REVISION OF ORDERS BY CIT U/S 263 – An Overview

Presented by Subash Agarwal,Advocate

dvocate

1.Dissecting the provision of

Section 263(1)!!!

1.1 Dissecting the provision of

Section 263(1)!!!

(a) The Commissioner of Income Tax (CIT) may call for and

examine the records of any proceedings.

(b) CIT may exercise the power of revision only if he

considers any order passed by the A.O. is –

(i) Erroneous and

(ii) Prejudicial to the interest of revenue.

(c) He may give an opportunity of being heard.

(d) He may –

(i) Enhance assessment.

(ii) Modify assessment.

(iii) Cancel assessment or

(iv) Direct fresh assessment.

2. Examination of Records by CIT

Whether

(a) “Records” existing at the time of original

proceedings???

(b) “Records” existing at the time of examination

by CIT???

2.1 As per Explanation (b) below section

263(1) -

“Records” mean –

Records available at the time of examination

by the CIT.

2.2 Supporting Judgement CWT vs. Smt. Poolwati Agarwal 276 ITR 623 (All.)

RatioWhere WTO had valued the property at Rs. 50,809/-

and the DVO’s report received subsequently valued the property at Rs. 1,52,000/-, CIT was justified in considering the DVO’s report available at the time of examination of records by him and cancelling the W.T. assessment.

Following –CIT vs. Shree Manjunatheswara Packing Products 231

ITR 53(SC) (same issue)

3. Can only assessment orders be revised???

3.1 No. The language used in

Section 263(1) is “any order”.

3.2 Other Instances where CIT can exercise revisionary jurisdiction u/s 263-

(a)An order recording the partition of HUF.

(b) An order dropping penalty proceedings

u/s 271(1)(c).

(c) An order dropping re-opening

proceedings u/s 147.

4. Orders which cannot be revised

(a) Order cannot be revised merely on the basis of revenue audit objection There should be an indication that the CIT was himself satisfied about the “ error” in the order under revision.Please refer:Sohana Woolen Mill 296 ITR 238 (P & H) Following:-India & Eastern Newspaper Society 119 ITR 996 (SC)

(b)Where both the conditions

viz.,-(i) Order is “erroneous”

(ii) Order is “prejudicial to the interest of

revenue”

are not cumulatively satisfied.

Please refer:

(a)Malabar Industrial Co. Ltd.’s case 243 ITR 83(SC)

(b) Gabriel (I) Ltd.’s case 203 ITR 108 (Bom.)

(c) Where two views are possibleExamples

(i)Relief claimed u/s 10B on exports. There was

delayed receipts of export profits.

Held, interpretation possible in more than one way

Sak Soft Ltd.’s case 298 ITR 63 (Mad.)

(ii) A.O. allowed depreciation on goodwill

Held, two views are possible on the issue and the

A.O. accepted one view.

Hindustan Coco Beverages’ case 331 ITR 192 (Del.)

5. CIT must record a categorical finding

That the order under revision is-

(a) Erroneous and

(b) Prejudicial to the revenue’s interest.

Case Laws There must be material to come to such conclusion.

Pl.refer : George Williamson’s case 250 ITR 747 (Gau.)

There must be a finding recorded.

Pl.refer: Jai Mewar Wine Contractors’ case 251 ITR 785 (Raj.)

6. CIT cannot substitute his own judgement for that of

the A.O.’s

(a) Bongaigaon Refinery & Petro’s case 287 ITR 120

(Gau.)

Held, CIT cannot substitute his judgement for that of

the A.O. even if he holds an opinion different from the

A.O.

CIT cannot arrogate to himself a status to surrogate

the other authorities and supplant their roles.

(vide para 12 and para

17)

(b) Infosys Technologies Ltd.’s case 103 ITD 399 (Bang.)

Held, IF the A.O. has made necessary enquiry and arrived at the

satisfaction, though not clearly mentioned in the assessment

order, such order cannot be revised.

(vide last para at page 430)

Also see

Gabriel India 203 ITR 108 (Bom.)

