INCOME TAX ACT, 1961

Revision under section 263- Erroneous and prejudicial order-Determination of undisclosed income-Order passed under section 154

Assessee-company was deriving income from the manufacture and sale of bread and allied products. The office and residential premises of it and its directors were searched under section 132 and a survey under section 133A in the factory was taken. Besides the books of account and certain other documents were found and seized during the proceedings. Notice under section 158BC was issued and served upon the assessee. The assessee filed a block return for the relevant block period for the relevant assessment years declaring total undisclosed income in response to the notice issued under sections 142(1) and 143(1). AO determined the undisclosed income higher than decalred by the assessee, therefore, issued demand notice and challan. Order was passed under section 154 and the total undisclosed income was determined at higher than earlier determination. After such determination, CIT passed an order under section 263 holding that the order passed by AO for the block assessment period was prejudicial to the interests of the revenue and, therefore, cancelled the said order with directions to AO to pass a fresh assessment order. Held:As the provision of section 263 stipulates, the order passed by AO should appear to be grossly erroneous and at the same time prejudicial to the interests of the revenue, both the things exist together and they should not be considered in an isolated manner and that the time gap between the act and invocation of jurisdiction and passing of the order has to be taken into consideration. Before exercise of powers two requisites are imperative to be present. In the absence of such a foundation exercise of a suo motu power is impermissible. It should not be presumed that initiation of power under suo motu revision is merely an administrative act. It is an act of a quasi-judicial authority and based on formation of an opinion with regard to existence of adequate material to satisfy that the decision taken by AO is erroneous as well as prejudicial to the interests of the revenue. As per the material brought on record and the order passed by CIT it was perceptible that the said authority had not kept in view the requirement of section 263 as the order did not reflect any kind of satisfaction. As was manifest, the said authority had been governed by a singular factor that the order of AO was wrong. What was the consequence of such order qua prejudicial to the interest of the revenue should have been focussed upon. That having not been done, exercise of jurisdiction under section 263 was totally erroneous and could not withstand scrutiny.

Income Tax Act, 1961 Section 263

Case Law Analysis:Referred:CIT v. Gabriel India Ltd. [1993] 203 ITR 108/ 71 Taxman 585 (Bom.) [Para 8].

Decision: In favour of Assessee.
A.Y. 1989-90 to 1999-2000

CIT v. Associated Food Products (P) Ltd.