2015 (2) TMI 724 - HC - Income Tax

Revision u/s 263 - AO who passed the order on September 30, 2008, had no jurisdiction to complete the assessment as the return of income for the assessment year 2007-08 was over rupees five lakhs - Held that - The Commissioner, in the present order under section 263 was not justified in re-initiating the proceedings under section 263 mainly on this premise about jurisdiction. There was no fault of the respondent-assessee. The respondent-assessee appeared before the Assessing Officer who issued valid notice and the Assessing Officer had the authority to issue notice under section 143(2) as aforesaid and complied with the requirements raised by him. The respondent-assessee may not be aware of such requirements and for this the respondent-assessee cannot be subjected to fresh innings at the hands of another Assessing Officer. There is no provision either under section 154 or under section 263(1) to inform the Commissioner of Income-tax to issue show-cause notice under section 263 by the lower authorities as the Commissioner only has the jurisdiction to issue show-cause notice under section 263 if he himself is satisfied after examining the records of the assessment order passed by the Assessing Officer which falls under his jurisdiction and the Commissioner of Income-tax also gets power of revision if the twin conditions are satisfied that the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue.The practice adopted by the Commissioner of Income-tax is de hors and it amounts to unnecessary harassment to the assessee for no fault of his. - Decided in favour of assessee.

Issues Involved:
1. Validity of the jurisdiction of the Assessing Officer (AO) in the assessment order.
2. Legitimacy of the Commissioner of Income-tax's (CIT) power under section 263 of the Income-tax Act, 1961.
3. Whether the reassessment initiated by the subsequent CIT was justified.
4. Examination of procedural fairness and adherence to legal principles in the reassessment process.

Detailed Analysis:

1. Validity of the jurisdiction of the Assessing Officer (AO) in the assessment order:
The respondent-assessee filed a return of income for the assessment year 2006-07, which was assessed by the AO, resulting in an addition of approximately Rs. 4,50,000. The CIT (Administration) later issued a show-cause notice under section 263, questioning the jurisdiction of the AO based on an internal circular. The court observed that the return was submitted before the concerned authority who had jurisdiction at the time of filing. It was not the responsibility of the respondent-assessee to be aware of internal jurisdictional changes. The court concluded that the AO had valid jurisdiction when the notice under section 143(2) was issued and that the assessment order passed by the AO was valid.

2. Legitimacy of the Commissioner of Income-tax's (CIT) power under section 263 of the Income-tax Act, 1961:
The CIT (Administration) initially issued a show-cause notice under section 263 but dropped the proceedings after being satisfied with the AO's assessment. The subsequent CIT issued another notice under section 263, questioning the jurisdiction of the AO. The court noted that the CIT's power under section 263 is not unfettered and must be exercised within the bounds of law and fairness. The court emphasized that the CIT cannot invoke section 263 to correct every mistake or error by the AO, especially if the AO's decision was one of the permissible views under the law.

3. Whether the reassessment initiated by the subsequent CIT was justified:
The reassessment initiated by the subsequent CIT was based on the premise that the AO lacked jurisdiction. However, the court found that the initial CIT had already considered and dropped the proceedings under section 263. The court held that the subsequent CIT's action was not justified as it amounted to a change of opinion and an abuse of power. The reassessment was deemed unnecessary harassment to the assessee.

4. Examination of procedural fairness and adherence to legal principles in the reassessment process:
The court highlighted that the reassessment process must adhere to principles of fairness and the principles of audi alteram partem (right to be heard). The court noted that the AO had issued a valid notice, conducted hearings, and passed a detailed assessment order. The subsequent CIT's decision to reinitiate proceedings under section 263 without new material evidence was considered procedurally unfair and an overreach of authority.

Conclusion:
The court dismissed the appeal, finding no substantial question of law arising from the order of the Income-tax Appellate Tribunal. The reassessment initiated by the subsequent CIT was deemed unjustified, and the original assessment order by the AO was upheld. The court emphasized the importance of procedural fairness and the limited scope of the CIT's powers under section 263.

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