1988 (9) TMI 40 - HC - Income Tax

Summary

Issues:
Jurisdiction of Commissioner under section 263 of the Income-tax Act to revise assessment order passed in compliance with directions of Inspecting Assistant Commissioner under section 144B.

Analysis:
The High Court of Madhya Pradesh addressed the issue of whether the Commissioner of Income-tax had the authority to revise an assessment order passed in compliance with the directions of the Inspecting Assistant Commissioner under section 144B of the Income-tax Act, 1961. The case involved the assessment year 1978-79 where the assessee was asked to explain the source of 100 high denomination notes of Rs. 1,000 presented to the State Bank of India. The Income-tax Officer proposed an addition of Rs. 1,00,000 to the income of the assessee due to unsatisfactory explanation provided. The matter was then referred to the Inspecting Assistant Commissioner under section 144B, who directed the Income-tax Officer to delete the proposed addition after being satisfied with the explanation provided by the assessee.

The Commissioner of Income-tax later exercised powers under section 263 of the Act and held that the assessment order passed by the Income-tax Officer was prejudicial to the Revenue's interests as proper inquiries regarding the genuineness of the source of high denomination notes were not conducted. Consequently, the Commissioner set aside the assessment order and directed the Income-tax Officer to conduct a fresh assessment based on the directions provided. The assessee appealed this decision before the Tribunal.

The Tribunal ruled in favor of the assessee, stating that the Commissioner did not have jurisdiction to interfere with the assessment order passed by the Income-tax Officer in compliance with the directions of the Inspecting Assistant Commissioner. The Revenue, aggrieved by the Tribunal's decision, sought reference to the High Court. The High Court, after considering the arguments, referred to a previous decision in CIT v. Vithal Textiles [1989] 175 ITR 629, where it was held that the Commissioner had the authority under section 263 to revise an assessment order passed in accordance with the directions of the Inspecting Assistant Commissioner under section 144B.

Therefore, the High Court concluded that the Tribunal was incorrect in holding that the assessment order passed by the Income-tax Officer could not be revised by the Commissioner of Income-tax under section 263. The court answered the question referred in the negative, against the assessee, and ordered each party to bear their own costs in this reference.