2010 (7) TMI 69 - HC - Income Tax

Erroneous assessment power u/s 263 power of the CIT to revise the assessment Held that - It is settled law that two conditions have to be fulfilled before the Commissioner can invoke his power under Section 263 of the Act, 1961 namely, the order should be erroneous and further the assessing officer s order should be prejudicial to the interest of Revenue Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax, 2008 TMI - 5786 - SUPREME Court - that in the order the CIT(A) has neither found the order passed by the assessing officer to be erroneous or prejudicial to the interest of the revenue order passed u/s 263 has been set aside by the ITAT correctly.

Summary

Issues:
Challenge to ITAT order under Section 260A of Income Tax Act, 1961 for assessment year 2006-2007. Interpretation of Section 263 of the Act regarding Commissioner's power to set aside Assessing Officer's order. Conditions for invoking Section 263 jurisdiction: error in the order and prejudice to revenue's interest.

Analysis:
The appellant challenged the ITAT order under Section 260A of the Income Tax Act, 1961 for the assessment year 2006-2007. The counsel for revenue argued that the ITAT erred in law by setting aside the order of the Commissioner of Income Tax (Appeal) under Section 263 and restoring the assessment order of the Assessing Officer. Reference was made to the case of Gee Vee Enterprises vs. Additional Commissioner of Income Tax, Delhi-I 99 ITR 375 to support this argument.

The ITAT, in its order, stated that the Commissioner of Income Tax (CIT) did not point out any error in the Assessing Officer's order but merely directed a re-examination of the issue. The ITAT held that the CIT was incorrect in deeming the assessment order as prejudicial to the revenue's interest. Therefore, the ITAT set aside the CIT's order and restored that of the Assessing Officer.

The High Court opined that Section 263 of the Act does not allow for the Commissioner to substitute judgment for that of the Assessing Officer. The Commissioner can only intervene if the Assessing Officer's order is both erroneous and prejudicial to the revenue's interest. It was emphasized that the Assessing Officer's decision-making process is quasi-judicial and should be respected.

The Court highlighted the two conditions that must be met for the Commissioner to invoke Section 263: the order must be erroneous and prejudicial to the revenue's interest. Citing precedents like Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax and CIT vs. Gabriel India Ltd., the Court emphasized the importance of fulfilling these conditions. The Court also noted that even in the case of Gee Vee Enterprises, the conditions precedent were not waived.

Upon reviewing the CIT's order under Section 263, the Court found that the CIT did not establish the Assessing Officer's order as erroneous or prejudicial to the revenue's interest. As a result, the Court concluded that the conditions for invoking Section 263 jurisdiction were not met. Therefore, the Court dismissed the petition for being devoid of merits, with an order as to costs.

In conclusion, the judgment clarifies the limitations on the Commissioner's power under Section 263 of the Income Tax Act, emphasizing the need for the Assessing Officer's order to be both erroneous and prejudicial to the revenue's interest for the Commissioner to intervene.