2017 (2) TMI 864 - HC - Income Tax

Revision u/s 263 - unsecured loans - Held that - An obvious mistake had been made by the CIT while passing the order under Section 263 of the Income Tax Act. It has made a double addition, even though the AO has already added an income of two crores and ninety eight lakhs approximately for the year in question. The Tribunal has, therefore, come to the conclusion that there was no occasion for the CIT to pass order under Section 263 of the Act as it could not be said that while taking a view the AO had made an error or that it amounted to an error and consequently no loss or prejudice had been caused to the revenue. Having heard learned Counsels on both sides and having perused the material on record, we are of the opinion that the view taken by the Tribunal is justified in the facts and circumstances of the case. It is settled law that where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous or prejudicial to the interests of the revenue unless the view taken by the Income-tax Officer is unsustainable in law.- Decided in favour of the assessee

Summary

Issues:
1. Interpretation of Section 263 of the Income Tax Act, 1961.
2. Validity of the estimation of income made by the Assessing Officer.
3. Jurisdiction of the Commissioner to invoke Section 263 based on differing views.

Analysis:

Issue 1: Interpretation of Section 263 of the Income Tax Act, 1961
The case involved a departmental appeal under Section 260A challenging the Tribunal's order regarding a revisional order passed by the CIT under Section 263 of the Income Tax Act, 1961. The primary question was whether the CIT's revisional order was legally correct, considering the assessment order by the AO lacked proper inquiries and was held as erroneous and prejudicial to the revenue's interest. The Tribunal observed that the CIT's findings on underassessment of income were unsubstantiated. It was noted that the AO had estimated the income at a certain figure, and the Tribunal found the CIT's direction for further disallowance unwarranted. The Tribunal emphasized that if two views are possible, and the AO's view is sustainable in law, it cannot be deemed erroneous or prejudicial to the revenue's interests.

Issue 2: Validity of the estimation of income made by the Assessing Officer
Regarding the estimation of income made by the Assessing Officer, the Tribunal found that the CIT's higher estimation was based on differing views, with one being that of the AO. The Tribunal concluded that the CIT's estimation did not render the AO's estimation erroneous, as both were plausible views. The Tribunal highlighted that the CIT's order under Section 263 was not justified, especially considering the double addition made by the CIT, which was already addressed by the AO. It was established that no loss or prejudice had been caused to the revenue due to the AO's actions.

Issue 3: Jurisdiction of the Commissioner to invoke Section 263 based on differing views
The Tribunal reiterated that where two views are possible, and the Income-tax Officer has taken a view that differs from the Commissioner's, it does not automatically amount to an error or prejudice to the revenue unless the Income-tax Officer's view is unsustainable in law. Citing the decision in Malabar Industrial Co. Ltd v. Commissioner of Income Tax, the Tribunal upheld the principle that not every loss of revenue due to an Assessing Officer's decision can be considered prejudicial to the revenue's interests. The Tribunal ruled in favor of the assessee, emphasizing that the CIT's order under Section 263 was unwarranted, and the questions of law were answered in favor of the assessee against the department.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing the importance of sustainable legal views in assessing the validity of orders under Section 263 of the Income Tax Act, 1961.