2021 (8) TMI 975 - HC - Income Tax

Revision u/s 263 - HELD THAT - Two conditions of the order being erroneous and prejudicial to the interest of revenue have to be present at the stage when the Principal Commissioner or the Commissioner initiates the exercise of the jurisdiction u/s 263. The very reading of the clause 4.0 of the order would go to show that the Principal Commissioner, Income Tax is yet to arrive at his prima facie conclusion that the order of the AO was erroneous and in order to arrive at a satisfaction whether it was erroneous, the Principal Commissioner requires the matter to be examined further in depth. From such point of view, it is submitted by Dr. Saraf that the pre-condition to be present for invoking the Section 263 is absent in this case inasmuch as there is no prima facie satisfaction by the Principal Commissioner on the basis of the materials available as to whether the order of the Assessing Officer which is sought to be reviewed under Section 263 of the IT Act was an erroneous order. Income Tax Department prays for an adjournment to examine the matter.Prayer is allowed. List again on 26.08.2021

Summary

Issues:
Challenge to order under Section 263 of the Income Tax Act 1961 for lack of jurisdiction.

Analysis:
The judgment concerns a writ petition challenging an order under Section 263 of the Income Tax Act 1961 on the basis of jurisdiction. The petitioner's senior counsel argued that the condition precedent for invoking Section 263 was absent in this case. It was contended that for the Principal Commissioner to exercise jurisdiction under Section 263, they must find the order passed by the Assessing Officer to be both erroneous and prejudicial to the revenue. The counsel highlighted that the satisfaction of the order being erroneous and prejudicial to revenue must be present when the Principal Commissioner initiates action under Section 263. Reference was made to a Supreme Court ruling emphasizing this pre-condition. The petitioner's counsel pointed out that the Principal Commissioner's order did not conclusively establish the order's erroneous nature, as further examination was deemed necessary. Therefore, it was argued that the pre-condition for invoking Section 263 was absent in this case.

The Income Tax Department's counsel requested an adjournment to examine the matter, which was granted by the court. The court ordered that no action be taken against the petitioner until the next hearing scheduled for 26.08.2021. The judgment reflects a detailed analysis of the legal requirements for invoking Section 263 of the IT Act and the necessity for the Principal Commissioner to establish both the erroneous nature of the order and its prejudicial impact on revenue before initiating proceedings under this section. The court's decision to grant an adjournment and restrain any action against the petitioner indicates a cautious approach to ensure procedural fairness and adherence to legal standards in tax matters.