2021 (12) TMI 512 - HC - Income Tax

Revision u/s 263 by CIT - reassessment direction issued to the AO - issue noted by the CIT (Exemptions) arises under Section 11(1)d and the utilization of corpus donation for revenue expenditure allegedly incurred by the assessee - HELD THAT - The participation of the assessee is not an empty formality as could be appreciated from the language employed in Section 263 of the Act. Had the assessee placed reply, deliberated on the nuances involved in the circumstances noted by the Commissioner, then, legitimately it could be argued that an adverse order was passed by the Commissioner dehors the objections of the assessee. But the assessee having become an onlooker or complacent of the ongoing procedure, now raises grounds on the findings recorded by the Commissioner before the Tribunal, on the material placed before the Tribunal. This Court is not observing that the Tribunal ought not to have received material sought to be relied on by the assessee. The material brought on record before the Tribunal and a case for reconsideration u/s 263 is made out, the Tribunal would be doing well by sending the matter back to the Commissioner for consideration and decision afresh, instead of adjudicating on the merits of the conclusions recorded by the CIT (Exemptions). By referring to the materials brought on record by the assessee and for allowing the appeal, the reasons recorded by the Commissioner are set aside. The exercise virtually amounts to upsetting the satisfaction recorded by the Commissioner on the material examined by the Tribunal. The material should be allowed to be considered by the Commissioner as the Commissioner is vested with the revisional power against the proceedings made under the Act for exercising his jurisdiction. Though an attempt has been made to independently justify the conclusions recorded by the Tribunal, the mistake we have noticed in the approach of the Tribunal ought not to be ignored by us while examining the legality of the order under appeal and pursue the same approach. In cases like the present, what constitutes the subject matter of appeal before the Tribunal is the correctness or legality of the opinion formed by the Commissioner from the material on record and the reply of the assessee. The conclusion of the Commissioner is the subject matter of appeal, but the Tribunal recorded, in the case on hand, primary satisfaction under Section 263 of the Act. Such a course is impermissible. Hence, we are of the view that the orders of the CIT (Exemptions) and the Tribunal in Annexures-B and C are set aside and the matter is remitted to the Commissioner for consideration and decision afresh in accordance with law.

Summary

Issues:
1. Revisional powers under Section 263 of the Income Tax Act, 1961 - Erroneous assessment prejudicial to revenue.
2. Tribunal's authority to set aside revisional order under Section 263.
3. Assessee's participation in proceedings and grounds for appeal.
4. Tribunal's jurisdiction in reconsideration under Section 263.

Analysis:

Issue 1: Revisional Powers under Section 263
The Commissioner of Tax (Exemptions) issued a notice under Section 263 of the Act, setting aside the assessment order for reconsideration due to the alleged utilization of corpus donation for revenue expenditure by the assessee. The Tribunal examined the circumstances and found the order to be illegal, as it did not satisfy the requirements of being erroneous and prejudicial to revenue. The Tribunal's decision to set aside the order was based on the lack of actual loss of revenue from the omissions noted by the Commissioner.

Issue 2: Tribunal's Authority
The High Court refrained from detailed discussion on the Tribunal's considerations but highlighted that Section 263 empowers the Commissioner to call for records and pass orders if the assessment is erroneous and prejudicial to revenue. The Court emphasized that the Tribunal, as the Appellate Authority, found the Commissioner's view inadequate under Section 263, leading to the order's setting aside. The Court upheld the Tribunal's decision, indicating that the appeal lacked merit.

Issue 3: Assessee's Participation
The Court noted the assessee's failure to participate in the proceedings despite being afforded an opportunity by the Commissioner. It emphasized that the assessee's participation is crucial, and raising objections before the Tribunal without engaging in the initial proceedings is not sufficient. The Court suggested that the Tribunal should send the matter back to the Commissioner for reconsideration rather than adjudicating on the merits independently.

Issue 4: Tribunal's Jurisdiction
The Court set aside the reasons recorded by the Commissioner and emphasized the Commissioner's authority to reconsider the matter. It highlighted that the Tribunal should not independently justify its conclusions but should allow the Commissioner to exercise revisional powers. The Court remitted the matter to the Commissioner for fresh consideration in accordance with the law, emphasizing that the Tribunal's primary satisfaction under Section 263 is impermissible.

In conclusion, the Court allowed the Income Tax Appeal in favor of the Revenue, setting aside the orders of the CIT (Exemptions) and the Tribunal and remitting the matter to the Commissioner for fresh consideration. The Court clarified that its decision did not delve into the merits of the case but focused on the procedural aspects and the Commissioner's revisional powers under Section 263.