Commissioner can exercise Revisional Jurisdiction u/s 263 when Assessment Order was Erroneous and Prejudicial to Interest of Revenue: SC
AO – Income Tax Proceedings – Non-Searched Persons – 2015 Amendment – Supreme Court – Taxscan
AO – Income Tax Proceedings – Non-Searched Persons – 2015 Amendment – Supreme Court – Taxscan
The Supreme Court of India has held that commissioner can exercise revisional jurisdiction under Section 263 of the Income Tax Act, 1961 when the assessment order was erroneous and prejudicial to the interest of revenue.
The revenue challenged the impugned judgment and order dated 18.09.2017 passed by the High Court of Judicature, at Bombay in ITA which dismissed the said appeal preferred by the Revenue.
M/s. Paville Projects Pvt. Ltd, the respondent-assessee was engaged in the manufacture and export of garments, shoes etc. It filed its income tax return for the AY 2007-08 wherein it showed the sale of the property/building “Paville House” for an amount of Rs.33 Crores., 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.
It appeared that there had been litigation between shareholders of the Company being family members. Litigations in the Company Law Board and the High Court culminated in arbitration. In the arbitration proceedings, an interim award was passed whereby an amicable settlement termed a “family settlement” was recorded between the parties. As per the interim award, three shareholders viz. (1) Asha, (2) Nandita and (3) Nikhil were paid Rs.10.35 Crores each.
The assessee showed gains arising therefrom amounting toRs.1,21,16,695/- as “long-term capital gains” in the computation of their income for AY 2007-08. The working computation of capital gains was accepted by the AO, whereby the cost of removing encumbrances claimed was taken as the “cost of improvement” and the deduction was claimed to remove encumbrances on the computation of capital gains. On the balance amount capital gain tax was offered and paid. The assessment was completed on 15.12.2019 by the AO under Section 143(3) of the Income Tax Act accepting the “long-term capital gains” as per the sheet attached in the computation of income.
The Commissioner of Income Tax-7 under Section 263 of the Income Tax Act held that the assessment order passed under Section 143(3) of the Income Tax Act was erroneous and prejudicial to the interest of the revenue on the issue relating to the deduction of Rs.31.05 Crores claimed by the assessee as cost of improvement while computing long term capital gains.
The claim of the assessee that the said payment was made by them towards the settlement of litigation, which according to the assessee amounted to the discharge of encumbrances and required to be considered as the cost of improvement, was not accepted by the Commissioner as according to him it did not fall under the definition of “cost of improvement” contained in Section 55(1)(b) of the Income Tax Act. The Commissioner also held that the payment as contended was not made by the assessee to remove encumbrances.
The assessee approached the Income Tax Appellate Tribunal (ITAT) by way of filing ITA No.16/MUM/2012 against the order passed by the Commissioner, passed under Section 263 of the Income Tax Act. The ITAT held that every loss of revenue because of AO’s order cannot be treated as prejudicial to the interest of the revenue when two views were possible and AO took a view which CIT(A) did not agree with.
The Department’s appeal against the ITAT’s order has been dismissed by the High Court by the impugned judgment and order wherein the High Court has confirmed the ITAT’s findings.
In light of Malabar Industrial Co. Ltd., the two-judge bench comprising Justice M R Shah and Justice A S Bopanna observed that the order passed by the Assessing Officer was not only erroneous but prejudicial to the interest of the Revenue also. The erroneous assessment order has resulted in the loss of Revenue in the form of tax.
The Court set quashed and set aside the impugned judgment and order passed by the High Court and the order passed by the Commissioner passed in the exercise of powers under Section 263 of the Income Tax Act was restored.
To Read the full text of the Order CLICK HERE
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