2018 (6) TMI 554 - HC - Income Tax

Revision u/s 263 - Orders prejudicial to revenue - Tribunal concluded that, it could not be said that the revisional order passed by the CIT was valid - Held that - Tribunal has examined each and every head as questioned by the Commissioner and has answered in respect of every issues raised by him whether it was a question of difference of pairs of footwears manufactured during the year or whether it was the travelling expenses of the partner or whether it was the health expenses and insurance expenses of the partner of the firm, has come to the conclusion that A.O. had made no error in passing the orders on these issues. There is no quarrel with the settled law that it is always open to the CIT under the provisions of Section 263 of the Act to make a detailed inquiries with regard to any issue that may seem doubtful, but while passing the order under Section 263 of the Act he has to make a clear and firm decision that the order passed by the A.O. is either erroneous or to be prejudicial to the interest of the revenue. Neither has been found in the present. - Decided in favor of assessee.

Summary

Issues:
1. Invocation of Section 263 of the Income Tax Act by CIT
2. Justification of setting aside CIT's order by the Tribunal

Analysis:

Issue 1: Invocation of Section 263 of the Income Tax Act by CIT
The appeal under Section 260-A of the Income Tax Act was filed against the order of the Income Tax Appellate Tribunal for the assessment year 2004-05. The primary issue raised was whether the CIT rightly invoked the statutory provisions of Section 263 of the Act, considering the assessment made by the Assessing Officer (A.O.) as both erroneous and prejudicial to the interest of the Revenue. The grounds raised by the CIT included discrepancies in export incentives, stock details, foreign currency expenditure, and personal expenses claimed by the firm. The department argued that the Tribunal erred in setting aside the CIT's order without addressing these grounds. However, upon review, it was found that the A.O. had considered various aspects, such as export fluctuations due to exchange rates, and justified the expenses made by the assessee. The Tribunal, after detailed examination, concluded that the A.O.'s order was not erroneous and did not prejudice the revenue. Citing the decision in Malabar Industries Company Limited Vs. CIT, the Tribunal held that the CIT's revisional order was not valid and restored the assessment order.

Issue 2: Justification of setting aside CIT's order by the Tribunal
The Tribunal thoroughly examined each issue raised by the Commissioner, including discrepancies in manufactured footwear pairs, partner's travelling expenses, and health insurance expenses. It concluded that the A.O. had not erred in addressing these issues. While acknowledging the CIT's authority to inquire into doubtful issues under Section 263, the Tribunal emphasized the necessity of a clear decision that the A.O.'s order is either erroneous or prejudicial to the revenue, which was not found in this case. Consequently, the Tribunal ruled in favor of the assessee, dismissing the appeal and upholding the A.O.'s assessment order for the year in question.

In summary, the Allahabad High Court, through a detailed analysis, upheld the Tribunal's decision, emphasizing the importance of establishing errors or prejudice to the revenue before invoking Section 263 of the Income Tax Act. The judgment favored the assessee, dismissing the appeal filed by the department.