INCOME TAX ACT, 1961

Section 263

Revision under section 263 - Invocation of jurisdiction by CIT - Validity - Assessment order being void ab initio treated as erroneous by CIT

Assessee entered into transaction with its AE abroad. TPO proposed ALP adjustment. AO made final assessment order under section 143(3) making addition. Assessee challenged order passed by AO before CIT(A) on the ground that AO was duty bound to follow provisions of section 144C and, in terms thereof, to provide assessee with draft assessment order before framing of assessment order under section 143(3). CIT issued notice under section 263(1) purporting to exercise his revisional jurisdiction in the matter of assessment order made by AO. This notice stated that AO, by failing to provide draft assessment order in terms of section 144C(1) to assessee, had violated principles of natural justice and, therefore, assessment order dated 18-12-2009, was erroneous and deserved to be set aside. Assessee filed a detailed response to said Notice, objecting to very initiation of revisional proceedings. Assessee pointed out that the assessment order was not merely illegal, but was void ab initio and, therefore, a nullity. ITAT, not went into the issue as to whether CIT at all all recorded any satisfaction that the assessment order dated 18-12-2009 was prejudicial to the interest of the Revenue. Instead, ITAT had reasoned that since assessment order dated 18-12-2009 was in breach of provisions of section 144C assessment order would not have withstood the challenge in appeal, and in that sense the assessment order was prejudicial to the interest of the revenue. Assessee challenged order passed by ITAT by way of appeal filed before High Court. Held: CIT revisional jurisdiction under section 263 cannot be invoked in respect of an assessment order which is without jurisdiction or a nullity or void ab initio, however, in the instant case it was not necessary to go ito this issue, primarily because. CIT purported to invoke his revisional powers, only pointing out that assessment order which he proposed to revise, was erroneous because, the AO, in this case, failed to comply with provisions under section 144C though such provisions were clearly attracted in the facts and circumstances of assessee case. However, there was absolutely no satisfaction recorded on the aspect of the assessment order being prejudicial to the interest of the revenue. In absence of recording of any such satisfaction, there was no question of invoking revisional powers under section 263 ITAT virtually permitted the CIT to not only assume revisional jurisdiction, in absence of satisfaction of one of the twin conditions, it further permitted CIT to even extend the period for completion of assessment in terms of sections 143 and 144C which was not justified. Accordingly, purported exercise of jurisdiction under section 263 was liable to be set aside.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. :

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