The Supreme Court ruled that if due to an erroneous order of the Income Tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue.
Facts
The respondent assessee was engaged in manufacture and export of garments, shoes etc. It filed its income tax return for the AY 2007-08 wherein it showed sale of the property / building “Paville House” for an amount of Rs.33 Crores. That, the building “Paville House” was constructed by the assessee on the piece of land which was purchased in the year 1972. The said house of the company was duly reflected in the balance sheet of the company.
The Commissioner held that provisions of sections 50A and 55(1)(b) of the IT Act have not been complied with and the assessment order is not framed in consonance with the provisions of the IT Act and thus the assessment order was erroneous and prejudicial to the interest of the revenue. Consequently, the Commissioner set aside the assessment order passed by the AO with a direction to the AO to recompute the capital gains of the assessee in consonance with the provisions of the IT Act as discussed in the order.
Submissions
Balbir Singh, ASG appearing on behalf of the Revenue has vehemently submitted that the High Court has materially erred in dismissing the appeal preferred by the Revenue and confirming the order passed by the ITAT by which the ITAT set aside the order passed by the Commissioner passed in exercise of powers under Section 263 of the IT Act.
He submitted that the High Court has not at all appreciated the fact that the view taken by the AO in allowing the expenses of Rs.31.05 Crores while computing the capital gain from sale of the land was erroneous and not as per the law as payments made to shareholders are neither expenses nor the said payments have any relation to the asset under consideration.
Senior Advocate Firoze Andhyarujina, appearing for the assessee submitted that the High Court relying upon the law laid down by this Court in the case of Malabar Industrial Co. Ltd. has specifically held that the Appellate Tribunal rightly considered the orders of assessment and the order of the Commissioner and thereafter concluded that the Commissioner wrongly assumed the power under Section 263 of the IT Act.
Decision
The division bench of Justice M.R. Shah and A.S. Bopanna noted that the Commissioner, in exercise of the powers under Section 263 of the Income Tax Act and in exercise of the revisional jurisdiction, set aside the assessment order by specifically observing that the assessment order was erroneous as well as prejudicial to the interest of the Revenue. However, the High Court by the impugned judgment and order has set aside the order passed by the Commissioner by observing that the Commissioner wrongly invoked the powers under Section 263 of the Act.
The bench observed that observed that if due to an erroneous order of the Income Tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. However, only in a case where two views are possible and the Assessing Officer has adopted one view, such a decision, which might be plausible and it has resulted in loss of Revenue, such an order is not revisable under Section 263.
The court held that the order passed by the Assessing Officer is erroneous as well as prejudicial to the interest of the Revenue.
It was opined by the court that the assessment order was not only erroneous but prejudicial to the interest of the Revenue also. In the facts and circumstances of the case, it cannot be said that the Commissioner exercised the jurisdiction under Section 263 not vested in it.
“The impugned judgment and order passed by the High Court is hereby quashed and set aside and that the order passed by the Commissioner passed in exercise of powers under Section 263 of the Income Tax Act is hereby restored” the court said.
Case title: The Commissioner of Income Tax v/s M/s. Paville Projects Pvt. Ltd.
Citation: CIVIL APPEAL NO. 6126 OF 2021
