The Hindu Business Line : Revision in case of brief assessment orders

The Commissioner of Income-tax has power to revise an assessment order under section 263 of the Income-tax Act, 1961 where the order is prejudicial to the interests of revenue. An interesting point arises where an assessment order may be brief and cryptic. Can this be considered to be prejudicial to the interests of the Revenue to justify revision of the assessment order?

In C.I.T. v. Mahendra Kumar Bansal (297 I.T.R. 99), the Allahabad High Court held that merely because the Assessing Officer had not written a lengthy order, it would not establish without bringing on record specific instances that the assessment order passed under section 143(3)/148 of the Act is erroneous and prejudicial to the interests of the Revenue.

CBDT circular

The Court referred to a circular of the Central Board of Direct Taxes in which instructions were issued to all Commissioners of Income-tax to the effect that no remedial action is necessary in summary assessment cases, as the revenue loss, if any, is consciously suffered by the Government to utilise resources for scrutiny and investigation of larger cases and action under section 263 of the Income-tax Act, 1961, was not to be taken. According to the High Court, the circular issued by the Board is binding upon the authorities and, therefore, the Commissioner of Income-tax was not justified in initiating proceedings under section 263 of the Act in respect of the assessments completed under section 143(1) for the assessment years 1984-85 and 1985-86. It was held that for the assessment year 1983-84, the assessment had been made under section 143(3)/148 of the Act.

The date fixed by the assessing authority was July 18, 1986, and on that very date the assessee’s counsel had filed certain details and evidence and after discussion the assessment was framed. Even though in the assessment order there was no mention that detailed enquiry had been made nor any evidence had been discussed, yet the returned income was accepted. The order was not erroneous and could not be revised.

Court rulings

In coming to this conclusion, the Court relied on its earlier decision in C.I.T. v. Smt. Brij Bala (274 I.T.R. 33) in which it was held that the circular issued by the Board is binding upon the authorities and, therefore, the Commissioner of Income-tax was not justified in initiating proceedings under section 263 of the Act in respect of the assessments completed under section 143(1) of the Act. In the case of C.I.T. v. Vikrant Crimpers (282 I.T.R. 503), the Gujarat High Court held that the Commissioner being bound by the directions of the Central Board of Direct Taxes cannot exercise powers under section 263 of the Act in the case of a summary assessment.

In the case of C.I.T. v. Goyal Private Family Specific Trust (171 I.T.R. 698), the Allahabad High Court has held that the order of the Assessing Officer may be brief and cryptic, but that by itself is not sufficient reason to brand the assessment order as erroneous and prejudicial to the interests of the Revenue. It was for the Commissioner to point out as to what error was committed by the Assessing Officer in having reached his conclusion.

The Allahabad High Court emphasised that merely because the Assessing Officer had not written a lengthy order, it would not establish that the assessment order passed under section 143(3)/148 of the Act is erroneous and prejudicial to the interests of the Revenue without bringing on record specific instances, which in the present case, the Commissioner of Income-tax has failed to do. In Malabar Industrial Co Ltd v. C.I.T. (243 I.T.R. 83), the Supreme Court held that the Commissioner has to be satisfied of twin conditions, namely that the order of the Assessing Officer sought to be revised is erroneous and that it is prejudicial to the interests of the revenue. It ruled that this provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted.

Reading of key phrase

An incorrect assumption of facts or an incorrect application of law or non-application of mind will satisfy the requirement of the order being erroneous. The apex Court further held that the phrase ‘prejudicial to the interests of the revenue’ should be understood in its ordinary meaning; it is of wide import and is not confined to loss of tax. It observed that 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 termed as prejudicial to the interests of the revenue, for example, when the Assessing 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 Assessing 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 Assessing Officer is unsustainable in law.

A writ, direction or order may be issued in appropriate cases. If it appears to the Court that the notice under section 263 was issued without jurisdiction, or was mala fide, or under circumstances in which no reasonable Commissioner could issue such a notice, then a writ can be issued against such a notice at the preliminary stage of issuance of the notice. However, the Court would not interfere if the Commissioner had found that the order of the Assessing Officer was erroneous and prejudicial to the interests of the revenue on a prima facie finding.

(The author, a Mumbai-based advocate specialising in tax laws, can be contacted at ranina@bom2.vsnl.net.in)

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