2024 (9) TMI 25 - HC - Income Tax

Revision u/s 263 - amount claimed under the head prior period expenses, which, according to the respondents ought to have been disallowed under the provisions of Section 37 but was not disallowed in the original assessment proceedings u/s 143 (3) - HELD THAT - There is no specific finding by the Revisional Authority that the benefit claimed by the assessee u/s 37 of the Income Tax Act was wrongly allowed by the AO. Rather, the impugned order categorically holds that it is not clear as to whether assessee was permitted the benefit after making the proper enquiry. The powers u/s 263 are to be invoked for reopening an assessment already concluded. Therefore, such powers cannot be invoked without proper enquiry and a satisfaction arrived at by the Revisional Authority that such powers u/s 263 are required to be invoked in any given case. Any power under any fiscal statute which empowers an Authority to reopen concluded assessment cannot be invoked without proper application of mind. Section 263 specifically provides that the Authority will call for and examine the record of the proceedings and upon giving the assessee an opportunity of being heard and after making or causing any such enquiry to be made as it deems necessary, pass such orders as the circumstances of the case may justify. Therefore, it is the mandate of the statute that the Revisional Authority will call for and examine the proceedings of the case and besides giving an opportunity to the assessee of being heard, he may make necessary enquiries or cause any such enquiries to be made, and thereafter pass orders as deemed fit and proper only after his satisfaction. From the impugned order it is apparent that the Revisional Authority has reopened the assessment by setting aside the assessment order passed earlier and directing the AO to cause proper and detailed enquiry and thereafter, make the assessment a fresh. Such power to reopen or order for fresh assessments cannot be de hors the prescription of the statute. Reopening of assessments already concluded cannot be ordered in a casual or whimsical manner. That apart, the prescription in a fiscal statute has to be rigorously followed and any power exercised under any such fiscal statute cannot be exercised by the authority prescribed therein without satisfying the requirement of the prescriptions in the statute. Revisional Authority in the impugned order did not come to a specific conclusion as to whether the benefit was claimed by the assessee u/s 37. A plain reading of the impugn order reveals that the matter requires examination. A finding that the assessee is not entitled to claim the benefits of a prior period has not been arrived at by the Revisional Authority while passing the impugned order. There is no finding as to whether the records were called for and examined by the Revisional Authority. Revisional Authority merely concluded that it could not be confirmed accurately as to whether the assessee had not claimed the deduction in the earlier years. The assesse would not be disentitle to claim any benefit which may have accrued to the assessee for the earlier period at a later stage when any enforceable demand is made, unless the same is specifically prohibited in the statue as had been held in CIT vs. Nathmal Tolaram 1972 (5) TMI 1 - GAUHATI HIGH COURT Under such circumstances, if any benefit had accrued to the assessee for the earlier period which by oversight or other bonafide reasons was not claimed by the assessee, then the assessee cannot be precluded from claiming such a benefit in the later assessments unless the same is specifically prohibited under the provisions of the Act. There was no satisfaction reached by the Revisional Authority that there was an error in the assessment order passed earlier by the AO and that erroneous order is also prejudicial to the interests of revenue. This Court is of the considered opinion that the impugned order was issued in total contravention of the requirements specified u/s 263 - Decided in favour of assessee.

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act.
2. Erroneous and prejudicial nature of the Assessment Order.
3. Procedural compliance and satisfaction by the Revisional Authority.
4. Interpretation and application of judicial precedents.

Detailed Analysis:

1. Jurisdiction under Section 263 of the Income Tax Act:

The petitioner challenged the invocation of jurisdiction under Section 263 by the Revisional Authority. The Revisional Authority issued a show cause notice for revising the Assessment Order dated 31.12.2018, questioning the allowance of Rs. 9,93,67,946/- as prior period expenses. The petitioner contended that the Revisional Authority did not meet the mandatory preconditions under Section 263, which requires the order to be both erroneous and prejudicial to the interests of revenue. The court examined the statutory requirements under Section 263 and concluded that the Revisional Authority must call for and examine the records, give the assessee an opportunity of being heard, and be satisfied that the order is erroneous and prejudicial to revenue before invoking jurisdiction.

2. Erroneous and Prejudicial Nature of the Assessment Order:

The petitioner argued that the Revisional Authority did not find the Assessment Order to be erroneous or prejudicial to the revenue. The Revisional Authority's order indicated uncertainty about whether the assessee claimed the deduction in previous years. The court referred to the judgments in Malabar Industrial Company Limited vs. Commissioner of Income Tax and Rajendra Singh vs. Superintendent of Taxes, which clarified that an order is erroneous if it involves incorrect assumptions or applications of law. The court emphasized that the Revisional Authority must provide specific findings that the Assessment Order is erroneous and prejudicial to revenue, which was not done in this case.

3. Procedural Compliance and Satisfaction by the Revisional Authority:

The court scrutinized whether the Revisional Authority followed the procedural requirements under Section 263. The Revisional Authority's order lacked specific findings and merely directed the Assessing Officer to re-examine the matter. The court highlighted that the powers under Section 263 cannot be invoked without proper enquiry and satisfaction. The Revisional Authority must objectively justify the invocation of jurisdiction, which was absent in this case. The court noted that the Revisional Authority did not conclusively determine whether the benefit claimed by the assessee was erroneous or prejudicial to revenue.

4. Interpretation and Application of Judicial Precedents:

The petitioner cited several judicial precedents, including Malabar Industrial Company Limited, Rajendra Singh, and Amitabh Bachchan, to support their contention that the Revisional Authority did not meet the required preconditions under Section 263. The court reiterated the principles laid down in these judgments, emphasizing that the Revisional Authority must be satisfied that the order is both erroneous and prejudicial to revenue. The court also referred to the judgment in Commissioner of Income Tax vs. Gabriel India Limited, which reinforced the need for objective satisfaction by the Revisional Authority.

Conclusion:

The court concluded that the Revisional Authority did not meet the statutory requirements under Section 263. The impugned order dated 31.03.2021 was set aside and quashed, and the writ petition was allowed. The court emphasized that the Revisional Authority must rigorously follow the statutory requirements and provide specific findings before invoking jurisdiction under Section 263.

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