Issue Involved
Can the Income Tax Appellate Tribunal dismiss an assessee’s appeal as “not maintainable” just because the assessee didn’t challenge the revisional order under Section 263 of the Income Tax Act?
Whether the tribunal was right in holding that the observations made in the Section 263 order were binding without considering the merits of the case?
Facts of the Case
The assessee’s tax assessment for AY 2006-07 was completed on 24.11.2011 under Section 143(3) r/w Section 147.
Later, the Commissioner of Income Tax (CIT) used powers under Section 263 to revise the order, stating that the Assessing Officer (AO) didn’t properly check the assessee’s claim for carry-forward depreciation under Section 115JB (book profits).
CIT found this to be an error and remanded the case back to the AO for fresh assessment.
AO passed a revised order on 24.10.2014.
The assessee appealed this revised order, but the CIT(A) dismissed the appeal.
The assessee then approached the Income Tax Appellate Tribunal (ITAT), but the tribunal dismissed the appeal, stating that the assessee should have first challenged the Section 263 order. Without that, they said, the new assessment order cannot be challenged.
Arguments Presented
Assessee’s Counsel argued:
The CIT’s order under Section 263 was an open remand, not final or conclusive.
Since the assessment was done again after remand, it was valid to appeal the revised order without separately challenging the Section 263 order.
The tribunal should have heard the merits of the case instead of rejecting it on technical grounds.
Revenue’s Counsel argued:
The assessee did not challenge the Section 263 order, so the revised order based on it cannot be independently challenged.
Court’s Observation & Decision
The court held that the Section 263 order was an open remand meant to re-examine the matter. It was not final, so the assessee was not required to file a separate challenge.
The CIT(A) had already heard and dismissed the appeal on merits.
Therefore, the ITAT should have also decided the case on merits instead of dismissing it for non-maintainability.
The tribunal's decision was found to be legally incorrect.
Conclusion
The High Court ruled in favour of the assessee.
The ITAT’s order dated 26.09.2024 was set aside.
The appeal is restored back to the ITAT for fresh decision on merits.
The questions of law raised by the assessee were answered in their favour and against the revenue.
Income tax Case law-Malabar Institute Of Medical Sciences Ltd. Versus Deputy Commissioner of Income-Tax
Citation-2025 TAXONATION 367 (GUJARAT)
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