TaxTMI 
TaxTMI 
2010 (9) TMI 347
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....of the Act on 28th June, 2004 and the return was revised on 31st March, 2005, after reducing its income by Rs.20,19,111/-, declaring income at Rs.3,17,16,695/-. A notice under Section 143(2) of the Act was issued on 8th October, 2004. The assessee company, a travel agent and tour operator, incurred expenditure of Rs.4,02,421/- on foreign travel and the assessee submitted a letter dated 20th January,2006 submitting the details of foreign travelling undertaken. The assessing officer came to hold that the assessee had not filed any details which would confirm the fact that it had obtained business in result of the above foreign travelling and, accordingly, opined that the expenditure would not come within the exemption provisions. The assessing officer disallowed 50%, i.e., Rs.2,01,210/- and added the same to the total income of the assessee. After so assessing, the assessing officer charged interest under Sections 234B, 234C and 234D and directed initiation of penalty proceeding under Section 271(1)(C) of the Act for concealment of income or furnishing inaccurate particulars of income. 3. After the assessment order was passed, the Commissioner of Income Tax examined the record and....
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...., the assessee earned commission of Rs.24,92,50,085.31 on the sale of air tickets and out of the said amount, Rs.14,99,38,574.64 was passed on to the customers by way of discounts and the rest of the amount was offered for tax. The assessee also urged that there are two ways of depicting the commission in profit and loss account, namely, crediting the gross income and claiming deduction of the commission passed on to the customers by way of discounts or crediting the net income after netting of the discount from the gross commission income as in the assessee‟s case and the assessee could adopt any of the methods. 5. The tribunal posed the question whether the gross commission income is accounted for under both the methods. The tribunal opined that the only difference is that in one case, the gross income is credited to the profit and loss account whereas the net income is credited in the other and the tax effect under both the methods is the same because the net commission income is chargeable to tax in both the cases. As is evident from the order of the tribunal, no addition to the income of the assessee can be made merely because of the difference in the accounting treat....
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....rify the net commission transferred to P&L Account afresh when the A.O. had already examined this aspect merely amounted to change of opinion which is not permissible under section 263 of the Act and, hence, the order passed by the Commissioner of Income Tax under section 263 of the Act requires to be cancelled. Accordingly the order passed by the Commissioner of Income Tax under section 263 of the Act is hereby cancelled and the grounds of appeal taken by the assessee stand allowed." 6. We have heard Mr.Sanjeev Sabharwal, learned counsel for the appellant, and Mr.Ajay Vohra and Ms.Kavita Jha, learned counsel for the respondent. 7. Mr.Sabharwal, learned counsel for the appellant, has submitted that the tribunal was not justified in dislodging the order passed by the Commissioner of Income Tax under Section 263 of the Act as the order passed by the assessing officer was erroneous and prejudicial to the interests of the revenue. The learned counsel would submit that the analysis made by the CIT should not have been faulted by the tribunal. 8. Mr.Vohra, learned counsel for the assessee, per-contra, contended that the CIT has travelled beyond the issue raised in the notice whi....
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...., namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent - if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue - recourse cannot be had to section 263(1) of the Act. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase "prejudicial to the interests of the Revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy & Co. v. S.P. Jain & Anr. [1957] 31 ITR 872, the High Court of Karnataka in CIT v. T. Narayana....
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....acie manner that the order is not only prejudicial to the interest of the revenue but also erroneous in nature. In the absence of any of the factors being satisfied, he does not assume jurisdiction to initiate a suo motu power of revision. The exercise of such a power is dependent on the conditions precedent being satisfied. The Commissioner does not have unfettered power to initiate proceeding by revision, re-examining the matter and directing fresh on his own whim for change or having a different view. He has been conferred with a quasi-judicial power and the same is hedged with limitation and, therefore, it has to be exercised within the parameters of the provision. When the Commissioner is himself not able to form an opinion, he cannot direct another inquiry by the assessing officer under Section 263 of the Act. In this regard, we may profitably reproduce a passage from Associated Food Products P. Ltd. (supra): "10. In view of the aforesaid pronouncement of law and taking into consideration the language employed under section 263 of the Act, it is clear as crystal that before exercise of powers two requisites are imperative to be present. In the absence of such foundation ex....
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....icial to the interests of the Revenue. Since the material was there on record and the said material was considered by the Income-tax Officer and a particular view was taken, the mere fact that a different view can be taken, should not be the basis for an action under section 263 of the Act and it cannot be held to be justified." 15. In the case at hand, the tribunal had opined that while framing the assessment order under Section 143(3) of the Act, the assessing officer asked the assessee to explain why the commission received by him from airlines which had been passed on to the customers by way of discount should not be added to the income of the assessee and the assessee had given the explanation. The assessing officer accepted the explanation offered by the assessee. After so stating, the tribunal had further opined that the revenue could not point out any defect in the accounting system followed by the assessee in respect of the commission received by the assessee being shown in the books of accounts and the part of the same being passed on to the customers by the assessee by way of discounts and the net commission received by the assessee only being shown as income. After s....
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....f capital nature. He referred the matter back to the Income Tax Officer to examine the same and to decide afresh. The said action of the Commissioner was not approved by the tribunal. In that background, the High Court of Bombay expressed the view as follows: "From a reading of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is "erroneous in so far as it is prejudicial to the interests of the Revenue". It is not an arbitrary or unchartered power. It can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and wit....