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Jurisdiction of the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961 to set aside an order of the Income-tax Officer based on erroneous assessment. Analysis: The case involved a reference under section 256(1) of the Income-tax Act, 1961, where the Tribunal questioned the justification of the Commissioner of Income-tax's assumption of jurisdiction under section 263. The dispute arose from the assessment of interest received by the assessee on additional compensation for land acquisition. The Income-tax Officer assessed the interest on an accrual basis, while the Commissioner of Income-tax deemed the assessment order erroneous and prejudicial to the Revenue's interests under section 263. The Tribunal based its decision on the timing of the High Court judgment and the application of law by the Income-tax Officer at the time of assessment. The Tribunal's decision was influenced by the timing of the High Court judgment in CIT v. H.H. Maharaja Yashwant Rao Pawar [1981] 127 ITR 650, which clarified the accrual of interest on enhanced compensation. The Tribunal emphasized that the judgment was delivered after the Income-tax Officer's assessment order, thus the Officer applied the law correctly at the time of assessment. The Tribunal also highlighted the principle that once the Income-tax Officer has applied his mind and made a decision, the Commissioner cannot invoke section 263 unless the order is genuinely erroneous. However, the High Court disagreed with the Tribunal's interpretation. The High Court clarified that the judgment in Maharaja Yashwant Rao Pawar's case did not introduce new facts but merely explained existing law applicable at the time of assessment. The Court emphasized that the Commissioner has the authority under section 263 to correct erroneous orders prejudicial to Revenue's interests. The Court distinguished the case from Ganga Properties v. ITO [1979] 118 ITR 447, where the Valuation Officer's order was not part of the record at the time of assessment. Ultimately, the High Court ruled against the assessee, affirming the Commissioner's jurisdiction under section 263 to set aside the Income-tax Officer's order. The Court concluded that the Commissioner rightly considered the assessment order prejudicial to Revenue's interests based on the clarification provided by the High Court judgment. The High Court held that the Tribunal erred in concluding that the Income-tax Officer's order was not erroneous, emphasizing the Commissioner's authority to rectify such errors under section 263. In conclusion, the High Court's decision upheld the Commissioner of Income-tax's jurisdiction under section 263 to correct erroneous assessment orders prejudicial to Revenue's interests, emphasizing the importance of applying the law as it stood at the time of assessment and the Commissioner's duty to ensure compliance with legal provisions for tax assessments.
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