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2010 (11) TMI 51 - HC - Income TaxRevision of an order - Notice under Section 263 of the Act has been issued on the ground that the Society received accommodation entries amounting to Rs.3,00,750/- and during the assessment proceeding no inquiry was conducted about the identity and creditworthiness of the donors and genuineness of these donations. Thus, the order passed by the Additional Commissioner of Income Tax, Range Bulandshahar, appears to be erroneous and prejudicial to the interest of revenue - Held that - In the impugned notice, under Section 263 of the Act, it has not been disputed that the income of the petitioner was not exempted from tax under Section 10 (23C)(iv) of the Act and, therefore, we are of the view that the order dated 20.6.2008 of the Additional Commissioner of Income Tax, Range Bulandshahar cannot be said to be erroneous and prejudicial to the interest of the revenue. The phrase prejudicial to the interests of the Revenue in Section 263 of the Act has to be read in conjunction with the expression erroneous order passed by the Assessing Officer - Malabar Industrial Co. Ltd. v. Commissioner of Income Tax, reported in 2000 -TMI - 5786 - SUPREME Court
Issues:
Challenging notice under Section 263 of the Income Tax Act for assessment year 2001-02. Analysis: The petitioner, a Society running a school, challenged a notice dated 2.1.2009 issued by the Commissioner of Income Tax under Section 263 of the Income Tax Act for the assessment year 2001-02. The notice was based on the grounds that the Society received accommodation entries amounting to Rs.3,00,750, which were considered as donations without proper inquiry into their genuineness during the assessment proceeding. The Additional Commissioner of Income Tax initiated the proceeding under Section 263 on the basis that the order passed by the assessing authority was erroneous and prejudicial to the interest of revenue. The petitioner contended that the order assessing nil total income was based on the exemption of income under Section 10 (23C)(iv) of the Act, which was not disputed in the notice under Section 263. The petitioner argued that since the income was exempted, the conditions for invoking Section 263 did not co-exist. The standing counsel for the respondents argued that the undisclosed income treated as donations required further examination, justifying the initiation of proceedings under Section 263. The High Court analyzed the order passed by the Additional Commissioner of Income Tax and the contentions of both parties. It observed that the assessing authority had assessed nil total income based on the exemption of income under Section 10 (23C)(iv) of the Act, which was not disputed in the notice under Section 263. The Court held that even if the amount received was considered as undisclosed income, if the income of the assessee was exempted under Section 10 (23C)(iv), it would not create any tax liability. Referring to the jurisprudence established by the Apex Court in the case of Malabar Industrial Co. Ltd. v. Commissioner of Income Tax, the Court emphasized that for Section 263 to apply, both conditions of an erroneous order and prejudicial to the interest of revenue must co-exist. Since the conditions were not met in this case, the Court concluded that the notice under Section 263 for the assessment year 2001-02 was without jurisdiction and liable to be quashed. Consequently, the writ petition was allowed in favor of the petitioner.
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