CASE TITLE – Karan Jain v. Union of India & Ors.
CASE NUMBER – WP(C)/3999/2021
DATED ON – 08.05.2024
QUORUM – Justice Kaushik Goswami
FACTS OF THE CASE
The challenge made in this writ petition is the Show Cause Notice No. ITBA/REV/F/REV1/2020-2021/1031736689 (1) dated 24.03.2021 issued by respondent No. 2 initiating proceedings under Section 263 of the Income Tax Act, 1961 (herein after referred as ‘the Act’) for the assessment year 2017-18, and subsequent ex-parte Order No. ITBA/REV/F/REV5/2020-21/1031849150(1) dated 28.03.2021 passed by the respondent No. 2 under Section 263 of the Act for the assessment year 2017-2018. the petitioner has filed its original return under Section 139(1) of the Act for the assessment year 2017-18 on 01.08.2017 declaring a total income of Rs.43,95,310/-. Later, vide Notice No. ITBA/AST/S/143(2)/2018-19/1010911976(1) dated 09.08.2018 under Section 143(2) of the Act, the case of the petitioner was selected for “limited scrutiny” under Computer Assisted Scrutiny Selection (“CASS”). During the course of assessment proceedings, Show Cause Notice dated 29.09.2018 was issued by the then Assessing Officer (i.e. predecessor of respondent No. 4) and the same was duly replied to vide letter dated 19.12.2018 by the petitioner. Thereafter, the then Assessing Officer (i.e. predecessor of respondent No. 4) passed the final assessment under Section 153D/143(3) of the Act vide Assessment Order dated 28.12.2018, accepting the returned income of Rs.43,95,310/-. By Show Cause Notice dated 24.03.2021 the petitioner was directed to furnish reply thereto and appear for hearing on 26.03.2021 at 12 pm, thereby, giving only one day to the petitioner to respond to the said notice. Due to such short span of time, the petitioner could not attend the Show Cause Notice dated 24.03.2021. The respondent No. 2 thereafter vide his ex-parte Order No. ITBA/REV/F/REV5/2020-21/1031849150(1) dated 28.03.2021, held the Assessment Order dated 28.12.2018 passed by the respondent No.4 as erroneous and prejudicial to the interests of the revenue.
ISSUE
Whether the Assessment Order dated 28.12.2018 can be said to be erroneous and prejudicial.
LEGAL PROVISIONS
Section 263 of the Income Tax Act, 1961, the powers vested upon he Commissioner of Income Tax to revise orders passed by Assessing Officers if the Commissioner believes they are wrong and harm the government’s tax collection.
CONTENTIONS BY THE PETITIONER
The Learned Counsel for the Petitioner submitted that the power of suo moto revision under Section 263 of the Act is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exists. Two circumstances must exist to enable the Commissioner to exercise the power of suo moto revision under Section 263 of the Act, i.e (i) the order is erroneous and; (ii) by virtue of the order being erroneous prejudice has been caused to the interest of revenue, and stated that it is not sufficient to show that the order is erroneous. It must be erroneous and also prejudicial to the interest of the revenue. If an order is erroneous but not prejudicial to the revenue, the Commissioner cannot exercise power under section 263 of the Act. He further submitted that the Respondent No. 2 in his impugned order dated 28.03.2021 has undisputedly failed to establish as to how the Assessment Order dated 28.12.2018 is prejudicial to the interest of revenue and as such the impugned Show Cause Notice dated 24.03.2021 and order dated 28.03.2021 are absolutely illegal, arbitrary and not tenable in law.
CONTENTIONS BY THE RESPONDENTS
The Learned Counsel, Income Tax Department submitted that the petitioner filed his return of income for the assessment year 2017-18 declaring the total income of Rs.43,95,310/-, wherein in the capital account, an amount of Rs. 36,89,039/- only was shown as long term profit on sale of shares and while in the computation sheet an amount of Rs.31,15,782/- only has been claimed as exempt under Section 10(38) leaving a discrepancy of Rs. 5,30,257/- which was not offered to tax. He further contended that the said discrepancy, the Assessment Order dated 28.12.2018 passed under Section 153(D)/143(3) of the Act is erroneous insofar as it is prejudicial to the interest of the revenue. He accordingly submits that in view of the fact that the said order is erroneous and prejudicial to the interest of the revenue, the Principal Commissioner of Income Tax correctly invoked the powers conferred under the provision of Section 263 of the Act on 28.03.2024. He stated that the said order dated 28.12.2018 is erroneous insofar as it is prejudicial to the interest of revenue because the said order was passed without making inquiries or verification which should have been made.
COURT ANALYSIS AND JUDGEMENT
The Hon’ble Gauhati High Court stated that after a reading of Section 263 of the Act, it is clear that the suo moto revision proceedings under section 263 of the Act can be exercised only when the Revisional Authority considers the Assessment Order to be erroneous in so far as the same is prejudicial to the interest of revenue. Thus, merely if the Assessment Order is erroneously done is not sufficient for exercising revisional jurisdictional power unless and until the same is prejudicial to the interest of revenue. Section 263 of the Act would not be invoked merely to correct a mistake or error committed by the Assessing Officer unless it has caused prejudice to the interests of the revenue. And in the present case, it is clear that suo moto revisional proceeding was initiated simply on the basis of a proposal under section 263 of the Act and there was no independent application of mind by the Principal Commissioner of Income Tax. The Hon’ble High Court held that the learned Principal Commissioner of Income Tax has initiated the proceedings simply on the basis of the proposal of the subordinate authority and has not applied his mind after perusal of the records called for by him and thereby the very initiation of the proceeding in the instant case is illegal, without jurisdiction and not tenable in law. They mentioned that the non-disclosure of Rs.5,30,257/- while computing the long-term capital gains cannot result in causing prejudice to the department. Pertinent, that the net long-term capital gain was shown in the return after deduction of the long-term capital loss and both the long-term capital gains and long-term capital loss were duly shown in the return. In any case even if the said amount of Rs.5,30,257/- is further considered to be as long-term capital gain there would have been no further Income Tax Liability and thereby no prejudice would have been caused to the department and thereby the preconditions for the exercise of powers under Section 263 of the Act were wholly not fulfilled in view of the fact that the said amount of Rs.5,30,257/- being long-term capital gain is exempted, and held that therefore, by no stretch of imagination, non-disclosure of the said amount in the computation sheet can be said to be prejudicial to the interest of revenue and no loss of revenue. The Hon’ble High Court proceeded to state that the Show Cause Notice No. ITBA/REV/F/REV1/2020- 2021/1031736689(1) dated 24.03.2021 and subsequent ex-parte Order No.ITBA/REV/F/REV5/2020-21/1031849150(1) dated 28.03.2021 is hereby set aside and quashed.
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Judgement Reviewed by – Gnaneswarran Beemarao
