Understanding the Impugned Order in the Context of Section 263 of the Income Tax Act, 1961

Introduction

• The present case revolves around the petitioner being aggrieved by the Impugned Order dated 23.03.2021 passed by the 2nd Respondent – Principal Commissioner of Income Tax. The relevant portion of the order discusses the applicability of Explanation 2 to Section 263, inserted by the Finance Act 2015, and its impact on the petitioner's assessment for the assessment year 2012-2013.

Explanation 2 to Section 263

• Explanation 2 to Section 263 declares that an order passed by the Assessing Officer shall be deemed erroneous if it is prejudicial to the interests of revenue. The key factors contributing to the erroneous nature of the order include the lack of necessary inquiries or verifications, absence of relief without proper inquiry, non-compliance with orders, directions, or instructions issued by the Board, and deviation from decisions prejudicial to the assessee.
• Clause (a) of Explanation 2 specifically focuses on orders passed without proper inquiries or verifications, making it crucial to determine if the Assessing Officer fulfilled the obligations expected of a reasonable and prudent officer.

Impugned Order Analysis

• The Impugned Order, dated 23.03.2021, revolves around the findings that the order passed by the Assessing Officer was both erroneous and prejudicial to the interest of Revenue. The crux of the order lies in the violation of Clause (a) of Explanation 2 – the order was considered erroneous because it lacked essential inquiries and verifications that a prudent officer would have conducted.
• The Principal Commissioner, in the Impugned Order, opines that the Assessing Officer failed to reconcile the quantum of jewellery properly. It emphasizes the importance of whether the Assessing Officer carried out necessary inquiries and verifications that a reasonable officer would have conducted.

Background of the Case

• To provide context, the petitioner had previously faced an adverse Assessment Order in 2014, followed by a penalty order in 2014, which was later dropped by the Appellate Commissioner in 2016. The subsequent order by the Tribunal in 2016 allowed the Revenue's appeal, resulting in a dismissal of the petitioner's cross-objections. The petitioner then appealed to the High Court, which remanded the matter back to the Assessing Officer for a fresh decision.

Consequential Order and Subsequent Developments

• The consequential order dated 29.10.2019 was passed based on the directions of the High Court, dropping the penalty after considering the petitioner's explanation. However, a Show Cause Notice was issued in 2021 under Section 263, leading to the Impugned Order directing the Assessing Officer to initiate proceedings for imposing penalties.
• The petitioner argues that there is a merger of the order passed on 29.10.2019 with the order of the Commissioner of Income Tax (Appeals) and the High Court's order, making it immune to Section 263.

Legal Standpoint

• The petitioner relies on legal precedents to argue that the Impugned Order is unsustainable. They highlight the principles laid down by the Hon'ble Supreme Court in cases like Malabar Industrial Co. Ltd. vs. CIT and Commissioner of Income Tax vs. Paville Projects, emphasizing that an order can only be revised under Section 263 if it is both erroneous and prejudicial to the interests of Revenue.

Conclusion

• The intricacies of the case revolve around the proper application of Explanation 2 to Section 263 and the petitioner's contention that the Assessing Officer had already addressed the concerns raised in the Impugned Order in the earlier proceedings. The legal battle continues as the petitioner seeks relief from what they argue is an order beyond the jurisdiction of Section 263. The final outcome will depend on the interpretation and application of relevant legal provisions by the higher authorities.

Topic-R. Revathy Versus  Assistant Commissioner of Income Tax

Court-Madras High Court

Date-01/11/2023

Team Taxonation