provisions contained in sub-section (1) of section 263 of the Income-tax Act provides that if the Principal Commissioner or Commissioner considers that any order passed by the assessing officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making an enquiry pass an order modifying the assessment made by the assessing officer or cancelling the assessment and directing fresh assessment.

The interpretation of expression “erroneous in so far as it is prejudicial to the interests of the revenue” has been a contentious one.

In order to provide clarity on the issue it is proposed to provide that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,-

(a) the order is passed without making inquiries or verification which, should have been made;

(b) the order is passed allowing any relief without inquiring into the claim;

(c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or

(d) the order has not been passed in accordance with any decision, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.

This amendment will take effect from 1st day of June, 2015.

AI Summary

Erroneous-in-interest standard clarified: orders without required inquiries or contrary to binding instructions deemed prejudicial. The amendment clarifies that an assessing officer's order shall be deemed erroneous in so far as it is prejudicial to the interests of the revenue if: the order was passed without necessary inquiries or verifications; relief was allowed without inquiry into the claim; the order is not in accordance with any Board direction under section 119; or the order is not in accordance with any decision, prejudicial to the assessee, rendered by higher courts. The Commissioner's revisional power remains subject to giving the assessee an opportunity of being heard and making an enquiry.