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TMI Blog2023 (4) TMI 244X X X X Extracts X X X X X X X X Extracts X X X X ..... r committed a breach of the binding instructions communicated through the Circulars read above. However, the extended argument by referring to the circulars is that omission to notice an error under Section 56(2)(viib) by the Assessing Officer cannot be termed as erroneous, much less prejudicial to the interest of the Revenue. By resorting to a different method, a larger tax can be levied and collected cannot be the sole consideration to attract section 263, as prejudicial to the interest of the Revenue, unless the said method is the only mode legally applicable [ S.S. Muddanna v. State of Karnataka, [ 1991 (1) TMI 425 - KARNATAKA HIGH COURT] The expressions erroneous , erroneous assessment and erroneous judgment have been defined in Black s Law Dictionary, Sixth Edition, page 542. According to the definition, erroneous means involving error; deviating from the law . Erroneous assessment is an assessment that deviates from the law and is therefore invalid. It is a defect that is jurisdictional in its nature and does not refer to the judgment of the Assessing Officer in fixing the amount of valuation of the property. Similarly, erroneous judgment means one rendered according to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al to Revenue s interest, needs to be re-examined. The argument that the Tribunal either has substituted or expanded the reasoning of the Commissioner is not without merit. By relying on the decisions relied on by the assessee, this finding of the Tribunal warrants our interference. Therefore, the findings recorded by the Tribunal on this behalf need to be set aside, and the matter remitted to Tribunal for reconsideration afresh. X X X X Extracts X X X X X X X X Extracts X X X X ..... e., November 14, 2013}. The above debentures are secured by first and exclusive charge on the equity share of M/s. Jyothy Laboratories Ltd was held as an investment by the assessee and personal guarantees of promoters. Mr M P Ramachandran, Mrs M G Shanthakumar and Mrs M R Jyothy. 4.1 The Commissioner further noticed that due to the assessee's non-cooperation during assessment proceedings, the Assessing Officer did not verify the details regarding the applicability of provisions of Section 56(2)(viib) and Section 68 of the Act and these transactions undertaken by the assessee company during the relevant Financial Year. Further, without relevant details, the Assessing Officer could not determine the fair market value of unquoted shares as per Rule 11UA of the Income Tax Rules 1962. The non-consideration of the effect of allotment of preference shares investment etc., is an omission under Sections 56(2)(viib) and 56(2). The consideration is triggered at the stage of computation of income itself when the share application money received from a resident by a Company in which the public is not substantially interested is above the face value. In other words, this is an issue on the effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g on the merits of the issues?" 5. "Without prejudice, whether, on the facts and in the circumstances of the case, the Tribunal is right in law in upholding the order of the PCIT under section 263 on the ground that since the AO having failed to convert the limited scrutiny to complete scrutiny, the order was erroneous and prejudicial which was beyond the reasons mentioned in the order passed by the PCIT under section 263?" 5.1 Mr Joseph Markos for convenience, categorised questions 1 to 3 as having identical arguments and considerations and questions 4 and 5 as a separate category dealing with the alleged irregularity or illegality committed by the Tribunal in determining the objection raised under Section 263 of the Act. 6. Taking up the first category, it is argued that the income tax return filed by the assessee for the subject Assessment Year was selected for scrutiny under CASS. Only two points were noted for limited scrutiny by the Assessing Officer. The Assessing Officer was right by confining the scrutiny/assessment to two limited aspects mentioned under CASS. The CBDT Circulars Nos.7/2014 dated 26.09.2014, 20/2015 dated 29.12.2015, and 5/2016 dated 14.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecorded in the order of the Assessing Officer being erroneous and prejudicial to the interest of Revenue. When called upon to decide the adequacy of reasons for reassessment, the Tribunal supplemented the reasons and held against the assessee. Such an approach is illegal, and the Tribunal's order warrants this Court's interference. 