2005 (3) TMI 44 - HC - Income Tax

Revision u/s 263 - prejudicial to the interests of the Revenue - Tribunal was justified in law in upholding the exercise of jurisdiction and powers under section 263 of the Act by the Commissioner of Income-tax. Once the assessee had submitted a statement of advance tax payable and paid advance tax of Rs. 74, 001 the Assessing Officer having served notice under section 139(2) of the Act it was not open to the Assessing Officer to drop the proceedings. There was an indication that the assessee itself believed that it had positive income exigible to tax and the provision of section 144 of the Act specifically mandated the Assessing Officer to frame a best judgment assessment. On his failure to do so the noting recording proceedings dropped was erroneous in so far as it was prejudicial to the interests of the Revenue and was liable to be revised under section 263 of the Act.

Issues:
1. Jurisdiction of Commissioner of Income-tax under section 263.
2. Validity of order not served on the assessee.
3. Correctness of dropping assessment proceedings by the Assessing Officer.

Issue 1: Jurisdiction of Commissioner of Income-tax under section 263

The case involved the jurisdiction of the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961. The Assessing Officer had dropped assessment proceedings without making a best judgment assessment as required under section 144 of the Act. The court held that the failure to file a return mandated the Assessing Officer to make a best judgment assessment. This failure constituted an error in law, empowering the Commissioner to invoke section 263. The court emphasized that the Assessing Officer's action was prejudicial to the Revenue's interests, satisfying the conditions for the Commissioner's intervention under section 263. The court rejected the argument that the Assessing Officer's action was a possible view in accordance with the law, citing precedents and legal provisions supporting the Commissioner's exercise of revisional powers.

Issue 2: Validity of order not served on the assessee

The contention that the order not served on the assessee was not amenable to action under section 263 was dismissed by the court. Citing legal precedents, the court established that notings by the Assessing Officer, even if indicating dropped proceedings, constituted an order. The court highlighted that non-service of the order did not prejudice the assessee in this case, as no assessment was made, and the assessee was not required to pay any tax. Therefore, the court concluded that the non-service did not deprive the assessee of a valuable right of appeal, allowing the Commissioner to act under section 263.

Issue 3: Correctness of dropping assessment proceedings by the Assessing Officer

The court analyzed the circumstances leading to the dropping of assessment proceedings by the Assessing Officer. It noted that the assessee had declared income and paid advance tax, indicating positive income. The Assessing Officer's failure to make a best judgment assessment was deemed erroneous and prejudicial to the Revenue's interests. The court upheld the Tribunal's decision confirming the Commissioner's order to set aside the Assessing Officer's decision and directed a fresh assessment. The court emphasized that the Assessing Officer's action of dropping proceedings was not in line with the statutory requirement, justifying the Commissioner's intervention under section 263.

In conclusion, the High Court of Gujarat upheld the Commissioner's jurisdiction under section 263, dismissed the argument regarding the validity of the unserved order, and deemed the dropping of assessment proceedings by the Assessing Officer as erroneous and prejudicial to the Revenue's interests. The court ruled in favor of the Revenue and against the assessee, answering all three questions affirmatively.

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