2012 (6) TMI 654 - HC - Income Tax

Justification in setting aside the assessment in exercise of powers under section 263 by Commissioner - Held that - The prerequisite to the exercise of jurisdiction by the Commissioner is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interest of the Revenue - the AO has passed a single order for six assessment years in question under section 148, initiating the proceedings on the basis of differences as found in the investment shown by the assessee and as per property valued by the departmental valuer - the AO shows complete non application of mind as he has not discussed as to what was the difference between the value estimated by the departmental valuer as also given by the assessee s valuer and what was the reason for determining the income at such a low figure - Tribunal had committed error in holding that the assessment order in so far as it ignored difference in the two values of two different valuers was not erroneous or prejudicial to the interests of the Revenue - against assessee.

Summary

Issues:
Assessment orders for consecutive years not erroneous or prejudicial to revenue under section 263 of Income Tax Act 1961.

Analysis:
The case involved a reference under section 256(2) of the Income Tax Act 1961 regarding the correctness of assessment orders for consecutive years 1978-79 to 1983-84. The Assessing Officer had completed the assessments based on the income agreed upon by the assessee, despite a significant difference in the valuation of a cinema building between the Departmental Valuation Officer and the assessee. The Commissioner of Income-tax, Allahabad, found the assessment order to be erroneous and prejudicial to revenue due to deficiencies and irregularities. Consequently, the assessments were canceled under section 263, and fresh assessments were ordered based on the valuation report of the Departmental Valuation Officer.

The assessee appealed before the Tribunal, arguing that the Assessing Officer's orders were not erroneous or prejudicial to revenue. The Tribunal quashed the proceedings under section 263 for all years, stating that the Commissioner must provide reasons for finding an assessment order prejudicial to revenue. The Tribunal emphasized the necessity of establishing errors in the Assessing Officer's orders to invoke section 263, highlighting the quasi-judicial nature of the Commissioner's powers. The Tribunal found no error in the Assessing Officer's orders, as they were passed after due consideration and addressing the valuation discrepancies.

In the subsequent proceedings, the Revenue contended that the Assessing Officer's order lacked proper inquiry and application of mind, particularly regarding the valuation of the cinema building. Citing legal precedents, the Revenue argued that the Commissioner was justified in setting aside the assessment order under section 263. The court applied principles from previous cases to determine that the Assessing Officer's order displayed a lack of application of mind and was thus erroneous and prejudicial to revenue. Consequently, the court ruled in favor of the Revenue, upholding the Commissioner's decision to set aside the assessment order.

In conclusion, the court found in favor of the Revenue, supporting the Commissioner's decision to cancel the assessments and order fresh assessments due to errors and deficiencies in the original assessment orders. The court emphasized the importance of proper inquiry and application of mind by the Assessing Officer to ensure accurate and fair assessments under the Income Tax Act 1961.