Commissioner can't revise an order of AO on grounds not raised during assessment

Commissioner cannot revise an order on grounds regarding which assessee was not show caused, particularly when Assessing Officer had computed assessee's income after detailed inquiry

IN THE ITAT JODHPURBENCH

Smt. Kamla Goil

v.

Commissioner of Income-tax, Jodhpur

HARI OM MARATHA, JUDICIAL MEMBER
AND N.K. Saini, ACCOUNTANT MEMBER

IT Appeal No. 342 (Jodh.) of 2013
[ASSESSMENT YEAR 2007-08]

SEPTEMBER  25, 2013 

Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interest of revenue [Powers of Commissioner] - Assessment year 2007-08 - Whether Commissioner does not have unfettered and unchequered discretion to revise an order and he is required to exercise revisional power within bounds of law and has to satisfy need of fairness in administrative action and fair play - Held, yes - Whether Commissioner cannot revise an order on grounds regarding which assessee was not show caused particularly when Assessing Officer had computed assessee's income after detailed inquiry - Held, yes - Assessing Officer after making detailed inquiries, computed income of assessee - Commissioner invoked his powers under section 263 on ground that Assessing Officer had not properly investigated items of income and had made assessment in haste - Queries raised by Commissioner were duly replied by assessee - However, Commissioner revised said order on an entirely different issue - Whether twin conditions of section 263 were not fulfilled and, thus, revision order was to be set aside - Held, yes [Para 3] [In favour of assessee]

FACTS

■		The Assessing Officer computed assessee's income by making a lump-sum disallowance after making detailed inquiries.
■		The Commissioner exercised his revisionary jurisdiction on ground that Assessing Officer had not properly investigated the items of income and had made assessment in haste. He show caused assessee on purchase and sale of immovable properties said queries were duly replied to by the assessee.
■		However, the Commissioner revised said assessment order on an entirely different issue.
■		On second appeal :

HELD

■		It is trite that an order can be revised under section 263 only and only if twin conditions of 'error in the order' and 'prejudice caused to the revenue' co-exist. The subject of 'revision under section 263' has been vastly examined and analyzed by various Courts including that of Apex Court. The revisional power conferred on the Commissioner vide section 263 is of vide amplitude. It enables the Commissioner to call for and examine the records of any proceeding under the Act. It empowers the Commissioner to make or cause to be made such an enquiry as he deems necessary in order to find out if any order passed by Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue. The only limitation on his powers is that he must have some material(s) which would enable him to form a prima facie opinion that the order passed by the Assessing Officer is erroneous insofar as it is prejudicial to the interest of the revenue. Once he comes to the above conclusion on the basis of the 'material' that the order of the Assessing Officer is erroneous and also prejudicial to the interests of the Revenue, the Commissioner is empowered to pass an order as the circumstances of the case may warrant. He may pass an order enhancing the assessment or he may modify the assessment. He is also empowered to cancel the assessment and direct to frame a fresh assessment. He is empowered to take recourse to any of the three courses indicated in section 263. So, it is clear that the Commissioner does not have unfettered and unchequered discretion to revise an order and he is required to exercise revisional power within the bounds of the law and has to satisfy the need of fairness in administrative action and fair play with due respect to the principle of audi alteram partem as envisaged in the Constitution of India as well as in section 263. An order can be treated as 'erroneous' if it was passed in utter ignorance or in violation of any law; or passed without taking into consideration all the relevant facts or by taking into consideration irrelevant facts. The 'prejudice' that is contemplated under section 263 is the prejudice to the income tax administration as a whole. The revision has to be done for the purpose of setting right distortions and prejudices caused to the revenue in the above context. The fundamental principles, which emerge from the several cases regarding the powers of the Commissioner under section 263 may be summarized below:
(i)			The Commissioner must record satisfaction that the order of the Assessing Officer is erroneous and prejudicial to the interests of the revenue. Both the conditions must be fulfilled.
(ii)			Section 263 cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it is only when an order is erroneous, that the section will be attracted.
(iii)			An incorrect assumption of facts or an incorrect application of law will suffice for the requirement or order being erroneous.
(iv)			If the order is passed without application of mind, such order will fall under the category of erroneous order.
(v)			Every loss of revenue cannot be treated as prejudicial to the interest of the revenue and if the Assessing Officer has adopted one of the courses permissible under law or where two views are possible and the Assessing Officer has taken one view under with which the Commissioner does not agree, it cannot be treated as an erroneous order, unless the view taken by the Assessing Officer is unsustainable under the law.
(vi)			If while making the assessment, the Assessing Officer examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income, the Commissioner, while exercising his power under section 263, is not permitted to substitute his estimate of income in place of the income estimated by the Assessing Officer.
(vii)			The Assessing Officer exercise quasi-judicial power vested in him and if he exercises such power in accordance with law and arrives as a conclusion, such conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion.
(viii)			The Commissioner, before exercising his jurisdiction under section 263, must have material on record to arrive at a satisfaction.
(ix)			If the Assessing Officer has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the Assessing Officer allowed the claim on being satisfied with the explanation of the assessee, the decision of the Assessing Officer cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard. [Para 2]
■		Reverting to the facts of this case in view of the aforestated legal position on revisionary jurisdiction of the Commissioner, the assessment order dated 15-9-2010, in this assessee's case has been wrongly made. The Commissioner cannot revise an order on grounds regarding which the assessee was not show caused; otherwise also the assessment order was made under section 147/148 read with section 143(3) and the Assessing Officer has computed assessee's income after making reasonable and due inquiries. The assessee is not found to have been indulging in the purchase and sales of any immovable property. Therefore, twin condition of section 263 were not fulfilled and, thus, the order could not be revised. [Para 3]

