2017 (9) TMI 1238 - HC - Income Tax

Validity of Revision u/s 263 - SCN stated that information had been received from the DDIT that during a search and seizure operation carried out paymen made to the Assessee was detected as non-genuine commission payment - ITAT setting aside the order of the CIT u/s 263 as concluding that Section 263 of the Act is to be invoked not as a jurisdictional corrective or as a review of a subordinate s order in exercise of supervisory power but is to be invoked and employed only for setting right distortions and prejudices to the Revenue which is a unique conception which is to be understood in the context of and in the interests of the Revenue. - non-genuine commission payment and no expenditure was incurred by the Assessee to receive the above commission - Held that - The order of the CIT does not conform to the legal requirements of Section 263 of the Act. It was not enough for the CIT to reproduce the SCN the reply thereto and give the conclusion. The impugned order of the CIT gives no reasons for the conclusion that the assessment order of the AO was erroneous and prejudicial to the interests of the Revenue. The CIT appears to have proceeded under the misconception that the AO could be directed to provide the details of the facts on the basis of which 263 proceedings have been initiated and then verify the reply of the assessee on the same issue. The exercise under Section 263 of the Act could not have been outsourced by the CIT to the AO. The CIT had himself to undertake a minimal enquiry and give reasons for coming to the conclusion that the assessment order was erroneous and prejudicial to the interest of the Revenue. - Decided in favour of assessee.

Summary

Issues:
1. Appeal against setting aside of assessment order under Section 263 of the Income Tax Act, 1961.
2. Allegation of non-genuine commission payment leading to scrutiny and revision of assessment.
3. Compliance with legal requirements under Section 263 by Commissioner of Income Tax.
4. Misconception regarding the role of Commissioner in invoking Section 263.

Analysis:
1. The appeal before the Delhi High Court involved challenging the setting aside of an assessment order under Section 263 of the Income Tax Act, 1961. The Revenue questioned the ITAT's decision to overturn the Commissioner of Income Tax's order, which had in turn set aside the assessment order passed by the Assessing Officer for the Assessment Year 2009-10.

2. The case revolved around an allegation of non-genuine commission payment made to the Assessee during a search and seizure operation. The Assessing Officer had initially completed the assessment under Section 143(3) of the Act, making a disallowance under Section 14A. Subsequently, the CIT issued a show-cause notice to the Assessee based on information received, questioning the non-inclusion of the commission payment in the taxable income.

3. The Commissioner's order under Section 263 was challenged for not meeting the legal requirements. The High Court noted that the CIT's order lacked essential reasons for concluding that the assessment order was erroneous and prejudicial to the Revenue's interests. The Court emphasized that the CIT should have conducted a minimal inquiry and provided explicit reasons for invoking Section 263, citing precedents like Income Tax Officer v. DG Housing Projects Limited and DIT v. Jyoti Foundation.

4. The High Court highlighted a misconception in the Commissioner's approach, noting that the CIT could not delegate the Section 263 process to the Assessing Officer. The Court clarified that the CIT must independently assess the situation and justify the decision to revise the assessment order. Citing relevant judgments, the Court agreed with the ITAT's conclusion that the CIT's order was erroneous, albeit for different reasons, ultimately dismissing the appeal for lack of a substantial question of law.

This detailed analysis of the judgment outlines the key issues, the sequence of events, and the legal principles applied by the Delhi High Court in deciding the appeal related to the Income Tax Act.