Exploring Section 264 of the Income Tax Act
This is an attempt to explore the lesser explored section 264 empowering the jurisdictional Commissioner to review an order of a subordinate authority.
For the better understanding of this section, it is important to first have a look at section 263 of the Act which deals with the revision of the orders prejudicial to the interest of the revenue. Section 263 is a strong provision that can resurrect a completed proceeding under the Act granting the jurisdictional Commissioner, the power to call for and examine the record of any proceeding under the Act. If the Commissioner considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
There is a virtually parallel provision – Section 264 of the Act, which empowers the Commissioner to revise any order other than the abovesaid order under Section 263, passed by an authority subordinate to him, on his own motion or on an application by the assessee for revision. The Commissioner is empowered to call for the record of any proceeding under the Act in which such an order has been passed and may make such inquiry or cause such inquiry to be made and pass such order thereon, not being an order prejudicial to the assessee and subject to the provisions of this Act, as he thinks fit. Statutory power has been conferred on the Commissioner to examine and correct any order passed by a subordinate authority. However, there are constraints on exercise of power under Section 264 specified in sub-Section 4, which are as follows :
The Commissioner has no jurisdiction to revise any order u/s 264 of the Act in cases where :
> An appeal against the order lies to the CIT(A) or the ITAT but has not been made and the time limit for filing the appeal against the impugned order has not expired or the assessee has not waived off his right to appeal as the case may be.
> An appeal against the order is pending before CIT(A) or ITAT.
Important time limits for a revision application are as follows :
> A commissioner can revise any order on his own motion only if the order has not been made more than one year previously
> The application by an assessee must be made within one year from the date of receipt or knowledge of the existence of the order in question and an order shall be passed within one year from the end of the financial year in which such application is made by the assessee for revision.
However, the reason this provision has always been overlooked is that it attains finality at the Commissioner level and is not further appealable before the ITAT as Section 253 of the Act, which specifies the orders appealable before the ITAT, does not incorporate an order made u/s 264. However, it may be noted that a writ petition is maintainable against an order u/s 264.
The scope of this provision is extremely wide and covers every order passed by the subordinate of the Commissioner. Furthermore, it is wide enough to correct a bona fide error committed by the assessee(1) even in his return of income(2).
Bombay HC in Aditya Marine Limited vs. DCIT(3) has juxtaposed section 264 besides section 246A to hold that unlike section 246A of the Act which specifies sections of the Act from which an appeal would lie, section 264 of the Act provides for revision from `any order’ under the Act. This is an indication that the Commissioner of Income Tax has very wide powers to correct any order passed by an officer subordinate to him.
Thus, this section proves to be a good recourse where the orders passed are not appealable, like an order u/s 179 placing liability on the directors of a private company in case of liquidation, an order of refund or interest as well as orders where an appeal is maintainable but the time limit for filing the appeal has already expired and the delay in appeal filing is unlikely to be condoned.
The Commissioner however, can never pass an order under this section that is prejudicial to the interest of the assessee. Yet, it is a completely fresh proceeding where even new claims of the assessee can be entertained by the Commissioner(4) and an order under this section follows the concept of total merger where the order of the subordinate authority totally merges with the order of the Commissioner. Therefore, the bar under sub-section 4 operates even if a part of the order is appealed against(5). Interestingly, if there are two errors in an order sought to be revised, one in favour of the assessee and the other against him, and the assessee raises in revision the error against him, the Commissioner acting under section 264 would be seized of the whole case and would compare the quantum of both these errors and be entitled to correct all the errors therein including the one against the assessee and pass an order, subject to the limitation that his order should not be prejudicial to the assessee(6).
Prima facie, the jurisdiction conferred under section 264 is a judicial one. The order that is brought before the Commissioner affects the rights of the assessee. Therefore, the Commissioner ought to follow the principles of Natural Justice including provision of a proper opportunity of being heard(7) and the application should be disposed of vide a speaking order.
Strict principles of res judicata do not apply in case of revision u/s 264, though principle of consistency is applied. Commissioner cannot refuse to entertain a revision petition filed by the assessee under Section 264 of the Act holding that a similar issue has arisen for consideration in another year and is pending adjudication in appeal or another forum and that the revision application was merely an attempt to invoke section 264 as a backdoor entry to file an appeal. When a statutory right is conferred on an assessee, the same imposes an obligation on the concerned authority .
Lastly, the orders passed by the Commissioner under section 264 must satisfy the well-settled tests of ‘judicial act’. Therefore, a petition for a writ of certiorari for quashing the order of the Commissioner can be resorted to .
Nevertheless, an appeal can be preferred before the CIT(A) against an order passed by the Assessing Officer in neglect of the specific directions of the revisional authority.
(1)Kewal Krishan Jain v. CIT [2014] 42 taxmann.com 84 (Punj. & Har.)
(2) Sanchit Software & Solutions (P.) Ltd. v CIT [2012] 25 taxmann.com 123 (Bom.)
(3) Writ Petition No. 2484 of 2019 dated 3 October 2019
(4) C. Parikh & Co. v. CIT [1980] 122 ITR 610 (Guj.)
(5) C. Gnanasundara Nayagar v. CIT [1961] 41 ITR 375 (Mad.)
(6) K.C. Luckose v. ITO [1973] 92 ITR 450 (Ker.)
(7) Dwarka Nath v. ITO [1965] 57 ITR 349 (SC)
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