Facts of the Case

The assessee was subjected to assessment under Section 143(3) of the Income-tax Act. Subsequently, the Commissioner of Income Tax invoked revisionary jurisdiction under Section 263 on the ground that the assessment order was erroneous and prejudicial to the interests of the Revenue. The Commissioner set aside the assessment with directions for fresh examination. Aggrieved by the revision order, the assessee preferred an appeal before the Income Tax Appellate Tribunal.

Issues Involved

  1. Whether the Commissioner was justified in invoking powers under Section 263.
  2. Whether the assessment order was both erroneous and prejudicial to the interests of the Revenue.
  3. Whether the revision order required interference by the Tribunal.

Petitioner’s (Assessee’s) Arguments

  • The assessee contended that the Assessing Officer had conducted necessary inquiries during assessment proceedings.
  • It was argued that the assessment order was passed after due consideration of relevant material.
  • The order could not be treated as erroneous merely because the Commissioner held a different view.
  • Therefore, invocation of Section 263 was unjustified.

Respondent’s (Revenue’s) Arguments

  • The Revenue submitted that the Assessing Officer had failed to conduct adequate inquiry on material issues.
  • Due to such omission, the assessment order was erroneous and prejudicial to the interests of Revenue.
  • The Commissioner was therefore justified in exercising revisionary powers under Section 263.

Court Order / Findings (ITAT Allahabad)

  • The order of the Assessing Officer is erroneous; and
  • It is prejudicial to the interests of the Revenue

Important Clarification

The Tribunal reiterated that Section 263 does not permit substitution of the Commissioner’s judgment for that of the Assessing Officer. The provision is meant to correct demonstrably erroneous orders causing real prejudice to Revenue, not to review or re-examine assessments merely because further inquiry is possible.

Link to download the order – https://itat.gov.in/public/files/upload/1574659899-ARM-328.pdf

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