1999 (4) TMI 70 - HC - Income Tax

Summary

Issues:
1. Interpretation of the jurisdiction of the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961 in revising an assessment order.
2. Validity of the Commissioner's exercise of revisional powers in a case where a claim of deduction was initially proposed to be disallowed but later allowed in the assessment order due to directions from the Inspecting Assistant Commissioner under section 144B.

Analysis:

1. Interpretation of Commissioner's Jurisdiction under Section 263:
The High Court addressed the issue of whether the Commissioner of Income-tax could exercise revisional powers under section 263 of the Income-tax Act, 1961 in the context of an assessment order passed under section 143(3) following directions from the Inspecting Assistant Commissioner under section 144B. Referring to the decision in CIT v. M. M. Virwani [1994] 207 ITR 225, the court clarified that an order passed by the Income-tax Officer under section 143(3) read with section 144B remained subject to revisional jurisdiction of the Commissioner under section 263. The court emphasized that despite the procedural requirements of section 144B, the assessment order was still considered an order under section 143(3), thereby affirming the Commissioner's authority to exercise revisional powers.

2. Validity of Revision in Case of Disallowed Claim Later Allowed:
The specific issue in this case revolved around a claim of deduction initially proposed to be disallowed in the draft assessment order but later allowed in the final assessment order following directions from the Inspecting Assistant Commissioner under section 144B. The Income-tax Appellate Tribunal had held that once the claim was allowed pursuant to the directions, the Commissioner could not revise that part of the order under section 263. However, the High Court disagreed with this interpretation, citing the decision in CIT v. M. M. Virwani and emphasizing that the order remained subject to revisional jurisdiction irrespective of the directions received under section 144B. The court clarified that the Commissioner could indeed exercise revisional powers under section 263 in such cases where the order was deemed erroneous and prejudicial to the interests of the Revenue, as determined by the Commissioner upon review.

In conclusion, the High Court ruled in favor of the Revenue, upholding the Commissioner's authority to revise the assessment order under section 263 despite the claim of deduction being allowed due to directions from the Inspecting Assistant Commissioner under section 144B. The court emphasized the distinction between the procedural aspects of section 144B and the substantive nature of the assessment order under section 143(3), affirming the Commissioner's revisional powers in ensuring the correctness of the assessment in accordance with the provisions of the Income-tax Act, 1961.