2015 (4) TMI 508 - HC - Income Tax

Revision u/s 263 on the ground TDS Certificate receipts showed discrepancy - prejudicial and erroneous order - Notice u/s 263 on some ground - Final order u/s 263 is on different ground - Held that - The show cause notice alleges debiting of expenses on account of stationary and auditor's remuneration to the extent of ₹ 14,725/-, which has not been examined by the Assessing Officer. It is only on these two grounds that the Assessing Officer's order was proposed to be set aside by terming it as erroneous and prejudicial to the interest of the Revenue. However, in the final order of the Commissioner, something which is not forming part of the show cause notice, has been referred and conclusion thereon is rendered. That is in relation to alleged system of accounting adopted by the Assessee, which is stated to be the mercantile system and that is why there is disclosure of lesser income. Nowhere in the show cause notice any system of accounting has been referred nor disclosure of any lesser income over and above what has been referred by us. In such circumstances, the Tribunal rightly came to a conclusion that there is a vital discrepancy in the show cause notice issued under section 263 of the Income Tax Act and the final order of the Commissioner and impugned in the Appeal before the Tribunal. This discrepancy cannot be termed as technical. If the Assessee had no notice of the issue proposed to be examined by the Commissioner, then, he should not have proceeded without the Assessee being given sufficient opportunity and prior in point of time. In the given facts and circumstances, the order of the Commissioner has been set aside on the ground of violation of the principles of natural justice. - Decided against the revenue.

Summary

Issues:
Challenging order of Income Tax Appellate Tribunal under section 263 of the Income Tax Act, 1961 for assessment year 2003-04.

Analysis:
The appeal before the Bombay High Court challenged the order of the Income Tax Appellate Tribunal regarding an assessment under section 263 of the Income Tax Act, 1961 for the assessment year 2003-04. The Commissioner of Income Tax Mumbai had canceled the assessment order of 2006, deeming it erroneous and prejudicial to the Revenue's interest. The Assessee contested this decision before the Tribunal, arguing that the show cause notice only mentioned discrepancies in TDS Certificate receipts leading to an amount escaping assessment. However, the Commissioner's order lacked observations or findings on this issue. The Tribunal noted that the show cause notice did not address the Assessee's accounting system or the discrepancy in income disclosure, yet these aspects were included in the final order, leading to a flaw in the Commissioner's decision under section 263 of the IT Act.

The Revenue contended that the Tribunal's view was overly technical, emphasizing that the Commissioner's order explicitly referred to the show cause notice and the undisclosed receipts from Delhi Metro Corporation Limited, justifying the assessment's cancellation. The Revenue argued that the Commissioner's decision should not be set aside due to lack of notice to the Assessee, as the issue was contested before the Assessing Officer. Conversely, the Assessee's representative supported the Tribunal's decision, stating that no substantial legal questions arose, as the Tribunal correctly interpreted the proceedings. The Commissioner's notice under section 263 highlighted discrepancies in income disclosure, specifically mentioning an undisclosed amount leading to non-disclosure of income. Additionally, the notice raised concerns about certain expenses not examined by the Assessing Officer, forming the basis for deeming the assessment erroneous and prejudicial to Revenue's interest.

The Tribunal found a significant discrepancy between the show cause notice and the final order of the Commissioner, particularly regarding the Assessee's accounting system and alleged lesser income disclosure. This discrepancy was deemed substantial, leading to the Tribunal setting aside the Commissioner's order due to a violation of natural justice principles. The High Court concurred with the Assessee's Counsel, stating that the Tribunal's decision was based on factual evidence and did not raise any substantial legal questions. Consequently, the Appeal was dismissed, with no costs awarded. The Court found no perversity or legal errors in the Tribunal's decision, upholding the dismissal of the Appeal.