The Income Tax Appellate Tribunal (ITAT) held that the wrong assumption of facts or incorrect application of the law would make the order liable for revision under section 263 of Income Tax Act, 1961.
As per the provisions of Section 263 of Income Tax Act, 1961, specific revenue authorities namely Pr. Commissioner of Income Tax / Commissioner of Income Tax is vested with the supervisory powers of suo-moto revision of any order passed by the Assessing Officer.
For the said purpose, the appropriate authority may call for and examine the record of any proceedings under the Act and may proceed to revise the same provided two conditions are satisfied that the order of the assessing officer sought to be revised is erroneous and it is prejudicial to the interest of the revenue.
If one of the condition is absent i.e. if the order of the Income-tax Officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but it is prejudicial to the revenue – recourse cannot be had to Section 263 of the Act as the phrase ‘prejudicial to the interests of the revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer.
Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue.
For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue, unless the view taken by the Income-tax Officer is unsustainable in law.
If the order of the Income-tax Officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but it is prejudicial to the revenue – recourse cannot be had to Section 263 of the Act.
The Assessing Officer noticed that all the investments above were in group companies/concerns and had been made in the interest of the business activity of the assessee. Further, the majority of the investments above were opening balances and there were no fresh investments during the year.
The Tribunal comprising of Judicial Member, C N Prasad, and Accountant Member, Manoj Kumar Aggarwal pronounced the order based on an appeal filed by M/s. Sleek International.
The ITAT observed that the wrong assumption of facts or incorrect application of the law would certainly make order liable for revision u/s 263.
Further observed that all the issues connected with the transfer of business were under due consideration of AO during regular assessment proceedings. Another aspect to be noted is that as per the provisions of Sec. 271E, no satisfaction is required to be recorded in the quantum assessment order before levying penalty u/s 271E. Therefore, we are unable to accept the validity of revisional jurisdiction.
While allowing the appeal the tribunal stated this issue was raised by the revisional authority without conducting any minimal inquiry that the said expenditure was not admissible under law. The conclusion was drawn on the mere allegation that the said expenditure was an inadmissible expenditure. It is a settled legal position that the revision jurisdiction could not be exercised to make fishing or roving inquiry without establishing the fact that the order was erroneous as well as prejudicial to the interest of the revenue.
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