2017 (2) TMI 476 - HC - Income Tax

Jurisdiction - Whether on the facts and in the circumstance of the case and in law, the Tribunal is correct in law in holding that the Commissioner of Income TaxIII, Pune has wrongly assumed jurisdiction u/s. 263? Held that - the entire basis of exercising jurisdiction under Section 263 of the Act is on the basis of assumption of incorrect fact that the Respondent-Assessee is a share broker. This, in fact, is not so. Where the basic facts have been misunderstood by the CIT, the exercise of powers of Revision is not sustainable. This for the reasons that one does not know if on correct understanding of the basic facts, whether the CIT would have still exercised his powers of Revision under Section 263 of the Act. It is not for any of us to even attempt to hazard a guess, as to the likely view of the CIT on correct facts - appeal dismissed - decided against appellant-revenue.

Summary

Issues:
1. Jurisdiction of Commissioner of Income Tax to exercise powers under Section 263 of the Income Tax Act.
2. Entitlement of the Respondent-Assessee to rebate under Section 88E of the Act.
3. Correctness of the order passed by the Income Tax Appellate Tribunal.

Jurisdiction of Commissioner of Income Tax:
The appeal challenges the order passed by the Income Tax Appellate Tribunal regarding the Commissioner of Income Tax's jurisdiction under Section 263 of the Income Tax Act. The Commissioner revised the Assessment Order of the Respondent-Assessee for the Assessment Year 2007-08, stating that the rebate under Section 88E of the Act was not applicable as the Respondent-Assessee was considered a share broker. However, the Tribunal found that the Commissioner's assumption that the Respondent-Assessee was a share broker was incorrect. The Tribunal noted that the Commissioner's exercise of powers under Section 263 was based on a misunderstanding of facts, making it unsustainable. The Tribunal emphasized that the Commissioner's revision was not justified as the Assessing Officer had already verified and allowed the rebate claimed by the Respondent-Assessee in previous years.

Entitlement to Rebate under Section 88E:
The Respondent-Assessee, engaged in arbitrage and jobbing through share broking firms, claimed a rebate under Section 88E of the Act in its return of income for the Assessment Year 2007-08. The Assessing Officer initially determined the income, including the claimed rebate, at &8377; 2.11 Crores. Subsequently, the Commissioner of Income Tax revised the Assessment Order, disallowing the rebate under Section 88E. The Tribunal, however, found that the Assessing Officer had properly examined the relevant documents before granting the rebate. The Tribunal also noted that the Respondent-Assessee's claim had been accepted in earlier Assessment Years, and the Commissioner's assumption that the Respondent-Assessee was a share broker was incorrect. Therefore, the Tribunal allowed the appeal and set aside the Commissioner's order, reinstating the rebate under Section 88E for the Respondent-Assessee.

Correctness of the Order by Income Tax Appellate Tribunal:
The Revenue contended that the Respondent-Assessee was not entitled to the rebate under Section 88E. However, the Tribunal's decision was based on the incorrect assumption made by the Commissioner regarding the nature of the Respondent-Assessee's business. The Tribunal highlighted that the Commissioner's revision was unsustainable due to the misunderstanding of basic facts. The Tribunal emphasized that the Commissioner's exercise of powers under Section 263 was not justified, especially since the Assessing Officer had already verified and allowed the rebate based on the documents provided. Ultimately, the Tribunal dismissed the appeal, stating that the framed question did not raise any substantial legal issue, and upheld the decision in favor of the Respondent-Assessee.