1982 (8) TMI 22 - HC - Income Tax

Summary

Issues:
1. Competency of Commissioner to set aside assessment order due to non-compliance with section 52(2) of the Income-tax Act, 1961.
2. Prejudice to Revenue in assessment order due to failure to obtain approval of Inspecting Assistant Commissioner (IAC) under section 52(2).

Analysis:
1. The case involved a reference by the Income-tax Appellate Tribunal regarding the competence of the Commissioner of Income-tax to set aside an assessment order when the Income-tax Officer failed to comply with section 52(2) of the Income-tax Act, 1961. The Tribunal held that the Commissioner lacked the power of revision in this scenario. The Commissioner revised the assessment order due to the ITO's omission to obtain IAC's approval for the fair market value estimate of two houses, as required by section 52(2). However, the Tribunal found that this omission did not make the assessment order prejudicial to the Revenue, thus concluding that the Commissioner had no power of revision.

2. Section 52(2) of the Income-tax Act stipulates that if the fair market value of a capital asset exceeds the declared consideration by a certain percentage, the ITO must obtain the IAC's approval for the fair market value. The Court noted that this provision is for the benefit of the assessee, ensuring a higher authority reviews and approves the estimate before holding the assessee liable. The Court highlighted that the omission to follow this provision could prejudice the assessee by subjecting them to assessment without the safeguard of IAC's approval. However, the Court reasoned that even if the assessment is made without IAC's approval, if the assessee accepts it or does not dispute it on those grounds, there may be no prejudice to the Revenue. The Court emphasized that in case of an appeal challenging the assessment due to non-compliance with section 52(2), the appellate authority would likely remand the case to the ITO for compliance, similar to what the Commissioner can do in revision. Therefore, the Court agreed with the Tribunal that the Revenue's interest is safeguarded in various scenarios, and the omission to obtain IAC's approval does not necessarily result in prejudice to the Revenue.

In conclusion, the High Court answered both questions in favor of the assessee and against the Department, stating that the Commissioner lacked the power of revision as the omission to obtain IAC's approval under section 52(2) did not make the assessment order prejudicial to the Revenue.