2014 (5) TMI 672 - HC - Income Tax

Jurisdiction of commissioner u/s 263 of the Act - Validity of notice u/s 148 of the Act Opportunity of being heard Held that - The Commissioner received the records prior to the issuance of the show cause notice and opined that the AO failed to apply his mind objectively and failed to conduct an inquiry over the subscription of the shares to various subscribers at a high premium - Section 263 of the Act never envisages the separate recording of the satisfaction before issuance of the show cause notice - the order of the AO appears to be erroneous and a prejudice is caused to the revenue, it would render the said show cause notice legal and valid - Commissioner has indicated the same sufficiently in the show cause notice and afforded the opportunity to the assessee to file reply - Whether the order can sustain on legal parameters or not, can be tested by a Higher Authority who have been bestowed with the power of appeal - Section 253 of the Act provides a remedy of appeal against an order passed u/s 263 of the Act by the Commissioner, such remedy is required to be resorted by the asseessee - Decided against Assessee.

Issues Involved:
1. Validity of the show cause notice under Section 263 of the Income Tax Act, 1961.
2. Alleged violation of the principles of natural justice.
3. Jurisdiction and authority of the Commissioner in issuing the show cause notice.
4. Availability and adequacy of alternative remedies.

Detailed Analysis:

1. Validity of the Show Cause Notice under Section 263:
The petitioner challenged the show cause notice dated 3rd February 2014, issued by the Commissioner of Income Tax, on the grounds that the Commissioner had not recorded his satisfaction regarding the error in the order passed under Section 148, which affected the interest of the revenue. The Commissioner issued the notice intending to revise the reassessment order made under Sections 147 and 148, citing doubts over the subscription of shares at a premium in the absence of any business activities and the lack of proper inquiry regarding the identity and worthiness of the shareholders. The petitioner argued that the Commissioner should have carefully examined the records and materials before concluding that the order was erroneous and prejudicial to the interest of the revenue, citing precedents such as Commissioner of Income Tax vs. Karam Chand Thapar & Sons Ltd. and Commissioner of Income Tax vs. Gabriel India Ltd.

2. Alleged Violation of the Principles of Natural Justice:
The petitioner contended that the order dated 18th March 2014, passed under Section 263 of the Act, violated the principles of natural justice. Despite a specific request for the supply of relied-upon documents, the authorities did not provide such documents, leading to a claim of flagrant violation of natural justice principles. The department, however, argued that an opportunity of hearing was given to the petitioner before passing the order and that the order was thus not in violation of natural justice principles.

3. Jurisdiction and Authority of the Commissioner:
The court examined the relevant provisions under Sections 263 and 253 of the Income Tax Act. It noted that the Commissioner could exercise jurisdiction under Section 263 suo motu if the order of the Income Tax Officer was erroneous and prejudicial to the interest of the revenue. The court emphasized that the twin conditions of the order being erroneous and prejudicial to the interest of the revenue must be met. It clarified that merely because the order appeared erroneous did not justify the invocation of power by the Commissioner unless it was also prejudicial to the revenue. The court cited the distinction between an erroneous order and a mere mistake or error by the Assessing Officer, referencing the judgment in Gabriel India Ltd.

4. Availability and Adequacy of Alternative Remedies:
The court highlighted that Section 253 of the Act provides a remedy of appeal against an order passed under Section 263 by the Commissioner. The court opined that the petitioner should resort to this alternative remedy. It was noted that the Commissioner had indicated sufficient grounds in the show cause notice and had provided the petitioner an opportunity to respond, which had been availed. The court concluded that whether the order could sustain on legal parameters should be tested by a higher authority vested with appellate power.

Conclusion:
The court dismissed the writ petition, finding no merit in the arguments presented by the petitioner. It held that the show cause notice issued under Section 263 was valid and that the petitioner had adequate remedy available through an appeal. The court did not find any violation of natural justice principles and upheld the jurisdiction and authority of the Commissioner in issuing the notice. There was no order as to costs, and urgent photostat certified copies of the judgment were to be supplied to the parties upon compliance with requisite formalities.

← Previous Next →