Board of Control for Cricket 278 ITR (AT) 83 (Mum.)

CIT vs. Girdharilal 258 ITR 331 (Raj.)

(c)CIT vs. Valliammal 230 ITR 695 (Mad.)

Held, in the absence of any definite conclusion arrived

at by the CIT as to erroneous or prejudicial nature of the

assessment order passed by the ITO, he could not set aside

the assessment on the ground that verification of account

was needed after obtaining clarification from the assessee.

(d) CIT vs. Mulchand Bagri’s case 108 CTR 206 (Cal)

In the instant case, the assessee earned profit to the tune of Rs. 16,237 on the sale of some silver. This was claimed as exempt on the ground that the profit was on the sale of silver utensils which constituted 'personal effect' of the assessee. However, the Ld. CIT initiated revision proceedings u/s. 263 on the ground that no enquiry was made in the course of assessment in respect of sale of silver utensils. Held, since the Tribunal found that the ITO had made an enquiry about the sale of silver utensils, the Commissioner was not right in coming to the conclusion that the order passed by the ITO was prejudicial to the interest of the Revenue.

(7) Adverse view

In Mangilal Didwania 286 ITR 126 (Raj.), it was

held that where the assessment was made in

undue haste and without proper investigation,

the same was liable to be revised by CIT.

(8)Notice u/s 2638.1 Invalid NoticeIssue of notice u/s 263 is not a mere procedural requirement. It must bear the signature of CIT & seal of office. Sattandas Mohandas Sidhi 230 ITR 591 (M.P)No signature, seal of office of CIT Details not specified in notice as to why the order of A.O. is erroneous and prejudicial.

Held- Order u/s 263 is invalid. Satish Kr. Keshri 104 ITD 382 (Pat.) (Vide para 13)

8.2 Proper Service Of Notice NecessaryNo proper service on assessee.

Held- 263 order not valid.

Remender Nath Ghosh 82 ITR 888 (SC)

Where notice was returned unserved- “left without address” – served on Power of Attorney holder – No more valid holder – No proper service of notice. Held – Order Quashed

CIT vs. Girdharilal 147 ITR 379 (Raj.)

8.3 Contrary View

Defect may affect the legality of order but not the existence of jurisdiction of CIT. The ITAT has the right to remand the matter to CIT.

Fancy Dyeing & Printing Works V. Income-tax Officer 166 ITR 54 (CAL)

Smt. Anantkuverba (Legal Representative Of H. H. Maharaja Sri Natwarsinghji) V. Commissioner Of Wealth-tax. 201 ITR 42(GUJ.)

Commissioner Of Income-tax, West Bengal Ii V. Electro House 82 ITR 824 (SC)

“All that we have to see is whether before assuming jurisdiction the Commissioner was required to issue a notice and if he was so required what that notice should have contained ? In our judgement no notice was required to be issued by the Commissioner before assuming jurisdiction to proceed under section 33B. Therefore the question what notice should contain does not arise for consideration”

9. Where assessment has been framed u/s 147

Can the order be revised on the ground that proper enquiries were not done in respect of items not connected with “reasons to belief”?

ANSWER - NO

In the case of Ranbaxy Laboratories Ltd. vs. CIT 336 ITR 136 (Del.), it was held as under-

The legislature could not be presumed to have intended to give

blanket powers to the Assessing Officer that on assuming

jurisdiction under Section 147 regarding assessment or

reassessment of escaped income, he would keep on making

roving inquiry and thereby including different items of income

not connected or related with the reasons to believe, on the

basis of which he assumed jurisdiction. For every new issue

coming before Assessing Officer during the course of

proceedings of assessment or reassessment of escaped

income, and which he intends to take into account, he would

be required to issue a fresh notice under Section 148.

10. Whether the order passed by CIT u/s 263 itself is challengeable before the higher forum???

YES.

It can be challenged before the ITAT and only Rs. 500/- is payable as Appeal Fees.

Thanks!!!Namaskar!!!

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