2015 (12) TMI 1510 - HC - Income Tax

Revision u/s 263 - Held that - Merely because the assessing officer has made additions in a particular manner would not mean that the Commissioner would be confined to scrutiny of the methodology adopted by the assessing officer and to proceed either to confirm or to delete the additions, if such methodology is not found entirely satisfactory. Even without the aid of these wide powers, the appellate authority would have inherent power to uphold the additions on correct application of law and facts if sustainable even if on the reasoning of the assessing officer is not found correct. In other words, the appellate authority is not bound by the reasoning of the assessing officer and can through different route reach the same conclusion. Under the circumstances, we do not think that the powers under section 263 of the Act can be exercised when, though addition has been made, on the footing of the premises which are not to the satisfaction of the Commissioner and, therefore, to make additions on better premises with better reasoning or on different application of legal principles.In the result, in our opinion, the Commissioner lacked jurisdiction to issue the impugned notice. When the question is the very foundation of the notice and jurisdiction of the Commissioner to exercise such powers, the question of relegating the petitioner to alternative remedy or to permit the Commissioner to complete the proceedings and thereafter to direct the petitioner to take appeal route does not arise. - Decided in favour of assessee.

Issues Involved:
1. Jurisdiction of the Commissioner under Section 263 of the Income-tax Act, 1961.
2. Validity of the assessment orders and whether they were prejudicial to the interests of the revenue.
3. The effect of pending appeals before the CIT (Appeals) on the revisional powers of the Commissioner.
4. Legal precedents and interpretations of "prejudicial to the interests of the revenue."

Detailed Analysis:

1. Jurisdiction of the Commissioner under Section 263 of the Income-tax Act, 1961:
The petitioner challenged the notice issued by the Commissioner under Section 263 of the Income-tax Act, 1961, arguing that the Commissioner had no authority to revise the assessment orders. The petitioner contended that the assessing officer had already made additions amounting to Rs. 123 crore, which was more than the Rs. 105.36 crore suggested by the Commissioner. As such, the assessment orders could not be considered prejudicial to the interests of the revenue.

2. Validity of the assessment orders and whether they were prejudicial to the interests of the revenue:
The court examined whether the assessment orders were erroneous and prejudicial to the interests of the revenue. It was noted that the assessing officer had made additions based on the rejection of the books of accounts and recalculated the gross profit, resulting in a total addition of Rs. 123 crore. The court referred to the Supreme Court's ruling in Malabar Industrial Co. Ltd. v. Commissioner of Income-tax, which stated that both conditions-erroneous order and prejudice to the revenue-must exist for the Commissioner to exercise jurisdiction under Section 263. The court concluded that since the total income of Rs. 123 crore had already been added, the assessment orders could not be considered prejudicial to the interests of the revenue.

3. The effect of pending appeals before the CIT (Appeals) on the revisional powers of the Commissioner:
The petitioner argued that since appeals were pending before the CIT (Appeals), the Commissioner should not exercise revisional powers. The court observed that the appellate Commissioner has wide powers to confirm, reduce, enhance, or annul the assessment. Therefore, the appellate authority could examine the correctness of the expenditure claimed by the assessee and uphold the additions if found sustainable, even if the methodology of the assessing officer was not entirely satisfactory.

4. Legal precedents and interpretations of "prejudicial to the interests of the revenue":
The court referred to several legal precedents, including Commissioner of Income-tax v. Smt. Minalben S. Parikh, Commissioner of Income-tax v. Gabriel India Ltd., and Malabar Industrial Co. Ltd. v. Commissioner of Income-tax. These cases established that an order is prejudicial to the interests of the revenue if the legitimate revenue due to the exchequer has not been realized. The court emphasized that powers under Section 263 are not meant for improving an order of assessment but for addressing erroneous orders that are prejudicial to the revenue.

Conclusion:
The court concluded that the Commissioner lacked jurisdiction to issue the impugned notice under Section 263. Since the assessment orders had already resulted in the addition of Rs. 123 crore, they could not be considered prejudicial to the interests of the revenue. The court quashed the notice and allowed the petition, stating that there was no need to relegate the petitioner to alternative remedies or permit the Commissioner to complete the proceedings.

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