2005 (1) TMI 32 - HC - Income Tax

Commissioner taking action u/s 263 - summary assessment scheme - It may be mentioned here that in Circular No. 176 dated August 28 1987 the Board had given instructions to CITto the effect that no remedial action is necessary in summary assessment cases as the revenue loss if any is consciously suffered by the Government to utilise resources for scrutiny and investigation of larger cases. In such cases the Commissioner of Income-tax should only inform the audit that the cases are completed under the summary assessment scheme. Accordingly action u/s 263 was not to be taken. It is well settled that the circulars issued by the Board are binding upon the authorities and therefore in any view of the matter the Commissioner was not justified in initiating proceedings u/s 263 in respect of the assessments completed u/s 143(1) - Tribunal was right in holding that there were no material before the Commissioner of Income-tax to justify his finding that the assessment made under section 143(1) was erroneous in so far as it was prejudicial to the interests of the Revenue

Summary

Issues:
1. Interpretation of Section 256(1) and (2) of the Income-tax Act, 1961 regarding the correctness of the Tribunal's decision on the Commissioner of Income-tax's findings.
2. Validity of the Tribunal's order in considering incorrect facts and ignoring relevant facts in the assessment years 1983-84 to 1985-86.

Analysis:
The High Court of ALLAHABAD was tasked with addressing two questions referred by the Income-tax Appellate Tribunal, New Delhi, under Section 256(1) and (2) of the Income-tax Act, 1961. The first issue involved the Tribunal's decision on whether there was sufficient material before the Commissioner of Income-tax to support the claim that the assessment made under section 143(1) was erroneous and prejudicial to the Revenue's interests. The Court, after examining the facts, concluded that the Commissioner's actions were not justified as the assessments completed under section 143(1) did not warrant proceedings under section 263 of the Act. The Court referred to Circular No. 176, dated August 28, 1987, which directed that no remedial action was necessary in summary assessment cases, as any revenue loss was consciously accepted by the Government. Consequently, the Court answered the first question in favor of the assessee and against the Revenue.

Moving on to the second issue, the Court evaluated whether the Tribunal's order was incorrect on facts and law by considering irrelevant facts and overlooking relevant ones in the assessment years 1983-84 to 1985-86. The Court noted that the Tribunal, based on Circular No. 176, had set aside the Commissioner's order under section 263 of the Act. The Court found that the Commissioner's initiation of proceedings under section 263 for assessments completed under section 143(1) was not warranted, as per the binding circulars issued by the Board. Consequently, the Court answered the second question in favor of the assessee and against the Revenue. No costs were awarded in this judgment.

In conclusion, the High Court of ALLAHABAD ruled in favor of the assessee on both issues, highlighting the importance of adherence to circulars issued by the Board and the lack of justification for initiating proceedings under section 263 for assessments completed under section 143(1) of the Income-tax Act, 1961.