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

Proposed changes to Section 263 clarify when tax orders are deemed erroneous, focusing on inquiries and higher court decisions. The discussion addresses proposed amendments to Section 263 of the Income-tax Act, focusing on orders deemed erroneous and prejudicial to revenue interests. It explains that the Principal Commissioner or Commissioner can revise such orders after hearing the assessee and conducting inquiries. The amendments clarify that an order is considered erroneous if it lacks necessary inquiries, grants relief without proper claims verification, disregards Board instructions under Section 119, or contradicts decisions from higher courts. These changes aim to provide clarity and will be effective from June 1, 2015.