2013 (5) TMI 46 - HC - Income Tax

Jurisdiction under Sec.263 of the I.T. Act - Claim under Sec.54A - Treating the sale as long term capital gain and not as short term capital gain - Held that - The revisional authority should exercise their power under Section 263 of the Act - The order of revisional authority should indicate the error committed by the Assessing Authority and consequential prejudice caused to the revenue because of the erroneous order - Unless these two conditions exist, the revisional authority does not get jurisdiction to pass any order under Section 263 of the Act. Seen from that angle, in the impugned order though we could make out what is the error committed by the revisional authority, certainly there is no iota of evidence to show how it is prejudicial to the interest of the revenue. On the contrary the assessee has demonstrated that in no event the order passed by the Assessing Officer is prejudicial to the interest of the revenue. That aspect has not been considered and there is no reference to that aspect in the entire order passed by the revisional authority and by a cryptic order, the matter is remanded to the Assessing Authority - Though the Tribunal was not expected to go into the merits of the case, in order to demonstrate that the order passed by the Assessing Authority even if it is erroneous, is not prejudicial to the interest of the revenue, they have set out computation of capital gains and demonstrated that the order was not prejudicial - Therefore, the order passed by the revisional authority is illegal and rightly it has been set aside - The substantial question of law is answered in favour of the assessee and against the revenue - The appeal is dismissed.

Summary

Issues:
- Appeal against Tribunal's order under Section 263 of the Income Tax Act
- Dispute over treatment of capital gains from property sale
- Validity of Commissioner's order setting aside assessment
- Interpretation of Section 263 for revisional power

Analysis:
1. The High Court heard an appeal against the Tribunal's decision to set aside the Commissioner's order under Section 263 of the Income Tax Act and remand the matter for fresh consideration by the Assessing Authority. The case involved the sale of a property, with the Assessing Officer initially treating it as long term capital gains, leading to the Commissioner's notice under Section 263. The Tribunal, after detailed examination, found that the assessee was not liable to pay any tax, leading to the appeal by the revenue.

2. The substantial question of law before the Court was whether the Tribunal was correct in requiring the Commissioner to record a finding of error prejudicial to revenue before setting aside the assessment. The revenue's counsel argued that the Tribunal overstepped by computing capital gains, a task reserved for the Assessing Authority. On the other hand, the assessee's counsel supported the Tribunal's decision.

3. The Court emphasized the strict criteria for exercising revisional power under Section 263, citing a previous case to clarify that the Commissioner must establish both error and prejudice to revenue for jurisdiction. The Court noted that the Commissioner's order lacked clarity on the error and prejudice caused to revenue, essential for invoking Section 263.

4. The Court criticized the cryptic nature of the revisional order, which failed to demonstrate how the Assessing Officer's decision was prejudicial to revenue. In contrast, the Tribunal's detailed analysis showed that even if the assessment was erroneous, it did not harm revenue interests. The Court concluded that the revisional order was illegal and rightly set aside.

5. Ultimately, the Court ruled in favor of the assessee, dismissing the revenue's appeal. The judgment underscored the importance of establishing both error and prejudice to revenue for invoking Section 263, highlighting the need for clear reasoning in revisional orders to justify setting aside assessments.

This comprehensive analysis outlines the key legal issues, arguments presented, the Court's interpretation of Section 263, and the reasoning behind the judgment in favor of the assessee.