2002 (10) TMI 45 - HC - Income Tax

Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in cancelling the order of the Commissioner of Income-tax under section 263 without going into the question whether the Commissioner had validly exercised his powers under section 263 of the Income-tax Act, 1961 ? - The assessment made under section 143(1) of the Act is revisable under section 263 of the Act. Section 263 of the Income-tax Act does not lay down any such restriction on the powers of the Commissioner. A restriction which is not set out on the width of the Commissioner s revisional power is not to be lightly read into the statute. - We answer the question referred to us in negative and against the assessee, and in favour of the Revenue.

Summary

Issues:
1. Validity of canceling the order of the Commissioner under section 263 without examining the exercise of powers.
2. Interpretation of section 263 of the Income-tax Act regarding revising assessments.
3. Impact of circular issued by the Director of Inspection on the Commissioner's powers.
4. Authority of the Director of Inspection to issue binding directives.
5. Applicability of a decision from the Madhya Pradesh High Court on the circular's binding nature.

The High Court of Madras addressed the issue of whether the Income-tax Appellate Tribunal was justified in canceling the Commissioner's order under section 263 without assessing the validity of the exercise of powers. The case involved an assessment year of 1985-86 where the Commissioner revised a summary assessment, disallowing a deduction and identifying a revenue loss. The Tribunal overturned the Commissioner's decision based on the belief that assessments under section 143(1) were not revisable under section 263. However, the Court clarified that section 263 does not impose such restrictions on the Commissioner's powers, emphasizing that denying a remedy provided by the statute for the Revenue's benefit is unwarranted.

The Court examined a circular issued by the Director of Inspection, suggesting that no remedial action was necessary in summary assessment cases where any revenue loss was consciously accepted by the government. The circular implied that the Commissioner should only inform audit about the completion of cases under the summary assessment scheme. However, the Court highlighted that the circular's source of power was not explicitly stated, and the views expressed did not constitute a binding decision by the Board. Section 119 of the Income-tax Act empowers the Board to issue instructions to subordinate officers, emphasizing that directives must be approved by the Board and not issued by individual members.

Furthermore, the Court considered a decision from the Madhya Pradesh High Court regarding the binding nature of the Director of Inspection's circular on income-tax authorities. Despite the Madhya Pradesh High Court's ruling, the Madras High Court disagreed, stating that the circular did not hold the same weight as an official directive from the Board under section 119. Ultimately, the Court ruled in favor of the Revenue, rejecting the assessee's arguments and upholding the Commissioner's power to revise assessments under section 263 of the Income-tax Act.