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2021 (12) TMI 758 - AT - Income TaxRevision u/s 263 by CIT - reopening of assessment u/s 147 - revenue accrued but deferred by the Assessee and not offered to tax and consequently there was loss to the revenue - HELD THAT - There was no prejudice or loss to the revenue whatsoever when the show cause notice u/s.263 of the Act, dated 22.1.2016 was issued by the CIT and when the CIT passed the impugned order dated 11.3.2016. The alleged loss of revenue to the tune of ₹ 216,89,00,773/- has already been brought to tax by the revenue in the order dated 30.3.2015 in the reassessment proceedings. Hon'ble Karnataka High Court in the case of V. G. Krishnamurthy 1984 (3) TMI 28 - KARNATAKA HIGH COURT has held that Section 263 can be invoked by the Commissioner only when he prima facie finds that the order made by the ITO was erroneous and was prejudicial to the interests of the revenue.Both these factors must simultaneously exist. An order that is erroneous must also have resulted in loss of revenue or prejudicial to the interests of the revenue. Unless both these factors co-exist or exist simultaneously, the Commissioner cannot invoke or resort to section 263. It cannot be exercised to correct every conceivable error committed by an ITO. Before the suo moto power of revision can be exercised, the Commissioner must at least prima facie find both the requirements of section 263, namely, that the order sought to be revised is prima facieerroneous and prejudicial to the interests of the revenue. If one of the other factor was absent, the Commissioner cannot exercise the suo moto power of revision under section 263. We are of the view that the impugned order u/s.263 of the Act is liable to be quashed and is hereby quashed. - Decided in favour of assessee.
Issues:
1. Assessment order under Section 263 of the Income Tax Act, 1961 for AY 2009-10. 2. Difference in sales revenue as per sales tax return and financial statement. 3. Re-assessment proceedings for deferred revenue recognition. 4. Challenge to re-assessment proceedings before the High Court. 5. Revision of the assessment order under Section 263 initiated by CIT. 6. Compliance with twin conditions for revisional jurisdiction under Section 263. 7. Quashing of the order under Section 263 of the Act. 8. Impact on subsequent orders post-quashing of the Section 263 order. Analysis: 1. The appellant, engaged in trading computer hardware, filed a return for AY 2009-10 showing a business loss. Discrepancy in sales revenue was explained due to extended warranty services. Initial assessment under Section 143(3) was completed without adjustment. Re-assessment proceedings were initiated for deferred revenue recognition, leading to a challenge before the High Court based on change of opinion, which is pending. 2. The CIT initiated proceedings under Section 263 to revise the initial assessment order, directing fresh consideration of deferred revenue. The Tribunal observed that the deferred revenue was already taxed in the re-assessment proceedings, eliminating any loss to the revenue. The Tribunal cited the Malabar Industries case to emphasize the twin conditions for revisional jurisdiction, highlighting the need for an erroneous order prejudicial to revenue. 3. The Tribunal determined that the order under Section 263 was unwarranted as the alleged loss had already been addressed in the re-assessment. Citing legal precedents, it clarified that both erroneousness and prejudice to revenue must coexist for Section 263 to apply. Consequently, the order under Section 263 was quashed. 4. Subsequent orders, including one by the AO bringing deferred revenue to tax post-Section 263 order, were annulled due to the quashing of the Section 263 order. The Tribunal held that without the foundation of the Section 263 order, subsequent actions had no validity. Therefore, the CIT(A)'s order confirming the tax on deferred revenue was also quashed. 5. Ultimately, both appeals were allowed by the Tribunal, emphasizing the importance of adhering to the legal requirements for revisional jurisdiction under Section 263. The judgment highlighted the need for both erroneousness and prejudice to revenue to be present for the Commissioner to exercise revisional powers effectively.
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