Income Tax Act, 1961 – s.263 – Exercise of jurisdiction under – Respondent filed its income tax return for the AY 2007-08, wherein it showed sale of the property / building for an amount of Rs.33 Crores – According to the assessee, property was sold to discharge encumbrances from the sale proceeds to pay off the shareholders and therefore, the said discharge of encumbrances was “cost of improvement” – Assessment accepted by AO u/s. 143(3) – However, the Commissioner invoked jurisdiction u/s. 263 of the IT Act and held that the assessment order passed u/s.143(3) of the IT Act was erroneous and prejudicial to the interest of the revenue – Commissioner set aside the assessment order passed by the AO – ITAT concluded that the Commissioner wrongly invoked the jurisdiction u/s. 263 of the IT Act and upheld the allowability of the Assessee’s claim – Appeal against the ITAT’s order was dismissed by the High Court – On appeal, held: Applying the law laid down in the case of Malabar Industrial Co. Ltd. and on perusal of the the assessment order as well as the order passed by the Commissioner of Income Tax, the Court is of the opinion that the assessment order was not only erroneous but prejudicial to the interest of the Revenue also – In the facts and circumstances of the case, it cannot be said that the Commissioner exercised the jurisdiction u/s. 263 not vested in it – High Court committed a serious error – Impugned Judgment and order passed by the High Court set aside and that the order passed by the Commissioner passed in exercise of powers u/s. 263 of the Income Tax Act is restored.
Allowing the appeal, the Court
HELD: 1. It is true that in Malabar Industrial Co. Ltd., on interpretation of Section 263 of the Income Tax Act, it is observed and held that in order to exercise the jurisdiction under Section 263(1) of the Income tax Act, the Commissioner has to be satisfied of twin conditions, 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. It is further observed that if one of them is absent, recourse cannot be had to Section 263(1) of the Act. [Para 7.1][318-E-F]
2. Even as observed in the case of Malabar Industrial Co. Ltd. that the scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. It is further observed that if due to an erroneous order of the Income Tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. However, only in a case where two views are possible and the Assessing Officer has adopted one view, such a decision, which might be plausible and it has resulted in loss of Revenue, such an order is not revisable under Section 263 [Para 7.2][320-A-C]
3. Having gone through the assessment order as well as the order passed by the Commissioner of Income Tax, we are also of the opinion that the assessment order was not only erroneous but prejudicial to the interest of the Revenue also. In the facts and circumstances of the case, it cannot be said that the Commissioner exercised the jurisdiction under Section 263 not vested in it. [Para 7.3][320-D-E]
Malabar Industrial Co. Ltd. Vs. CIT (2000) 2 SCC 718 : [2000] 1 SCR 744 : (2000) 243 ITR 83 (SC) – relied on.
CIT Vs. Smt. Shakuntala Kantilal (1991) 190 ITR 56 (Bombay); Chemosyn Ltd. Vs. ACIT (2012) (25)
Taxxman.com 325 (Bombay) – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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