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Facts
The appeal was filed against an order passed by the Principal Commissioner of Income Tax under section 263 of the Income Tax Act, 1961, holding the assessment for AY 2016-17 as erroneous and prejudicial to the interest of revenue. The Commissioner initiated proceedings based on a proposal from the Assessing Officer.
Held
The Tribunal held that the initiation of proceedings under section 263 was invalid because the Commissioner did not apply his own mind and form his own satisfaction, but relied solely on the Assessing Officer's proposal. Therefore, the order passed under section 263 was quashed.
Key Issues
Whether the initiation of proceedings under section 263 of the Income Tax Act, 1961, based solely on the Assessing Officer's proposal, without the Commissioner forming his own satisfaction, is valid in law.
Sections Cited
263, 1961
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Income Tax Appellate Tribunal, ‘A’ BENCH, BANGALORE
Before: SHRI NARENDER KUMAR CHODHRY & SHRI WASEEM AHMED
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This appeal is directed against the order passed by the ld. Principal Commissioner of Income Tax under section 263 of the Income Tax Act, 1961 for the assessment year 2016-17 holding the assessment as erroneous in so far prejudicial to the interest of Revenue.
The Principal Commissioner examined the assessment records. He found that the Assessing Officer had not properly verified certain issues. He received a proposal from the Assessing Officer pointing out the errors in the assessment. Based on this proposal, the Commissioner issued a notice under section 263 of the Act. He held that the assessment order was erroneous and prejudicial to the interest of the Revenue. He set aside the assessment with a direction to the Assessing Officer to make a fresh order.
The learned Authorised Representative submitted that the initiation of revisionary proceedings itself is bad in law. He pointed out that on page 3 of the Commissioner’s order it is clearly mentioned that the proceedings were started on the basis of a proposal of the Assessing Officer. Section 263 of the Act requires the Commissioner to apply his own mind to the record and form his own satisfaction that the order is erroneous and prejudicial to the Revenue. He cannot rely only on a proposal from the Assessing Officer.
On the other hand, the learned Departmental Representative supported the order of the ld. Commissioner passed under section 263 of the Act. He argued that the Commissioner has the power under section 263 to call for and examine the records of any proceedings. The proposal from the Assessing Officer is only an information or input. Once the record comes before the Commissioner, he has to examine it and take a decision. The ld. DR submitted that the Commissioner has considered the record, issued a show cause notice and given opportunity of hearing to the assessee. Therefore, the order cannot be cancelled only because it started from a letter of the Assessing Officer.
4.1 The ld. DR placed reliance on the decision of the ITAT Delhi Bench in Apollo Tyres Ltd. v. ACIT (1998) 61 TTJ 365, where it was held that a proposal from the Assessing Officer does not invalidate the .
Page 3 of 5 revision proceedings. The DR argued that the ld. Commissioner has given reasons in his order and acted within his jurisdiction.
We have carefully considered the order of the ld. Commissioner passed under section 263 of the Act, the arguments of the learned AR and the submissions of the learned DR. It is admitted that the initiation of proceedings under section 263 was at the behest of the Assessing Officer. The Commissioner himself has noted this fact in his order. The same is reproduced as under:
“A proposal was received in this office accordingly from the AO” 5.1 The law is clear that jurisdiction under section 263 must rest on the satisfaction of the ld. Commissioner. He must call for and examine the record on his own and form an independent opinion. This principle has been laid down by the Hon’ble HIGH COURT OF CALCUTTA in the case of Principal Commissioner of Income-tax v. Reeta Lakhmani reported in 45 taxmann.com 590 wherein it was held as under:
This aspect was considered by the learned Tribunal and after going through the facts of the case it was found that the initiation of the proceedings under section 263 of the Act was based on a proposal given by the assessing officer and not at the behest of the PCIT. It may be true that the PCIT may have information from the assessment file or through other sources. Nevertheless while exercising powers under section 263 of the Act the PCIT has to bear in mind the twin conditions are to be conjointly fulfilled. Therefore, before exercise of power under section 263 it is the PCIT who has to apply its mind to the issue and thereafter record reasons as to how the twin conditions are satisfied and then issue a show-cause notice to the assessee. In the cases on hand there is nothing on record to show that such an exercise was done by the PCIT. Therefore, learned Tribunal after noting several decisions on the subject rendered by the Coordinate Benches of the Tribunal had allowed the assessee's appeal and set aside the order passed by the PCIT under section 263 of the Act. Thereafter, the learned Tribunal has proceeded to examine the merits of the matter and granted relief. It is the submission of Mr. Mitra that so far as the merit of the cases .
Page 4 of 5 are concerned similar issue was tested by this Court in the case of Pr. CIT v. Swati Bajaj [2022] 139 taxmann.com 352/288 Taxman 403/446 ITR 56. Though such may be the issue, as pointed out earlier the learned Tribunal had granted relief to the assessee on two grounds the first of which being that the exercise of power under section 263 of the Act was not in accordance with law. As could be seen from the substantial questions of law suggested by the revenue, the revenue has not raised any question on the said finding of the Tribunal which goes to show that the revenue had reconciled with the reasoning given by the learned Tribunal in that record. Therefore, a piecemeal challenge to the order passed by the learned Tribunal on one of the grounds on which relief was granted to the assessee is not maintainable.
In more or less identical circumstances in the case of Pr. CIT v. Sinforte (P.) Ltd. [ITAT No. 104 of 2019, dated 7-1-2022] the court had dismissed the appeal filed by the revenue on the ground that the PCIT in order to exercise jurisdiction under section 263 of the Act exercised jurisdiction at the instance of the assessing officer which is against the provisions of the law. This decision supports the case of the respondent assessee. Hence, for the above reasons, we are of the view that the order passed by the learned tribunal on the first ground, namely with regard to the correctness of the exercise of power under section 263 of the Act has to be affirmed and, accordingly, the appeal filed by the revenue is dismissed and the substantial questions of law suggested by the revenue are not required to be decided in the instant case.
5.2 The Hon’ble Court held that if the Commissioner acts without forming his own satisfaction, the proceedings are invalid. In the present case, the satisfaction of the ld. Commissioner at the stage of initiation is missing. He acted on the proposal of the Assessing Officer. Such exercise of jurisdiction is contrary to section 263 of the Act. Once the initiation itself is invalid, the entire proceedings are vitiated. The subsequent examination of record and hearing cannot cure this defect. Therefore, we hold that the order passed by the ld. Principal Commissioner under section 263 is not valid in law. The proceedings are quashed. Hence, the ground of appeal of the assessee is hereby allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in court on 9th day of October, 2025