U.C. Jain  for the Appellant. Dr. Deepak Sehgal  for the Respondent.

ORDER

Hari Om Maratha, Judicial Member - This appeal of the assessee for A.Y. 2007-08 is directed against the order of ld. Commissioner of Income Tax (Admn), Jodhpur, dated 26/03/2013 passed u/s 263 of the Income Tax Act, 1961 ('the Act' for short).

2. Briefly stated, the facts of the case are that in this assessee's case assessment order for A.Y. 2007-08 was framed u/s 147 r.w.s. 143(3) of the Act on 15/09/2010 at a total income of Rs. 97,84,280/-by disallowing lump sum amount of Rs. 5 lakhs. The ld. Commissioner has called for the records of this case u/s 263 of the Act and found that this order is erroneous and prejudicial to the interest of the revenue as the AO has not properly investigated the items of income and has made it in haste. The ld. Commissioner has show caused the assessee on the following grounds:—

"(i)		The Assessing Officer had not enquired into whether the conversion of agricultural land into residential plots and its sale tantamount to indulge in trading of plots and therefore, it was an adventure of trade and income was assessable under the head business instead of long term capital gain,
(ii)		There was a failure on the part of the Assessing Officer to inquire in respect of source of payment of development charges/expenses of the plots, source of payment of conversion charges paid to UIT.
(iii)		There was a failure to enquiry in respect of total receipts on account of sale of plots, mode of receipt either by way of cheque/DD or by cash and total deposit appearing in all the bank accounts maintained by the Assessee.
(iv)		There was a failure to consider correct interest income from the bank accounts in which sale proceeds were deposited and also there was a failure to consider interest income from the FDRs inherited from Sh. Gordhan B. Goil, through 'will' dated 7th February, 1995. When the three FDRs were matured/renewed/interest accrued etc?
(v)		No enquiry for cost of Rs. 9,00,000/- taken as on 18th April, 1995 by the Assessee, when particularly, Sh. Gordhan B. Goil had purchased land under question on 22nd March, 1984 for total price of Rs. 46,500/- and he expired on 18lh April, 1995.
(vi)		No enquiry for applicability of Wealth Tax provisions for the un-sold urban land was made."

2.1 To the above show cause the assessee replied thus :—

"(i)		The Assessee was a Retried Government Officer and retired from the post of Senior Medical Officer, Government of Rajasthan in the year 2000. After retirement, she has source of income from pension, interest on deposits and agricultural, hence, no return of income after A.Y. 2002-03 was filed being income was below taxable limit.
(ii)		The Assessee had received immovable property as per 'will' executed by her uncle, Sh. Gowardhan B Goil, being agricultural land measuring 7.5 bigas located at village-PAL, district-Jodhpur, cash and three FDRs.
(iii)		Due to old age, it was become difficult to cultivate agricultural land, therefore, she decided to sale the land with a view to get better price by dividing agricultural land into plots of different sizes and some of the plots were sold in the year under consideration after converting the same into abadi land.
(iv)		The Assessing Officer had examined documents placed or) record and assessed gain on sale of plots under the head of long term capital gain.
(v)		The Assessee had acquired right/title over the land on 18th April, 1995, the date on which her uncle expired. Her uncle has purchased the land in the year 1984 and constructed a farm house there on and was residing in the house. It is further submitted that the Assessee had incurred expenditure on boundary wall and renovation of farm house without any intention to sale the land. The conversion of the land from agricultural to residential was made only in year 2005. The agricultural land was essentially a capital asset and was not a trading asset. It is further submitted that the Assessee had never indulged in purchases and sales of any immovable property and such sale of plots was correctly assessable as long term capital gain and there was no intention of, carrying of business of property. The conversion of the land from agricultural to residential was made only in the year 2005 with the intention to sale the land and the plotting was done to fetch the better value of the land."

