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TMI Blog2010 (9) TMI 347X X X X Extracts X X X X X X X X Extracts X X X X ..... The present appeal preferred under Section 260A of the Income Tax Act, 1961 (for brevity "the Act‟) is directed against the order dated 19th November, 2008 in ITA No.2113/Del/2008 pertaining to the assessment year 2003-04 and has been admitted on the following substantial question of law: "Whether the Income Tax Appellate Tribunal was correct in law in cancelling the order under Section 263 of the Income Tax Act, 1961 passed by the Commissioner of Income Tax?" 2. The facts which are requisite to be stated for adjudication of the appeal are that the assessee filed its return on 28th November, 2003 declaring income of Rs.3,37,35,806/- and long term capital gain of Rs.7,788/-. The return filed by the assessee was processed under Section 143(1) of the Act on 28th June, 2004 and the return was revised on 31st March, 2005, after reducing its income by Rs.20,19,111/-, declaring income at Rs.3,17,16,695/-. A notice under Section 143(2) of the Act was issued on 8th October, 2004. The assessee company, a travel agent and tour operator, incurred expenditure of Rs.4,02,421/- on foreign travel and the assessee submitted a letter dated 20th January,2006 submitting the details of forei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide the claim of the assessee company for regarding the payment of commission passed on to the customers by way of discounts / handling charges and to verify the net commission transferred to P L account afresh as per law and after giving reasonable opportunity to the assessee company of being heard. 4. Being dissatisfied with the aforesaid order, the assessee preferred an appeal before the tribunal. It was contended before the tribunal that the assessee had explained why the commission of Rs.14,99,38,574.64 received from air lines should not be added to the income of the assessee as a part of the commission was passed on to the customers by the assessee by way of discounts and the net commission income is offered to tax. During the assessment year, the assessee earned commission of Rs.24,92,50,085.31 on the sale of air tickets and out of the said amount, Rs.14,99,38,574.64 was passed on to the customers by way of discounts and the rest of the amount was offered for tax. The assessee also urged that there are two ways of depicting the commission in profit and loss account, namely, crediting the gross income and claiming deduction of the commission passed on to the customers by wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has been subjected to taxation in respect of net amount of commission earned during the relevant assessment year. The assessment order passed by the A.O. was after proper application of mind and the A.O. considered the details and the explanation furnished by the assessee and, therefore, the order passed by the A.O. under section 143(3) of the Act is neither erroneous nor prejudicial to the interests of Revenue. 23. Consequently, the invoking of jurisdiction under section 263 of the Act by the Commissioner of Income Tax for revising the return without recording a specific finding regarding the extent to which the order passed by the A.O. was prejudicial to the interest of Revenue and rather asking the A.O. to conduct further inquiry to verify the net commission transferred to P L Account afresh when the A.O. had already examined this aspect merely amounted to change of opinion which is not permissible under section 263 of the Act and, hence, the order passed by the Commissioner of Income Tax under section 263 of the Act requires to be cancelled. Accordingly the order passed by the Commissioner of Income Tax under section 263 of the Act is hereby cancelled and the grounds o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arises. 11. First, we shall advert to the fact whether the Commissioner could have exercised jurisdiction under Section 263 of the Act because he was of the opinion that some or more inquiries needed to be conducted. In this context, we may refer with profit to the decision in Malabar Industrial Co. Ltd. v. Commissioner of Income Tax (supra) where, after referring to Section 263 of the Act, their Lordships have opined thus: "A bare reading of this provision makes it clear that the prerequisite to the exercise of jurisdiction by the Commissioner suo moto under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent - if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue - recourse cannot be had to section 263(1) of the Act. There can be no doubt that the provision cannot be invoked to correct ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mp of approval to the order of the tribunal which, after relying on CIT v. Ratlam Coal Ash Co. [1988] 171 ITR 141, had held that when the Income Tax Officer considered the records before him and completed the assessment after considering the evidence filed and after his satisfaction about the genuineness of cash credits, the order of revision under Section 263 on the vague ground that the assessing officer did not make proper enquiry was not valid. 13. It has to be kept in mind that while exercising power under Section 263 of the Act, the Commissioner has to be satisfied that the order is prejudicial to the interest of the revenue and there are materials available on record which require the Commissioner to satisfy him in a prima facie manner that the order is not only prejudicial to the interest of the revenue but also erroneous in nature. In the absence of any of the factors being satisfied, he does not assume jurisdiction to initiate a suo motu power of revision. The exercise of such a power is dependent on the conditions precedent being satisfied. The Commissioner does not have unfettered power to initiate proceeding by revision, re-examining the matter and directing fresh on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income-tax v. Arvind Jewellers [2003] 259 ITR 502 (Guj.), it has been held thus: "Coming to the facts of the present case, it is the finding of fact given by the Tribunal that the assessee has produced relevant material and offered explanations in pursuance of the notices issued under section 142(1) as well as section 143(2) of the Act and after considering the materials and explanation, the Income-tax Officer has come to a definite conclusion. The Commissioner of Income-tax did not agree with the conclusion reached by the Income-tax Officer. Section 263 of the Act does not empower him to take action on these facts to arrive at the conclusion that the order passed by the Income-tax Officer is erroneous and prejudicial to the interests of the Revenue. Since the material was there on record and the said material was considered by the Income-tax Officer and a particular view was taken, the mere fact that a different view can be taken, should not be the basis for an action under section 263 of the Act and it cannot be held to be justified." 15. In the case at hand, the tribunal had opined that while framing the assessment order under Section 143(3) of the Act, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duct an inquiry to verify the net commission transferred to P L account afresh. The Commissioner has remained totally oblivious of the fact that the assessing officer had already examined this aspect but the Commissioner had thought to direct a re-inquiry for merely a change of opinion which is impermissible under Section 263 of the Act. In this context, we may refer to the decision in Gabriel India Ltd. (supra) wherein the Commissioner, after scrutiny of the order of the Income Tax Officer, found that the order did not disclose application of mind and despite examining the matter at length and hearing the assessee could not come to a definite conclusion that the expenditure was not revenue expenditure but expenditure of capital nature. He referred the matter back to the Income Tax Officer to examine the same and to decide afresh. The said action of the Commissioner was not approved by the tribunal. In that background, the High Court of Bombay expressed the view as follows: "From a reading of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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