2006 (3) TMI 77 - HC - Income Tax

Power of revision under section 263 - In exercise of the power of revision under section 263 of the Income-tax Act, 1961, whether the Commissioner of Income-tax is justified in directing to reopen the computation of income which was not interfered with by the appellate authority in the appeal filed by the assessee on other grounds

Summary

Issues:
1. Justification of Commissioner of Income-tax in directing to reopen the computation of income under section 263 of the Income-tax Act, 1961.
2. Whether the impugned order under section 263 is within the prescribed period of two years.
3. Application of the settled principle of law with regard to the computation of income and its impact on Revenue interests.

Analysis:
1. The primary issue in this case is whether the Commissioner of Income-tax was justified in directing to reopen the computation of income under section 263 of the Income-tax Act, 1961. The petitioner contended that the computation of income had attained finality as per the assessment order and appellate order, and thus, was not liable to be reopened. However, the Commissioner argued that the error in computation was prejudicial to the interests of the Revenue, justifying the revision under section 263. The court held that the non-application of settled principles of law in computing income was erroneous and prejudicial to Revenue interests, allowing the Commissioner to revise the assessment.

2. The second issue revolves around the timeliness of the impugned order under section 263. The petitioner argued that the order was barred by limitation as it was passed after the prescribed period of two years. However, the court clarified that the impugned order was within the stipulated period as it revised the assessment order passed within the timeframe. The court emphasized that the order revised was not the original assessment order but a subsequent one, allowing the revision to be within the statutory limit.

3. The final issue pertains to the application of settled legal principles in computing income and its impact on Revenue interests. The court highlighted that the power under section 263 is supervisory in nature, aimed at rectifying errors causing prejudice to Revenue interests. In this case, the assessing authority had not followed the Supreme Court's directive in computing income, leading to an erroneous assessment. The court concluded that the failure to apply the correct legal principles resulted in both loss of tax revenue and prejudice to Revenue administration, justifying the Commissioner's intervention under section 263.

In conclusion, the court dismissed the writ petition, affirming the Commissioner's authority to revise the assessment under section 263 based on the errors in computation that were prejudicial to Revenue interests.