2007 (5) TMI 186 - HC - Income Tax

Assessing Officer accepted the version of the assesses without proper enquiry and as a result a substantial amount of taxable income was not brought to tax - In such a case the assessment order would be erroneous and prejudicial to the interests of the Revenue CIT was justified in directing AO to observe rules of natural justice & provide opportunity of hearing to the assesses before making fresh assessment order Tribunal was not justified in setting aside the order of commissioner

Summary

Issues:
1. Whether the Income-tax Appellate Tribunal erred in law in setting aside the order passed by the Commissioner of Income-tax under section 263?
2. Whether the order of the Assessing Officer was erroneous and prejudicial to the interests of the Revenue?
3. Whether the Income-tax Appellate Tribunal's order was sustainable?

Issue 1:
The judgment deals with connected appeals against a common order passed by the Tribunal regarding a common question of law between the Revenue and the assesses for the assessment years 1994-95, 1995-96, and 1999-2000. The primary question was whether the Income-tax Appellate Tribunal erred in law in setting aside the order passed by the Commissioner of Income-tax under section 263. The assesses were engaged in the business of purchasing agricultural land and selling developed residential plots. The Commissioner of Income-tax initiated proceedings under section 263, setting aside the assessment orders and remanding the case to the Assessing Officer for fresh assessment orders. The Income-tax Appellate Tribunal allowed the assesses' appeal, stating that the revisional order under section 263 was unnecessary. The Revenue appealed under section 260A of the Act against the Tribunal's decision.

Issue 2:
The Revenue contended that the Assessing Officer's order was erroneous and prejudicial to the interests of the Revenue, justifying the Commissioner of Income-tax's invocation of revisional jurisdiction under section 263. On the other hand, the assesses argued that the Income-tax Appellate Tribunal's decision should be upheld, as no interference was warranted. The court analyzed the facts and legal precedents cited by both parties, emphasizing the need for the Commissioner to be satisfied that the Assessing Officer's order was both erroneous and prejudicial to the Revenue's interests. The court found that the assessment order was indeed erroneous and prejudicial due to a lack of proper inquiry by the Assessing Officer, resulting in substantial taxable income not being included.

Issue 3:
After considering the submissions and the material on record, the court concluded that the Income-tax Appellate Tribunal erred in law by setting aside the Commissioner of Income-tax's order. The court clarified that the Commissioner's order was based on valid reasons, including the lack of a proper inquiry by the Assessing Officer, which rendered the assessment order erroneous and prejudicial to the Revenue's interests. The court highlighted the importance of the Commissioner's directive to conduct a fresh assessment with proper inquiry and observance of natural justice. The court allowed the Revenue's appeal, holding that the Income-tax Appellate Tribunal's decision was unsustainable, and directed the retention of the judgment in the file and record of connected appeals with no order as to costs.