6.2 The counsel placed reliance on the judgment reported in Commissioner of Income Tax v. Chandrika Educational Trust (1994) 207 ITR 108 (Ker.). The Division Bench of this Court referred to and followed the ratio of the Punjab and Haryana High Court in Commissioner of Income Tax v. Jagadhri Electric Supply and Industrial Co. (1983) 140 ITR 490. We would like to excerpt the operative portion, which has a bearing on the argument addressed before us, and secondly the view taken by this Court by following the said judgment: Commissioner of Income Tax v. Jagadhri Electric Supply and Industrial Co. "The jurisdiction vested in the Commissioner under Section 263(1) of the Act is special or, in other words, the Commissioner has the exclusive jurisdiction under the Act to revise the order of the ITO if he considers that any order passed by him was erro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in accordance with law. If the grounds which were available to him at the time of the passing of the order do not find a mention in his order, appealed against, then it will be deemed that he rejected those grounds for the purpose of any action under Section 263(1) of the Act. In this situation, the Tribunal, while hearing an appeal filed by the assessee, cannot substitute the grounds which the Commissioner himself did not think proper to form the basis of his order." (emphasis supplied) Commissioner of Income Tax v. Chandrika Educational Trust "We are in agreement with this view. In entertaining an appeal from the Commissioner's order, what the Tribunal does is to examine whether the said order is sustainable in law and whether it is within the powers conferred by section 263. Therefore, when the Commissioner has chosen to set aside the order of the Income-tax Officer only on a particular ground, the Tribunal is not entitled to go beyond and sustain the order of the Commissioner on grounds different from that relied on by the Commissioner himself." 7. Learned Senior Counsel Mr P K R Menon for the Revenue argues that the Circular instructions issued by CBDT, from the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne on account of the Circular dated 23.09.2010 but by whether the order is erroneous and prejudicial to the interest of the Revenue. Taking up the facts of the case, it is illustrated that investment in shares etc., which shall be examined under Section 56(2)(viib), is not computed at all. Limited scrutiny is a facilitation and not a restriction on the supervisory jurisdiction of the Commissioner under Section 263 of the Act. The omission in the computation under Section 56(2)(viib) in the assessment order is referable to the final assessment resulting in an error and loss of Revenue. Therefore the supervisory power of the Commissioner under Section 263 is attracted to the case on hand. 8. We have perused the order dated 29.03.2019 and the Circulars referred to above. To appreciate the tenor and the Officers to whom the Circulars are issued, in other words, on whom it is binding, we prefer to excerpt a few portions from the circular dated 26.09.2014. "It has come to the notice of the Board that during the scrutiny assessment proceedings some of the AOS are routinely calling for information which is not relevant, for enquiry into the issues to be considered. This has been causing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above. However, the extended argument by referring to the circulars is that omission to notice an error under Section 56(2)(viib) by the Assessing Officer cannot be termed as erroneous, much less prejudicial to the interest of the Revenue. 8.2 We take note of this argument from more than one perspective and cannot agree with the reasoning and the persuasive force with which the argument is made before us. Section 263 empowers the Commissioner of Income Tax to consider any order passed in any proceeding under the Act. It is impossible to read the provision as limited to exercising revisional powers of the order of assessment only. The reason for an omission or commission is legally paled into insignificance if, in his jurisdiction, the Commissioner believes that the order is erroneous and prejudicial to the interest of the Revenue. 8.3 The expressions 'erroneous', 'erroneous assessment' and 'erroneous judgment' have been defined in Black's Law Dictionary, Sixth Edition, page 542. According to the definition, 'erroneous' means 'involving error; deviating from the law'. 'Erroneous assessment' is an assessment that deviates from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uot;proceeding' means the formal manner in which legal proceedings are conducted. A 'proceeding' can be said to be initiated and conducted only when the AO proceeds to assess the income (Hilltop Holdings India Lid v. CIT, (2005) 278 ITR 501 (Cal)]" 9.1 We are referring to only a few precedents on the jurisdiction/limitation of Commissioners under Section 263 of the Act. By juxtaposing the Circulars and Section 263 of the Act, we are convinced that the Circulars are not applicable vis-à-vis the power under Section 263. The Commissioner has supervisory jurisdiction not only on a proceeding dropped or filed by the Assessing Officer but the legality of a proceeding resulting in an assessment. In the said context, the Commissioner certainly has jurisdiction to find out the omission in the assessment order. In the case on hand, the Commissioner has precisely done the same and recorded the views for setting aside the assessment dated 16.12.2016. The reasoning in para 3 of the Commissioner's order dated 29.03.2019, namely that the Assessing Officer is seen not to have examined the above issue, which resulted in the said order being erroneous insofar as it is prejudicial ..... X X X X Extracts X X X X X X X X Extracts X X X X
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