2016 (5) TMI 493 - SC - Income Tax

Revision u/s 263 - claim of additional expenses made by the assessee in its re-revised return which was subsequently withdrawn. - Held that - There can be no doubt that so long as the view taken by the Assessing Officer is a possible view the same ought not to be interfered with by the Commissioner under Section 263 of the Act merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional authority. This is a course of action that must be desisted from. However, the above is not the situation in the present case in view of the reasons stated by the learned C.I.T. on the basis of which the said authority felt that the matter needed further investigation, a view with which we wholly agree. Making a claim which would prima facie disclose that the expenses in respect of which deduction has been claimed has been incurred and thereafter abandoning/withdrawing the same gives rise to the necessity of further enquiry in the interest of the Revenue. The notice issued under Section 69-C of the Act could not have been simply dropped on the ground that the claim has been withdrawn. We, therefore, are of the opinion that the learned C.I.T. was perfectly justified in coming to his conclusions insofar as the issue No.(iii) is concerned and in passing the impugned order on that basis. The learned Tribunal as well as the High Court, therefore, ought not to have interfered with the said conclusion. Thus we are of the opinion that the present is a fit case for exercise of the suo motu revisional powers of the learned C.I.T. under Section 263 of the Act. The order of the learned C.I.T., therefore, is restored and those of the learned Tribunal dated 28th August, 2007 and the High Court dated 7th August, 2008 are set aside. The appeal of the Revenue is allowed.

Issues Involved:

1. Jurisdiction of the Commissioner of Income Tax (C.I.T.) under Section 263 of the Income Tax Act, 1961.
2. Principles of natural justice in revisional proceedings.
3. Validity of findings on issues not mentioned in the show cause notice.
4. Examination of specific issues mentioned in the show cause notice.
5. Scope of Section 263 in relation to other provisions of the Income Tax Act.
6. Validity of the reassessment order following the revisional order.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Commissioner of Income Tax (C.I.T.) under Section 263 of the Income Tax Act, 1961:

The Supreme Court examined the scope of Section 263, which allows the C.I.T. to revise any order passed by the Assessing Officer if it is considered erroneous and prejudicial to the interests of the Revenue. The court emphasized that both conditions must be satisfied for the C.I.T. to exercise this jurisdiction. The court reiterated that the C.I.T. must provide the assessee with an opportunity to be heard, which is implicit in the requirement of the section.

2. Principles of Natural Justice in Revisional Proceedings:

The court highlighted that Section 263 does not require a specific show cause notice to be served on the assessee but mandates an opportunity of hearing. The court referred to previous judgments (Gita Devi Aggarwal and M/s Electro House) to underline that the absence of a show cause notice does not affect the jurisdiction of the C.I.T., but the failure to provide an opportunity of hearing would render the revisional order legally fragile due to the breach of principles of natural justice.

3. Validity of Findings on Issues Not Mentioned in the Show Cause Notice:

The Tribunal had held that the C.I.T. went beyond the issues mentioned in the show cause notice, which violated the principles of natural justice. The Supreme Court disagreed, stating that the C.I.T. is not confined to the terms of the notice and can consider other relevant facts, provided the assessee is given a full opportunity to contest and explain these facts. The court found no evidence that the assessee was denied such an opportunity during the revisional proceedings.

4. Examination of Specific Issues Mentioned in the Show Cause Notice:

The Tribunal had also examined three specific issues mentioned in the show cause notice:
- The non-examination of the fifth bank account and other relevant accounts.
- The claim of deposits in a special bank account.
- The claim of additional expenses in the re-revised return.

The Supreme Court found that the Tribunal's reasons for not accepting the grounds cited by the C.I.T. on the first two issues were justified. However, the third issue regarding the claim of additional expenses required detailed attention. The court agreed with the C.I.T. that further enquiry was necessary, as the withdrawal of the claim did not negate the need to investigate the expenses' sources.

5. Scope of Section 263 in Relation to Other Provisions of the Income Tax Act:

The court discussed the different powers conferred on various authorities under the Act, such as reopening assessments under Section 147 and correcting mistakes under Section 154. It emphasized that the power under Section 263 is distinct and must be exercised within its specific scope, without overlapping with other provisions.

6. Validity of the Reassessment Order Following the Revisional Order:

Following the revisional order under Section 263, a fresh assessment was made, which was later set aside by the Commissioner of Income Tax (Appeals) and upheld by the Tribunal and the High Court. The Supreme Court restored the revisional order, allowing the reassessment order to be tested on merits if the assessee chose to do so.

Conclusion:

The Supreme Court allowed the appeal of the Revenue, setting aside the orders of the Tribunal and the High Court, and restored the revisional order of the C.I.T. under Section 263. The court emphasized the necessity of further enquiry into the claim of additional expenses and upheld the C.I.T.'s jurisdiction and actions in the revisional proceedings.

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