S.263 Income Tax Act | Commissioner Cannot Revise Assessment Merely Because Detailed Reasoning Was Not Given: Madras High Court

The Madras High Court stated that the Income Tax commissioner cannot revise an assessment merely because detailed reasoning was not given in the order. Section 263 of the Income Tax Act, 1961, empowers the Commissioner of Income Tax to revise any order passed under the Income-tax Act, 1961, “the Act” which is erroneous insofar as it is prejudicial to the interest of the revenue. Chief Justice Manindra Mohan Shrivastava and Justice Sunder Mohan stated that, "an order cannot be termed as erroneous unless it is not in accordance with law. If the Income Tax Officer, acting in accordance with law, makes certain assessment, the same cannot be branded as erroneous by the Commissioner, simply because, according to the Commissioner, the order should have been written more elaborately." In this case, the assessee/appellant partnership firm claims to be engaged in the manufacture and sale of kitchen utensils. In the course of such assessment, the Assessing Officer noticed that the old building which was sold by the assessee was purchased by him on 04.01.1996; but no depreciation was claimed in respect of that building, even though it is clearly borne out from the records that the property was purchased by the assessee from the Tamil Nadu State Industrial Development Corporation. The Assessing Officer was of the view that even though no depreciation was claimed, it is deemed that depreciation for that building which was used for the purpose of business should be computed and allowed in respective previous years itself and accordingly, the representative was asked to rework the claim on the depreciation allowable. The Commissioner of Income Tax, however, invoked jurisdiction under Section 263 of the Act against the assessment order passed under Section 143(3) read with Section 153C of the Act, merely on the basis that the difference in the cost of construction of the property between the claim of the assessee and Department valuation was not considered, and further, that long term capital gain on sale of old building was not considered. The assessee submitted that invocation of jurisdiction under Section 263 of the Act by the Commissioner of Income Tax was not warranted, as, present is not a case where it could be held that the assessment carried out was erroneous and prejudicial to the interest of the Revenue, inasmuch as the issue as to whether the building was used for business purposes, was clearly discernible from the fact that the assessee had purchased the land from the Tamil Nadu State Industrial Development Corporation. The bench opined that once there is an inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass order under Section 263 of the Act merely because he has a different opinion in the matter. It cannot, therefore, be said to be a case of erroneous order and prejudicial to the interest of the Revenue. The Section does not visualize a case of substitution of the judgment of the Commissioner or that of the Income Tax Officer, who passed the order, unless the decision is held to be erroneous. There must be some prima facie material on record to show that the tax which was lawfully eligible has not been imposed or that by wrong application of the relevant statute on an incorrect or incomplete interpretation, a lesser tax than what was just has been imposed, added the bench. The bench stated that it cannot be said to be a case of violation of any provision of law but appears to be more a case of alleged inadequate inquiry rather than lack of inquiry or material, warranting inference with the order that was drawn by the Assessing Officer in the assessment proceedings, pursuant to notice under Section 153C of the Act. In view of the above, the bench allowed the appeal. Case Title: M/s Arul Industries v. The Asst. Commissioner of Income TaxCitation: 2025 LiveLaw (Mad) 284 Case Number: TCA No.340 of 2016 Counsel for Petitioner/Assessee: I. Dinesh Counsel for Respondent/Department: J. Narayanaswamy Click Here To Read/Download Order

S.263 Income Tax Act | Commissioner Cannot Revise Assessment Merely Because Detailed Reasoning Was Not Given: Madras High Court

Mehak Dhiman

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