2013 (3) TMI 537 - HC - Income Tax

Jurisdiction power u/s 263 by CIT(A) - ITAT quashed the order of CIT(A) u/s 263 in respect of the items which do not form the subject matter of the show cause notices - whether ITAT was right in holding that a written notice was necessary regarding admissibility of otherwise of its claim u/s 32 AB and 80 HHC? - Held that - Section 263 empowers CIT(A) to call for and examine the record of any proceeding, if he finds that any order passed therein by the ITO is erroneous in so far as it is prejudicial to the interests of the revenue, but such order can be passed after giving an opportunity of being heard to the assessee. Since the show cause notice was limited to the matters u/s 32 AB and 80 HHC therefore, the assessee has not been given any opportunity of hearing, which alone will permit the CIT to exercise the revisional jurisdiction under Section 263. Therefore, no illegality in the order passed by the Tribunal, which may give rise to any substantial question of law. The argument that matter should have been remanded by the Tribunal is a question of law does not merit. In fact, the order of the Tribunal is categorical that the show cause notice was quashed only in respect of matters which were not subject matter of the show cause notice. There was no bar with the Revenue to issue show cause notice in respect of matters not covered by the earlier show cause notice. Having not done so, the petitioner cannot be permitted to reopen the concluded assessment at this stage.

Summary

Issues:
1. Interpretation of Section 263 of the Income Tax Act, 1961 regarding jurisdiction of the Commissioner of Income Tax.
2. Validity of the order passed by the Income Tax Appellate Tribunal (ITAT) in relation to assessment year 1990-91.
3. Requirement of notice and opportunity of hearing for exercising revisional jurisdiction under Section 263 of the Act.
4. Procedural irregularity in the show cause notice and its impact on the revisional jurisdiction.

Analysis:

1. The case involved the invocation of the High Court's jurisdiction under Section 256(2) of the Income Tax Act, 1961, based on substantial questions of law arising from an order of the Income Tax Appellate Tribunal (ITAT) concerning assessment year 1990-91. The questions raised pertained to the correctness of the ITAT's decision in quashing the Commissioner of Income Tax's order under Section 263 in relation to specific items that were not part of the original show cause notices issued under Section 263.

2. Initially, an assessment was made under Section 143(3) of the Act, which was rectified multiple times. Subsequently, the Commissioner of Income Tax set aside the rectified assessment under Section 263, leading to a re-framing of the assessment. The ITAT partially allowed an appeal against this re-framed assessment, highlighting that the Commissioner had not provided the assessee with an opportunity to be heard on certain matters beyond Sections 32 AB and 80 HHC of the Act.

3. The High Court analyzed the provisions of Section 263, emphasizing that the Commissioner of Income Tax can revise an order if it is erroneous and prejudicial to the revenue, but this must be done after giving the assessee an opportunity to be heard. The Court noted that since the show cause notice was limited to specific matters, the assessee was not granted a hearing on other issues, which is essential for the Commissioner to exercise revisional jurisdiction under Section 263.

4. The Court rejected the argument that the matter should have been remanded by the ITAT, as the show cause notice was only quashed concerning issues not previously addressed. The Court emphasized that the Revenue could have issued a new show cause notice for other matters but failed to do so. Therefore, the Court dismissed the petition, concluding that there was no illegality in the ITAT's decision and that the assessment could not be reopened at that stage due to the lack of notice and opportunity of hearing on certain issues.

In conclusion, the High Court upheld the ITAT's decision, emphasizing the importance of providing the assessee with a fair opportunity to be heard before exercising revisional jurisdiction under Section 263 of the Income Tax Act, 1961.