2002 (12) TMI 38 - HC - Income Tax

1. Whether, Tribunal was right in holding that the order passed by the Commissioner of Income-tax under section 263, is valid? - 2. Whether, Tribunal was right in holding that the Commissioner of Income-tax could validly invoke the provision of section 263 of the Act, even though the same does not accord to the instructions given by the CBDT in similar situations ? Tribunal was correct in holding that the Commissioner has exercised his jurisdiction on proper and valid grounds and he has exercised his jurisdiction properly when he found that the Assessing Officer had granted deduction under sections 80HH and 80HHC without verifying the same. We do not find any infirmity in the order of the Appellate Tribunal and accordingly, we answer the question of law referred to us in the affirmative, against the assessee and in favour of the Revenue

Issues Involved:
1. Validity of the order passed by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961.
2. Whether the Commissioner of Income-tax could validly invoke the provision of section 263 of the Act, even though the same does not accord to the instructions given by the Central Board of Direct Taxes in similar situations.

Detailed Analysis:

1. Validity of the order passed by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961:

The assessee, engaged in the business of purchase and sale of tanned and finished hides, filed a return of income for the assessment year 1986-87, disclosing a total income of Rs. 10,32,500. The return included amounts representing the premium on sale of import entitlements and cash compensatory support. The Assessing Officer accepted the return and completed the assessment under section 143(1) of the Act without detailed enquiry.

The Commissioner invoked section 263 of the Act, revising the assessment on the grounds that the premium on sale of import entitlements and cash compensatory support were business income, and the deductions under sections 80HH and 80HHC required verification. The Commissioner held that the Assessing Officer's order was erroneous and prejudicial to the interests of the Revenue due to the lack of proper verification.

The Appellate Tribunal upheld the Commissioner's order, stating that the Assessing Officer failed to verify the conditions for deductions under sections 80HH and 80HHC. The Tribunal relied on the decision in Indian Textiles v. CIT [1986] 157 ITR 112, affirming that the relief granted without verification was erroneous and prejudicial to the Revenue.

The court, upon review, agreed with the Tribunal's decision. It emphasized that the deductions under sections 80HH and 80HHC involve detailed enquiries and satisfaction of conditions, which the Assessing Officer did not conduct. The court cited the Supreme Court's decision in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, which established that an order without proper application of mind is erroneous and prejudicial to the Revenue. The court concluded that the Commissioner was justified in invoking section 263 to revise the assessment.

2. Whether the Commissioner of Income-tax could validly invoke the provision of section 263 of the Act, even though the same does not accord to the instructions given by the Central Board of Direct Taxes in similar situations:

The second question, regarding the Commissioner's invocation of section 263 despite instructions from the Central Board of Direct Taxes, was not pressed by the assessee during the hearing. Consequently, the court did not address this issue in detail.

Conclusion:

The court held that the Commissioner exercised his jurisdiction correctly under section 263, as the Assessing Officer's order was erroneous and prejudicial to the interests of the Revenue. The deductions under sections 80HH and 80HHC required thorough verification, which was not conducted. The court affirmed the Tribunal's decision, answering the question of law in the affirmative, against the assessee, and in favor of the Revenue.

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