2007 (10) TMI 634 - AT - Income Tax

Short payment of Tribunal fee payable - No nexus of income between the order passed u/s 263 and the assessed income u/s 143(3) - CIT order does not relate to the computation of income - order passed by AO is erroneous and prejudicial to the interest of Revenue - HELD THAT - The finding given in the order passed u/s 263 is not based on the computation of total income by the AO. Therefore we are of the view that the objection raised by the Registry is not sustainable and the assessee has paid the fees in accordance with clause (d) of section 253(6) of the Act which was rightly applicable in the case of the assessee. In our considered opinion this cannot be a sufficient ground for setting aside of the assessments. While making the assessment order it is the satisfaction of the AO who made enquiry and it should be the touchstone to base the validity of the assessment order passed by him. The CIT cannot substitute his subjective view in place of the findings of the AO until and unless the view taken by the AO is unsustainable in law. No cogent material evidence was brought to our knowledge by the ld DR which may prove that the decision taken by the AO not to make the addition on both the issues in the case of the assessee was unsustainable in law. We do not agree with the submission of the ld DR that no prejudice is caused to the assessee as the assessment order has been set aside on both the issues to be made de novo and the assessee will have another chance to agitate these issues again. If the action of the CIT is illegal the order passed by CIT cannot be sustained. All the subsequent actions carried out on the illegal order are void. The AO in the impugned case has decided not to make the addition on both the issues. The view taken by the AO was one of the possible views and cannot be regarded to be the view unsustainable in the law. By passing the impugned order CIT tried to impose his view on the AO. This tantamount to be the change of opinion which is not permissible u/s 263. We are therefore of the view that the case of the assessee is duly covered by the decision of the Hon ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT 2000 (2) TMI 10 - SUPREME COURT . Respectfully following the same we annul the order passed by the CIT u/s 263 by holding that the CIT was not correct in law in taking action u/s 263 and the order passed is illegal. Since we have already annulled the order passed by CIT u/s 263 we therefore are of the view that the other ground whether the addition can be made on merit or not become academic does not require adjudication. In the result the appeal filed by the assessee stands allowed.

Summary

Issues Involved:
1. Tribunal fee payable by the assessee.
2. Validity of the order passed by the CIT under section 263.

Issue-wise Detailed Analysis:

1. Tribunal Fee Payable by the Assessee:

The primary issue was to determine the appropriate Tribunal fee payable by the assessee for the appeal. The relevant provisions are section 253(6) of the Income Tax Act, which outlines the fee structure based on the total income computed by the Assessing Officer (AO). The provisions state:

- Clause (a): Rs. 500 for total income up to Rs. 100,000.
- Clause (b): Rs. 1,500 for total income between Rs. 100,000 and Rs. 200,000.
- Clause (c): 1% of assessed income (maximum Rs. 10,000) for total income above Rs. 200,000.
- Clause (d): Rs. 500 for matters not specified in clauses (a) to (c).

The assessee argued that the fee should be Rs. 500 under clause (d), as the appeal related to an order under section 263, not directly linked to the assessed income. The Departmental Representative relied on the Kolkata Special Bench decision in Bidyut Kumar Sett v. ITO, which linked the fee to the assessed income even for penalty appeals.

The Tribunal referenced the Karnataka High Court decision in Rajakamal Polymers (P) Ltd. v. CIT, which stated that appeals not related to the computation of total income should fall under clause (d). The Tribunal concluded that the order under section 263 did not relate to the computation of income, thus the fee payable was Rs. 500 under clause (d). The objection raised by the Registry was deemed unsustainable.

2. Validity of the Order Passed by the CIT Under Section 263:

The central issue was whether the CIT's order under section 263 was valid. The assessee contended that the CIT's order was invalid and should be annulled. The assessment was completed under section 143(3) with a total income of Rs. 23,59,257. The CIT issued a notice under section 263 on two grounds: the AO accepted a lower Gross Profit (GP) rate without verification and did not inquire into capital introduced by partners and cash credits.

The assessee argued that the AO had indeed made inquiries and provided explanations regarding the GP rate and capital introduction, as evidenced by letters and submissions. The Tribunal noted that if the AO had taken one of the possible views after due inquiry, the order could not be deemed erroneous. The Tribunal referenced the Supreme Court decision in Malabar Industrial Co. Ltd. v. CIT, which held that for section 263 to be invoked, the order must be both erroneous and prejudicial to the interests of the Revenue.

The Tribunal found that the AO had made inquiries and was satisfied with the explanations provided by the assessee. The CIT's order was based on a subjective view and did not prove that the AO's decision was unsustainable in law. The Tribunal concluded that the CIT's action was a change of opinion, which is not permissible under section 263. Consequently, the order passed by the CIT was annulled.

Conclusion:

The appeal filed by the assessee was allowed. The Tribunal determined that the appropriate fee payable was Rs. 500 under clause (d) of section 253(6), and the CIT's order under section 263 was invalid and annulled.