2013 (12) TMI 956 - AT - Income Tax

Validity of assessment u/s 263 - Held that - As per section 263 - CIT must have some material(s) which would enable him to form a prima facie opinion that the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the Revenue - The AO cannot revise an order on grounds regarding which the assessee was not show cause otherwise also the assessment order was made u/s 147/148 r.w.s. 143(3) of the Act and the AO has computed assessee s income after making reasonable and due inquiries - The assessee is not found to have been indulging in the purchase and sales of any immovable property - The twin condition of Section 263 are not fulfilled and, thus, the order cannot be revised - Decided in favour of assessee.

Summary

Issues involved:
Revision of assessment order under section 263 of the Income Tax Act, 1961 based on errors and prejudice to revenue.

Analysis:
The judgment revolves around the revision of an assessment order for the assessment year 2007-08 under section 263 of the Income Tax Act, 1961. The Commissioner of Income Tax (CIT) revised the order based on various grounds, including the failure to investigate income items thoroughly, source of payment inquiries, interest income considerations, cost analysis, and wealth tax applicability. The assessee, a retired government officer, defended the assessment order by explaining the acquisition of property through inheritance, conversion of agricultural land into residential plots, and subsequent sale as long-term capital gain. The CIT's revisional power under section 263 is analyzed, emphasizing the need for errors and prejudice to revenue to coexist for revision. The judgment highlights that the CIT must have material to form a prima facie opinion of error and prejudice before revising an order. It also outlines principles guiding the CIT's revision powers, emphasizing the need for fairness, administrative action, and adherence to legal considerations.

The judgment concludes that the assessment order was wrongly revised as the twin conditions of error and prejudice were not met. The order was initially made under section 147/148 r.w.s. 143(3) after due inquiries by the Assessing Officer (AO), who found no evidence of the assessee engaging in property trading. Therefore, the appellate tribunal set aside the revision order and restored the original assessment order for the A.Y. 2007-08. The decision was based on the assessment order being made with reasonable inquiries and the absence of grounds justifying revision under section 263.

In summary, the judgment provides a detailed analysis of the revision of an assessment order under section 263, emphasizing the need for errors and prejudice to revenue for such revision. It highlights the importance of proper investigations, material considerations, and adherence to legal principles in exercising revision powers. The decision ultimately favored the assessee, setting aside the revision and restoring the original assessment order for the specified assessment year.