3. However, the ld. CIT has revised the order on an entirely different issue. The law u/s 263 of the Act can be analyzed as under. It is trite that an order can be revised only and only if twin conditions of 'error in the order' and 'prejudice caused to the Revenue' co-exist. The subject of 'revision under section 263' has been vastly examined and analyzed by various Courts including that of Hon'ble Apex Court. The revisional power conferred on the CIT vide section 263 is of vide amplitude. It enables the CIT to call for and examine the records of any proceeding under the Act. It empowers the CIT to make or cause to be made such an enquiry as he deems necessary in order to find out if any order passed by Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The only limitation on his powers is that he must have some material(s) which would enable him to form a prima facie opinion that the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the Revenue. Once he comes to the above conclusion on the basis of the 'material' that the order of the Assessing Officer is erroneous and also prejudicial to the interests of the Revenue, the CIT is empowered to pass an order as the circumstances of the case may warrant. He may pass an order enhancing the assessment or he may modify the assessment. He is also empowered to cancel the assessment and direct to frame a fresh assessment. He is empowered to take recourse to any of the three courses indicated in section 263. So, it is clear that the CIT does not have unfettered and unchequered discretion to revise an order. The CIT is required to exercise revisional power within the bounds of the law and has to satisfy the need of fairness in administrative action and fair play with due respect to the principle of audi alteram partem as envisaged in the Constitution of India as well as in section 263. An order can be treated as 'erroneous' if it was passed in utter ignorance or in violation of any law; or passed without taking into consideration all the relevant facts or by taking into consideration irrelevant facts. The 'prejudice' that is contemplated under section 263 is the prejudice to the Income Tax administration as a whole. The revision has to be done for the purpose of setting right distortions and prejudices caused to the Revenue in the above context. The fundamental principles, which emerge from the several cases regarding the powers of the CIT under section 263 may be summarized below:

"(i)		The CIT must record satisfaction that the order of the Assessing Officer is erroneous and prejudicial to the interests of the revenue. Both the conditions must be fulfilled.
(ii)		Section 263 cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it is only when an order is erroneous, that the section will be attracted.
(iii)		An incorrect assumption of facts or an incorrect application of law will suffice for the requirement or order being erroneous.
(iv)		If the order is passed without application of mind, such order will fall under the category of erroneous order.
(v)		Every loss of revenue cannot be treated as prejudicial to the interest of the revenue and if the Assessing Officer has adopted one of the courses permissible under law or where two views are possible and the Assessing Officer has taken one view under with which the CIT does not agree, it cannot be treated as an erroneous order, unless the view taken by the Assessing Officer is unsustainable under the law.
(vi)		If while making the assessment, the Assessing Officer examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income, the CIT, while exercising his power under section 263, is not permitted to substitute his estimate of income in place of the income estimated by the Assessing Officer.
(vii)		The Assessing Officer exercise quasi-judicial power vested in him and if he exercises such power in accordance with law and arrives as a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion.
(viii)		The CIT, before exercising his jurisdiction under section 263, must have material on record to arrive at a satisfaction.
(ix)		If the Assessing Officer has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation be a letter in writing and the Assessing Officer allowed the claim on being satisfied with the explanation of the assessee, the decision of the Assessing Officer cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard."

3.1 Reverting to the facts of this case we are of the considered opinion that in view of the afore stated legal position on revisionary jurisdiction of the commissioner of Income Tax, the assessment order dated 15/09/2010, in this assessee's case has been wrongly made. The AO cannot revise an order on grounds regarding which the assessee was not show cause otherwise also the assessment order was made u/s 147/148 r.w.s. 143(3) of the Act and the AO has computed assessee's income after making reasonable and due inquiries. The assessee is not found to have been indulging in the purchase and sales of any immovable property. Therefore, we are of the considered opinion that twin condition of Section 263 are not fulfilled and, thus, the order cannot be revised. Resultantly, we set aside the appellate order dated 26/03/2013 and restore the assessment order.

4. In the result, this appeal of the assessee is allowed.

Refer:[2013] 39 taxmann.com 104 (Jodhpur- Trib.)